Document:

<PAGE>   1
                                                                    EXHIBIT 10.3

                             [CALIFORNIA BANK LOGO]

                     REVOLVING LINE OF CREDIT LOAN AGREEMENT
                              (BORROWING BASE LOAN)

                                 By and Between

                             CALIFORNIA BANK & TRUST
                        a California banking corporation
          11622 El Camino Real, Suite 200, San Diego, California 92130
                                   ("LENDER")

                                       And

                            WILLIAM LYON HOMES, INC.,
                            a California corporation
  4490 Von Karman Avenue (P.O. Box 7520), Newport Beach, California 92658-7520
                                  ("BORROWER")

                         Dated as of September 21, 2000

             MAXIMUM REVOLVING LINE OF CREDIT AMOUNT: $40,000,000.00

<PAGE>   2

                                TABLE OF CONTENTS

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

2.   LOAN FACILITY................................................................ 25

        2.1   Loan Facility....................................................... 25

               2.1.1   Commitment................................................. 26
               2.1.2   Extension of the Maturity Date............................. 27
               2.1.4   Interest Rate.............................................. 29
               2.1.3   Reductions In Commitment Amount............................ 30
               2.1.5   Payments of Principal and Interest......................... 31
               2.1.3   Reductions In Commitment Amount............................ 31
               2.2.1   Available Commitment....................................... 31
        2.2   Available Commitment, Borrowing Base................................ 32

               2.2.1   Available Commitment....................................... 32
               2.2.2   Amount of Borrowing Base................................... 32
               2.2.3   Determination of Available Commitment and Borrowing Base... 32
                       (a) General Determination.................................. 32
        2.3   Advances............................................................ 36

               2.3.1   Method for Advances........................................ 36
        2.5   Fees................................................................ 40

               2.5.1   Initial Commitment Fee..................................... 40
               2.5.5   Other Fees................................................. 41

3.   THE COLLATERAL............................................................... 41

        3.1   Security............................................................ 41

        3.2   Releases of Collateral.............................................. 41

               3.2.1   General Release Requirements for Releases.................. 41
               3.2.2   Sales Pursuant to a Purchase Contract for Cash............. 42
               3.2.4   Dedications................................................ 43

4.   CONDITIONS PRECEDENT......................................................... 43

        4.1   Conditions Precedent to Effectiveness of this Agreement and to
               the Effectiveness of the Commitment................................ 43

               4.1.1   Representations and Warranties Accurate.................... 43
               4.1.2   Defaults................................................... 43
               4.1.3   Documents.................................................. 43
                      (a)   Loan Documents........................................ 44
                      (b)   Corporation, Partnership, Limited Liability Company... 44
                      (c)   Insurance Policies.................................... 44
</TABLE>

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<TABLE>
<CAPTION>
                                                                                   Page
<S>  <C>                                                                           <C>
                      (d)   Opinion Letter........................................ 44
                      (e)   Financial Statements.................................. 44
               4.1.4   Plat and/or Survey......................................... 44
               4.1.5   Restrictive Covenants...................................... 44
               4.1.6   Soils Test................................................. 44
               4.1.7   Environmental Assessment................................... 44
               4.1.8   Environmental Questionnaire and Indemnity.................. 45
               4.1.9   Preliminary Title Report................................... 45
               4.1.10   Flood Report.............................................. 45
               4.1.11   Deed of Trust/Title Policy................................ 45
               4.1.12   Completion of Filings and Recordings...................... 45
               4.1.13   Payment of Costs, Expenses, and Fees...................... 45
               4.1.15   Appraisal................................................. 45
               4.1.16   Other Items or Actions by Loan Parties.................... 46
        4.2   Conditions Precedent to Admission of Land as Entitled Land.......... 46

               4.2.1   Request.................................................... 46
               4.2.2   Defaults................................................... 46
               4.2.3   Map........................................................ 46
               4.2.4   Zoning Approvals........................................... 46
               4.2.5   Other...................................................... 46
        4.3   Conditions Precedent to Admission of Land as Land Under
               Development........................................................ 46

               4.3.1   Request.................................................... 47
               4.3.2   Defaults................................................... 47
               4.3.3   Documents and Information.................................. 47
               4.3.4   Inspection................................................. 47
               4.3.5   Map........................................................ 47
               4.3.6   Utilities.................................................. 47
               4.3.7   Other...................................................... 47
        4.4   Conditions Precedent to Admission of Land as Land Under
               Development Subject to a Purchase Contract or Rolling Option....... 47

               4.4.1   Request.................................................... 48
               4.4.2   Defaults................................................... 48
               4.4.3   Documents and Information.................................. 48
               4.4.7   Other...................................................... 48
        4.4   Conditions Precedent to Admission of Land as Land Under
               Development Subject to a Purchase Contract or Rolling Option....... 48

               4.4.1   Request.................................................... 48
               4.4.2   Defaults................................................... 48
               4.4.3   Documents and Information.................................. 49
               4.4.7   Other...................................................... 51
        4.7   Additional Conditions Precedent to All Advances..................... 51

        4.8   Waiver of Conditions Precedent...................................... 51

5.   BORROWER'S REPRESENTATIONS AND WARRANTEES.................................... 51
</TABLE>

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<PAGE>   4

<TABLE>
<CAPTION>
                                                                                   Page
<S>  <C>                                                                           <C>
        5.1   Closing Representations and Warranties.............................. 51

               5.1.1   Corporate, Limited Liability Company, or Partnership
                       Existence and Authorization................................ 51
               5.1.2   No Approvals, etc.......................................... 51
               5.1.3   No Conflicts............................................... 51
               5.1.4   Execution and Delivery and Binding Nature of Borrower
                       Loan Documents............................................. 52
               5.1.5   Legal Proceedings; Hearings, Inquiries, and
                       Investigations............................................. 52
               5.1.6   No Event of Default........................................ 52
               5.1.7   Approvals and Permits; Assets and Property................. 52
               5.1.8   ERISA...................................................... 52
               5.1.9   Compliance with Law........................................ 52
               5.1.10   Full Disclosure........................................... 53
               5.1.11   Use of Proceeds; Margin Stock............................. 53
               5.1.12   Governmental Regulation................................... 53
               5.1.13   Material Agreements; No Material Defaults................. 53
               5.1.14   Title to Property......................................... 54
               5.1.15   Payment of Taxes.......................................... 54
               5.1.16   No Condemnation........................................... 55
               5.1.17   Borrowing Base............................................ 55
        5.2   Representations and Warranties Upon Requests for Advances........... 55

        5.3   Representations and Warranties Upon Delivery of Financial
               Statements, Documents, and Other Information....................... 55

6.   BORROWER AFFIRMATIVE COVENANTS............................................... 55

        6.1   Corporate, Limited Liability Company, or Partnership Existence...... 55

        6.2   Books and Records; Access By Bank................................... 55

        6.3   Special Covenants Relating to Collateral............................ 55

               6.3.1   Defense of Title........................................... 56
               6.3.2   Further Assurances......................................... 56
               6.3.3   Plats, Annexations and Approvals........................... 57
               6.3.4   Utilities.................................................. 58
               6.3.5   Plans and Specifications................................... 58
               6.3.6   Compliance with Permitted Exceptions....................... 58
               6.3.7   Project Development........................................ 59
               6.3.8   Title Policy Endorsements.................................. 60
               6.3.9   Improvement Districts...................................... 60
               6.3.10  Appraisals................................................. 61
        6.4   Information and Statements.......................................... 61

               6.4.1   Monthly Financial Statements............................... 61
               6.4.1   Monthly Financial Statements............................... 61
               6.4.3   Annual Financial Statements................................ 62
               6.4.4   Business Plan.............................................. 62
               6.4.5   Compliance Certificates.................................... 62
</TABLE>

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<TABLE>
<CAPTION>
                                                                                   Page
<S>  <C>                                                                           <C>
               6.4.6   Borrowing Base Certificate................................. 62
               6.4.7   Other Items and Information................................ 62
        6.5   Law; Judgments; Material Agreements; Approvals and Permits.......... 63

        6.6   Taxes and Other Debt................................................ 63

        6.7   Assets and Property................................................. 63

        6.8   Insurance........................................................... 63

               6.8.1   Property................................................... 64
               6.8.2   Liability.................................................. 64
               6.8.3   Flood...................................................... 64
               6.8.4   Worker's Compensation...................................... 64
               6.8.5   Contractors................................................ 64
                      (a)   Worker's Compensation................................. 64
               6.8.6   Additional Insurance....................................... 65
        6.10   Commencement and Completion........................................ 65

        6.11   Rights of Inspection; Agency....................................... 66

               6.11.1   Generally................................................. 66
               6.11.2   Inspector(s).............................................. 66
        6.12   Verification of Costs.............................................. 66

        6.13   Use of Proceeds.................................................... 66

        6.14   Costs and Expenses of Borrower's Performance of Covenants and
               Satisfaction of Conditions......................................... 66

        6.15   Notification....................................................... 66

        6.16   Financial Covenants................................................ 67

        6.17   Books and Records; Names; Place of Business and Chief Executive
               Office............................................................. 68

        6.18   Proceeds of Purchase Contracts, Rolling Options, Infrastructure
               Reimbursements Due, and Mortgage Receivables....................... 68
               6.18.3   After Event of Default or Unmatured Event of Default...... 68
               6.18.5   Payments to Bank.......................................... 68

7.   BORROWER NEGATIVE COVENANTS.................................................. 68

        7.1   Limited Partnership Restrictions.................................... 68

        7.2   Name, Fiscal Year, Accounting Method. and Lines of Business......... 68

        7.3   Change in Ownership................................................. 69

        7.4   Loans............................................................... 69

        7.5   Liens and Encumbrances.............................................. 69

        7.6   Indebtedness........................................................ 69

        7.7   Acquisition of Assets............................................... 69
</TABLE>

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<TABLE>
<CAPTION>
                                                                                   Page
<S>  <C>                                                                           <C>
8.   EVENTS OF DEFAULT AND REMEDIES............................................... 69

        8.1   Events of Default................................................... 69

        8.2   Rights and Remedies of Bank......................................... 72

9.   BANK'S OBLIGATIONS TO BORROWER ONLY AND DISCLAIMER BY BANK................... 73

10.   NO BROKERS.................................................................. 74

11.   PROVISIONS IN THE NOTE GOVERN THIS AGREEMENT................................ 74

12.   COUNTERPART EXECUTION....................................................... 74

13.   EXHIBITS.................................................................... 79

14.   ADDITIONAL ADVANCES......................................................... 80
</TABLE>

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<PAGE>   7

                             [CALIFORNIA BANK LOGO]

                     REVOLVING LINE OF CREDIT LOAN AGREEMENT
                                (Borrowing Base)

        THIS REVOLVING LINE OF CREDIT LOAN AGREEMENT ("AGREEMENT"), is entered
into as of the date set forth above by and between WILLIAM LYON HOMES, INC., a
California corporation ("BORROWER"), and CALIFORNIA BANK & TRUST, a California
banking corporation ("LENDER").

                                    RECITALS

        A. Borrower owns and/or desires to acquire fee simple title to and
develop certain real properties located in the Western United States, including
without limitation the States of California, Nevada and/or Arizona (collectively
and individually, each and every property which is the subject of a loan made
hereunder shall be referred to as the "PROPERTY").

        B. The purpose of this Agreement is to set forth the general terms and
conditions of the loans to be made under a revolving line of credit in a total
sum not to exceed Forty Million Dollars ($40,000,000.00) to provide funding for
the acquisition and development of residential lots, the construction of
existing and future residential home projects, and the issuance of letters of
credit for the payment of costs incurred or associated with said projects. This
Agreement shall set forth the basic approval requirements for said projects and
shall set forth the basic terms and conditions for the disbursement of loan
funds for said projects.

                                    AGREEMENT

        NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree as
follows:

1. DEFINITIONS AND GENERAL PROVISIONS.

        1.1. DEFINITIONS. In this Agreement, the following terms shall have the
following meanings:

               "A&D BUDGET" shall mean, for each Qualified Project for which A&D
        Improvements are to be constructed, the cost breakdown/budget for such
        A&D Improvements, which budget shall be satisfactory to Lender in all
        respects. For purposes of this Agreement, all such budgets shall be
        referred to individually and collectively in the singular.

               "A&D IMPROVEMENTS" shall mean, for each and every Qualified
        Project financed hereunder, (i) those certain offsite improvements on
        the Property

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        (including without limitation curbs, grading, storm and sanitary sewers,
        paving, sidewalks, landscaping, hardscaping, sprinklers, electric lines,
        gas lines, telephone lines, cable television lines, fiber optic lines,
        pipelines and other utilities) necessary to make the Property suitable
        for the construction of single family residential homes thereon, and
        (ii) any common area improvements to be constructed on the Property. For
        purposes of this Agreement, all such improvements for each and every
        Qualified Project funded by a Loan made hereunder shall be referred to
        individually and collectively in the singular.

               "ACCOUNT PLEDGE AGREEMENT" shall mean that certain Account Pledge
        and Security Agreement dated as of the date hereof, executed by Borrower
        in favor of Lender, pursuant to which Borrower has granted to Lender,
        subject to the conditions of and obligations of Lender thereunder, a
        first and prior lien on and security interest in all money, investment
        securities and other instruments on deposit from time to time in the
        Borrower's Funds Account.

               "ADVANCE" means an advance of Loan proceeds by Lender to Borrower
        hereunder, including without limitation Project Advances and Letter of
        Credit Advances.

               "AFFILIATE" of any Person means (i) any other Person directly or
        indirectly controlling or controlled by or under direct or indirect
        common control with such Person and (ii) any other Person that
        beneficially owns at least ten percent (10%) of the voting common stock
        or partnership interest or limited liability company interest, as
        applicable, of such Person. For the purposes of this definition,
        "CONTROL" when used with respect to any Person, means the power to
        direct the management and policies of such Person, directly or
        indirectly, whether through the ownership of voting securities,
        partnership interests, by contract or otherwise: and the terms
        "CONTROLLING" and "CONTROLLED" have meanings correlative to the
        foregoing.

               "AGREEMENT" means this Revolving Line of Credit Loan Agreement,
        as it may be amended, modified, extended, renewed, restated, or
        supplemented from time to time.

               "APPRAISAL" means each appraisal of the Land and the Improvements
        (a) ordered by Lender, (b) prepared by an appraiser satisfactory to
        Lender, (c) in compliance with all federal and state standards for
        appraisals, (d) reviewed by Lender, and (e) in form and substance
        satisfactory to Lender based on its standards and practices applied in
        reviewing real estate appraisals.

               "APPRAISED VALUE" shall mean, for each Qualified Project to be
        financed hereunder, the fair market value of each Lot and/or Home as set
        forth in the Appraisal.

               "APPROVALS AND PERMITS" means, for each and every Qualified
        Project financed hereunder, each and all approvals, authorizations,
        bonds, consents, certificates, franchises, licenses, permits,
        registrations, qualifications, and other

                                       2
<PAGE>   9

        actions and rights granted by or filings with any Persons necessary, or
        appropriate, for the improvement and development of the Land or for the
        conduct of the business and operations of Borrower.

               "ARCHITECT" shall mean the architect for each Qualified Project
        to be financed hereunder, which architect shall be reviewed and approved
        by Lender in its discretion. For purposes of this Agreement, all such
        architects shall be referred to individually and collectively in the
        singular.

               "ARCHITECT'S AGREEMENT" shall mean any agreement between the
        Architect and Borrower for each Qualified Project to be financed by a
        Loan to be made hereunder. For purposes of this Agreement, all such
        agreements shall be referred to individually and collectively in the
        singular.

               "ASSIGNMENT OF ARCHITECT'S AGREEMENT" shall mean, for each
        Qualified Project financed by a Loan to be made hereunder, that certain
        Assignment of Architect's Contract, Plans and Specifications executed by
        Borrower for the benefit of Lender (including the consent of Architect
        to said assignment), pursuant to which Borrower shall assign to Lender,
        subject to and in accordance with the provisions thereof, all of
        Borrower's right, title and interest in, to and under the Architect's
        Agreement and the Plans and Specifications. For purposes of this
        Agreement, all such assignments shall be referred to individually and
        collectively in the singular.

               "ASSIGNMENT OF ENGINEERING CONTRACT" shall mean, for each
        Qualified Project financed by a Loan to be made hereunder, that certain
        Assignment of Engineering Contract, Plans and Specifications by Borrower
        for the benefit of Lender (including the consent of Engineer to said
        assignment), pursuant to which Borrower shall assign to Lender, subject
        to and in accordance with the provisions thereof, all of Borrower's
        right, title and interest in, to and under the Engineering Contract
        and/or Plans and Specifications (as applicable). For purposes of this
        Agreement, all such assignments shall be referred to individually and
        collectively in the singular.

               "ASSIGNMENT OF PERMITS" shall mean, for each Qualified Project
        financed by a Loan to be made hereunder, that certain Assignment of
        Agreements, Permits, Licenses and Approvals executed by Borrower. For
        purposes of this Agreement, all such assignments shall be referred to
        individually and collectively in the singular.

               "AUTHORIZATION FORM" shall mean that certain Signature
        Authorization Form and Disbursement Instructions of even date herewith
        executed by Borrower.

               "AVAILABLE COMMITMENT" shall be the lesser of (i) the Commitment
        Amount, as in effect from time to time, or (ii) the Borrowing Base,
        subject to the limitations set forth in Sections 2.1.1 and 2.2.1.

               "BASE APPRAISAL" shall mean, with respect to each Home financed
        by a Loan to be made hereunder, the lesser of (i) the value of such Home
        as determined by the Appraisal (as adjusted by Lender in its reasonable
        discretion) for the model plan

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<PAGE>   10

        type of said Home, which value shall be determined without lot premiums,
        options or upgrades (unless included by Lender in its sole discretion),
        or (ii) Borrower's estimated sales price of such Home. For purposes of
        this Agreement, all such appraisals shall be referred to individually
        and collectively in the singular. Any and all FNMA appraisals shall
        establish the retail value of each model plan type to be financed in
        connection with each Qualified Project.

               "BORROWER'S FUNDS ACCOUNT" shall mean that certain
        interest-bearing deposit account in the name of Borrower, listing Lender
        as secured party and pledgee of Borrower, which account shall be
        maintained as an account with Lender.

               "BORROWING AVAILABILITY" shall mean:

                      (a) An amount equal to the lesser of the Commitment Amount
               or Reduced Commitment Amount, as applicable, or the Borrowing
               Base as calculated each Calendar Month,
                                    LESS
                      (b)    The sum of the Loan Balance,
                                    LESS
                      (c)    Any reductions as provided in Section 2.1.3(d),
                                    PLUS
                      (d) Any sums deposited into the Borrower's Funds Account
               (including without limitation any Excess Sales Proceeds paid to
               Lender and not applied by Borrower to reduce the Loan Balance).

               "BORROWING BASE" shall be equal to the sum of:

                      (a) The respective Maximum Allowed Advances multiplied by
               the applicable Draw Percentages for all Entitled Land, Lots Under
               Development, Developed Lots, Spec Homes (including Model Homes)
               and Presold Homes for all Qualified Projects; and

                      (b) Any committed portion of the Letter of Credit Line
               under this Loan.

               "BORROWING BASE CERTIFICATE" means a certificate, in form and
        substance reasonably satisfactory to Lender, delivered to Lender by
        Borrower in accordance with Section 6.4.6 setting forth, among other
        things, a current and detailed computation of the Borrowing Base and
        Borrowing Availability with respect to Entitled Land, Lots Under
        Development, Developed Lots, Spec Homes and Presold Homes, and
        containing such other information as Lender may reasonably request. An
        initial form of the Borrowing Base Certificate is attached hereto as
        EXHIBIT "B".

               "BUDGET" shall mean each and every A&D Budget and/or Home
        Construction Budget approved by Lender for each and every Qualified
        Project to be financed by a Loan to be made hereunder.

                                       4
<PAGE>   11

               "BULK FINISHED LOT VALUE" shall mean, for each Qualified Project
        financed hereunder, the bulk sale value of the Lots included in said
        Project after completion of the A&D Improvements as determined by a
        qualified appraiser, which appraisal shall be satisfactory to Lender in
        all respects.

               "BULK LOT SALE" shall have the meaning given to such term in
        Section 2.1.6(a) below.

               "BUSINESS DAY" means each day of the year other than Saturdays,
        Sundays, Holidays, and days on which banking institutions are generally
        authorized or obligated by law or executive order to close in
        California.

               "BUSINESS HOUR" means each hour of each Business Day between 9:00
        a.m. to 4:00 p.m. (California time).

               "CALENDAR MONTH" shall mean the twelve (12) calendar months of
        the year. Any payment or obligation that is due or required to be
        performed within a specified number of Calendar Months shall become due
        on the day in the last of such specified number of Calendar Months that
        corresponds numerically to the date on which such payment or obligation
        was incurred or commenced, provided, however, that with respect to any
        obligation that is incurred or commences on the 29th, 30th, or 31st day
        of any Calendar Month and if the Calendar Month in which such payment or
        obligation would otherwise be due does not have a numerically
        corresponding date, such payment or obligation shall become due on the
        first day of the next succeeding Calendar Month.

               "CALENDAR QUARTER" shall mean a period of three (3) consecutive
        Calendar Months, commencing on the Closing Date and continuing through
        the Loan Term.

               "CENTRAL ACCOUNT" shall mean that certain interest-bearing
        deposit account in the name of Borrower, maintained as account number
        3090015831 at Lender.

               "CLOSING DATE" shall mean (a) the date upon which the initial
        Deeds of Trust for the Existing Projects are recorded in the Official
        Records of each applicable County ("INITIAL CLOSING DATE"), and (b) the
        future date(s) upon which future Deeds of Trust for any Future Projects
        are recorded in the Official Records of each applicable County (each, a
        "SUBSEQUENT CLOSING DATE").

               "COLLATERAL" means all property, interests in property, and
        rights to property securing any or all Obligations from time to time.

               "COMMITMENT" means the agreement by Lender in Section 2.1.1 to
        make Advances pursuant to the terms and conditions herein.

               "COMMITMENT AMOUNT" means (a) during the Initial Line Term, the
        sum of Forty Million Dollars ($40,000,000.00), and (b) during the
        Reduction Period, beginning upon the last day of the first Calendar
        Quarter following the Initial Line Maturity Date, and on or prior to the
        last day of each Calendar Quarter thereafter

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<PAGE>   12

        during the Reduction Period, the Commitment Amount shall be reduced in
        the minimum amount of Five Million Dollars ($5,000,000.00) (each,
        "REDUCED COMMITMENT AMOUNT"):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
         DATE                                          REDUCED COMMITMENT AMOUNT
<S>                                                    <C>
--------------------------------------------------------------------------------
Initial Line Maturity Date                                        $40,000,000.00
--------------------------------------------------------------------------------
First Calendar Quarter                                            $35,000,000.00
--------------------------------------------------------------------------------
Second Calendar Quarter                                           $30,000,000.00
--------------------------------------------------------------------------------
Third Calendar Quarter                                            $25,000,000.00
--------------------------------------------------------------------------------
Fourth Calendar Quarter                                           $20,000,000.00
--------------------------------------------------------------------------------
Fifth Calendar Quarter                                            $15,000,000.00
--------------------------------------------------------------------------------
Sixth Calendar Quarter                                            $10,000,000.00
--------------------------------------------------------------------------------
Seventh Calendar Quarter                                          $5,000,000.00
--------------------------------------------------------------------------------
Eighth Calendar Quarter                                           $0.00
--------------------------------------------------------------------------------
</TABLE>

               "COMMITMENT FEE" means that certain facility fee (a) that is
        calculated, during the Initial Line Term, at the rate of one-half of one
        percent (0.50%) per annum on the full Commitment Amount, and (b) that is
        calculated, during the Reduction Period, at the rate of one-half of one
        percent (0.50%) per annum based on the then-applicable Reduced
        Commitment Amount, and all said fees shall be payable pursuant to
        Section 2.5.1 below. Said fees shall be paid in advance on a quarterly
        basis such that: (i) during the Initial Line term, each quarterly fee
        payment shall be based on a one-eighth of one percent (0.125%) of the
        full Commitment Amount, and (ii) during the Reduction Period, each
        quarterly fee payment shall be based on a one-eighth of one percent
        (0.125%) of the then-applicable Reduced Commitment Amount.

               "CONSTRUCTION ASSIGNMENTS" shall mean, for each Qualified Project
        to be entered into the Borrowing Base, the Assignment of Permits,
        Assignment of Engineering Contract, Assignment of Architect's Agreement,
        and all other assignment and other related documents encumbering the
        Collateral, which assignments may be included within a single document
        to be executed by Borrower in connection with each Qualified Project to
        be financed hereunder.

               "CONTRACTOR" shall mean the general contractor for each Qualified
        Project to be financed hereunder, which contractor shall be reviewed and
        approved by Lender in its discretion. For purposes of this Agreement,
        all such contractor shall be referred to individually and collectively
        in the singular. Borrower shall be permitted to act as an
        "OWNER/BUILDER" for any Qualified Project and, as a result, Borrower
        shall not be required to enter into any contract, agreement or other
        document with a general contractor to perform general contracting
        services for said Project, unless and until (a) Lender shall have
        reviewed and approved of said general contractor and the

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<PAGE>   13

        terms of any such contract, agreement or other document with Borrower
        relating to said Project, and (b) Borrower shall have delivered to
        Lender a fully executed assignment in form and content acceptable to
        Lender in its sole discretion assigning to Lender all of Borrower's
        rights, title and interest in said contract, agreement or other
        document, and said general contractor shall have consented in writing in
        form and content acceptable to Lender in its sole discretion to said
        assignment.

               "CONSTRUCTION CONTRACT" shall mean any agreement between the
        Contractor and Borrower for each Qualified Project to be financed by a
        Loan to be made hereunder. For purposes of this Agreement, all such
        agreements shall be referred to individually and collectively in the
        singular.

               "COUNTY" shall mean each and every county in which a Qualified
        Project to be financed hereunder is located.

               "DEBT" means, as to any Person, without limitation, (i) all
        obligations of such Person which in accordance with GAAP would be shown
        on a balance sheet of such Person as a liability (including without
        limitation obligations for borrowed money and for the deferred purchase
        price of property or services and obligations evidenced by bonds,
        debentures, notes or similar instruments), (ii) all rental obligations
        under leases required to be capitalized under GAAP, (iii) the stated
        amount of all letters of credit issued for the account of such Person or
        upon which such Person would be obligated to reimburse the issuer
        thereof for draws, (iv) liabilities in respect of unfunded vested
        benefits under plans covered by ERISA, and (v) indebtedness of others
        secured by any lien upon property owned by such Person whether or not
        assumed.

               "DEDICATION" means a transfer by Borrower, or the granting of
        easements, rights of way, and licenses by Borrower, to municipalities,
        utility providers, municipal districts, property owners, and property
        owners' associations in connection with the development of the Project,
        for the purpose of providing streets, common areas, parks, water, waste
        water and sewage treatment facilities, hillside and other areas, and
        similar land and improvements.

               "DEED OF TRUST" shall mean, for each Qualified Project entered
        into the Borrowing Base, a Construction Deed of Trust, Assignment of
        Leases and Rents and Security Agreement (Including Fixture Filing)
        executed by Borrower, as trustor, to Title Company, as trustee, and
        naming Lender as beneficiary, creating a first lien on the Property, the
        Improvements, and all other buildings, fixtures and improvements now or
        hereafter owned or acquired by Borrower and situated thereon, and all
        rights and easements appurtenant thereto. Each Deed of Trust shall
        secure indebtedness in the Commitment Amount. For purposes of this
        Agreement, all such deeds of trust securing the Loan shall be referred
        to individually and collectively in the singular as the "DEED OF TRUST."
        Upon the closing of the Loan on the Initial Closing Date, a separate
        Deed of Trust shall encumber all of the Property in each of the Existing
        Projects that will be added to the Loan. Upon the entry of each
        Qualified Project into the Borrowing Base, a separate Deed of Trust
        shall encumber all of the Lots in the applicable Future Project.

                                       7
<PAGE>   14

        All Lots in a Qualified Project shall be subject to a Tentative Map or a
        Final Map, and Lender shall have no obligation to make any Advances of
        Hard Costs for the construction of any Homes in said Qualified Project,
        unless and until Lender receives evidence satisfactory to Lender in its
        discretion of the recording of the Final Map for said Qualified Project.

               "DEFAULT INTEREST RATE" shall have the meaning given to such term
        in the Note.

               "DEVELOPED LOTS" means those certain Lots in a Qualified Project
        for which all A&D Improvements have been constructed and completed and
        said Lots are in condition for the construction of Homes thereon.

               "DRAW PERCENTAGE" shall mean (a) for the A&D Improvements, the
        percentage of completion for said improvements as certified by Borrower
        in its Borrowing Base Certificate, and (b) for all Home Improvements,
        the applicable percentage for the subject Improvements pursuant to the
        Home Construction Draw Schedule attached hereto as EXHIBIT "L".

               "DRAW REQUEST" means a completed, written request for an Advance
        from Borrower to Lender, which request shall be in form reasonably
        satisfactory to Lender, and shall be accompanied by such other documents
        and information as Lender may require or specify from time to time.

               "EBITDA" means, with respect to any Person (or any asset of any
        Person) for a period, an amount equal to the earnings of such Person
        before the payment of interest expenses, taxes, depreciation expenses
        and amortization costs. The EBITDA of a Person shall be adjusted to
        reflect the Person's allocable share of such amounts from any Person (or
        asset of any Person) the accounts of which are not consolidated with the
        financial statements of the first Person in accordance with GAAP, but
        only to the extent that such amounts could have been paid to such
        Person.

               "ENGINEER" shall mean the engineer for each Qualified Project to
        be financed hereunder, which engineer shall be reviewed and approved by
        Lender in its discretion. For purposes of this Agreement, all such
        engineers shall be referred to individually and collectively in the
        singular.

               "ENGINEERING CONTRACT" shall mean any agreement between the
        Engineer and Borrower for each Qualified Project to be financed by a
        Loan to be made hereunder. For purposes of this Agreement, all such
        agreements shall be referred to individually and collectively in the
        singular.

               "ENTITLED LAND" means those portions of the Land for which
        Borrower has satisfied the conditions set forth in Section 4.2 and with
        respect to which Borrower has not yet satisfied the conditions precedent
        for inclusion in the Borrowing Base as Lots Under Development.

                                       8
<PAGE>   15

               "ENVIRONMENTAL INDEMNITY" means, for each Qualified Project, that
        certain Environmental Indemnity executed by Borrower, which indemnity
        shall be in form and content acceptable to Lender in its discretion.

               "ERISA" means the Employee Retirement Income Security Act of 1974
        and the regulations and published interpretations thereunder, as in
        effect from time to time.

               "EVENT OF DEFAULT" shall mean all of the events described in
        Section 8.1.

               "EXCESS SALES PROCEEDS" shall mean the difference, if any,
        between the Net Sales Proceeds received by Borrower in connection with
        the sale a Lot or Home and the Maximum Allowed Advance amount for the
        Lot or Home being sold.

               "EXISTING PROJECT" shall mean each of the nine (9) Qualified
        Projects for which Project Loans will be made hereunder as of the
        Initial Closing Date. The Existing Projects to be added to the Loan as
        of the Initial Closing Date are listed below:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
  PROJECT NAME     RAW LAND    ENTITLED     LOTS UNDER    DEVELOPED      HOMES         TOTAL
                                 LAND        DEVELOP.       LOTS                    LOTS/HOMES
--------------------------------------------------------------------------------------------------
<S>                <C>         <C>          <C>           <C>            <C>        <C>
Oakhurst               0                         0            0           33             33
Diablo Village
--------------------------------------------------------------------------------------------------
Lyon Woodfield         0                        81            0            0             81
--------------------------------------------------------------------------------------------------
Sycamore Ranch        89                         8            0           20            117
--------------------------------------------------------------------------------------------------
Meadowlark             0                         0            6           13             19
Loma Real
--------------------------------------------------------------------------------------------------
Crown Ridge            0                         0            36          35             71
--------------------------------------------------------------------------------------------------
Rio del Verde          0                        17            0           12             29
--------------------------------------------------------------------------------------------------
Kingsway Ridge         0                        70            0           14             84
Series 1
--------------------------------------------------------------------------------------------------
Kingsway Ridge         0                        59            0           14             73
Series 2
--------------------------------------------------------------------------------------------------
Summerlin in           0                        93            0            3             96
the Gardens
--------------------------------------------------------------------------------------------------
TOTALS                89                        328           42          149           603
--------------------------------------------------------------------------------------------------
</TABLE>

               "EXTENSION CONDITIONS" shall mean (a) at the time the applicable
        notice of such extension is given to Lender and at the time of such
        extension, no Event of Default, or no Unmatured Event of Default, shall
        have occurred and be continuing; and (b) there shall have been no
        Material Adverse Change in the financial condition of Borrower since the
        Initial Closing Date.

               "FINAL MAP" shall mean the final tract or plat map for the
        Property for each Qualified Project to be financed by a Project Loan to
        be made hereunder, which map shall be in form and content acceptable to
        Lender in its discretion.

                                       9
<PAGE>   16

               "FINANCING STATEMENT" shall mean, for each Qualified Project to
        be entered into the Borrowing Base to be made hereunder, a UCC-1
        financing statement executed by Borrower, as debtor, in favor of Lender,
        as secured party, perfecting Lender's security interest in the
        Collateral now owned or hereafter acquired by Borrower. The Financing
        Statement shall be in form and content satisfactory to Lender, and shall
        be filed in the Office of the Secretary of State of the State in which
        the subject Collateral is located (and in such other offices for
        recording or filing such statements in such jurisdictions as Lender
        shall require to perfect Lender's security interest or reflect such
        interest in appropriate public records). For purposes of this Agreement,
        all such financing statements shall be referred to individually and
        collectively in the singular.

               "FIRST PAYMENT DATE" shall mean the first day of the first
        Calendar Month after the Closing Date or, in Lender's sole discretion,
        the first day of the second Calendar Month after the Closing Date.

               "FIXED CHARGE COVERAGE" shall mean a Person's EBITDA divided by
        Interest Incurred.

               "FORCE MAJEURE EVENT" shall mean acts of God or the elements,
        including fire, flood, windstorm, hailstorm, earthquake and lightning,
        acts of war, riot or civil insurrection, and strikes, labor disputes,
        delays in delivery of materials and disruption of shipping (to the
        extent such strikes, labor disputes, delays in delivery of materials and
        disruption of shipping affect not only Borrower but also similarly
        situated real estate owners and/or contractors in the vicinity of the
        Property, or are otherwise not the result of an intentional or grossly
        negligent act or failure to act by Borrower); provided, however, that
        inclement weather shall be considered a Force Majeure Event only to the
        extent it is significantly more severe than typical for the location and
        time of year in which such inclement weather occurred.

               "FUTURE PROJECT" shall mean each Qualified Project for which a
        Project Loan will be made hereunder after the Initial Closing Date.

               "GAAP" means generally accepted accounting principles
        consistently applied.

               "GEOGRAPHIC CONCENTRATION LIMITATION" shall have the meaning
        given to such term in the Maximum Aggregate Loan Allocation(s).

               "GOVERNMENTAL AUTHORITY" means any government, any court, and any
        agency, authority, body, bureau, department, or instrumentality of any
        government.

               "HARD COSTS" means, for each Qualified Project to be financed
        hereunder, the onsite cost of labor and materials directly related to
        the construction of the Improvements, including the A&D Improvements and
        each Home as set forth in the A&D Budget and Home Construction Budget,
        as applicable, including without limitation construction costs, which
        costs shall be subject to Lender's review and approval and shall
        specifically exclude costs to be funded from general budget

                                       10
<PAGE>   17

        categories for overhead, supervision, general and administrative, and
        marketing expenses, and shall also not include any costs and expenses
        related to upgrades, options or decorator items; provided, however, that
        with respect to any Model Home, Hard Costs may include costs and
        expenses related to upgrades, options or decorator items as may be
        approved by Lender.

               "HOME" or "UNIT" shall mean, for each Qualified Project to be
        financed hereunder, a single family dwelling unit which shall be a Spec,
        Presold or Model Home to be constructed on the Property of any one (1)
        of the model, design and type generally described in the Plans and
        Specifications for the applicable Project, including any furniture,
        furnishings, fixtures and equipment to be installed therein as shown on
        said Plans and Specifications. A Home may include an attached unit,
        which shall include any completed Home that is designed pursuant to the
        Plans and Specifications to share at least one (1) common wall with
        another Home. Homes may be entered into the Borrowing Base upon
        confirmation of trenching by Lender.

               "HOME CONSTRUCTION BUDGET" shall mean, for each Qualified Project
        in which Homes are to be constructed that are to be financed hereunder,
        the detailed line-item cost breakdown and budget for the Presold, Spec
        and Model Homes approved by Lender, which budget shall be comprised of
        the Lot Release Price for the release of the Lot into the Loan for the
        construction of a Home thereon, and the Hard Costs and Soft Costs for
        the Home to be constructed on said Lot, and which budget shall be in
        conformity with the sources and uses of funds for the Presold, Spec and
        Model Homes as approved by Lender in its sole discretion. For purposes
        of this Agreement, all such budgets shall be referred to individually
        and collectively in the singular.

               "HOME ADVANCE MATURITY DATE(S)" shall mean the term in which a
        Home may remain in the Borrowing Base for the purposes of calculating
        the Borrowing Availability:

                      (a) With respect to Presold or Spec Homes, twelve (12)
               Calendar Months after the initial entry of such Presold or Spec
               Home into the Borrowing Base;

                      (b) With respect to Model Homes, twenty-four (24) Calendar
               Months after the initial entry of such Model Home into the
               Borrowing Base (provided, however, that said maturity date may be
               extended for a six-month period if Borrower is in compliance with
               the Extension Conditions).

               "IMPROVEMENTS" means, for each and every Qualified Project to be
        financed hereunder, the improvements to be made on the Land (or
        applicable portion thereof), which shall include all construction and
        development of the infrastructure and all other housing improvements
        made in preparation for the development and marketing of the Land (or
        applicable portion thereof).

               "INITIAL CLOSING DATE" shall mean the date on which the Deeds of
        Trust for the Existing Projects are recorded and the Loan is closed.

                                       11
<PAGE>   18
               "INITIAL LINE MATURITY DATE" shall mean twenty-four (24) Calendar
        Months after the date of this Agreement (i.e., September 21, 2002).

               "INITIAL LINE TERM" shall mean that certain twenty-four (24)
        Calendar Months commencing on the Initial Closing Date and ending on the
        Initial Line Maturity Date (i.e., September 21, 2002).

               "INTANGIBLE ASSETS" means all intangible assets of Borrower under
        GAAP, including without limitation copyrights, franchises, goodwill,
        licenses, loan origination fees, non-competition agreements,
        conveyance/organization/formation costs (to the extent required to be
        capitalized under GAAP), patents, service marks, service names,
        trademarks, trade names, write up in the book value of any asset in
        excess of the acquisition cost of the asset, any amount (however
        designated on the balance sheet) representing the excess of the purchase
        price paid for assets or stock acquired over the value assigned thereto
        on the books of Borrower, loans and advances to
        partners/employees/affiliates of Borrower, unamortized leasehold
        improvement expenses not recoverable at the end of the lease term, and
        unamortized Debt discount and deferred discount.

               "INTEREST INCURRED" shall mean, for any period, the sum of all
        interest incurred by a Person on a consolidated basis during such
        period, whether capitalized or expensed.

               "INTEREST RATE" shall mean the rate of interest set forth in the
        Note.

               "LAND" or "PROPERTY" means that certain real property more
        particularly described on EXHIBITS "A-1" through "A-8" attached hereto,
        and all other real property for each and every real property and all
        improvements located or to be constructed thereon located in each and
        every County for each Qualified Project to be financed by a Loan to be
        made hereunder. For purposes of this Agreement, all such properties
        shall be referred to individually and collectively in the singular.

               "LETTER OF CREDIT" shall mean any letter of credit to be issued
        by Lender under the Letter of Credit Line.

               "LETTER OF CREDIT ADVANCE" shall mean each and every Advance of
        Loan funds to be made by Lender if there is any draw upon any Letter of
        Credit issued pursuant to this Agreement.

               "LETTER OF CREDIT FEE" means that certain fee due and payable by
        Borrower on each Letter of Credit issued hereunder, which fee shall be
        calculated at the rate of one percent (1.00%) per annum on the face
        amount of the Letter of Credit, and said fee shall be payable as a
        condition to the issuance of each Letter of Credit and on each
        twelve-month anniversary of the issuance date of said Letter of Credit,
        if said Letter of Credit is to be extended beyond a twelve-month term.

                                       12
<PAGE>   19

               "LETTER OF CREDIT REQUEST" means each and every request by
        Borrower for the issuance of a Letter of Credit hereunder, which request
        shall be in the form attached hereto as EXHIBIT "C".

               "LETTER OF CREDIT LINE" shall mean that certain line of credit to
        be provided under the Loan for the purposes set forth in Section 2.3 of
        this Agreement, which line of credit shall not exceed at any time the
        sum of Five Million Dollars ($5,000,000.00) ("LOC TOTAL COMMITMENT
        AMOUNT"). The Letter of Credit Line shall be a revolving line of credit.
        Prior to the Maturity Date, the Letter of Credit Line may be drawn,
        repaid and drawn again through individual Advances in repetition,
        subject to the limitations herein, so long as:

                      (1) The sum of (a) the amounts outstanding on the Letter
               of Credit Line, and (b) the cumulative Letter of Credit Line
               amounts that are committed but not yet advanced on the Letter of
               Credit Line, never exceed the LOC Total Commitment Amount; and

                      (2) The sum of (a) the amounts outstanding on the Loan,
               and (b) the cumulative Loan amounts that are committed but not
               yet advanced on the Loan, never exceed the Commitment Amount; and

                      (3) No Event of Default has occurred and is continuing.

        Upon the Maturity Date, if the Loan is not renewed as provided herein,
        the Letter of Credit Line shall be repaid during the Reduction Period as
        set forth herein.

               "LOC MAXIMUM COMMITMENT AMOUNT" shall mean the amount committed
        under each Letter of Credit, which sum shall not exceed the sum equal to
        (a) Five Million Dollars ($5,000,000.00), less (b) any committed portion
        of the Letter of Credit Line that Borrower has requested and Lender has
        approved in its discretion be available for disbursement under the Loan.

               "LOC TOTAL COMMITMENT AMOUNT" shall mean the sum of all amounts
        committed under any Letters of Credit issued hereunder plus all Letter
        of Credit Advances in the aggregate, which sum shall not exceed Five
        Million Dollars ($5,000,000.00).

               "LIEN OR ENCUMBRANCE" and "LIENS AND ENCUMBRANCES" mean,
        respectively, each and all of the following: (i) any lease or other
        right to use; (ii) any assignment as security, conditional sale, grant
        in trust, lien, mortgage, pledge, security interest, title retention
        arrangement, other encumbrance (voluntary or involuntary), stop notice,
        or other interest or right securing the payment of money or the
        performance of any other liability or obligation, whether voluntarily or
        involuntarily created and whether arising by agreement or under any law,
        ordinance, regulation, or rule (federal, state, or local); and (iii) any
        option, right of first refusal, or other right to purchase.

                                       13
<PAGE>   20

               "LIQUIDITY" shall mean the amount of any Person's unencumbered
        cash, marketable securities, undrawn availability under lines of credit
        and unencumbered cash equivalents, as determined in accordance with
        GAAP.

               "LOAN BALANCE" means an amount, at any point in time, equal to
        (a) the sum of all outstanding Advances disbursed under the Loan, after
        giving effect to any borrowings and prepayments or repayments of
        Advances occurring prior thereto, PLUS (b) with respect to all
        outstanding Letters of Credit issued hereunder, the aggregate amount of
        all said Letters of Credit and all unreimbursed Letter of Credit
        Advances.

               "LOAN" means the revolving line of credit from Lender to Borrower
        described in this Agreement, which Loan shall include all the aggregate
        of all Project Loans made and all Letters of Credit issued hereunder.

               "LOAN ALLOCATION" shall mean:

                      (a) With respect to each Lot to be constructed in a
               Qualified Project, the lesser of:

                             (1) the pro rata sum of the costs to be advanced by
               Lender as shown in the A&D Budget delivered to Lender with
               respect to such Lot; or

                             (2)    the Maximum Allowed Advance for said Lot.

                      (b) With respect to each Home to be constructed in a
               Qualified Project, the lesser of:

                             (1) the sum of the costs to be advanced by Lender
               as shown in the Home Construction Budget delivered to Lender with
               respect to such Home; or

                             (2)    the Maximum Allowed Advance for said Home.

               "LOAN DOCUMENTS" means this Agreement, the Note, the Deeds of
        Trust, the Environmental Indemnities and other Security Documents, and
        all other guaranties, agreements, documents, or instruments signed by
        Borrower and evidencing, guarantying, securing or containing agreements
        with respect to any and all Advances made hereunder, as such agreements,
        documents, and instruments may be amended, modified, extended, renewed,
        or supplemented from time to time.

               "LOAN PAYMENT DATE" means the first day of each Calendar Month
        after the Closing Date provided, however, that at Lender's option, the
        First Payment Date may be the first day of the second calendar month
        after the Closing Date.

               "LOAN TERM" means the period commencing with the Closing Date and
        ending on the applicable Maturity Date.

                                       14
<PAGE>   21

               "LOT ADVANCE MATURITY DATE(S)" shall mean the term in which a Lot
        may remain in the Borrowing Base for the purposes of calculating the
        Borrowing Availability:

                      (a) With respect to Developed Lots, twenty-four (24)
               Calendar Months after the initial entry of such Developed Lots
               into the Borrowing Base (less any time that has elapsed from the
               entry of said Lots into the Borrowing Base as either Lots Under
               Development and/or Entitled Land to the date of entry into the
               Borrowing Base as Developed Lots);

                      (b) With respect to Lots Under Development, twelve (12)
               Calendar Months after the initial entry of such Lots Under
               Development into the Borrowing Base (less any time that has
               elapsed from the entry of said Lots into the Borrowing Base as
               Entitled Land to the date of entry into the Borrowing Base as
               Lots Under Development) (provided, however, that said maturity
               date may be extended for a six-month period if over fifty percent
               (50%) of the total Lots Under Development under the subject
               Qualified Project have become Developed Lots prior to said
               maturity date and Borrower is in compliance with the Extension
               Conditions); or

                      (c) With respect to Entitled Land, nine (9) Calendar
               Months after the initial entry such Entitled Land into the
               Borrowing Base.

               "LOT CONCENTRATION LIMITATION" shall have the meaning given to
        such term in the Maximum Aggregate Loan Allocation(s).

               "LOTS" means, with respect to each Qualified Project to be
        financed hereunder, one (1) or more than one (1) of the lots into which
        the subject Property is to be or has been divided, as set forth on the
        Final Map.

               "LOTS UNDER DEVELOPMENT" means a portion of the Land for which
        Borrower has satisfied the conditions set forth in Section 4.3.

               "MATERIAL ADVERSE CHANGE" means any change in the assets,
        business, financial condition, operations, or results of operations of
        Borrower or any Project or any other event or condition that in the
        reasonable opinion of Lender (i) is reasonably likely to affect in a
        material adverse respect the likelihood of performance by any Borrower
        of any of the obligations in the Loan Documents, (ii) is reasonably
        likely to affect in a material adverse respect the ability of any
        Borrower to perform any of the Obligations in any of the Loan Documents,
        (iii) is reasonably likely to affect in a material adverse respect the
        legality, validity, or binding nature of any of the Obligations in the
        Loan Documents or any lien, security interest, or other encumbrance
        securing any of the Obligations under the Loan Documents, or (iv) could
        affect the priority of any lien or encumbrance securing any of the
        Obligations in the Loan Documents.

               "MATURITY DATE" means (a) the Initial Line Maturity Date -- i.e.,
        September 21, 2002, subject to the extension of the maturity of the Loan
        during the

                                       15
<PAGE>   22

        Reduction Period as set forth in Section 2.1.3 below, or (b) such
        earlier date upon the acceleration of the repayment of the Loan as
        provided in the Loan Documents after the occurrence of the Event of
        Default.

               "MAXIMUM ALLOWED ADVANCE" shall have the following meanings:

               -      ENTITLED LAND: The sum of all Advances and Reserved
                      Allocations committed but not disbursed for said Lots
                      shall not exceed the lesser of (i) fifty percent (50%) of
                      Total Project Costs, or (ii) fifty percent (50%) of the
                      Appraised Value for said Land, subject to Lender's
                      approval.

               -      LOTS UNDER DEVELOPMENT: The sum of all Advances and
                      Reserved Allocations committed but not disbursed for said
                      Lots shall not exceed the lesser of (i) seventy percent
                      (70%) of Total Project Costs, or (ii) seventy percent
                      (70%) of the Bulk Finished Lot Value for said Lots,
                      subject to Lender's approval.

               -      DEVELOPED LOTS: The sum of all Advances and Reserved
                      Allocations committed but not disbursed for said Lots
                      shall not exceed the lesser of (i) seventy percent (70%)
                      of Total Project Costs, or (ii) seventy percent (70%) of
                      the Bulk Finished Lot Value for said Lots, subject to
                      Lender's approval.

               -      SPEC HOMES: The sum of all Advances and Reserved
                      Allocations committed but not disbursed for said Homes
                      shall not exceed the lesser of (i) eighty-five percent
                      (85%) of Total Project Costs, or (ii) seventy-five percent
                      (75%) of the Base Appraisal for said Homes, subject to
                      Lender's approval.

               -      PRESOLD HOMES: The sum of all Advances and Reserved
                      Allocations committed but not disbursed for said Homes
                      shall not exceed the lesser of (i) ninety percent (90%) of
                      Total Project Costs, or (ii) eighty percent (80%) of the
                      Base Appraisal for said Homes, subject to Lender's
                      approval.

               "MAXIMUM AGGREGATE LOAN ALLOCATION(S)" shall mean each and every
        one of the following:

                   (a) With respect to all Qualified Projects included in the
               Borrowing Base (collectively or individually "GEOGRAPHIC
               CONCENTRATION LIMITATION"):

                       (1) The aggregate Loan Allocations for all Lots and/or
               Homes for Qualified Projects (whether Advances have been made
               and/or have been committed but have not yet advanced) located in
               the State of Arizona shall not exceed the sum of Twelve Million
               Five Hundred Thousand Dollars ($12,500,000.00); and/or

                                       16
<PAGE>   23

                       (2) The aggregate Loan Allocations for all Lots and/or
               Homes for Qualified Projects (whether Advances have been made
               and/or have been committed but have not yet advanced) located in
               the State of Nevada shall not exceed the sum of Twelve Million
               Five Hundred Thousand Dollars ($12,500,000.00).

                   (b) With respect to all Lots to be included in the Borrowing
               Base, the aggregate Loan Allocations for all Entitled Land, Lots
               Under Development and Developed Lots for all Qualified Projects
               (whether Advances have been made and/or have been committed but
               have not yet advanced) shall not exceed the sum of Sixteen
               Million Dollars ($16,000,000.00) ("LOT CONCENTRATION
               LIMITATION").

                   (c) With respect to all Spec Homes to be included in the
               Borrowing Base ("SPEC HOME CONCENTRATION LIMITATION"):

                       (1) For all Qualified Projects financed hereunder, the
               aggregate Loan Allocations for all Spec Homes for all said
               Projects (whether Advances have been made and/or have been
               committed but have not yet advanced) shall not exceed the sum of
               Twelve Million Dollars ($12,000,000.00); and/or

                       (2) For each and every Qualified Project financed
               hereunder, the total number of Spec Homes shall not exceed the
               lesser of (A) four (4) months' appraised absorption for each said
               Project, or (B) four (4) months' actual absorption for the
               subject Project, as determined by Lender from time to time based
               upon the actual prior six-month Home sales average for said
               Project.

               "MODEL HOME" shall mean, with respect to each Qualified Project
        to be financed hereunder, a Home constructed and furnished initially for
        inspection by prospective purchasers, which Model Home will not be sold
        until all of the other Homes of its respective plan type in said Project
        are sold, and which otherwise shall remain as collateral for the Loan
        until the Loan is paid in full. If permitted by Lender in its sole
        discretion for any Project, a Model Home may be sold and leased back to
        Borrower pursuant to a lease that is assigned to Lender and that is
        acceptable in form and content to Lender and, in such event, said Model
        Home shall remain as a model for said Project to be used for the
        marketing of the Project until all Homes in the Project of the same plan
        type as said Model Home have been sold.

               "NET SALES PROCEEDS" means, for any sale of any portion of the
        Qualified Project, the gross sales price, less to the extent paid by or
        charged to Borrower: (a) customary tax prorations; (b) customary real
        estate brokerage commissions payable to any Person who is neither (i) an
        Affiliate of Borrower or employed by Borrower, nor (ii) engaged in
        on-site sales at said Project; and (c) reasonable and customary closing
        costs, including escrow fees, title insurance premiums, prorations, and
        recording costs as reflected on the settlement statement and reasonably
        approved by Lender.

                                       17
<PAGE>   24

               "NET WORTH" shall mean the amount by which a Person's Total
        Assets exceeds Total Liabilities less, to the extent included in Total
        Assets, the sum of:

                      (a) the total book value of all assets of a Person and its
               subsidiaries properly classified as intangible assets under GAAP,
               including such items as good will, the purchase price of acquired
               assets in excess of the fair market value thereof, trademarks,
               trade names, service marks, brand names, copyrights, patents and
               licenses, and rights with respect to the foregoing; PLUS

                      (b) all amounts representing any write-up in the book
               value of any assets of a Person and its subsidiaries resulting
               from a revaluation thereof subsequent to said Person's balance
               sheet date.

               "NON-RELATED PARTY" shall mean a person or entity that is not an
        Affiliate of Borrower, nor an officer of, or parent or subsidiary
        corporation of a shareholder of Borrower, or any person or entity
        otherwise controlled directly or indirectly by Borrower or Borrower's
        shareholders, or a parent or subsidiary corporation or partnership of
        Borrower or its shareholders.

               "NOTE" means that certain Promissory Note of even date herewith,
        executed by Borrower and payable to Lender, evidencing Borrower's
        indebtedness hereunder, as amended, modified, extended, renewed or
        supplemented from time to time.

               "OBLIGATIONS" means the obligations of Borrower under the Loan
        Documents.

               "ORGANIZATIONAL DOCUMENTS" shall include Borrower's articles of
        incorporation and by-laws and any amendments thereto, and any
        certificates required to be filed by said corporation with any
        Governmental Authority.

               "PERMITTED EXCEPTIONS" means (i) all items shown in Schedule B
        Part 1 of the Title Policy; (ii) Liens and Encumbrances granted to
        Lender to secure the Obligations; and (iii) other permitted exceptions
        pursuant to the Deed of Trust.

               "PERMITTED EXPENSES" shall mean all expenses to be paid or
        reimbursed for the purposes set forth in Section 2.4.2 that are budgeted
        by Borrower in any and all Budgets for Project Loans and are budgeted in
        Borrower's annual business plan submitted to Lender and that are
        approved by Lender in its sole discretion.

               "PERSON" means a natural person, a partnership, a joint venture,
        an unincorporated association, a limited liability company, a
        corporation, a trust, any other legal entity, or any Governmental
        Authority.

               "PLANS AND SPECIFICATIONS" means, with respect to any Qualified
        Project financed by a Loan to be made hereunder, the plans and
        specifications for the

                                       18
<PAGE>   25

        construction of the A&D Improvements and/or the Homes, as applicable,
        that have been approved by Lender pursuant to this Agreement.

               "PLEDGE AGREEMENT" means that certain collateral pledge and
        assignment of even date herewith by Borrower in favor of Lender pursuant
        to which Borrower has assigned to Lender all of the Purchase Contracts,
        Project Revenues and/or Net Sale Proceeds now or hereafter existing, as
        such assignment may be amended, modified, extended, renewed or
        supplemented from time to time.

               "PLEDGED ACCOUNT" shall mean the Borrower's Funds Account, which
        account and all funds deposited and held therein shall be pledged as
        security for the Loan as provided herein.

               "PRESOLD HOME" shall mean a Home that is subject to:

                      (a) A duly executed Purchase Contract, escrow instructions
               or deposit receipt without contingencies (other than the sale of
               an existing residency contingency);

                      (b) A prequalification letter or mortgage commitment from
               an institutional mortgage lender or such other information or
               verification as Lender may require concerning the ability of the
               prospective buyer to obtain financing or otherwise acquire the
               Home; and

                      (c) A cash earnest money deposit or down payment of at
               least Five Thousand Dollars ($5,000.00) (which deposit
               requirement shall be increased to twenty percent (20%) of the
               purchase price for said Home if the prospective buyer failed to
               satisfy the requirement in subsection (b) above).

               "PROJECT" means the Land and the Improvements to be constructed
        for the development and marketing of a residential subdivision, each of
        which project shall be acquired, developed and constructed with the
        proceeds of a Loan to be made hereunder as approved by Lender. No
        Advances for any Project shall be approved and made unless and until a
        Tentative Map or Final Map has been recorded for the subject Property.
        In any event, no Advance shall be made for any Homes to be constructed
        in a Project unless and until a Final Map has been recorded for the
        subject Project. For purposes of this Agreement, all such projects shall
        be referred to individually and collectively in the singular. In the
        event a Qualified Project is entered into the Borrowing Base prior to
        the recordation of the Final Map for the applicable Project, Lender
        shall require, among other things, that an ALTA survey must be delivered
        to Lender for review and approval and/or Title Company shall agree in
        writing to issue the required Title Policy with all requested survey
        endorsements.

               "PROJECT ADVANCE" means an advance of Loan proceeds by Lender to
        Borrower hereunder for the payment or reimbursement of any Permitted
        Expenses for Qualified Projects, which advance shall not be a Letter of
        Credit Advance.

                                       19
<PAGE>   26

               "PROJECT LOAN" shall mean, for each Qualified Project to be
        included in the Borrowing Base, the aggregate of all Loan Allocations
        for all Lots and/or Homes to be included in the Borrowing Base for said
        Qualified Project. For purposes of this Agreement, all such loans shall
        be referred to individually and collectively in the singular.

               "PROJECT LOAN REQUEST" means each and every request by Borrower
        for the inclusion of a Qualified Project into the Borrowing Base, which
        request shall be in the form attached hereto as EXHIBIT "D".

               "PROJECT MINIMUM STANDARDS" means, with respect to each Qualified
        Project to be financed hereunder, the requirements of Lender that:

                      (a) The total number of Lots and/or Homes in each
               Qualified Project shall be less than two hundred (200); and

                      (b) The total amount in the A&D Budget for each Qualified
               Project for land acquisition and lot development costs shall be
               less than $12,000,000.00.

               "PROJECT REVENUES" means all lease or rent payments, profits,
        proceeds, revenues and receipts received by Borrower or on its behalf in
        connection with or arising out of the Qualified Projects.

               "PROPERTY" or "LAND" means that certain real property more
        particularly described on EXHIBITS "A-1" through "A-8" attached hereto,
        and all other real property for each and every real property and all
        improvements located or to be constructed thereon located in each and
        every County for each Qualified Project to be financed by a Loan to be
        made hereunder. For purposes of this Agreement, all such properties
        shall be referred to individually and collectively in the singular.

               "PURCHASE CONTRACT" means:

                      (a) For the sale of any Lot or Lots, a bona fide written
               agreement between Borrower and a Non-Related Party (provided that
               an Affiliate of Borrower may be a purchaser) for sale in the
               ordinary course of Borrower's business, accompanied by a cash
               earnest money deposit or down payment in an amount that is
               customary and is not subject to any contingencies (including
               without limitation "FREE LOOK" or other similar contingencies
               related to the sale of other property of the purchaser, but
               excluding conditions precedent to the closing of any such sale to
               a Non-Related Party); and/or

                      (b) For the sale of any Home or Homes, a bona fide,
               arm's-length written agreement entered into between Borrower and
               a Non-Related Party for the sale in the ordinary course of
               Borrower's business of any Home for a sales price at least equal
               to the Maximum Allowed Advance. The Sales Agreement shall be
               conforming to any and all rules or regulations

                                       20
<PAGE>   27

               promulgated by any federal, state or local governmental entity
               with jurisdiction over the subject Project. A Sales Agreement
               shall be considered "WITHOUT CONTINGENCIES" if the buyer's
               obligation to purchase is not contingent upon the sale of the
               buyer's existing residence and provided there are no other
               contingencies to the buyer's obligation to purchase the Home
               other than financing, title and inspection contingencies which
               are normally included in Sales Agreements for newly constructed
               residences in the Project.

               "QUALIFIED PROJECT" means any Project that satisfies the
        following conditions:

                      (a) Lender has received a fully completed Project Loan
               Request, which certificate shall be executed by Borrower;

                      (b) Lender has received a fully executed Deed of Trust for
               the Property included in the Project, which Deed of Trust shall
               be recorded in the County in which said Property is located;

                      (c) Lender has received a fully executed Environmental
               Indemnity for the Property included in the Project, and has
               received fully executed Construction Assignments for the Project;

                      (d) Upon recordation of said Deed of Trust, Lender shall
               have received a Title Policy issued by the Title Company; and

                      (e) Lender shall have received, reviewed and approved any
               and all Project information required by Lender hereunder.

               "RAW LAND" means (i) portions of the Land with respect to which
        all conditions for inclusion in the Borrowing Base as Entitled Land,
        Lots Under Development or Developed Lots have not been satisfied and
        (ii) portions of the Land which are not designated for development but
        are reserved as open space or as streets and common areas to be
        dedicated to homeowners' associations and other Governmental
        Authorities.

               "REDUCED COMMITMENT AMOUNT" shall mean the mandatory reductions
        in the Commitment Amount during the Reduction Period, as set forth
        above.

               "REDUCTION PERIOD" shall mean, as set forth in Section 2.1.7
        below, that twenty-four (24) month period during which all existing
        Qualified Projects entered into the Borrowing Base as of the Initial
        Line Maturity Date shall remain in the Borrowing Base and during which
        Lender's obligation to include any enter any new Qualified Projects into
        the Borrowing Base shall terminate.

               "RELEASE NOTE PAYMENT AMOUNT" shall mean the sum equal to the
        total Release Price paid to Lender LESS any Excess Sales Proceeds.

                                       21
<PAGE>   28

               "RELEASE PRICE" means, for all Lots and Homes to be sold and
        released and hereunder, the greater of (i) one hundred percent (100%) of
        the Net Sales Proceeds for said Lot or Home, or (ii) the Maximum Allowed
        Advance for said Lot or Home. In the event the Net Sales Proceeds
        exceeds the Maximum Allowed Advance for the Lot or Home to be released,
        the difference between the Net Sales Proceeds and the Maximum Allowed
        Advance amount ("EXCESS SALES PROCEEDS") shall be deposited into the
        Borrower's Funds Account for application as provided herein, with the
        remaining portion of the Release Price ("RELEASE NOTE PAYMENT AMOUNT")
        to be applied to reduce the outstanding principal balance of the Loan.
        Any and all Excess Sales Proceeds deposited in the Borrower's Funds
        Account may be applied by Borrower to repay the outstanding principal
        balance of the Loan and/or to pay for Permitted Expenses as provided
        hereinbelow.

               "REQUIRED PRINCIPAL PAYMENT" means (a) in connection with each
        Release Price paid to Lender in connection with the sale of a Lot or
        Home, the Release Note Payment Amount (and, if elected by Borrower, any
        Excess Sales Proceeds deposited into the Borrower's Funds Account) to be
        applied to the outstanding Loan Balance, and (b) that certain quarterly
        principal payment to be made during the Reduction Period in order to
        reduce the outstanding balance of the Loan to an amount not greater than
        the then-applicable Reduced Commitment Amount.

               "REQUIREMENTS" means any and all obligations, other terms and
        conditions, requirements, and restrictions in effect now or in the
        future by which Borrower or any or all of the Project is bound or which
        are otherwise applicable to any or all of the Project, construction of
        any improvements thereon, or occupancy, ownership, or use of the Project
        (including, without limitation. such obligations, other terms and
        conditions, restrictions, and requirements imposed by: (i) any law,
        ordinance, regulation, or rule (federal, state, or local); (ii) any
        Approvals and Permits; (iii) any Permitted Exceptions; (iv) any
        condition, covenant, restriction, easement, right of way, or reservation
        applicable to the Land; (v) insurance policies; (vi) any other
        agreement, document, or instrument to which Borrower is a party or by
        which Borrower or any or all of the Project or the business or
        operations of Borrower is bound; or (vii) any judgment, order, or decree
        of any arbitrator, other private adjudicator, or Governmental Authority
        to which Borrower is party or by which Borrower or any of the Project is
        bound).

               "RESERVED ALLOCATION" shall mean, for each Lot and Home included
        in the Borrowing Base, the difference at any time and from time to time
        between (i) the Loan Allocation for said Lot or Home LESS (ii) the
        principal amount with respect to such Lot and Home previously included
        in an Advance for the acquisition of and/or construction of Improvements
        on such Lot and Home.

               "SALE DEPOSITS" shall have the meaning given to such term in
        Section 2.1.6 below.

               "SECURITY DOCUMENTS" means the Deeds of Trust, the Pledge
        Agreement, Account Pledge Agreement, the Construction Assignments, the
        Financing

                                       22
<PAGE>   29

        Statements, and such other assignments and security interests as may be
        required or granted pursuant to the terms of the Loan Documents.

               "SPEC HOME" means any Home in a Qualified Project that is not a
        Presold Home, including without limitation a Model Home.

               "SPEC HOME CONCENTRATION LIMITATION" shall have the meaning given
        to such term in the Maximum Aggregate Loan Allocation(s).

               "SOFT COSTS" means, for each Qualified Project to be financed
        hereunder, the fees and costs that are not directly related to the
        onsite construction of the A&D Improvements or Homes for said Project,
        as applicable, which fees and costs shall include any Loan fees, plus
        any other costs, fees or expenses approved by Lender, including without
        limitation interest, inspection fees, escrow and title fees, processing
        and closing fees, wiring fees, legal fees, appraisals and all closing
        costs, insurance costs, and costs of direct project supervision, and
        also including without duplication costs to be funded from general
        budget categories for overhead, supervision, general and administrative,
        and marketing expenses, provided that the foregoing in the aggregate
        shall not exceed the amount of the Soft Costs set forth in the A&D
        Budget or Home Construction Budget, as applicable.

               "SUBSEQUENT CLOSING DATE" shall mean the date on which each Deed
        of Trust for a Future Project is recorded and a Qualified Project is
        entered into the Borrowing Base.

               "TAKING" means the taking of any or all of the Project, any
        interest therein, or any right thereto for public or quasi public use by
        the power of eminent domain, by condemnation (including, without
        limitation inverse condemnation), or any event in lieu thereof and any
        damage to the Project as the result of any taking of any other part of
        the Project or any property in the vicinity of the Project.

               "TANGIBLE NET WORTH" shall mean a Person's Net Worth less
        Intangible Assets.

               "TENTATIVE MAP" shall mean the tentative tract map for the
        Property for each Qualified Project to be financed by a Loan to be made
        hereunder, which map shall be in form and content acceptable to Lender
        in its discretion and shall not be subject to any conditions that, in
        Lender's reasonable judgment, cannot be reasonably satisfied by
        Borrower.

               "TITLE COMPANY" means Fidelity National Title Insurance Company.

               "TITLE POLICY" means the title insurance policies to be provided
        by Borrower under Section 4.1.11.

               "TOTAL ASSETS" shall mean all assets of a Person determined in
        accordance with GAAP. All real estate assets held for development or
        sale shall be valued on an undepreciated cost basis. The assets of a
        Person on the financial statements of a

                                       23
<PAGE>   30

        Person shall be adjusted to reflect such Person's allocable share of
        such asset, for the relevant period or as of the date of determination,
        taking into account (a) the relative proportion of each such item
        derived from assets directly owned by such Person, and (b) such Person's
        respective ownership interest in its subsidiaries.

               "TOTAL PROJECT COSTS" shall mean:

                      (a) For all Land (including without limitation Entitled
               Land) to be acquired, the sum of all acquisition and other land
               costs;

                      (b) For all A&D Improvements to be financed hereunder, the
               sum of the land costs and the total Hard Costs and Soft Costs for
               the A&D Improvements pursuant to the applicable A&D Budgets; and

                      (c) For all Homes to be financed hereunder, the sum of the
               Hard Costs and Soft Costs for the Homes pursuant to the
               applicable Home Construction Budgets.

               "TOTAL LIABILITIES" shall be defined in accordance with GAAP and
        shall include all payable and accruals.

               "TOTAL LIABILITIES-TO-TANGIBLE NET WORTH RATIO" means, with
        respect to each Person, the ratio of such Person's (a) Total Liabilities
        to (b) Tangible Net Worth.

               "TOTAL LOT INVENTORY": Borrower shall not own unsold lots under
        development and unsold developed lots (excluding lots under option
        agreements) in excess of an aggregate sum equal to two and one-half
        (2.5) times the number of lot sales and closings over the immediately
        preceding rolling four (4) Calendar Quarters) for all residential
        housing projects owned by Borrower.

               "UNMATURED EVENT OF DEFAULT" means any condition or event that
        with notice, passage of time, or both would, if not cured within the
        time periods (if any) permitted pursuant to the Loan Documents, be an
        Event of Default.

        1.2    GENERAL PROVISIONS.

               (a) SINGULAR AND PLURAL TERMS. Any defined term used in the
        plural in any Loan Document shall refer to all members of the relevant
        class and any defined term used in the singular shall refer to any
        number of the members of the relevant class.

               (b) ACCOUNTING PRINCIPLES. Any accounting term used and not
        specifically defined in any Loan Document shall be construed in
        conformity with, and all financial data required to be submitted under
        any Loan Document shall be prepared in conformity with, generally
        accepted accounting principles applied on a consistent basis.

                                       24
<PAGE>   31

               (c) EXHIBITS INCORPORATED. All exhibits to this Agreement, as now
        existing and as the same may from time to time be supplemented, modified
        or amended, are incorporated herein by this reference.

               (d) REFERENCES. Any reference to any Loan Document or other
        document shall include such document both as originally executed and as
        it may from time to time be supplemented, modified or amended.
        References herein to Articles, Sections and Exhibits shall be construed
        as references to this Agreement unless a different document is named.
        References to subparagraphs shall be construed as references to the same
        section in which the reference appears unless a different section is
        named.

               (e) OTHER TERMS. The term "document" is used in its broadest
        sense and encompasses agreements, certificates, opinions, consents,
        instruments and other written material of every kind. The terms
        "including" and "include" mean "including (include) without limitation."
        The term "or" is not exclusive. The requirement that any party "deliver"
        any item to another party shall be construed to require that the first
        party "deliver or cause to be delivered" such item to the second party.
        The term "any," as a modifier to any noun, shall be construed to mean
        "any or all" preceding the same noun in the plural. The term "agreement"
        includes both written and oral agreements. The terms "law" and "laws,"
        unless otherwise modified, mean, collectively, all federal, state and
        local laws, rules, regulations, codes and administrative and judicial
        precedents. The terms "herein," "hereunder" and other similar compounds
        of the word "here" refer to the entire document in which the term
        appears and not to any particular provision or section of the document.
        The use of the pronoun "its" shall be deemed to also refer to "his,"
        "hers," "its," or "theirs." This Section 1.2 shall apply to all of the
        Loan Documents and the Indemnity.

               (f) HEADINGS. Section and section headings are included in the
        Loan Documents for convenience of reference only and are not part of the
        Loan Documents for any other purpose.

               (g) OTHER DOCUMENTS. In the event of any conflict between the
        provisions of this Agreement and those of any other Loan Document, this
        Agreement shall prevail.

               (h) INTENTION. The provisions of this Article 1 shall not apply
        in any instance where a different meaning, construction or reference is
        clearly intended.

               (i) RECITALS. Borrower has applied to Lender for the Loan for the
        purpose of developing the Qualified Projects. Lender is willing to make
        such Loan to Borrower on the terms and subject to the conditions
        contained in this Agreement and the other Loan Documents.

2. BORROWING BASE.

        2.1 LOAN FACILITY.

                                       25
<PAGE>   32

            2.1.1 COMMITMENT.

                      (a) AMOUNT OF COMMITMENT. Subject to the terms and
        conditions of this Agreement, Lender agrees to make Advances and/or
        issue Letters of Credit from time to time until the Maturity Date up to
        the maximum amount of the Borrowing Availability, provided that the
        aggregate amount of all Loan Allocations and Letters of Credit
        outstanding and committed at any time and from time to time, shall not
        exceed the least of (i) the Commitment Amount, or (ii) the Borrowing
        Availability at such time, or (iii) the Maximum Allowed Advances for all
        Homes and Lots to be entered into the Loan PLUS the LOC Total Commitment
        Amount.

                      (b) USE OF LOAN PROCEEDS. Proceeds of Advances may be used
        only for the purpose paying and/or reimbursing Permitted Expenses as
        described in Section 2.4.2 below.

                      (c) REVOLVING LINE OF CREDIT. Advances shall be on a
        revolving basis. Advances repaid may be re-borrowed subject to the terms
        and the conditions herein. Although the outstanding principal of the
        Note may be zero from time to time, the Loan Documents shall remain in
        full force and effect until the Commitment terminates and all other
        Obligations are paid and performed in full.

                      (d) SUSPENSION OR TERMINATION OF COMMITMENT. Upon the
        occurrence of an Unmatured Event of Default or an Event of Default and
        so long as such Unmatured Event of Default or Event of Default
        continues, Lender in its absolute and sole discretion, and without
        notice, may suspend the commitment to make Advances. In addition, upon
        the occurrence of an Event of Default, Lender in its absolute and sole
        discretion, and without notice, may terminate the commitment to make
        Advances. The obligation of Borrower to repay Advances shall be
        evidenced by the Note.

               2.1.2  PURPOSE OF THE LOAN.

                      (a) The purpose of this Agreement is to set forth the
        general terms and conditions for the entry of Qualified Projects into a
        borrowing base revolving line of credit loan in the total sum of Forty
        Million Dollars ($40,000,000.00), which line of credit is being extended
        to provide funding for the acquisition, development and construction of
        current and future residential home projects by Borrower. This Agreement
        (i) shall set forth the basic approval requirements for said Projects,
        (ii) shall set forth the basic terms and conditions for the disbursement
        of Loan funds for said Projects, and (iii) establishes a revolving line
        of credit under which Advances may be made, repaid and made again,
        subject to the aggregate loan limits and time limits set forth herein.

                      (b) The Loan is being made for the purpose of (i)
        providing financing for Existing Projects, and (ii) providing financing
        for Future Projects, and (iii) providing a Letter of Credit facility for
        the issuance of Letters of Credit for future residential projects to be
        owned and developed by Borrower. Each new

                                       26
<PAGE>   33

        Qualified Project submitted for inclusion in the Loan shall be presented
        to Lender for approval in compliance with the requirements of Section
        2.1.4 below. No new Qualified Project will be approved for inclusion in
        the Borrowing Base after the Initial Line Maturity Date.

                      (c) For each Qualified Project which is approved for
        financing hereunder, (i) a single Deed of Trust shall be executed to
        secure any and all such credit facilities, and (ii) any and all Project
        Loans shall be cross-defaulted and cross-collateralized.

               2.1.3. PURPOSE OF THE PROJECT LOANS. Each Advance made for the
Qualified Projects included within the Borrowing Base from time to time shall be
for the purpose of paying for or reimbursing Borrower for certain costs and
expenses incurred in connection with the acquisition of Land and the
construction of A&D Improvements, Presold, Spec and/or Model Homes thereon and
for other costs and expenses incidental to said Qualified Projects, as more
particularly provided in this Agreement. This Loan shall constitute a revolving
line of credit, and all Qualified Projects included in the Borrowing Base shall
satisfy the Project Minimum Standards.

                      (a) REVOLVING LINE OF CREDIT. During the Loan Term,
        Advances for Qualified Projects may be drawn, repaid and drawn again
        through individual Advances in repetition, subject to the limitations
        herein, so long as (i) any Advance requested hereunder shall not exceed
        the Borrowing Availability as of the date said Advance is requested, and
        (ii) the aggregate Loan Allocations for the Lots and Homes included in
        the Qualified Projects shall, never exceed the Maximum Aggregate Loan
        Allocations, and so long as no Event of Default has occurred and is
        continuing.

                      (b) CONTINUATION OF REVOLVING LINE AFTER INITIAL LINE
        MATURITY DATE. After the Initial Line Maturity Date, no new Project will
        be approved to be a Qualified Project for entry into the Borrowing Base,
        but Advances for all Qualified Projects included in the Borrowing Base
        as of the Initial Line Maturity Date may continue to be drawn to
        complete all Improvements remaining to be constructed as part of said
        Qualified Projects, subject to the limitations herein.

                      (c) EVIDENCE OF LOAN ADVANCES. Amounts outstanding under
        the Loan shall be evidenced by the Note and shall be secured by the Deed
        of Trust. Loan Advances for each Qualified Project shall be charged and
        funded under the Note. In the event of any inconsistency between the
        Note and this Agreement, the provisions of this Agreement shall prevail.

                      (d) REDUCTION OF BORROWING AVAILABILITY FOR NON-COMPLIANCE
        WITH MAXIMUM AGGREGATE LOAN ALLOCATIONS. Notwithstanding any other
        provision of this Agreement to the contrary, in the event that the
        aggregate Loan Allocations for the Lots and Homes included in the
        Qualified Projects exceeds any Maximum Aggregate Loan Allocation, then
        the Borrowing Availability shall be reduced in the amount by which said
        Loan Allocations exceeds any Maximum Aggregate Loan Allocation.

                                       27
<PAGE>   34

               2.1.4 APPROVAL OF QUALIFIED PROJECTS. Subject to the terms and
conditions of this Agreement, Lender agrees to include Qualified Projects into
the Borrowing Base, as said Projects are approved by Lender in its discretion
during the Loan Term. Each Qualified Project shall be in compliance with the
Project Minimum Standards. Lender shall have no obligation to approve of any
Qualified Project unless and until:

               (a) TRACT MAP(S). Borrower has provided Lender with an approved
        Tentative Map or recorded Final Map for said Project to be financed.
        Provided, however, that notwithstanding any provision of this Agreement
        to the contrary, Lender may agree to enter a Qualified Project into the
        Borrowing Base prior to the recordation of the Final Map, but Lender
        shall have no obligation to disburse any Loan funds for any Hard Costs
        for any Home Improvements to be constructed as part of said Qualified
        Project unless and until the Final Map for the Qualified Project is
        recorded with the Official Records of the County. In the event a
        Qualified Project Loan is entered into the Borrowing Base prior to the
        recordation of the Final Map for said Qualified Project, Lender shall
        require, among other things, that an ALTA survey must be delivered to
        Lender for review and approval and/or Title Company shall agree in
        writing to issue the required Title Policy with all requested survey
        endorsements.

               (b) PROJECT LOAN INFORMATION. Borrower shall have submitted for
        Lender's review and approval in its sole and absolute discretion:

                   (i) A fully-completed and executed Project Loan Request; and

                   (ii) To the extent said information is available for the A&D
        Improvements and/or Home Improvements to be constructed as part of the
        Qualified Project as of the date of entry into the Borrowing Base --

                             (A) Copies of the Plans and Specifications,
               Architect's Agreement, Construction Contract, Engineering
               Contract, and all other agreements, entitlements, CC&Rs,
               preliminary title report, permits, licenses and approvals
               concerning said Project submitted for approval;

                             (B) All cost breakdowns for the Improvements to be
               constructed as part of the Qualified Project as of the date of
               entry into the Borrowing Base;

                             (C) Project sources and uses of funds, Project
               economics and feasibility, market data and other similar
               information concerning said Qualified Project as reasonably
               requested by Lender;

                      (v) Any and all of the applicable information concerning
        the Project set forth in EXHIBIT "D" and EXHIBIT "K" attached hereto;
        and

                      (vi) All other information reasonably requested by Lender.
        Each Project Loan Request submitted for approval by Borrower shall
        comply with all approval requirements set forth herein.

                                       28
<PAGE>   35

               (c) ADDITIONAL PROJECT REQUIREMENTS. Lender shall have no
        obligation to enter any Qualified Project into the Borrowing Base if (i)
        there is a continuing Unmatured Event of Default or Event of Default,
        and/or (ii) if the entry of said Qualified Project into the Borrowing
        Base would violate any of the Maximum Aggregate Loan Allocation
        limitations. In the event Borrower seeks approval of the entry of a
        Qualified Project into the Borrowing Base under terms and conditions
        different from those approval terms set forth herein, then Lender shall
        review and approve or disapprove of such Qualified Project pursuant to
        Lender's underwriting guidelines in effect at the time of such
        application for approval.

               2.1.5 INTEREST PAYMENTS. Interest on the unpaid outstanding
principal amount of the Loan shall accrue at the Interest Rate(s) specified in
the Note.

                      (a) PAYMENT. Interest at the Interest Rate shall accrue on
        the outstanding and unpaid balance, if any, of the Advances made
        hereunder, commencing on the date of each Advance under the Loan, until
        repaid. Interest accruing under the Note shall be due and payable on
        each Loan Payment Date, commencing on the First Payment Date, until
        repayment in full, together with all other sums owed to Lender pursuant
        to any Loan Document.

                      (b) RATE AFTER DEFAULT. Upon and after the occurrence of
        an Event of Default hereunder or under any of the Loan Documents, at the
        option of Lender, the outstanding principal balance of the Loan shall
        bear interest, payable on demand, at a rate per annum equal to the
        Default Interest Rate. The application of the Default Interest Rate
        shall not be interpreted or deemed to extend any cure period set forth
        in this Agreement or otherwise to limit any of Lender's remedies under
        this Agreement or any of the other Loan Documents.

                      (c) COMPUTATION OF INTEREST. Interest shall be calculated
        on a 360-day year for all Advances, but, in any case, shall be computed
        for the actual number of days in the period for which interest is
        charged, which period shall consist of 365 days on an annual basis. If
        any payment of interest under the Note would otherwise be due on a day
        which is not a Business Day, the payment instead shall be due on the
        next succeeding Business Day and such extension of time shall be
        included in computing the interest due in respect of said payment.

                      (d) NO DEDUCTIONS. All payments of principal or interest
        under the Note shall be made without deduction of any present and future
        taxes, levies, deductions, charges or withholding, which amounts shall
        be paid by Borrower. Borrower will pay the amounts necessary such that
        the gross amount of the principal and interest received by Lender is not
        less than that required by the Note.

                      (e) ORDER OF APPLICATION. Any payments received by Lender
        will be applied as set forth herein and in the Note.

                      (f) INTEREST RESERVE; OTHER AMOUNTS. Borrower hereby
        authorizes Lender to disburse the proceeds of the Loan to pay interest
        accrued on the Loan and other expenses set forth in the A&D Budget and
        the applicable Home

                                       29
<PAGE>   36

        Construction Budgets, notwithstanding that Borrower may not have
        requested a disbursement of such amount. The authorization hereby
        granted shall be irrevocable and at Lender's discretion, and no further
        direction or authorization from Borrower shall be necessary for Lender
        to make such disbursements. Nothing contained herein shall be deemed to
        obligate Lender to make such disbursements to pay interest beyond the
        portions of any Project Loan specifically allocated to the payment of
        interest under an approved Budget.

                      (g) FULL RECOURSE; PAYMENTS. The Loan shall be full
        recourse against Borrower. All amounts payable by Borrower on or with
        respect to the Loan, or pursuant to the terms of any other Loan
        Documents, shall be paid in lawful money of the United States of America
        to Lender at Central Note Department, P.O. Box 420159, San Diego,
        California 92142-0159, in same day funds, not later than 11:00 a.m.
        (California time) on the date due.

               2.1.6  PRINCIPAL PAYMENTS.

                      (a) BULK SALE OF LOTS. Borrower shall cause to be
        delivered through any sale escrow to Lender, and shall pledge as
        additional collateral for the Loan, any deposits (collectively "SALE
        DEPOSITS") to be received by Borrower in connection with Borrower's bulk
        sale of any Lots (each, a "BULK LOT SALE") pursuant to a Purchase
        Contract for the bulk sale of said Lots. All Sale Deposits shall be
        deposited and held in the Borrower's Funds Account and shall be applied
        by Lender for the payment of the Obligations as provided in this
        Agreement. In the event that any Bulk Lot Sale is terminated and any
        Sale Deposit previously paid to Lender is to be returned to a
        Non-Related Party pursuant to the terms of a Purchase Contract, then
        Borrower may include in its Draw Request funds to pay all or a portion
        of said Sale Deposit to said Non-Related Party, provided there is no
        Event of Default and sufficient Loan funds are available under the
        Borrowing Availability.

                      (b) SALE AND RELEASE OF LOTS AND HOMES. Immediately upon
        the sale and closing of Lots and Homes, Borrower shall pay to Lender any
        and all Release Prices payable under Section 3.2 below, which proceeds
        shall be applied by Lender as follows: (i) the Release Note Payment
        Amount (and, if elected by Borrower, any Excess Sales Proceeds obtained
        from said sale) shall be applied to repay sums due and owing under the
        Note; and (ii) the Excess Sales Proceeds shall be deposited into the
        Borrower's Funds Account to be included in the Borrowing Availability
        and applied as set forth herein.

                      (c) REQUIRED PRINCIPAL PAYMENTS DURING THE REDUCTION
        PERIOD. During the Reduction Period, commencing with the first Loan
        Payment Date occurring on or after the end of the first Calendar Quarter
        following the Initial Line Maturity Date and continuing at the end of
        each Calendar Quarter thereafter, Borrower shall make any Required
        Principal Payment necessary to reduce the outstanding Loan Balance to a
        sum not in excess of the then-applicable Reduced Commitment Amount.

                                       30
<PAGE>   37

                      (d) VOLUNTARY LOAN PREPAYMENT. Borrower shall have the
        right to prepay the Loan, in whole or in part, at any time, without
        premium or penalty, provided that Borrower must pay, together with any
        prepayment, all accrued but unpaid interest upon the principal so
        prepaid. Prior to the Initial Line Maturity Date, no prepayment of the
        Loan shall reduce the Commitment Amount, unless Borrower relinquishes in
        writing its right to obtain an Advance of all or any of the amount so
        prepaid; during the Reduction Period, principal payment(s) may be
        required as provided herein to reduce the Loan Balance to the applicable
        Reduced Commitment Amount.

                      (e) PAYMENTS OF PRINCIPAL AND INTEREST TO BALANCE THE
        LOAN. Principal and interest shall be payable in accordance with the
        terms of the Note; provided, however, that in addition to payments
        required pursuant to the terms of the Note, if for any reason at any
        time the outstanding principal amount of Advances under the Loan exceeds
        the Available Commitment, Borrower shall make a payment to Lender in an
        amount equal to such excess principal amount within the earlier of (a)
        one (1) Business Day after notice from Lender, (b) five (5) days after
        delivery of a Borrowing Base Certificate and/or other financial reports
        of Borrower reflecting that such a payment is due, and (c) five (5) days
        after Lender notifies Borrower (which notice may be oral, to be followed
        promptly by written notice setting forth the Lender's calculations) of
        Lender's determination of the Borrowing Base and Borrowing Availability
        pursuant to Section 2.2.3. Any funds paid hereunder shall be applied by
        Lender to the outstanding principal balance of the Loan.

               2.1.7  LOAN TERM.

                      (a) Upon the Initial Line Maturity Date, Lender and
        Borrower shall initiate a twenty-four (24) month period ("REDUCTION
        PERIOD") to reduce the Commitment Amount under the terms and conditions
        set forth herein.

                      (b) During the Reduction Period, (i) no new Qualified
        Projects shall be entered into the Borrowing Base, and (ii) Advances
        under existing Project Loans shall continue to be made for the
        construction of Improvements for the subject Projects, subject to the
        limitations set forth herein.

               2.1.8  TERMS OF PROJECT ADVANCES.

                      (a) Lots entered into the Borrowing Base shall be removed
        from the Borrowing Base on the applicable Lot Advance Maturity Date;
        provided, however, that the Lot Advance Maturity Date for Lots Under
        Development in a Project may be extended for a six-month period if over
        fifty percent (50%) of the total Lots Under Development under the
        subject Qualified Project have become Developed Lots prior to said
        maturity date and if Borrower has satisfied the Extension Conditions.

                      (b) Homes entered into the Borrowing Base shall be removed
        from the Borrowing Base on the applicable Home Advance Maturity Date;
        provided,

                                       31
<PAGE>   38

        however, that the Home Advance Maturity Date for Model Homes in a
        Project may be extended for a six-month period if Borrower has satisfied
        the Extension Conditions.

        2.2 AVAILABLE COMMITMENT; BORROWING BASE.

            2.2.1 AVAILABLE COMMITMENT. The Available Commitment shall be
determined in accordance with this Section 2.2 and shall be the lesser of (a)
the applicable Commitment Amount or Reduced Commitment Amount, as in effect from
time to time, or (b) the Borrowing Base.

               (i) The Available Commitment for all Qualified Projects shall be
        the difference between the amount set forth in 2.2.1 above LESS the
        amounts of all Letters of Credit issued under Section 2.3 below.

               (ii) The Available Commitment for all Letters of Credit to be
        issued hereunder shall be no greater than the LOC Total Commitment
        Amount of Five Million Dollars ($5,000,000.00).

            2.2.2 AMOUNT OF BORROWING BASE AND BORROWING AVAILABILITY. Subject
to the provisions of Section 2.2.3 below, the Borrowing Base and Borrowing
Availability shall be determined by Lender based on each Borrowing Base
Certificate delivered pursuant to Section 6.4.6.

            2.2.3 DETERMINATION OF BORROWING AVAILABILITY.

                (a) GENERAL DETERMINATION. The Borrowing Availability shall be
        determined by Lender based upon:

                    (i) Each Borrowing Base Certificate most recently submitted
        by Borrower from time to time (adjusted as determined by Lender from
        time to time to reflect portions of the Project sold, property released
        from the Deed of Trust, and other adjustments and limitations pursuant
        to this Agreement);

                    (ii) Lender's inspections made pursuant to Sections 4.3.4
        and 6.10 (as such inspections may result in any adjustment to reflect
        any variance between (A) the Borrowing Base Certificate and (B) the
        result of such inspections or other information available to Lender);
        and

                    (iii) Such other information as Lender may reasonably
        require in order to verify such amounts.

        Each Borrowing Base Certificate shall accurately reflect the valuation
        of the Property included in the Borrowing Base as of the last day of the
        Calendar Month immediately preceding the Calendar Month in which such
        certificate is due, shall accurately recite the amounts of the Letters
        of Credit issued to date, and shall accurately calculate the Borrowing
        Availability as of the date of said certificate. Without limiting the
        foregoing, each Borrowing Base Certificate shall exclude the Loan
        Allocations for any and all Lots and Homes that have been released from
        the

                                       32
<PAGE>   39

        Deed of Trust, and each Borrowing Base Certificate shall reflect any
        reductions in the Loan Balance.

               (b) RIGHT TO EXCLUDE/ADJUST. Lender, in its discretion, may
        exclude Lots or Homes from the Borrowing Base, adjust the Appraised
        Value of Lots or Homes, and/or adjust the applicable classification of
        property included in the Borrowing Base if:

                    (i) A portion of the Project is subject to unrepaired
        material damage or destruction;

                    (ii) Lender determines that a Purchase Contract with respect
        to Lots or Homes is in default or has been terminated or canceled or
        that the purchaser is not financially able to complete the purchase
        under the subject Purchase Contract;

                    (iii) Lender determines, based on the information provided
        by Borrower pursuant to Section 6.4, that reclassification of property
        included in the Borrowing Base is appropriate due to delays in
        development, changes in the Plans and Specifications, loss or change of
        zoning or other Approvals and Permits, Borrower's failure to satisfy
        applicable conditions for inclusion in the designated classification, or
        the occurrence of a Material Adverse Change;

                    (iv) Lender determines that Spec Homes are to be removed
        from the Borrowing Base under Section 2.2.3(d) in order to remargin the
        Loan (provided, however, that Lender shall only be permitted to make
        such determination in the event that Borrower has failed to comply with
        the provisions of Section 2.2.3(d)(i) to remargin the Loan).

        The exclusion of any Property from the Borrowing Base shall not require
        Lender to release such property from the Deed of Trust, and Lender shall
        be obligated to release Collateral only pursuant to the provisions of
        Section 3.2. Lender shall notify Borrower of any exclusion or adjustment
        in the Borrowing Base in writing with the Lender's calculations.

               (c) SPECIFIC LIMITATIONS. Lender has no commitment to Advance
        Loan funds for any Project that would violate:

                    (i) Any applicable Project Minimum Standards;

                    (ii) Any applicable Maximum Aggregate Loan Allocation(s),
        including without limitation (1) the Geographic Concentration
        Limitations for Projects in Arizona and Nevada, (2) the Lot
        Concentration Limitation to fund the acquisition and/or development of
        Entitled Land, Lots Under Development and/or Developed Lots, and/or (3)
        the Spec Home Concentration Limitation for Spec Homes constructed
        hereunder;

                    (iii) The Loan Allocations applicable to the Lots and Homes
        to be financed hereunder; and/or

                                       33
<PAGE>   40

                    (iv) The Borrowing Availability.

               (d) LOAN REMARGINING DUE TO CONVERSION OF HOMES.

                    (i) In the event any Home ceases to constitute a Presold
        Home for any reason, then such Home shall automatically become a Spec
        Home for purposes of the limitation upon the number of Spec Homes set
        forth herein and for purposes of calculating the Maximum Allowed Advance
        and/or the Home Maturity Date for such Home. After the conversion of any
        Presold Home to a Spec Home, (A) if the Spec Home limitations set forth
        in Section 4.5 below have been violated, then Lender shall have no
        obligation to make any Advances for any new Spec Homes to be included in
        the Borrowing Base and Borrower shall remove Spec Homes from the
        Borrowing Base so as to be in compliance with said Spec Home
        limitations, and (B) if the aggregate sum of the Advances and the
        Reserved Allocation for the Spec Homes in the Borrowing Base exceeds the
        Maximum Allowed Advances for said Spec Homes, then the Borrowing
        Availability shall be reduced by such excess amount or, if the Borrowing
        Availability has a negative balance, Borrower shall make any payment
        required under Section 2.4.5 below.

                    (ii) In the event a Spec Home or Model Home satisfies the
        requirements to become a Presold Home, then such Home shall
        automatically become a Presold Home for purposes of the limitation upon
        the number of Spec Homes set forth herein and for purposes of
        calculating the Maximum Allowed Advance and/or the Home Maturity Date
        for such Home.

               (e) FAILURE TO DELIVER BORROWING BASE CERTIFICATE. If Borrower
        fails to deliver a Borrowing Base Certificate as and when required, then
        in addition to Lender's other rights and remedies, Lender may determine
        the amount of the Borrowing Base based upon information available to
        Lender and such determination by Lender shall be final and conclusive,
        absent manifest error.

        2.3. LETTER OF CREDIT ADVANCES. Borrower shall be entitled to receive
Letter of Credit Advances upon Borrower's compliance with the terms, conditions
and procedures set forth in this Section 2.3.

            2.3.1. ISSUANCE OF LETTER OF CREDIT. Subject to the terms and
conditions of this Agreement and the Letter of Credit Request, and subject to
the policies, procedures, and requirements of Lender in effect from time to time
for the issuance of any letter of credit (including without limitation payment
of letter of credit fees), Lender agrees to issue on or before the Maturity Date
a Letter of Credit upon request by and for the account of the Borrower, provided
that Borrower has delivered to Lender:

               (a) A completed and executed Letter of Credit Request, and

               (b) Payment of the required Letter of Credit Fee;

and provided further that (i) the Letter of Credit shall not be required to be
issued for a term of more than twelve (12) Calendar Months (but in no event
later than the applicable Maturity Date), (ii) the Letter of Credit shall not be
required to be issued for an amount in

                                       34
<PAGE>   41

excess of the LOC Maximum Commitment Amount, (iii) the amount of the Letter of
Credit, together with any and all existing Letters of Credit previously issued
hereunder, shall not in the aggregate exceed the LOC Total Commitment Amount,
and (iv) in any event, the date that is the last date for payment of a draft
drawn or drawn and accepted under the Letter of Credit shall be before the
applicable Maturity Date.

            2.3.2. ISSUANCE PROCEDURE. To obtain a Letter of Credit, Borrower
shall complete and execute a Letter of Credit Request and submit it to the
letter of credit department of Lender. Upon receipt of a completed and executed
Letter of Credit Request, Lender will process the application in accordance with
the policies, procedures, and requirements of Lender then in effect (including
without limitation the policies, procedures and requirements applicable to the
form of the Letter of Credit). If the application meets the requirements of
Lender and is within the policies of Lender then in effect, Lender will issue
the requested Letter of Credit.

            2.3.3. PURPOSE OF LETTER OF CREDIT; GENERAL LETTER OF CREDIT TERMS
AND CONDITIONS.

               2.3.3.1. The Letter of Credit shall be issued to provide a good
        faith deposit in connection with any Project, support for unfunded
        Project costs or any other purpose approved by Lender in connection with
        the acquisition and/or development and marketing of a Project. Upon
        occurrence of an Event of Default and so long such Event of Default
        continues, Lender, in its sole and absolute discretion and without
        notice, may refuse to renew or extend the commitment to issue the Letter
        of Credit, and shall exercise any and all remedies provided for in the
        Loan Documents.

               2.3.3.2. The Letter of Credit shall be drawn under the conditions
        as set forth in the form of Letter of Credit attached hereto as EXHIBIT
        "E".

            2.3.4. REIMBURSEMENT OF LENDER FOR PAYMENT OF DRAFTS DRAWN OR DRAWN
AND ACCEPTED UNDER THE LETTER OF CREDIT. The obligation of Borrower to reimburse
Lender for payment by Lender of Letter of Credit Advances under the Letter of
Credit shall be as provided in the Letter of Credit Request and in this
Agreement. Lender will notify Borrower of payment by Lender of a Letter of
Credit Advance under the Letter of Credit and of the respective Reimbursement
Obligations and will give Borrower two (2) Business Days notice that the
Reimbursement Obligations pursuant to the Letter of Credit Request shall be due
on or before the applicable Maturity Date. Borrower shall also pay to Lender
interest at the Interest Rate on the Reimbursement Obligations from and
including the date Lender pays the Letter of Credit Advance at the Interest Rate
until the Reimbursement Obligations and such interest are paid in full;
provided, however, that if Borrower fails to pay the Reimbursement Obligations
and accrued interest thereon within five (5) days after notification by Lender
to Borrower of payment of the Letter of Credit Advance, interest thereafter will
accrue at the Default Interest Rate. Such interest shall be computed on the
basis of a 360-day year and accrue on a daily basis for the actual number of
days elapsed. A Letter of Credit Advance shall be made to re-pay Lender for any
funds disbursed in connection with a draft drawn under any Letter of Credit, at
which

                                       35
<PAGE>   42

time said advance shall be used to calculate the Borrowing Availability or, if
said advance shall result in the Borrowing Availability having a negative
balance, then Borrower shall make any payment required under Section 2.4.5
below.

            2.3.5. REIMBURSEMENT OBLIGATIONS. Borrower's obligations under
Section 2.3 and the Letter of Credit Request to reimburse Lender with respect to
a drawing under a Letter of Credit (such obligations are collectively referred
to as the "REIMBURSEMENT OBLIGATIONS") are absolute and unconditional under any
and all circumstances and irrespective of any setoff, counterclaim, or defense
to payment which Borrower may have or have had against Lender or any beneficiary
of the Letter of Credit, including any defense based upon the occurrence of any
Event of Default, any draft, demand, certificate or other document presented
under a Letter of Credit proving to be forged, fraudulent, invalid or
insufficient, the failure of any payment by Lender to conform to the terms of
said Letter of Credit (if, in Lender's good faith opinion, such payment is
determined to be appropriate) or any nonapplication or misapplication of the
Letter of Credit or the proceeds of such payment, or the legality, validity,
form, regularity or enforceability of the Letter of Credit; provided, however,
that nothing herein will adversely affect the right of Borrower to commence a
proceeding against Lender for any wrongful payment under the Letter of Credit
made by Lender as the result of acts or omissions constituting gross negligence
or willful misconduct on the part of Lender.

            2.3.6. NATURE OF REIMBURSEMENT OBLIGATIONS. Borrower assumes all
risks of the acts, omissions, or misuse of any Letter of Credit by any Person to
whom a Letter of Credit is issued. Lender (except to the extent of its own gross
negligence or willful misconduct) will not be responsible for: (a) the form,
validity, sufficiency, accuracy, genuineness or legal effect of the Letter of
Credit or any document submitted by any party in connection with the issuance of
any Letter of Credit, even if such document should in fact prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof in
whole or in part, which may prove to be invalid or ineffective for any reason;
(c) failure of any Person to comply fully with the conditions required in order
to demand payment under the Letter of Credit; (d) errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise; or (e) any loss or delay in the
transmission or otherwise of any document or draft required by or from any
Person in order to make a disbursement under the Letter of Credit or the
proceeds thereof. None of the foregoing will affect, impair or prevent the
vesting of any of the rights or powers granted to Lender. In furtherance and
extension and not in limitation or derogation of any of the foregoing, any act
taken or omitted to be taken by Lender in good faith will be binding on Borrower
and will not put Lender under any resulting liability to Borrower.

        2.4 LOAN ADVANCES; PROJECT MONITORING.

            2.4.1 METHOD FOR ADVANCES. Advances in a sum not in excess at any
time of the Borrowing Availability shall be made by Lender to the Central
Account for the payment or reimbursement of Permitted Expenses at the written
request within five (5) Business Hours following Lender's receipt of a completed
Draw Request from Borrower

                                       36
<PAGE>   43

(which may be delivered by telecopy or facsimile) by the Person or Persons
designated from time to time on Lender's form of Authorization Form; provided,
however, that Lender shall have acknowledged receipt of any changes in the
Person or Persons designated by Borrower, and such Person or Persons shall have
executed a new Authorization Form. Such Person or Persons are hereby authorized
by Borrower to request Advances and to direct the transfer of the proceeds of
Advances to the Central Account until written notice of the revocation of such
authority is received from Borrower by Lender and Lender has had a reasonable
time to act upon such notice. Lender shall have no duty to monitor for Borrower
or any other Person or to report to Borrower or such other Person the use of
proceeds of Advances.

            2.4.2 USE OF ADVANCES. All Advances shall be used to pay or
reimburse the Permitted Expenses incurred by Borrower in connection with the
acquisition, development, marketing and operation of the Project and the other
normal business activities of Borrower.

            2.4.3 DRAW REQUESTS. Concurrently with a Draw Request for any
Advance of Loan proceeds (other than Advances that, pursuant to this Agreement,
may be made without a Draw Request), Borrower shall furnish to Lender a Draw
Request together with such other forms and schedules of values as may from time
to time be approved or required by Lender, duly signed and sworn to by Borrower,
with all blanks appropriately filled in.

                    (a) RIGHT OF INSPECTION. Throughout the course of
        construction of any Improvements under each Qualified Project on at
        least a quarterly basis during the Loan Term, Lender shall have the
        right to employ, at Borrower's sole cost and expense, an inspector or
        inspectors who shall review as agent for Lender all construction
        activities undertaken in regard to the Project. If required by Lender in
        its discretion, a certificate or indication from such inspector or
        inspectors that construction substantially complies with the Plans and
        Specifications shall be a further condition precedent to Lender's
        approval of a Project, or any Lots or Homes included within a Project,
        for inclusion within the calculation of the Borrowing Base and the
        Borrowing Availability.

                    (b) METHOD OF ADVANCES. The proceeds of each Advance
        disbursed under this Agreement shall be evidenced by the Note and shall
        be secured by a Deed of Trust, and all such proceeds shall be disbursed
        into the Central Account.

            2.4.4 LIMITATIONS ON BORROWER'S RIGHTS TO ADVANCES. Borrower shall
be entitled to disbursements of Loan proceeds only in accordance with the terms
and conditions of this Agreement (unless waived or modified by Lender); and, in
addition, Borrower certifies in connection with any Advances requested hereunder
that Loan:

                    (a) The representations and warranties of Borrower contained
        in all of the Loan Documents shall be correct in all respects on and as
        of the date of the disbursement as though made on and as of that date,
        and no Event of Default shall have occurred and be continuing as of the
        date of the disbursement;

                                       37
<PAGE>   44

               (b) The requested Loan proceeds shall be applied by Borrower only
        to defray costs actually incurred by Borrower in connection with the
        payment or reimbursement of Permitted Expenses; and

               (c) Notwithstanding any limitations on Advances set forth in this
        Agreement or otherwise, Borrower shall pay all costs and expenses
        arising in connection with each Qualified Project.

            2.4.5 EXCESS LOAN BALANCE REPAYMENT. In the event the Borrowing
Availability has a negative balance, there shall be due and payable from
Borrower to Lender, and Borrower shall repay to Lender an amount equal to said
negative balance within the earlier of (a) one (1) Business Day after notice
from Lender, or (b) five (5) days after delivery of a Borrowing Base Certificate
and/or other financial reports of Borrower reflecting that such a payment is
due.

            2.4.7. APPRAISALS AND EVALUATIONS. If reasonably required by Lender,
or if required by law, Lender shall have the right to order Appraisals,
appraisal reviews and/or evaluations of the Land and/or Improvements for any
Qualified Project included in the Borrowing Base, from an appraiser selected by
Lender, which Appraisal(s) shall comply with all federal and state standards for
appraisals and otherwise shall be satisfactory to Lender in all respects.
Notwithstanding the foregoing, Lender shall not order appraisals of any Project
more than one (1) time per year unless (i) Lender believes that a Material
Adverse Change has occurred with respect to the Project or any portion thereof,
or (ii) Borrower requests in writing that Lender order an appraisal of the
Project, or (iii) Lender is required to reappraise the Project in connection
with regulatory requirements. Borrower agrees to pay the cost and expense for
all appraisals, appraisal reviews and/or evaluations thereof ordered by Lender
pursuant to this Section.

            2.4.8. BORROWER'S ACCOUNTS. Borrower has established and shall
maintain during the term of this Loan the Borrower's Funds Account in connection
with the acquisition, development, marketing and operation of the Projects and
the Central Account:

                    (a) PLEDGE ACCOUNTS. The "PLEDGED ACCOUNT" shall include
        only the Borrower's Funds Account, which Pledged Account and all funds
        deposited and held therein shall be pledged as security for the Loan as
        provided herein. Only Lender shall have the authority to sign documents
        and checks in connection with the transfer of funds into and out of the
        Borrower's Funds Account. Borrower shall have authority to sign
        documents and checks in connection with the transfer of funds into and
        out of the Central Account for all of Borrower's business purposes.
        Borrower irrevocably waives and relinquishes to transfer funds into or
        out of the Borrower's Funds Account, and shall have no right to exercise
        dominion or control over the Borrower's Funds Account or the proceeds
        thereof.

                    (b) USE OF BORROWER'S FUNDS AND CENTRAL ACCOUNTS. Borrower
        shall pay or be reimbursed only Permitted Expenses with the funds
        deposited into the Borrower's Funds Account. Advances shall be made
        directly to the Central Account or, at Lender's sole discretion, may be
        made into the Borrower's

                                       38
<PAGE>   45

        Funds Account and then transferred by Lender to the Central Account.
        Borrower shall deposit or cause to be deposited into the Borrower's
        Funds Account each day all funds to be provided by Borrower to Lender
        during the Loan Term, to the extent such funds are not paid directly to
        Lender pursuant to this Agreement. Funds deposited and held in the
        Borrower's Funds Account shall be applied by Lender to the payment of
        the Obligations as provided herein. In the event at any time during the
        Loan Term the outstanding principal Loan balance has been paid in full,
        and excess funds remain in the Borrower's Funds Account, such excess
        funds shall be used by Lender to make any Advances hereunder.
        Notwithstanding the existence of any funds in the Borrower's Funds
        Account or the availability or the non-availability of Loan funds under
        the Commitment, Borrower shall remain obligated to satisfy all
        Obligations.

                    (c) CENTRAL ACCOUNT PROVISIONS. Borrower shall establish and
        maintain the Central Account not only for Project-related purposes as
        described herein, but for Borrower's general business purposes. Although
        Lender shall have no security interest in the Central Account or the
        funds deposited therein, Borrower warrants and represents that during
        the Loan Term, all Loan funds deposited into the Central Account shall
        be applied only for the payment or reimbursement of Permitted Expenses
        for Qualified Projects.

        2.4.9 PROJECT COST SAVINGS AND EXCESS COSTS. Each Draw Request submitted
by Borrower shall be deemed a certification by Borrower of the following
matters:

            2.4.9.1 EXCESS PROJECT COSTS. In the event the actual cost ("ACTUAL
LINE ITEM COST") of any matter covered by any given line item in any Budget
exceeds the amount allocated to such line item in said Budget ("APPROVED LINE
ITEM COST"), Borrower either has (a) paid or incurred the amount of the Actual
Line Item Cost in excess of the Approved Line Item Cost ("EXCESS COST"), or (b)
the financial ability to pay such Excess Costs with its own funds, including
without limitation the transfer of a portion of any Contingency line item amount
provided for in the Budget and/or any "COST SAVINGS" (as defined in Section
2.4.9.3 below) to such line item in an amount equal to such Excess Cost.

            2.4.9.2 OFFSITE MATERIALS. In connection with any Project materials
that are stored or housed at a location other than the Property for the
applicable Project ("OFFSITE MATERIALS"):

                    (a) Borrower has paid for the Offsite Materials or will
        cause payment to be made promptly upon receipt of the next Advance;

                    (b) if the Offsite Materials are stored at the facilities of
        the supplier of the Offsite Materials ("OFFSITE SUPPLIER"), the Offsite
        Materials have been segregated from other materials in the Offsite
        Supplier's storage facility and have been marked with the name of
        Borrower. If reasonably requested by Lender, Borrower shall provide
        Lender with a written statement from the Offsite Supplier, which
        statement shall include the Offsite Supplier's acknowledgment of (i) the
        right of Lender to enter the Offsite Supplier's storage facility at
        reasonable times for the

                                       39
<PAGE>   46

        purpose of inspecting or removing the Offsite Materials and (ii)
        Lender's security interest in the Offsite Materials. If the Offsite
        Materials are stored in a place other than the facilities of the Offsite
        Supplier, if reasonably requested by Lender, Borrower shall provide
        Lender with a written statement from the bailee or other custodian
        acknowledging (i) the right of Lender to enter the site where the
        Offsite Materials are stored at reasonable times for the purpose of
        inspecting or removing the Offsite Materials and (ii) Lender's security
        interest in the Offsite Materials;

                    (d) Borrower has obtained certificates of insurance showing
        the Offsite Materials to be insured as required by the Agreement and
        showing Lender as loss payee; and

                    (e) Borrower has paid all personal property taxes applicable
        to the Offsite Materials. Lender shall have the right to inspect and
        approve the Offsite Materials.

            2.4.9.3 COST SAVINGS. For purposes of Section 2.4.9.1 above, "COST
SAVINGS" shall mean any remaining undisbursed amounts shown in any Budget as
allocated to any line item, or any funds allocated to said line item that exceed
the amount of the subcontract for said line item either (a) upon completion of
and disbursement for all matters covered by said line item in such Budget, or
(b) upon the execution by Borrower and an approved subcontractor of a
subcontract for the performance of work or furnishing of materials for said line
item in an amount that is less than the Approved Line Item Cost for said item.

        2.5 FEES. As additional consideration for the Commitment, Borrower
agrees to pay to Lender the following fees, which shall be earned by Lender on
the date due under the Loan Documents and shall be non-refundable to Borrower:

            2.5.1 COMMITMENT FEE. During the Initial Line Term, a Commitment Fee
equal to one-half of one percent (0.50%) per annum on the full Commitment Amount
shall be payable, and during the Reduction Period, a Commitment Fee equal to
one-half of one percent (0.50%) per annum on the then-applicable Reduced
Commitment Amount shall be payable. At the Initial Closing Date, Borrower shall
pay a portion of said fee in the sum of Fifty Thousand Dollars ($50,000.00), and
the remainder of said annual fee shall be paid as follows: Said fees shall be
paid in advance on a quarterly basis such that: (i) during the Initial Line
term, each quarterly fee payment shall be based on a one-eighth of one percent
(0.125%) of the full Commitment Amount, and (ii) during the Reduction Period,
each quarterly fee payment shall be based on a one-eighth of one percent
(0.125%) of the then-applicable Reduced Commitment Amount.

            2.5.2 LETTER OF CREDIT FEE. A Letter of Credit Fee shall be due and
payable by Borrower in connection with the issuance of each Letter of Credit
hereunder, which fee shall be calculated at the rate of one percent (1.00%) per
annum on the face amount of the Letter of Credit. The Letter of Credit Fee shall
be payable as a condition to the issuance of each Letter of Credit and on each
twelve-month anniversary of the issuance date of said Letter of Credit, if said
Letter of Credit is to be extended beyond a twelve-month term.

                                       40
<PAGE>   47

            2.5.3 OTHER FEES. Costs, expenses, and reasonable fees for Lender's
counsel as provided in the Loan Documents, payable on or before the date hereof,
together with all title insurance premiums, appraisal costs, documentation fees,
environmental study costs and other costs and expenses to which Lender is
entitled to reimbursement pursuant to the Loan Documents.

3. THE COLLATERAL.

        3.1 SECURITY. Payment of the Note, all indebtedness and liabilities of
Borrower to Lender, and performance of all Obligations, due or to become due,
under this Agreement and the other Loan Documents, shall be secured by the
following (collectively "SECURITY DOCUMENTS"):

               (a) Deeds of Trust;

               (b) Pledge Agreement;

               (c) Account Pledge Agreement;

               (d) Construction Assignments;

               (e) Financing Statements; and

               (f) Such other assignments and security interests as may be
        required or granted pursuant to the terms of the Loan Documents,
        including, without limitation, assignments of construction contracts,
        assignments of plans and specifications, assignments of permits,
        licenses and approvals, assignments of declarant's rights under
        covenants, conditions and restrictions, assignments of purchase and sale
        agreements, and any assignments concerning any environmental indemnities
        in favor of Borrower.

        3.2 RELEASES OF COLLATERAL. In addition to releases in connection with
boundary line adjustments and the granting of easements and licenses as more
particularly described in Section 6.3.3(c), Lender agrees to release portions of
the Project from the lien of any Deed of Trust in connection with sales of
portions of the Project secured by said Deed of Trust pursuant to a Purchase
Contract for cash, upon the satisfaction of the following conditions prior to
the release:

            3.2.1 GENERAL REQUIREMENTS FOR RELEASES. In connection with any
release:

                    (a) Unless otherwise approved by Lender in its absolute and
        sole discretion, at the time of such release no Event of Default shall
        have occurred and be continuing.

                    (b) Such release shall be in connection with a sale of a Lot
        or Home in the Project (or in the case of a Dedication, a transfer or
        donation of a portion of the Project) to a Non-Related Party.

                                       41
<PAGE>   48

                    (c) Unless the portion of the Land to be released is an
        entire parcel with respect to which Lender has previously approved the
        parcel map or plat or is a lot or lots within a subdivision with respect
        to which Lender has previously approved a final map or plat, Borrower or
        Title Company shall have delivered to Lender (i) a legal description of
        the portion of the Land to be released, (ii) a map or plat of the
        portion of the Land to be released, and (iii) copies of all easements
        for ingress, egress or otherwise to be granted or retained in connection
        with such release.

                    (d) Unless the portion of the Land to be released is an
        entire parcel with respect to which Lender has previously approved the
        parcel map or plat or is a lot or lots within a subdivision with respect
        to which Lender has previously approved a final map or plat, prior to
        such release, (i) Lender shall have approved such release, which
        approval will not be unreasonably withheld, (ii) the remaining
        unreleased portion of the Land will, after giving effect to such
        release, have adequate access, in the reasonable opinion of Lender, and
        (iii) the value of the unreleased portion of the Land will, after giving
        effect to such release, not otherwise be materially impaired in the
        reasonable opinion of Lender.

                    (e) Borrower shall provide Lender with such endorsements to
        the Title Policy as Lender may reasonably request in connection with
        each release.

                    (f) Borrower shall pay all of Lender's reasonable costs and
        expenses, including, without limitation, reasonable attorneys' fees,
        arising in connection with each release.

                    (g) Each release shall be made by Lender by delivery of the
        release documents to a title company or other escrow agent satisfactory
        to Lender upon such conditions as shall assure Lender that all
        conditions precedent to such release have been satisfied and that the
        applicable transaction will be completed.

            3.2.2 SALES OF LOTS OR HOMES PURSUANT TO A PURCHASE CONTRACT . In
connection with sales pursuant to a Purchase Contract for cash:

                    (a) Borrower shall satisfy each of the conditions set forth
        in Section 3.2.1.

                    (b) If requested by Lender, Borrower shall deliver to Lender
        a true and correct copy of any Purchase Contract, which shall (i) be
        substantially on Borrower's standard forms as previously submitted to
        and approved by Lender or (ii) otherwise be in form and content
        reasonably satisfactory to Lender.

                    (c) Borrower shall not have made any material changes in the
        Purchase Contract delivered to Lender pursuant to this Section 3.2.2,
        unless such changes have been approved by Lender, and the Non-Related
        Party under said Purchase Contract shall be acceptable to Lender in its
        sole discretion.

                    (d) The sale shall be made in the ordinary course of the
        development and marketing of the Project, and shall be accompanied by
        such rights

                                       42
<PAGE>   49

        of first refusal, development covenants, conditions and restrictions,
        deeds of trust, and other documents, consistent with Borrower's past
        practices, as shall be necessary to assure that development of the
        Project occurs in accordance with Borrower's development plans and
        existing Approvals and Permits.

                    (e) For any Bulk Lot Sale, Lender shall have received and
        approved in its reasonable discretion financial statements and other
        information reasonably required by Lender showing the Non-Related
        Party's ability to complete the purchase under the Purchase Contract.

                    (f) Borrower shall have paid the applicable Release Price
        and all other fees and costs in connection with the release, which
        Release Price shall be applied as follows: (i) the Release Note Payment
        Amount (and, if elected by Borrower, any Excess Sales Proceeds obtained
        by Borrower in connection with said sale) shall be applied to repay sums
        due and owing under the Note; and (b) the Excess Sales Proceeds shall be
        deposited into the Borrower's Funds Account to be included in the
        Borrowing Availability and applied as set forth herein.

            3.2.3 DEDICATIONS. In connection with any Dedication:

                    (a) Borrower shall satisfy each of the conditions set forth
        in Section 3.2.1.

                    (b) At least ten (10) days prior to a release, Borrower
        shall have delivered to Lender all the terms, conditions and details of
        such release, including, without limitation, the purpose of such
        release, evidence of the conformity of such release to the overall
        development plan for the Project and all Approvals and Permits required
        in connection therewith, all of which shall be in form and content
        reasonably satisfactory to Lender.

4. CONDITIONS PRECEDENT

        4.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND TO THE
EFFECTIVENESS OF THE COMMITMENT. This Agreement and the Commitment shall become
effective only upon satisfaction by Borrower of the following conditions
precedent on or before the date hereof at the sole cost and expense of Borrower:

            4.1.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The representations
and warranties by Borrower in the Loan Documents are correct on and as of the
date of the recordation of the Deeds of Trust for the Existing Projects to be
included in the Borrowing Base in all material respects.

            4.1.2 DEFAULTS. No Event of Default or Unmatured Event of Default
shall have occurred and be continuing.

            4.1.3 DOCUMENTS. Lender shall have received the following
agreements, documents, and instruments, each duly executed by the parties
thereto:

                                       43
<PAGE>   50

                    (a) LOAN DOCUMENTS. The Loan Documents, which shall include
        all agreements documents, and instruments specified by Lender (including
        without limitation that certain Environmental Indemnity Agreement of
        even date herewith in form and content acceptable to Lender in its
        discretion).

                    (b) CORPORATION . Certified copies of (i) resolutions of
        Borrower's board of directors authorizing Borrower to execute, deliver,
        and perform the Loan Documents and to grant to Lender the Liens and
        Encumbrances on the Collateral in the Loan Documents and certifying the
        names and signatures of the officer(s) of Borrower authorized to execute
        the Loan Documents and, in the case of Borrower, to request Advances on
        behalf of each Borrower, (ii) the certificate of incorporation and
        bylaws of Borrower and all amendments thereto, and (iii) a certificate
        of good standing as a corporation from the jurisdiction of formation or
        organization and for each jurisdiction in which the nature of Borrower's
        business and operations require qualification as a foreign corporation.

                    (c) INSURANCE POLICIES. A certificate of insurance for all
        insurance required under the Loan Documents, and certificates of
        insurance with respect to professional liability coverage to the extent
        maintained by engineers, architects, and environmental contractors.

                    (d) OPINION LETTER. A favorable opinion from a law firm
        representing Borrower covering such matters as Lender may require.

                    (e) FINANCIAL STATEMENTS. Borrower's most recent financial
        statements reviewed by independent, certified public accountants
        acceptable to Lender, including without limitation a balance sheet, cash
        flow statement, reconciliation of net worth, and profit and loss
        statement for Borrower.

            4.1.4 PLAT AND/OR SURVEY. Borrower shall have delivered to Lender,
and Lender shall have approved, all surveys, maps and plats in existence with
respect to the Existing Projects and individual parcels thereof. Each such map,
plat or survey must contain a legal description of the subject Existing Project
(or applicable portion thereof), must describe and show all boundaries of and
lot lines within said Existing Project (or applicable portion thereof) and all
streets and other dedications and contain such other information and
certifications as Lender may request.

            4.1.5 RESTRICTIVE COVENANTS. Borrower shall have provided Lender
with, and Lender shall have approved, all covenants, conditions, restrictions,
easements and other rights that exist or are contemplated with respect to the
Existing Projects.

            4.1.6 SOILS TEST. Borrower shall have provided to Lender, and Lender
shall have approved, a soils/hydrology test reports of the Existing Projects
prepared by licensed engineers satisfactory to Lender showing the location of,
and containing boring logs from, all borings, together with recommendations for
the design of foundations.

            4.1.7 ENVIRONMENTAL ASSESSMENT. Borrower shall have delivered to
Lender and Lender shall have approved a report of an environmental assessments
of the Existing Projects, by environmental engineers acceptable to Lender
containing such

                                       44
<PAGE>   51

information, results, and certifications as Lender may require. If Lender
determines, in its sole discretion, based on such reports or other information
available to Lender that any further review should be obtained, Borrower shall
also provide such follow up testing, reports, and other actions as may be
required by Lender. The contents of the environmental assessment report and any
follow up must be satisfactory to Lender. If such reports are addressed to
Borrower, Borrower shall cause a reliance letter, in form and substance
satisfactory to Lender, to be provided to Lender.

            4.1.8 ENVIRONMENTAL INDEMNITY. Borrower shall have delivered to
Lender, Lender's form of Environmental Indemnity for each Existing Project,
fully completed and duly executed by Borrower.

            4.1.9 PRELIMINARY TITLE REPORT. Borrower shall have provided Lender
and Lender shall have approved, a preliminary title report for each Existing
Project, prepared by the Title Company, together with a legible copy of each
"SCHEDULE B" item.

            4.1.10 FLOOD REPORT. Borrower shall have provided to Lender evidence
satisfactory to Lender as to whether (a) each Existing Project, or any portion
thereof, is located in an area designated by the Department of Housing and Urban
Development as having special flood or mudslide hazards, and (b) the community
in which said Existing Project is located is participating in the National Flood
Insurance Program.

            4.1.11 DEED OF TRUST/TITLE POLICY. For each Existing Project,
Borrower shall have provided to Lender (a) the Deed of Trust, subject only to
Permitted Exceptions, duly executed by Borrower, acknowledged, delivered and
recorded; and (b) American Land Title Association loan policies of title
insurance (1990 form with the creditors' rights exception and arbitration
provisions deleted and with a revolving credit endorsement and such other
endorsements as Lender may require) for each Deed of Trust (collectively "TITLE
POLICY"). The Title Policy shall provide coverage (including without limitations
mechanics' lien coverage) satisfactory to Lender and insure the Deed of Trust as
a first lien on the Project, subject only to Permitted Exceptions.

            4.1.12 COMPLETION OF FILINGS AND RECORDINGS. For each Existing
Project, Lender shall have received evidence of the completion of all recordings
and filings to establish or maintain the perfection and priority of the Liens
and Encumbrances on the Collateral granted in the Loan Documents and required by
Lender to be in effect prior to the effectiveness of this Agreement and the
Commitment.

            4.1.13 PAYMENT OF COSTS, EXPENSES, AND FEES. For each Existing
Project, all costs, expenses, and fees to be paid by Borrower under the Loan
Documents on or before the effectiveness of this Agreement, the effectiveness of
the Commitment, or the making of Advances shall have been paid in full (or shall
be paid in full concurrently with the making of the initial Project Advance),
including without limitation applicable fees set forth herein.

            4.1.14 APPRAISAL. For each Existing Project, Lender shall have
received and approved an Appraisal for the subject Land; provided, however, that
in the event prior to the Initial Closing Date Lender has not received
Appraisals for all parcels of the Land for the Existing Parcels, then Lender
shall have no obligation to make any Advance against

                                       45
<PAGE>   52

any parcels unless and until Lender shall have received and approved said
Appraisals for said parcels against which Advances are requested.

            4.1.15 OTHER ITEMS OR ACTIONS BY BORROWER. Lender shall have
received such other agreements, documents, and instruments, and Borrower shall
have performed such other actions as Lender may reasonably require.

        4.2 CONDITIONS PRECEDENT TO ADMISSION OF LAND AS ENTITLED LAND. Borrower
may, from time to time, request Lender to include a portion of the Land as
Entitled Land for purposes of the Borrowing Base. In connection with each such
request, the following conditions precedent shall have been satisfied at the
sole cost and expense of Borrower. Upon the satisfaction of such conditions
precedent, as determined by Lender, such portions of the Land shall be included
in the Borrowing Base as Entitled Land.

            4.2.1 REQUEST. Borrower shall have submitted to Lender a request in
the form of EXHIBIT "F" to include those portions of the Land for which Lender
has received Appraisals in the Borrowing Base as Entitled Land. Such request and
all other documents and instruments described in this Section 4.2 shall be
submitted with the Borrowing Base Certificate in which Borrower intends to
include such portion of the Land in the Borrowing Base as Entitled Land. Each
such request shall be deemed a renewal of all representations and warranties of
Borrower set forth in the Loan Documents.

            4.2.2 DEFAULTS. No Event of Default or Unmatured Event of Default
shall have occurred and be continuing on and as of the date that each portion of
the Land is included as Entitled Land.

            4.2.3 MAP. Borrower shall have delivered to Lender and Lender shall
have approved a Final Map or Tentative Map, as applicable, of the Entitled Land
pursuant to the applicable subdivision map requirements. Each such map must
contain a legal description of the Entitled Land, must describe and show all
boundaries of and lot lines within such Entitled Land and all streets and other
dedications, and must contain such other information and certifications as
Lender may request

            4.2.4 ZONING APPROVALS. Borrower shall have provided to Lender and
Lender shall have approved evidence of appropriate vested zoning for the
contemplated development of the Entitled Land.

            4.2.5 OTHER. Borrower shall have provided such other documents and
information reasonably requested by Lender.

        4.3 CONDITIONS PRECEDENT TO ADMISSION OF LAND AS LOTS UNDER DEVELOPMENT.
Borrower may, from time to time, request Lender to include a portion of the Land
as Lots Under Development (including without limitation, any custom lots) for
purposes of the Borrowing Base. In connection with each such request, the
following conditions precedent shall have been satisfied at the sole cost and
expense of Borrower. Upon the satisfaction of such conditions precedent, as
determined by Lender, such Land shall be included in the Borrowing Base as Lots
Under Development.

                                       46
<PAGE>   53

            4.3.1 REQUEST. Borrower shall have submitted to Lender a request in
the form of EXHIBIT "G" to include portion of the Land in the Borrowing Base as
Lots Under Development. Such request and all other documents and instruments
described in this Section 4.3 shall be submitted with the Borrowing Base
Certificate in which Borrower intends to include such portion of the Land in the
Borrowing Base as Lots Under Development. Each such request shall be deemed a
renewal of all representations and warranties of Borrower set forth in the Loan
Documents.

            4.3.2 DEFAULTS. No Event of Default or Unmatured Event of Default
shall have occurred and be continuing on and as of the date that each portion of
the Land is included as Lots Under Development.

            4.3.3 DOCUMENTS AND INFORMATION. Borrower shall have provided to
Lender, and Lender shall have approved, all documents and information required
pursuant to Section 4.2 with respect to the applicable portion of the Land.

            4.3.4 INSPECTION. Development of the applicable portion of the Land
shall have commenced. Development will be deemed to have commenced when (i)
construction of one or more of the following scopes of work has begun on the
applicable portion of the Land -grading, paving, water, sewer or concrete, and
(ii) Borrower has expended material amounts for Hard Costs with respect to such
work.

            4.3.5 MAP. Borrower shall have delivered to Lender and Lender shall
have approved a Final Map or Tentative Map, as applicable, together with
evidence reasonably satisfactory to Lender that any such Tentative Map has not
expired and is not due to expire during the development of such portion of the
Land. Each such map must contain a legal description of the Land, must describe
and show all boundaries of and lot lines within such Land and all streets and
other dedications, and must contain such other information and certifications as
Lender may request.

            4.3.6 UTILITIES. If requested by Lender, Borrower shall have
delivered to Lender, evidence, which may be in the form of "will serve" letters
from local utility companies or local authorities, that: (a) telephone service,
electric power, storm sewer, sanitary sewer (if applicable) and water facilities
will be available to the Lots Under Development; (b) such utilities will be
adequate to serve the Lots Under Development; and (c) upon completion of the
Improvements, no conditions will exist to affect Borrower's right to connect
into and have adequate use of such utilities except for the payment of a normal
connection charges or tap charges and except for the payment of subsequent
charges for such services to the utility supplier.

            4.3.7 LOT LIMITATIONS. The total number of Lots Under Development
and Developed Lots to be included in the Borrowing Base as of the date of any
request made hereunder shall not be in excess of the Lot Concentration
Limitation.

            4.3.8 OTHER. Borrower shall have provided such other documents and
information reasonably requested by Lender.

        4.4 CONDITIONS PRECEDENT TO ADMISSION OF LAND AS DEVELOPED LOTS.
Borrower may, from time to time, request Lender to include a portion of the Land
as

                                       47
<PAGE>   54

Developed Lots for purposes of the Borrowing Base. In connection with each such
request, the following conditions precedent shall have been satisfied at the
sole cost and expense of Borrower. Upon the satisfaction of such conditions
precedent, as determined by Lender, such Land shall be included in the Borrowing
Base as Developed Lots.

            4.4.1 REQUEST. Borrower shall have submitted to Lender a request in
the form of EXHIBIT "H" that a portion of the Land be included in the Borrowing
Base as Developed Lots. Such request and all other documents and instruments
described in this Section 4.4 shall be submitted with the Borrowing Base
Certificate in which Borrower intends to include such portion of the Land in the
Borrowing Base as Developed Lots. Each such request shall be deemed a renewal of
all representations and warranties of Borrower set forth in the Loan Documents.

            4.4.2 DEFAULTS. No Event of Default or Unmatured Event of Default
shall have occurred and be continuing on and as of the date that each portion of
the Land is included as Developed Lots.

            4.4.3 DOCUMENTS AND INFORMATION. Borrower shall have provided to
Lender, and Lender shall have approved, all documents and Information required
pursuant to Sections 4.2 and 4.3, with respect to the applicable portion of the
Land.

            4.4.4 LOT LIMITATIONS. The total number of Lots Under Development
and Developed Lots to be included in the Borrowing Base as of the date of any
request made hereunder shall not be in excess of the Lot Concentration
Limitation.

            4.4.5 OTHER. Borrower shall have provided such other documents and
information reasonably requested by Lender.

        4.5 CONDITIONS PRECEDENT TO ADMISSION OF LAND AS PRESOLD, SPEC AND/OR
MODEL HOMES. Borrower may, from time to time, request Lender to include a
portion of the Land as Presold, Spec and/or Model Homes for purposes of the
Borrowing Base. In connection with each such request, the following conditions
precedent shall have been satisfied at the sole cost and expense of Borrower.
Upon the satisfaction of such conditions precedent, as determined by Lender,
such Land shall be included in the Borrowing Base as Presold, Spec and/or Model
Homes.

            4.5.1 REQUEST. Borrower shall have submitted to Lender a request in
the form of EXHIBIT "I" that a portion of the Land be included in the Borrowing
Base as Presold, Spec and/or Model Homes. Such request and all other documents
and instruments described in this Section 4.5 shall be submitted with the
Borrowing Base Certificate in which Borrower intends to include such portion of
the Land in the Borrowing Base as Presold, Spec and/or Model Homes. Each such
request shall be deemed a renewal of all representations and warranties of
Borrower set forth in the Loan Documents.

            4.5.2 DEFAULTS. No Event of Default or Unmatured Event of Default
shall have occurred and be continuing on and as of the date that each portion of
the Land is included as Developed Lots.

                                       48
<PAGE>   55

            4.5.3 DOCUMENTS AND INFORMATION. Borrower shall have provided to
Lender, and Lender shall have approved, all documents and Information required
pursuant to Sections 4.2, 4.3 and 4.4, with respect to the applicable portion of
the Land.

            4.5.4 HOME CONSTRUCTION INFORMATION. Borrower shall not be entitled
to include any portion of the Land in a Borrowing Base Certificate as Presold,
Spec and/or Model Homes unless and until each of the following conditions
precedent have been satisfied (or waived or modified by Lender in its
discretion):

                    (a) Borrower shall have submitted to Lender, and Lender
        shall have approved, Plans and Specifications for each type of Home for
        each Project, which Plans and Specifications shall be (i) prepared by
        Architect and/or Engineer acceptable to Lender, and (ii) otherwise
        satisfactory to Lender;

                    (b) Homes may be entered into the Borrowing Base upon
        confirmation of trenching by Lender;

                    (c) At Borrower's sole cost and expense, Lender shall have
        obtained Base Appraisals with respect to each type of Home, which Base
        Appraisals shall be (i) prepared by an appraiser acceptable to Lender,
        and (ii) otherwise satisfactory to Lender. Each Base Appraisal for each
        Home in a Project shall be updated or evaluated once annually at
        Lender's discretion (or more frequently if required by regulatory
        guidelines), at the sole cost and expense of Borrower, and all FNMA
        appraisals or other appraisals for said Homes accepted by Lender that do
        not have a specific expiration date shall be updated once annually at
        Lender's request; provided, however, that Lender may require that any
        such appraisal be updated more frequently than annually if (i) Lender
        believes that a material adverse change has occurred with respect to the
        Project or any portion thereof, or (ii) Borrower requests in writing
        that Lender order an appraisal of the Project, or (iii) Lender is
        required to reappraise the Project in connection with regulatory
        requirements. Based on such revised appraisals and/or evaluations and
        any other information provided to Lender, Lender shall be entitled to
        revise the Home Construction Budget and Maximum Allowed Advances
        applicable to any Home in said Project;

                    (d) Borrower shall have submitted to Lender all other
        information requested by Lender to formulate a Home Construction Budget
        for each type of Home (which may include without limitation construction
        contracts and other verifications of costs), and Lender shall have
        formulated such Home Construction Budget;

                    (e) If requested by Lender, Borrower shall have submitted or
        made available to Lender evidence of (i) building permits for the
        construction of the Homes, (ii) all necessary permits, licenses and
        approvals for the construction of said Homes, including without
        limitation the requisite consumer disclosure reports and approvals
        required in connection with the sale of said Homes, and (iii)
        architectural control committee homeowners' association and other
        approvals required under the CC&Rs;

                                       49
<PAGE>   56

                    (f) Prior to entering into any Purchase Contracts for the
        sale of any Homes, Borrower shall have delivered to Lender the requisite
        consumer disclosure reports and approvals prior to the sale of any
        Homes, in form and substance satisfactory to Lender;

                    (g) For all Presold Homes, Lender shall have received
        evidence in the form of Borrower's most recent project reports from JD
        Edwards (or such other form as reasonably requested by Lender) of the
        following:

                        (i) A duly executed Purchase Contract, escrow
               instructions or deposit receipt without contingencies (other than
               the sale of an existing residency contingency);

                        (ii) A prequalification letter or mortgage commitment
               from an institutional mortgage lender or such other information
               or verification as Lender may require concerning the ability of
               the prospective buyer to obtain financing or otherwise acquire
               the Home; and

                        (iii) A cash earnest money deposit or down payment of at
               least Five Thousand Dollars ($5,000.00) (which deposit
               requirement shall be increased to twenty percent (20%) of the
               purchase price for said Home if the prospective buyer failed to
               satisfy the requirement in subsection (ii) above).

                    (h) For all Spec Homes (including any Model Homes), Borrower
        shall not be entitled to include in the Borrowing Base at any one time
        in violation of the Spec Home Concentration Limitation, which shall
        mean:

                        (i) For all Projects financed hereunder, the aggregate
               Loan Allocations for all Spec Homes for all Projects (whether
               Advances have been made and/or have been committed but have not
               yet advanced) shall not exceed the sum of Twelve Million Dollars
               ($12,000,000.00); and/or

                        (ii) For each and every Project financed hereunder, for
               more Spec Homes than the lesser of (A) four (4) months' appraised
               absorption for the Project, or (B) four (4) months' actual
               absorption for the subject Project, as determined by Lender from
               time to time based upon the actual prior six-month Home sales
               average for said Project.

                    (i) For all Model Homes, the Lots to be used for the
        construction of any Model Homes, the Model Homes and any parking areas
        used for model complex parking shall remain as Collateral for the Loan
        and shall not be eligible for release from the applicable Deed of Trust
        until all production Homes of each Model Home's respective plan type
        have been sold for each applicable Project; provided, however, that
        Lender in its sole discretion may permit Borrower to sell a Model Home,
        as long as (1) said Model Home is leased back to Borrower under terms
        and conditions acceptable to Lender, and (2) said lease of the Model
        Home is assigned or otherwise encumbered as collateral for the
        applicable Loan, and (3) said lease and said assignment or encumbrance
        shall be in full force and effect until all production

                                       50
<PAGE>   57

        Units of said Model Home's respective plan type have been sold for the
        applicable Project.

            4.5.5 OTHER. Borrower shall have provided such other documents and
information reasonably requested by Lender.

        4.6 ADDITIONAL CONDITIONS PRECEDENT TO ALL ADVANCES. Lender shall be
obligated to make an Advance only if Borrower shall have delivered to Lender a
Draw Request for such Advance. Borrower may not submit more than one (1) Draw
Request per Business Day. Lender shall not be required to make the requested
Advance before five (5) Business Hours after receipt of the Draw Request.
Notwithstanding the foregoing, Lender may make Advances, without further
authorization or Draw Requests from Borrower, to pay interest prior to
delinquency to the extent of the Available Commitment; provided, however, that
from and after the occurrence and during the continuation of an Unmatured Event
of Default or an Event of Default, such Advances to pay interest may be made in
the sole and absolute discretion of Lender.

        4.7 WAIVER OF CONDITIONS PRECEDENT. Borrower hereby authorizes Lender,
and Lender reserves the right in its absolute and sole discretion, to verify any
documents and information submitted to Lender in connection with this Agreement.
Lender may elect, in its absolute and sole discretion, to waive any of the
foregoing conditions precedent. Any such waiver shall be limited to the
conditions) precedent therein and the requirements therein. Delay or failure by
Lender to insist on satisfaction of any condition precedent shall not be a
waiver of such condition precedent or any other condition precedent. The making
of an Advance by Lender shall not be deemed a waiver by Lender of the occurrence
of an Event of Default or an Unmatured Event of Default.

5. BORROWER'S REPRESENTATIONS AND WARRANTEES.

        5.1 CLOSING REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender as of the date of this Agreement:

            5.1.1 CORPORATE EXISTENCE AND AUTHORIZATION. Borrower is a
corporation, validly existing under the laws of California and has the requisite
power and authority to execute, deliver, and perform the Loan Documents. The
execution, delivery, and performance by Borrower of the Loan Documents have been
duly authorized by all requisite corporate action by or on behalf of Borrower
and will not conflict with, or result in a violation of or a default under, the
Organizational Documents of Borrower.

            5.1.2 NO APPROVALS, ETC. No approval, authorization, bond, consent,
certificate, franchise, license, permit, registration, qualification, or other
action or grant by or filing with any Person is required in connection with the
execution, delivery, or performance by Borrower of the Loan Documents.

            5.1.3 NO CONFLICTS. The execution, delivery, and performance by
Borrower of the Loan Documents will not conflict with, or result in a violation
of or a default under: (i) any applicable law, ordinance, regulation, or rule
(federal, state, or local); (ii) any judgment, order, or decree of any
arbitrator, other private adjudicator, or Governmental Authority to which
Borrower is a party or by which Borrower or any of the assets or

                                       51
<PAGE>   58

property of Borrower is bound; (iii) any of the Approvals and Permits; and/or
(iv) any agreement, document, or instrument to which Borrower is a party or by
which Borrower or any of the assets or property of Borrower is bound.

            5.1.4 EXECUTION AND DELIVERY AND BINDING NATURE OF LOAN DOCUMENTS.
The Loan Documents have been duly executed and delivered by or on behalf of
Borrower. The Loan Documents are legal, valid, and binding obligations of
Borrower, enforceable in all material respects in accordance with their terms
against Borrower, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization, or similar laws and by equitable
principles of general application.

            5.1.5 LEGAL PROCEEDINGS; HEARINGS, INQUIRIES, AND INVESTIGATIONS.
Except as previously disclosed to and approved by Lender, (i) no legal
proceeding is pending or, to best knowledge of Borrower, threatened before any
arbitrator, other private adjudicator, or Governmental Authority to which
Borrower is a party or by which Borrower or any assets or property of Borrower
may be bound or affected that if resolved adversely to Borrower could result in
a Material Adverse Change, and (ii) no hearing, inquiry, or investigation
relating to Borrower or any assets or property of Borrower is pending or, to the
best knowledge of Borrower, threatened by any Governmental Authority that if
resolved adversely to Borrower could result in a Material Adverse Change.

            5.1.6 NO EVENT OF DEFAULT. No Event of Default or Unmatured Event of
Default has occurred and is continuing.

            5.1.7 APPROVALS AND PERMITS; ASSETS AND PROPERTY. Except as
disclosed to Lender in writing prior to the date hereof, to the best knowledge
of Borrower, (i) Borrower has all Approvals and Permits necessary for the
development currently taking place at each Qualified Project and (ii) there are
no facts or circumstances known to Borrower that would materially impair the
ability of Borrower to obtain Approvals and Permits necessary for the future
development of each Qualified Project or to otherwise continue the contemplated
development of said Qualified Project. In the event that the foregoing
representation and warranty shall cease to be true in all material respects with
respect to a Qualified Project or portion thereof, such Qualified Project (or
portion thereof, as the case may be) shall cease to be part of the Borrowing
Base until such time as such representation and warranty shall become true in
all material respects.

            5.1.8 ERISA. Borrower is in compliance with ERISA. No Reportable
Event or Prohibited Transaction (as defined in ERISA) or termination of any plan
has occurred and no notice of termination has been filed with respect to any
plan established or maintained by Borrower and subject to ERISA. Borrower has
not incurred any material funding deficiency within the meaning of ERISA or any
material liability to the Pension Benefit Guaranty Corporation in connection
with any such plan established or maintained by Borrower.

            5.1.9 COMPLIANCE WITH LAW. Borrower has not received any notice of
any material violations of any applicable laws, rules, or regulations of any
Governmental Authority with respect to any Qualified Project or the development
of said Qualified Project and Borrower is not aware of any facts or
circumstances which would constitute or cause

                                       52
<PAGE>   59

any such violation. If the foregoing representation and warranty shall cease to
be true with respect to a Qualified Project (or portion thereof), such Qualified
Project (or such portion thereof, as the case may be) shall cease to be a part
of the Borrowing Base until such time as such violation or facts or
circumstances shall no longer exist.

            5.1.10 FULL DISCLOSURE. All information in the loan application,
financial statement, certificate, or other document and all information prepared
and delivered by Borrower to Lender in obtaining the Commitment is correct and
complete in all material respects, and there are no omissions therefrom that
result in such information being incomplete, incorrect, or misleading in any
material adverse respect as of the date thereof. To the best knowledge of
Borrower, all information in any loan application, financial statement,
certificate or other document prepared and delivered to Lender on behalf of
Borrower by Persons other than Borrower or its Affiliates, and all other
information prepared and delivered to Lender on behalf of Borrower or by Persons
other than Borrower or its Affiliates in obtaining the Commitment is correct and
complete in all material respects, and there are no omissions therefrom that
result in any such information being incomplete, incorrect, or misleading in any
material adverse respect as of the date thereof. There has been no Material
Adverse Change as to Borrower or any Project since the date of such information.
All financial statements heretofore delivered to Lender by Borrower were
prepared in accordance with GAAP and accurately represent the financial
conditions and results of operation of the subjects thereof as of the dates
thereof and for the period covered thereby.

            5.1.11 USE OF PROCEEDS; MARGIN STOCK. The proceeds of the Advances
will be used by Borrower solely for the purposes specified in this Agreement.
None of such proceeds will be used for the purpose of purchasing or carrying any
"margin stock" as defined in Regulation U or G of the Board of Governors of the
Federal Reserve System (12 C. F. R. Part 221 and 207), or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of such Regulation U or G.
Borrower is not engaged in the business of extending credit for the purpose of
purchasing, or carrying margin stock. Neither Borrower nor any Person acting on
behalf of Borrower has taken or will take any action which might cause any Loan
Documents to violate Regulation U or G or any other regulations of the Board of
Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934, or any rule or regulation thereunder, in each
case as now in effect or as the same may hereafter be in effect. Borrower and
Borrower's subsidiaries own no "margin stock".

            5.1.12 GOVERNMENTAL REGULATION. Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as
any of the preceding have been amended), or any other law which regulates the
incurring by Borrower of indebtedness, including but not limited to laws
relating to common or contract carriers or the sale of electricity, gas, steam,
water, or other public utility services.

            5.1.13 MATERIAL AGREEMENTS; NO MATERIAL DEFAULTS. Attached hereto as
EXHIBIT "J" is a true and correct listing of all material contracts, leases,
permits, development agreements, covenants, restrictions, option agreements,
purchase and sale

                                       53
<PAGE>   60

agreements, instruments and other agreements requested by Lender for review
relating to each of the Existing Projects to be included as Qualified Projects
under the Borrower Base as of the Initial Closing Date (collectively "MATERIAL
AGREEMENTS -- EXISTING PROJECTS"); in connection with Borrower seeking approval
for a Qualified Project under Section 2.4 above, Borrower shall provide Lender
with a true and correct listing of the same types of documents and/or materials
for each new Qualified Project as described in the preceding sentence
(collectively "MATERIAL AGREEMENTS -- FUTURE PROJECTS") (the Material Agreements
-- Existing Projects and the Material Agreements -- Future Projects collectively
shall be referred to as the "MATERIAL AGREEMENTS"). Borrower shall execute an
assignment or assignments in favor of Lender of all of Borrower's rights, title
and interests in and to any and all Material Agreements as required by Lender in
its discretion. No event has occurred which, immediately or upon the expiration
of applicable cure or grace periods, would constitute a default which in
Lender's reasonable opinion would have a Material Adverse Change in Borrower or
any Project with respect to (i) the terms of any instrument evidencing or
relating to any debt of Borrower, (ii) any such contract, lease, permit,
development agreement, covenant, restriction, option agreement, purchase and
sale agreement, instruments and other agreement, (iii) any statute, ordinance,
law, judgment, order, writ, injunction, decree, or rule or regulation of any
Governmental Authority or any determination or award of any arbitrator to which
Borrower or any Project may be bound, or (iv) any other instrument, agreement or
document by which Borrower, any Project or any of Borrower's properties is
bound. If the foregoing representation and warranty shall cease to be true with
respect to a Qualified Project or a portion thereof, such Qualified Project (or
such portion thereof, as the case may be) shall cease to be part of the
Borrowing Base until such time as such representation and warranty is once again
true.

            5.1.14 TITLE TO PROPERTY. Borrower has good, sufficient and legal
title to all properties and assets reflected in its most recent balance sheet
delivered to Lender, except for assets disposed of in the ordinary course of
business since the date of such balance sheet. The Property is free and clear of
Liens and Encumbrances, except for Permitted Exceptions. Borrower is the sole
owner of, and has good and marketable title to, the fee interest in each
Qualified Project and all other real property described in the Deed of Trust
encumbering the property included in said Qualified Project, free from any Liens
and Encumbrances, excepting only Permitted Exceptions. If the foregoing
representation and warranty shall cease to be true in all material respects with
respect to a Qualified Project or a portion thereof, such Qualified Project (or
such portion thereof, as the case may be) shall cease to be part of the
Borrowing Base until such time as such representation and warranty is once again
true in all material respects.

            5.1.15 PAYMENT OF TAXES. All tax returns and reports of Borrower
required to be filed by Borrower have been timely filed, and all taxes,
assessments, fees and other governmental charges upon Borrower and upon its
properties, assets, income and franchises which are due and payable have been
paid prior to delinquency. Borrower knows of no proposed tax assessment against
Borrower or any Qualified Project that would be material to the condition
(financial or otherwise) of Borrower or said Qualified Project, and Borrower has
not contracted with any Governmental Authority in connection with any such
taxes. If the foregoing representation and warranty shall cease to be true with
respect to a Qualified Project or a portion thereof, such Qualified Project (or
such portion

                                       54
<PAGE>   61

thereof, as the case may be) shall cease to be part of the Borrowing Base until
such time as such representation and warranty is once again true.

            5.1.16 NO CONDEMNATION. No condemnation proceedings or moratorium is
pending, or to the best of Borrower's knowledge, threatened against any
Qualified Project or any portion thereof which would impair the use, occupancy,
or full operation of said Qualified Project in any manner whatsoever. If the
foregoing representation and warranty shall cease to be true with respect to a
Qualified Project or a portion thereof, such Qualified Project (or such portion
thereof, as the case may be) shall cease to be part of the Borrowing Base until
such time as such representation and warranty is once again true in all material
respects.

            5.1.17 BORROWING BASE. The classification of each item of property
included in the Borrowing Base is true and correct. No Borrowing Base value
shall be attributed to Raw Land.

        5.2 REPRESENTATIONS AND WARRANTIES UPON REQUESTS FOR ADVANCES. Each Draw
Request shall be a representation and warranty by Borrower to Lender that the
representations and warranties in this Section 5 are correct and complete in all
material respects as of the date the requested Advance except as otherwise
disclosed by Borrower to Lender in writing prior to the date of such Draw
Request.

        5.3 REPRESENTATIONS AND WARRANTIES UPON DELIVERY OF FINANCIAL
STATEMENTS, DOCUMENTS, AND OTHER INFORMATION. Each delivery by Borrower to
Lender of financial statements, other documents, or information after the date
of this Agreement (including, without limitation, documents and information
delivered in obtaining an Advance) shall be a representation and warranty that
such financial statements, other documents, and information are correct and
complete (in accordance with GAAP) in all material respects, that there are no
material omissions therefrom that result in such financial statements, other
documents, or information being materially incomplete, incorrect, or misleading
in any material respect as of the date thereof, and that such financial
statements accurately present the financial condition and results of operations
of Borrower as at the dates thereof in all material respects and for the periods
covered thereby.

6. BORROWER AFFIRMATIVE COVENANTS. Until the Commitment terminates in full and
the Obligations are paid and performed in full, Borrower agrees that, unless
Lender otherwise agrees in writing in Lender's absolute and sole discretion:

        6.1 CORPORATE EXISTENCE. Borrower shall continue to be a corporation,
validly existing under the laws of the State of California.

        6.2 BOOKS AND RECORDS; ACCESS BY LENDER. Borrower shall maintain a
standard, modern system of accounting (including without limitation a single,
complete, and accurate set of books and records of its assets, business,
financial condition, operations, property, prospects, and results of operations)
in accordance with GAAP. Borrower shall also maintain complete and accurate
records regarding the acquisition, development and construction of the Project,
including, without limitation, all construction

                                       55
<PAGE>   62

contracts, architectural contracts, engineering contracts, field and inspection
reports, applications for payment, estimates and analyses regarding construction
costs, names and addresses of all contractors and subcontractors performing work
or providing materials or supplies with respect to the development and
construction of the Project, invoices and bills of sale for all costs and
expenses incurred by contractors and subcontractors in connection with the
development and construction of the Project, payment, performance and other
surety bonds (if applicable), releases and waivers of lien for all such work
performed and materials supplied, evidence of completion of all inspections
required by any Governmental Authority, certificates of substantial completion,
notices of completion, surveys, as-built plans, Approvals and Permits, Purchase
Contracts, escrow instructions, records regarding all sales of all or portions
of the Project, and all other documents and instruments relating to the
acquisition, development, construction and/or sale of the Project or portions
thereof. During business hours Borrower shall give representatives of Lender
access to all assets, property, books, records, and documents of Borrower and
will permit such representatives to inspect such assets and property and to
audit, copy, examine, and make excerpts from such books, records, and documents.
Upon request by Lender, Borrower shall also provide Lender with copies of the
reports, documents, agreements, and other instruments described in this Section
6.2.

        6.3 SPECIAL COVENANTS RELATING TO COLLATERAL.

            6.3.1 DEFENSE OF TITLE. Borrower shall defend the Collateral, the
title and interest therein of Borrower represented and warranted in the Deed of
Trust, and the legality, validity, binding nature, and enforceability of each
Lien and Encumbrance contained in the Deed of Trust and the first priority of
the Deed of Trust against all matters, including, without limitation: (a) any
attachment, levy, or other seizure by legal process or otherwise of any or all
Collateral; (b) except for Permitted Exceptions, any Lien or Encumbrance or
claim thereof on any or all Collateral; (c) any attempt to foreclose, conduct a
trustee's sale, or otherwise realize upon any or all Collateral under any Lien
or Encumbrance, regardless of whether a Permitted Exception and regardless of
whether junior or senior to the Deed of Trust; and (d) any claim questioning the
legality, validity, binding nature, enforceability, or priority of the Deed of
Trust. Borrower shall notify Lender promptly in writing of any of the foregoing
and will provide such information with respect thereto as Lender may from time
to time request. During the period of time that Borrower is not able to comply
with the covenants set forth herein for a Qualified Project or portion thereof
for a period of thirty (30) days following written notice from Lender (provided
that if Borrower cannot reasonably cure such non-compliance within such thirty
(30) day period, such thirty (30) day period shall be extended for a reasonable
period not in excess of ninety (90) days from the date of Lender's notice to
cure such non-compliance provided that Borrower shall have commenced such cure
within such thirty (30) day period and shall diligently thereafter proceed to
effect such cure), then said Qualified Project (or portion thereof, as the case
may be) shall cease to be a part of the Borrowing Base until Borrower shall so
comply.

            6.3.2 FURTHER ASSURANCES. Borrower shall promptly execute,
acknowledge, and deliver such additional agreements, documents, and instruments
and do or cause to be done such other acts as Lender may reasonably request from
time to time to better assure, preserve, protect, and perfect the interest of
Lender in the Collateral and the

                                       56
<PAGE>   63

rights and remedies of Lender under the Loan Documents. Without limiting the
foregoing, to the extent that Lender determines from time to time that
additional deeds of trust, amendments to deeds of trust, financing statements,
subordinations, and other documents are required in order to perfect all Liens
and Encumbrances in favor of Lender, and cause all Collateral encumbered by any
of the deeds of trust to be subject only to Permitted Exceptions, Borrower shall
execute and deliver such documents, instruments and other agreements as Lender
may reasonably request.

            6.3.3 PLATS, ANNEXATIONS AND APPROVALS. For each Qualified Project
to be included in the Borrowing Base:

                    (a) Each plat or map (whether tentative or final) with
        respect to any portion of any Qualified Project shall comply with all
        Requirements and shall be satisfactory in form and substance to Lender.
        Prior to evaluation by Lender of the plat or map for approval, Borrower
        shall deliver to Lender such certifications, maps, surveys, and other
        documents and information as Lender requires. Prior to the recordation
        of any plat or map by Borrower, Borrower shall deliver to Lender such
        title insurance endorsements insuring the continued priority of the Deed
        of Trust after recording of the plat or map as Lender may require.
        Borrower agrees to take such steps as Lender may require in (i) either
        re-recording the Deed of Trust or amending the Deed of Trust to reflect
        the new plat legal description, and (ii) obtaining an endorsement to the
        Title Policy to amend the legal description therein.

                    (b) Borrower shall obtain and, upon request, provide Lender
        with, evidence of: (i) appropriate zoning for the use and occupancy of
        each Qualified Project; (ii) all necessary Approvals and Permits of
        Governmental Authorities and other third parties necessary to permit the
        development and sale of each Qualified Project, including without
        limitation all applicable public reports, architectural committee
        approvals and other approvals required pursuant to any applicable
        restrictive covenants; (iii) all Approvals and Permits necessary to
        commence, carry out and complete construction; and (iv) evidence of
        payment of all fees and other required amounts for such Approvals and
        Permits.

                    (c) At Lender's request, Borrower shall provide Lender with
        true and correct copies of all documents and instruments relating to
        proposed easements, boundary line adjustments, covenants, conditions and
        restrictions and other similar matters affecting title to each Qualified
        Project in connection with the development thereof, together with all
        surveys, plats, contracts, and other information requested by Lender in
        connection therewith. Such easements, boundary line adjustments,
        covenants, conditions and restrictions and other matters shall not be
        entered into by Borrower unless consented to in writing by Lender, which
        consent shall not be unreasonably withheld by Lender so long as they are
        entered into in the ordinary course of developing each Qualified
        Project. If such consent is granted by Lender, Lender will also enter
        into such subordinations and releases as may be appropriate in
        connection with such easements, boundary line adjustments, and
        covenants, conditions and restrictions, provided that such
        subordinations are in form reasonably satisfactory to Lender and, in
        connection with any such releases, Borrower has satisfied the conditions
        precedent set forth in Section 3.2.1 above.

                                       57
<PAGE>   64

        In the event that Borrower is not able to comply with the covenants set
        forth herein for a Qualified Project or portion thereof for a period of
        thirty (30) days following written notice from Lender (provided that if
        Borrower cannot reasonably cure such non-compliance within such thirty
        (30) day period, such thirty (30) day period shall be extended for a
        reasonable period not in excess of ninety (90) days from the date of
        Lender's notice to cure such non-compliance provided that Borrower shall
        have commenced such cure within such thirty (30) day period and shall
        diligently thereafter proceed to effect such cure), then said Qualified
        Project (or portion thereof, as the case may be) shall cease to be a
        part of the Borrowing Base until Borrower shall so comply.

            6.3.4 UTILITIES. Borrower shall provide or cause to be provided all
telephone service, electric power, storm sewer, sanitary sewer and water
facilities for each Qualified Project, and such utilities will be adequate to
serve said Project. No condition will exist to affect Borrower's right to
connect into and have adequate use of such utilities, except for the payment of
normal connection charges or tap charges and except for the payment of
subsequent charges for such services to the utility supplier. In the event that
Borrower is not able to comply with the covenants set forth herein for a
Qualified Project or portion thereof for a period of thirty (30) days following
written notice from Lender (provided that if Borrower cannot reasonably cure
such non-compliance within such thirty (30) day period, such thirty (30) day
period shall be extended for a reasonable period not in excess of ninety (90)
days from the date of Lender's notice to cure such non-compliance provided that
Borrower shall have commenced such cure within such thirty (30) day period and
shall diligently thereafter proceed to effect such cure), then said Qualified
Project (or portion thereof, as the case may be) shall cease to be a part of the
Borrowing Base until Borrower shall so comply.

            6.3.5 PLANS AND SPECIFICATIONS. Borrower shall be the sole owner of
all Plans and Specifications for the Improvements for each Qualified Project or,
to the extent that Borrower is not the sole owner of such Plans and
Specifications, Borrower shall have the unconditional right to use such Plans
and Specifications in connection with the construction of the Improvements for
said Qualified Project. Lender will not be restricted in any way in use of such
Plans and Specifications from and after an Event of Default in connection with
the construction of the Improvements and the exercise of Lender's other rights
and remedies, and Borrower shall obtain all consents and authorizations
necessary for the use of such Plans and Specifications to Lender. In the event
that Borrower is not able to comply with the covenants set forth herein for a
Qualified Project or portion thereof for a period of thirty (30) days following
written notice from Lender (provided that if Borrower cannot reasonably cure
such non-compliance within such thirty (30) day period, such thirty (30) day
period shall be extended for a reasonable period not in excess of ninety (90)
days from the date of Lender's notice to cure such non-compliance provided that
Borrower shall have commenced such cure within such thirty (30) day period and
shall diligently thereafter proceed to effect such cure), then said Qualified
Project (or portion thereof, as the case may be) shall cease to be a part of the
Borrowing Base until Borrower shall so comply.

            6.3.6 COMPLIANCE WITH PERMITTED EXCEPTIONS. Borrower shall keep and
maintain in full force and effect all restrictive covenants, development
agreements,

                                       58
<PAGE>   65

easements and other agreements with Governmental Authorities and other Persons
that are necessary or desirable for the use, occupancy, and sale of each
Qualified Project. Borrower shall not default in any material respect under any
such covenants, development agreements, easements and other agreements and will
diligently enforce its rights thereunder. In the event that Borrower is not able
to comply with the covenants set forth herein for a Qualified Project or portion
thereof for a period of thirty (30) days following written notice from Lender
(provided that if Borrower cannot reasonably cure such non-compliance within
such thirty (30) day period, such thirty (30) day period shall be extended for a
reasonable period not in excess of ninety (90) days from the date of Lender's
notice to cure such non-compliance provided that Borrower shall have commenced
such cure within such thirty (30) day period and shall diligently thereafter
proceed to effect such cure), then said Qualified Project (or portion thereof,
as the case may be) shall cease to be a part of the Borrowing Base until
Borrower shall so comply.

            6.3.7 PROJECT DEVELOPMENT. For each Qualified Project:

                    (a) Borrower shall at all times maintain and operate the
        Project and use its best efforts to market each Qualified Project.
        Regardless of whether Advances are available, Borrower shall pay all
        costs and expenses arising in connection with the management, operation,
        development and sale of said Qualified Project. The Improvements for
        each Qualified Project shall be constructed and developed in substantial
        conformity with the Plans and Specifications therefor, and in strict
        conformity with all applicable laws, rules and regulations of all
        Governmental Authorities with jurisdiction over said Qualified Project
        and shall be contained wholly within the lot lines of the Land included
        within the Qualified Project and will not encroach on any other real
        estate, easements, building lines or setback requirements. Within
        fifteen (15) days after Borrower receives notice or knowledge thereof,
        Borrower shall proceed with diligence to correct any material departure
        from applicable plans and specifications and any departure from
        applicable laws, rules and regulations of any Governmental Authority
        with jurisdiction over said Qualified Project. The making of Advances
        shall not constitute a waiver of Lender's right to require compliance
        with this covenant with respect to any such defect or departure from
        plans and specifications or applicable laws, rules and regulations.

                    (b) With respect to those portions of each Qualified Project
        which are to be open space" or otherwise constitute streets and other
        common areas to be dedicated and transferred to homeowners' associations
        or other Governmental Authorities with jurisdiction over said Qualified
        Project, and are not otherwise included within the portions of the Land
        to be developed by Borrower, Borrower shall take such actions as may be
        necessary to cause such dedications to be made promptly and in
        accordance with applicable covenants, conditions and restrictions and
        laws, rules and regulations. Lender may, at its sole option, notify
        Borrower that such transfers and dedications are required by Lender, in
        which case Borrower shall cause such transfers and dedications to occur
        within thirty (30) days.

        In the event that Borrower is not able to comply with the covenants set
        forth herein for a Qualified Project or portion thereof for a period of
        thirty (30) days following

                                       59
<PAGE>   66

        written notice from Lender (provided that if Borrower cannot reasonably
        cure such non-compliance within such thirty (30) day period, such thirty
        (30) day period shall be extended for a reasonable period not in excess
        of ninety (90) days from the date of Lender's notice to cure such
        non-compliance provided that Borrower shall have commenced such cure
        within such thirty (30) day period and shall diligently thereafter
        proceed to effect such cure), then said Qualified Project (or portion
        thereof, as the case may be) shall cease to be a part of the Borrowing
        Base until Borrower shall so comply.

            6.3.8 TITLE POLICY ENDORSEMENTS. If required by Lender from time to
time in connection with the approvals to be granted by Lender pursuant to the
Loan Documents, Borrower shall provide such continuation endorsements, date down
endorsements, survey endorsements and other endorsements to each Title Policy
for each Qualified Project, in form and substance satisfactory to Lender, as
Lender determines necessary to insure the priority of each said Deed of Trust as
a valid first lien on the applicable Collateral, subject only to Permitted
Exceptions. Borrower agrees to furnish to the Title Company such surveys and
other documents and information as Lender or the Title Company may require for
the Title Company to issue such endorsements. In the event that Borrower is not
able to comply with the covenants set forth herein for a Qualified Project or
portion thereof for a period of thirty (30) days following written notice from
Lender (provided that if Borrower cannot reasonably cure such non-compliance
within such thirty (30) day period, such thirty (30) day period shall be
extended for a reasonable period not in excess of ninety (90) days from the date
of Lender's notice to cure such non-compliance provided that Borrower shall have
commenced such cure within such thirty (30) day period and shall diligently
thereafter proceed to effect such cure), then said Qualified Project (or portion
thereof, as the case may be) shall cease to be a part of the Borrowing Base
until Borrower shall so comply., then said Project shall cease to be a Qualified
Project hereunder.

            6.3.9 IMPROVEMENT DISTRICTS. For any Qualified Project, without
obtaining the prior written consent of Lender, Borrower shall not consent to, or
vote in favor of, the inclusion of all or any part of the Collateral in any
improvement district, any "MELLO ROOS" district (for Qualified Projects in
California), special assessment district or similar district. Borrower shall
give immediate notice to Lender of any notification or advice that Borrower may
receive from any municipality or other third party of any intent or proposal to
include all or any part of the Collateral in an improvement, assessment or other
district. Upon prior written notice to Borrower, Lender shall have the right to
file a written objection to the inclusion of all or any part of the Collateral
in an improvement, assessment or other district, either in its own name or in
the name of Borrower, and to appear at, and participate in, any hearing with
respect to the formation of any such district. In the event that Borrower is not
able to comply with the covenants set forth herein for a Qualified Project or
portion thereof for a period of thirty (30) days following written notice from
Lender (provided that if Borrower cannot reasonably cure such non-compliance
within such thirty (30) day period, such thirty (30) day period shall be
extended for a reasonable period not in excess of ninety (90) days from the date
of Lender's notice to cure such non-compliance provided that Borrower shall have
commenced such cure within such thirty (30) day period and shall diligently
thereafter proceed to effect such cure), then

                                       60
<PAGE>   67

said Qualified Project (or portion thereof, as the case may be) shall cease to
be a part of the Borrowing Base until Borrower shall so comply.

            6.3.10 APPRAISALS. Lender shall have the right to order Appraisals
of each Qualified Project and all other Collateral from time to time in Lender's
discretion. Each Appraisal is subject to review and approval by Lender. With
respect to each Appraisal that Lender orders, whether as a result of applicable
laws, rules, and regulations of any Governmental Authority or as a result of
Lender's general policies and procedures applicable to loans secured by real
estate or for any other reason, Borrower agrees upon demand by Lender to pay to
Lender the cost and expense incurred by Lender for such Appraisals and a fee
prescribed by Lender for review of each Appraisal by Lender.

        6.4 INFORMATION AND STATEMENTS. Borrower shall furnish or cause to be
furnished to Lender in connection with each and every Loan made hereunder:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
REPORTING PARTY                REQUIRED STATEMENT                                     TO BE RECEIVED BY:
--------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                                                    <C>
1.  Borrower                   Annual Financial Statement (audited by an              Within 120 days of each fiscal
                               independent certified public accountant and            year end
                               certified by the party submitting the statement)
--------------------------------------------------------------------------------------------------------------------------
2.  Borrower                   Quarterly Financial Statement (certified               Within 60 days of the end of each
                               by the party submitting the statement)                 quarterly period
--------------------------------------------------------------------------------------------------------------------------
3.  Borrower                   Annual 24-Month Cash Flow Projection                   Within 90 days of the end of each
                                                                                      fiscal year end
--------------------------------------------------------------------------------------------------------------------------
4.  Borrower                   Monthly Sales Report                                   Within 15 days of each Calendar
                                                                                      Month end
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

            6.4.1 MONTHLY SALES REPORTS. As soon as available and in any event
within the time period set forth in the chart above, Borrower shall deliver to
Lender a report of all Home and Lots sales and closings during the previous
Calendar Month and on a cumulative basis since inception for each Project
financed hereunder, which report shall be prepared and delivered by Borrower,
shall be in form and substance satisfactory to Lender, shall be certified as
true and correct on behalf of Borrower by the chief financial officer of
Borrower and, upon request of Lender, shall be supported by settlement
statements relating to each Lot or Home sale.

            6.4.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available and in
any event within the time period set forth in the chart above, copies of the
balance sheet of Borrower and 10-Q statement (as included in the consolidated
financial statements of William Lyon Homes, a Delaware corporation) as of the
end of such quarter (including full detail of all assets and Borrowing Base
availability computations), statements of income and retained earnings and a
statement of cash flow of Borrower for such month, prepared in accordance with
GAAP, and signed and certified as true and correct on behalf of Borrower by the
chief financial officer of Borrower.

                                       61
<PAGE>   68

            6.4.3 ANNUAL FINANCIAL STATEMENTS. As soon as available and in any
event within the time period set forth in the chart above, annual consolidated,
unqualified financial statements of Borrower (as included in the consolidated
financial statements of William Lyon Homes, a Delaware corporation), including
copies of the balance sheet of Borrower, 10-K statement as of the end of such
fiscal year, internally-generated consolidating financial statements, and
statements of income and retained earnings and a statement of cash flow of
Borrower for such fiscal year, in each case setting forth in comparative form
the figures for the preceding fiscal year of Borrower, all in reasonable detail
and prepared in accordance with GAAP, audited by independent certified public
accountants satisfactory to Lender and accompanied by an unqualified opinion of
such auditors. Such audit shall also cover and include the information contained
in the Borrowing Base Certificates delivered pursuant to Section 6.4.6. In the
event that the annual financial statements provided to Lender hereunder are not
accompanied by an unqualified opinion of such auditors, then Borrower shall
provide such management letters as required by Lender in its discretion.

            6.4.4 ANNUAL 24-MONTH PROJECTION. As soon as available and in any
event within the time period set forth in the chart above, Borrower shall
provide Lender with a projection for the next twenty-four (24) Calendar Months
of cash flow and Project Revenues for Borrower and all Projects financed
hereunder.

            6.4.5 COMPLIANCE CERTIFICATES. Together with each of the financial
statements required pursuant to Sections 6.4.1-6.4.4, a statement in form and
substance satisfactory to Lender, certified by the chief financial officer of
Borrower that Borrower is in compliance with all covenants, terms, and
conditions applicable to Borrower under or pursuant to the Loan Documents and
any other Debt owing by Borrower to any Person, and disclosing any noncompliance
therewith and describing the status of Borrower's actions to correct such
noncompliance, if applicable.

            6.4.6 BORROWING BASE CERTIFICATE. By the fifteenth (15th) day of
each Calendar Month, a current Borrowing Base Certificate reflecting the
Property included the Borrowing Base as of the last day of the immediately
preceding Calendar Month. In addition, by the fifteenth (15th) day of the end of
each Calendar Quarter, together with said certificate, a detailed computation of
the financial covenant requirements set forth in Section 6.15 below.

            6.4.7 OTHER ITEMS AND INFORMATION. Such other information concerning
Borrower, the Project, and the assets, business, financial condition,
operations, property, prospects, and results of operations of Borrower, as well
as the financial statements and other information for prospective purchasers of
any portion of the Land, as Lender reasonably requests from time to time. In
this regard, promptly upon request of Lender, Borrower shall deliver to Lender
counterparts and/or conditional assignments as security of any and all
construction contracts, receipted invoices, bills of sale, statements,
conveyances, and other agreements, documents, and instruments of any nature
relating to the Project or under which Borrower claims title to any materials or
supplies used or to be used in the Project. Also, in this regard, promptly upon
request of Lender, Borrower shall deliver to Lender a complete list of all
contractors, subcontractors, material suppliers,

                                       62
<PAGE>   69

other vendors, artisans, and laborers performing work or services or providing
materials or supplies for the Project.

        6.5 LAW; JUDGMENTS; MATERIAL AGREEMENTS; APPROVALS AND PERMITS. Borrower
shall comply with all laws, ordinances, regulations, and rules (federal, state,
and local) and all judgments, orders, and decrees of any arbitrator, other
private adjudicator, or Governmental Authority relating to Borrower, the
Project, or the other assets, business, operations, or property of Borrower.
Borrower shall comply with all material agreements, documents, and instruments
to which Borrower is a party or by which Borrower, the Project, or any of the
other assets or property of Borrower are bound or affected. Borrower shall not
cancel or terminate any such agreements, documents or instruments if to do so
could result in a Material Adverse Change. Borrower shall comply with all
Requirements (including, without limitation, as applicable, requirements of the
Federal Housing Administration and the Veterans Administration) and all
conditions and requirements of all Approvals and Permits. Borrower shall obtain
and maintain in effect from time to time all Approvals and Permits required for
the development and marketing of the Project and the business activities and
operations then being conducted by Borrower. Borrower shall immediately provide
Lender with written notice and explanation of any litigation involving Borrower
in which the amount in dispute exceeds One Million Dollars ($1,000,000.00). In
the event of any dispute that, in the good faith opinion of Lender, could result
in a Material Adverse Change or the fulfillment of any condition precedent or
covenant herein, Lender may agree to make Advances for the account of Borrower
without prejudice to Borrower's rights, if any, to recover such funds from the
party to whom paid. Such agreement or agreements may take any form that Lender
in its reasonable discretion deems proper, including, without limitation,
agreements to indemnify a title insurer against possible assertion of lien
claims and agreements to pay disputed amounts to contractors in the event
Borrower is unable or unwilling to pay the same. All sums paid or agreed to be
paid pursuant to such agreement shall be for the account of Borrower and shall
be charged as an Advance.

        6.6 TAXES AND OTHER DEBT. Borrower shall pay and discharge (a) before
delinquency all taxes, assessments, and governmental charges or levies imposed
upon it, upon its income or profits, or upon any property belonging to it, (b)
when due all lawful claims (including, without limitation, claims for labor,
materials, and supplies), which, if unpaid, might become a Lien or Encumbrance
upon any of its assets or property, and (c) all its other Debt, when due.

        6.7 ASSETS AND PROPERTY. Borrower shall maintain, keep, and preserve all
of its assets and property (tangible and intangible) necessary or useful in the
proper conduct of its business and operations in good working order and
condition, ordinary wear and tear excepted. Borrower shall promptly obtain and
maintain, from time to time at its own expense, all Approvals and Permits as may
be required to enable it to comply with its obligations hereunder and under the
other Loan Documents.

        6.8 INSURANCE. Borrower shall obtain and maintain the following
insurance and pay all premiums related thereto as and when they become due in
connection with each and every Project financed hereunder:

                                       63
<PAGE>   70

            6.8.1 PROPERTY. Insurance of all Collateral against damage or loss
by fire, lightning, and other perils, on an all risks basis, such coverage to be
in an amount not less than the full insurable value of such Collateral on a
replacement cost basis. Such policy will be written on an all risks basis, with
no coinsurance requirement, and will contain a provision granting the insured
permission to complete and/or occupy the Project.

            6.8.2 LIABILITY. Commercial general liability insurance protecting
Borrower and Lender against loss or losses from liability imposed by law or
assumed in any agreement, document, or instrument and arising from bodily
injury, death, or property damage with a limit of liability of not less than Two
Million Dollars ($2,000,000.00) per occurrence and Ten Million Dollars
($10,000,000.00) general aggregate. Also, "umbrella" excess liability insurance
in an amount not less than Ten Million Dollars ($10,000,000.00) or such greater
amount as Lender may reasonably require. Such policies must be written on an
occurrence basis so as to provide blanket contractual liability, broad form
property damage coverage, and coverage for products and completed operations. If
required by Lender, Borrower shall also obtain and maintain business motor
vehicle liability insurance protecting Borrower and Lender against loss or
losses from liability relating to motor vehicles owned, non-owned, or hired and
used by Borrower or its agents and employees, with a limit of liability of not
less than One Million Dollars ($1,000,000.00) (combined single limit for
personal injury (including bodily injury and death) and property damage).

            6.8.3 FLOOD. A policy or policies of flood insurance in the maximum
amount of flood insurance available with respect to the Project under the Flood
Disaster Protection Act of 1973, as amended. This requirement will be waived
with respect to portions of the Project upon presentation of evidence
satisfactory to Lender that no such portion of the Project in question is or
will be located within an area identified by the U.S. Department of Housing and
Urban Development as having special flood hazards.

            6.8.4 WORKER'S COMPENSATION. Worker's compensation insurance
disability benefits insurance and such other forms of insurance as required by
law covering loss resulting from injury, sickness, disability, or death of
employees of Borrower.

            6.8.5 CONTRACTORS. During the construction of the Improvements, any
and all contractors and subcontractors will be required to carry liability
insurance of the type and providing the minimum limits set forth below:

               (a) WORKER'S COMPENSATION. Worker's compensation insurance,
        disability benefits insurance and each other form of insurance which
        such contractor is required by law to provide, covering loss resulting
        from injury, sickness, disability or death of employees of the
        contractor who are located on or assigned to the construction of the
        Improvements.

               (b) LIABILITY. Comprehensive general liability insurance coverage
        for:

                      Property and Operations
                      Products and Completed Operations
                      Contractual Liability

                                       64
<PAGE>   71

                      Personal Injury Liability
                      Broad Form Property Damage
                            (including completed operations)
                      Explosion Hazard
                      Collapse Hazard
                      Underground Property Damage Hazard

        Such policy will have a limit of liability of not less than One Million
        Dollars ($1,000,000.00) (combined single limit for personal injury,
        including bodily injury or death, and property damage).

            6.8.6 ADDITIONAL INSURANCE. Such other policies of insurance as
Lender may reasonably request in writing. All policies for required insurance
will be in form and substance satisfactory to Lender in its absolute and sole
discretion. All required insurance will be procured and maintained in
financially sound and generally recognized responsible insurance companies
selected by Borrower and approved by Lender. Deductibles under insurance
policies required pursuant to this Section 6.8 will not exceed the amounts
approved from time to time by Lender. Such companies must be authorized to write
such insurance in the states in which the Collateral is located. Each company
will have a rating acceptable to Lender in Lender's absolute and sole
discretion. All property policies evidencing required insurance will name
Lender, as first mortgagee and loss payee. All liability policies evidencing
required insurance will name Lender as additional insured. The policies will not
be cancelable as to the interests of Lender due to the acts of Borrower. The
policies will provide for at least thirty (30) days prior written notice of the
cancellation or modification thereof to be given to Lender. A certified copy of
each insurance policy or, if acceptable to Lender in its absolute and sole
discretion, certificates of insurance evidencing that such insurance is in full
force and effect, will be delivered to Lender, together with proof of the
payment of the premiums thereof. Prior to the expiration of each such policy,
Borrower shall furnish Lender evidence that such policy has been renewed or
replaced in the form of the original or a certified copy of the renewal or
replacement policy or, if acceptable to Lender in its absolute and sole
discretion, a certificate reciting that there is in full force and effect, with
a term covering at least the next succeeding calendar year, insurance of the
types and in the amounts required in this Section 6.8.

        6.9 COMMENCEMENT AND COMPLETION. Borrower shall cause construction of
the Improvements to be prosecuted and completed in good faith, with due
diligence, and without delay, subject to any Force Majeure Events; provided,
however, that in all events all Improvements shall be constructed and completed
prior to the applicable Lot Advance Maturity Date or applicable Home Advance
Maturity Date for the subject Lot or Home for which said Improvements are being
constructed. Upon demand by Lender, Borrower shall correct any defect in the
Improvements or any material departure from any applicable Requirements or, to
the extent not theretofore approved in writing by Lender, the applicable plans
and specifications. Borrower understands and agrees that the inspection of the
Improvements on behalf of Lender, the review by Lender or others acting on
behalf of Lender of Draw Requests and related documents and information, the
making of Advances by Lender, and any other actions by Lender will be for the
sole benefit of Lender and will not be a waiver of the right to require
compliance with this Section 6.9. In the event that construction of any
Improvements for any Qualified Project is abandoned or

                                       65
<PAGE>   72

halted prior to completion for any period of fifteen (15) consecutive days for
any cause not a Force Majeure Event (or for any period up to, in the aggregate,
ninety (90) consecutive days as a result of one or more Force Majeure Events) or
otherwise beyond the reasonable control of Borrower, Contractor or any
subcontractor, or not completed by the applicable maturity date, then said
Qualified Project shall cease to be part of the Borrowing Base until a cure
thereof shall have occurred.

        6.10 RIGHTS OF INSPECTION; AGENCY.

             6.10.1 GENERALLY. Lender and its respective agents, employees, and
representatives will have the right, at the sole cost and expense of Borrower,
at any time and from time to time to enter upon the Collateral in order to
inspect the Collateral and all aspects thereof, including, without limitation,
in order to determine if Collateral is property classified for Borrowing Base
purposes. All inspections by Lender are for the sole purpose of protecting the
security of Lender and are not to be construed as a representation by Lender
that there has been compliance with applicable plans and specifications, the
applicable Requirements, or that the Project is free of defects in materials or
workmanship. Borrower may make or cause to be made such other independent
inspections as Borrower may desire for its own protection. Based on such
inspections, Lender may adjust the Borrowing Base and other calculations
pursuant to this Agreement.

             6.10.2 INSPECTOR(S). Without limiting the rights of Lender pursuant
to Section 6.10, Lender may employ outside inspectors to perform some or all of
the inspections described in Section 6.10 and may also elect to have Lender's
own employees perform some or all of such inspection duties and review the
reports of outside inspectors.

        6.11 VERIFICATION OF COSTS. Lender will have the right at any time and
from time to time to review and verify all Hard Costs and Soft Costs incurred by
Borrower.

        6.12 USE OF PROCEEDS. Borrower shall use proceeds of Advances only for
the purposes described herein.

        6.13 COSTS AND EXPENSES OF BORROWER'S PERFORMANCE OF COVENANTS AND
SATISFACTION OF CONDITIONS. Borrower shall perform all of its obligations and
satisfy all conditions under the Loan Documents at its sole cost and expense.

        6.14 NOTIFICATION. Borrower shall promptly disclose to Lender the
occurrence of: (a) any default by Borrower under or pursuant to the terms and
conditions of any material Debt owed by Borrower to any Person, whether now
existing or hereafter arising; (b) the occurrence of any event or other
circumstance of which Borrower has knowledge and that with the giving of notice
or the passage of time would constitute a default referred to in clause (a)
above; (c) any Material Adverse Change; (d) any change in the Requirements of
any Governmental Authority that would materially and adversely affect Borrower's
ability to develop the Project; (e) any action or proceeding which is instituted
by or against Borrower or any Project in any Federal or state court or before
any Governmental Authority, federal, state or local, foreign or domestic, or any
such actions or proceedings are threatened against Borrower or any Project
which, in any such case, if adversely

                                       66
<PAGE>   73

determined, would cause a Material Adverse Change; and (f) the occurrence of any
Event of Default or Unmatured Event of Default.

        6.15 FINANCIAL COVENANTS. Financial covenants described in this Section
6.15, together with all other financial covenants and restrictions set forth in
this Agreement shall be monitored quarterly by Lender upon receipt of the
financial statements to be provided hereunder.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
       COVENANT PARTY                    COVENANT TYPE                         COVENANT REQUIREMENT
--------------------------------------------------------------------------------------------------------------------
<S>                            <C>                                 <C>
Borrower                       Total Lot Inventory (excluding      Borrower shall not own unsold lots under
                               lots under option agreements)       development and unsold developed lots in excess
                                                                   of an aggregate sum equal to two and one-half
                                                                   (2.5) times the number of lot sales and closings
                                                                   over the immediately preceding four (4) Calendar
                                                                   Month period) for all residential housing
                                                                   projects owned by Borrower
--------------------------------------------------------------------------------------------------------------------
Borrower                       Maximum Total                       -   As of June 30, 2000 --  Not in excess of
                               Liabilities-to-Tangible Net Worth       4.0:1.0
                               Ratio

                                                                   -   As of December 30, 2000 -- Not in excess of
                                                                       3.0:1.0

                                                                   -   As of December 30, 2001 -- Not in excess of
                                                                       2.5:1.0
--------------------------------------------------------------------------------------------------------------------
Borrower                       Minimum Fixed Charge Coverage       Not less than 2.0:1.0
--------------------------------------------------------------------------------------------------------------------
Borrower                       Minimum Tangible Net Worth          Not less than the sum of (a) $45,000,000.00,
                                                                   plus (b) 50% of all annual net profits and 75%
                                                                   of additional future equity offerings
--------------------------------------------------------------------------------------------------------------------
Borrower                       Minimum Liquidity                   Not less than $10,000,000.00
--------------------------------------------------------------------------------------------------------------------
</TABLE>

               6.15.1 NO OTHER DEBT. There shall be no third party Debt on the
Property or in any Project, other than trade debt. Lender shall have the right,
but not the obligation, to declare a default under the Loan if there are any
material uncured monetary or non-monetary defaults on any and all trade debt
obligations (including without limitation any other loans by Lender) of
Borrower, which in Lender's reasonable judgment will materially impair the
ability of Borrower to perform under the terms of this Agreement, the Note or
the Security Documents.

               6.15.2 NO OTHER LOAN DEFAULTS. Borrower shall not be in default
under any "OTHER LOAN." For purposes of this Section 6.15.2, an "OTHER LOAN"
shall mean any loan by Lender, or any affiliate or subsidiary of Lender, that is
made to Borrower or that is

                                       67
<PAGE>   74

guaranteed by Borrower. It is the expressed intent of Borrower to cross-default
this Loan with any Other Loan, such that (a) any Event of Default under this
Loan shall constitute a default under each and every Other Loan, and (b) any
default under each and every Other Loan shall constitute an Event of Default
under this Loan.

        6.16 BOOKS AND RECORDS; NAMES; PLACE OF BUSINESS AND CHIEF EXECUTIVE
OFFICE. Borrower shall give Lender thirty (30) days prior written notice of any
change in the location of its books and records or its sole place of business or
chief executive office.

        6.17 PROCEEDS OF PURCHASE CONTRACTS.

             6.17.1 AFTER EVENT OF DEFAULT OR UNMATURED EVENT OF DEFAULT. From
and after the occurrence and during the continuation of an Event of Default or
Unmatured Event of Default, all payments of Net Sales Proceeds under Purchase
Contracts shall be paid directly to Lender to be applied by Lender to the
payment of the Obligations in such order as Lender may determine in its sole and
absolute discretion. Absent the occurrence and continuation of an Event of
Default or Unmatured Event of Default, such amounts required to be paid to
Lender shall be applied (i) first to pay amounts due pursuant to Section 3.2.2,
and (ii) then the balance shall be deposited with Lender.

             6.17.2 PAYMENTS TO LENDER. If Borrower collects or receives any
amounts payable to Lender pursuant to this Section 6.17, Borrower shall
forthwith, upon receipt, transmit and deliver to Lender in the form received all
cash, checks, drafts, chattel paper, and other instruments or writings for the
payment of money (endorsed, where required, so that such items may be collected
by Lender). Any such proceeds which may be so received by Borrower will not be
commingled with any other of Borrower's funds or property, but will be held
separate and apart from Borrower's own funds or property and upon express trust
for Lender until delivery is made to Lender.

7. BORROWER NEGATIVE COVENANTS. Until the Commitment terminates in full and the
Obligations are paid and performed in full, Borrower agrees that, unless Lender
otherwise agrees in writing in Lender's absolute and sole discretion:

        7.1 CORPORATE RESTRICTIONS. Borrower will not issue any capital stock in
Borrower or grant any option, right of first refusal, warrant, or other right to
purchase any capital stock in Borrower. Borrower will not be dissolved or
liquidated. Borrower will not amend, modify, restate, supplement, or terminate
any of its Organizational Documents, Borrower will not consolidate or merge with
any corporation, any other limited partnership, any limited liability company,
or any other Person.

        7.2 NAME, FISCAL YEAR, ACCOUNTING METHOD, AND LINES OF BUSINESS.
Borrower will not change its name, fiscal year, or method of accounting.
Borrower will not directly engage in any business other than the lines of
business in which Borrower is engaged on the date of this Agreement, discontinue
any existing lines of business that are material to the business or operations
of Borrower, or substantially alter its method of doing business.

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<PAGE>   75

        7.3 CHANGE IN OWNERSHIP. Borrower will not suffer to occur or exist,
whether occurring voluntarily or involuntarily, any change in, or Lien or
Encumbrance with respect to, the legal or beneficial ownership of any capital
stock in Borrower.

        7.4 LOANS. Borrower will not directly or indirectly in relation to any
Qualified Projects (i) make any loan or advance to any other Person other than
purchase money loans made in the ordinary course of business and advances made
in the ordinary course of constructing the infrastructure for said Project to
Persons engaged in such construction, purchase or otherwise acquire any capital
stock or any securities of any other Person, any limited liability company
interest or partnership interest in any other person, or any warrants or other
options or rights to acquire any capital stock or securities of any other person
or any limited liability company interest or partnership interest in any other
Person, (ii) make any capital contribution to any other Person, (iii) otherwise
invest in or acquire any interest in any other Person or establish any
subsidiaries, (iv) guarantee or otherwise become obligated in respect of any
indebtedness of any other Person, or (v) subordinate any claim against or
obligation of any other Person to Borrower to any other indebtedness of such
Person.

        7.5 LIENS AND ENCUMBRANCES. Except for (i) Permitted Exceptions, (ii)
Liens and Encumbrances securing this Loan, and (iii) involuntary Liens and
Encumbrances being contested in good faith and through appropriate proceedings,
and otherwise in accordance with the applicable conditions of the Loan
Documents, Borrower shall not grant or suffer to exist any Lien or Encumbrance
upon any Property.

        7.6 INDEBTEDNESS. Borrower shall not assume, create, incur, or permit to
exist any Debt for any Property, except (i) the Obligations, and (ii) trade
obligations and normal accruals in the ordinary course of business not yet due
and payable. Borrower shall not assume, create, incur, or permit to exist any
contingent liabilities, including, without limitation, contingent reimbursement
obligations under letters of credit other than the Letters of Credit; provided,
however, that Borrower may incur and permit to exist contingent liabilities
resulting from the issuance of payment and performance bonds related to
construction of the Improvements.

        7.7 ACQUISITION OF ASSETS. Borrower shall not acquire by purchase, lease
or otherwise all or substantially all the assets of any other person, if to do
so would materially affect its business or operations.

8.      EVENTS OF DEFAULT AND REMEDIES.

        8.1 EVENTS OF DEFAULT. The occurrence of any one (1) or more of the
following shall constitute an Event of Default under this Agreement:

             8.1.1 Failure by Borrower to pay any monetary amount when due under
any Loan Document and the expiration of ten (10) days after written notice of
such failure by Lender to Borrower.

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<PAGE>   76

             8.1.2 Failure by Borrower to perform obligation not involving the
payment of money, or to comply with any other term or condition applicable to
Borrower under any Loan Document, and the expiration of thirty (30) days after
written notice of such failure by Lender to Borrower, provided that if Borrower
cannot reasonably cure such failure within such thirty (30) day period, such
thirty (30) day period shall be extended for a reasonable period not in excess
of ninety (90) days from the date of Lender's notice to cure such failure
provided that Borrower shall have commenced such cure within such thirty (30)
day period and shall diligently thereafter proceed to effect such cure.

             8.1.3 Any representation or warranty by Borrower in any Loan
Document is materially false, incorrect, or misleading as of the date made.

             8.1.4 Borrower (i) is unable or admits in writing its inability to
pay its monetary obligations as they become due, (ii) makes a general assignment
for the benefit of creditors, or (iii) applies for, consents to or acquiesces in
the appointment of a trustee, receiver or other custodian for itself or its
property or any part thereof, or in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for Borrower,
or the property of Borrower or any part thereof, and such appointment is not
discharged within sixty (60) days.

             8.1.5 Commencement of any case under the Bankruptcy Code, Title 11
of the United States Code or commencement of any other bankruptcy arrangement,
reorganization, receivership, custodianship or similar proceeding under any
federal, state or foreign law by or against Borrower, and such case in not
discharged within sixty (60) days of filing.

             8.1.6 Borrower fails to pay when due (after the expiration of any
applicable notice and cure period) any monetary obligation (other than the
Loan), whether such obligation be direct or contingent, to any person in excess
of Five Hundred Thousand Dollars ($500,000.00), provided that Borrower may in
good faith contest any such monetary obligation by appropriate administrative or
judicial proceedings as long as (i) said contesting party has, in Lender's
judgment, a reasonable basis for such contest, (ii) said contesting party pays
when due any portion of such monetary obligation that said party does not
contest, (iii) said contesting party's contest will not result in or pose any
risk of the seizure, sale or imposition of a lien upon the Property or the
Project or any portion thereof, or said contesting party has posted appropriate
lien release bonds as permitted by applicable law in order to cause any such
lien to be released from the Property or the Project, (iv) said contesting party
delivers to Lender such bond or other security as Lender may require in
connection with such contest, (v) said contesting party at all times prosecutes
such contest with due diligence, and (vi) said contesting party pays, promptly
following a determination of the amount of such monetary obligation due and
owing by Borrower. In the event that said contesting party does not make,
promptly following a determination of the amount of such monetary obligation due
and owing by said contesting party, any payment required to be made pursuant to
clause (vi) of the preceding sentence, an Event of Default shall have occurred
and Lender may draw or realize upon any bond or other security delivered to
Lender in connection with the contest by Borrower, in order to make such
payments.

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<PAGE>   77

             8.1.7 Any litigation or proceeding that, in Lender's reasonable
judgment if determined adversely to Borrower, would constitute a Material
Adverse Change on Borrower or any Project, is commenced before any Governmental
Authority against or affecting Borrower, or the property of Borrower or any part
thereof, and such litigation or proceeding is not defended diligently and in
good faith by Borrower or is not discharged within sixty (60) days of filing.

             8.1.8 A final judgment or decree for monetary damages or a monetary
fine or penalty (not subject to appeal or as to which the time for appeal has
expired) is entered against Borrower by any Governmental Authority, which
together with the aggregate amount of all other such judgments, decrees, fines
and penalties against Borrower that remain unpaid or that have not been
discharged or stayed, exceeds One Million Dollars ($1,000,000.00) or would
otherwise in Lender's reasonable judgment constitute a Material Adverse Change
on Borrower or any Project, and such judgment, decree, fine or penalty is not
paid, discharged or stayed within thirty (30) days after the entry thereof.

             8.1.9 Commencement of any action or proceeding which seeks as one
of its remedies the dissolution of Borrower, and such action is not discharged
within sixty (60) days of filing.

             8.1.10 All or any part of the property of Borrower is attached,
levied upon or otherwise seized by legal process, and such attachment, levy or
seizure is not quashed, stayed or released within thirty (30) days of the date
thereof.

             8.1.11 The occurrence of any prohibited transfer under Section 2.9
of any Deed of Trust, unless prior to such transfer the holder of the Note has
delivered to Borrower the written consent of such holder to such transfer.

             8.1.12 The occurrence of any Event of Default, as such term is
defined in any other Loan Document.

             8.1.13 If Borrower, at any time, ceases to manage the Projects
financed hereunder.

             8.1.14 Any Governmental Authority with jurisdiction over the
Property or any Project orders or requires that construction of any Improvements
be stopped, in whole or in part, or any required approval, license or permit is
withdrawn or suspended, and the order, requirement, withdrawal or suspension
remains in effect for a period of thirty (30) days, then the Qualified Project
or Property to which the order, requirement, withdrawal or suspension relates
shall not be a part of the Borrowing Base until such order, requirement,
withdrawal or suspension is no longer in effect.

             8.1.15 Failure to deposit with Lender in cash or cash equivalents,
as required herein, the amount necessary to put the Loan "IN BALANCE" (as
required pursuant to Sections 2.1.6(c), 2.2.3(d), 2.3.4 and 2.4.5 above) within
ten (10) days after Lender's notice to Borrower that the Loan is not "IN
BALANCE," or any other failure to deposit the amount(s) necessary and required
herein within ten (10) days after the date such amounts are required to be
deposited.

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<PAGE>   78

        8.2 RIGHTS AND REMEDIES OF LENDER.

             8.2.1 Notwithstanding any provision to the contrary herein or any
of the other Loan Documents, during the continuance of any Event of Default
under this Agreement, or during the continuance of an Event of Default under any
of the other Loan Documents: (i) Lender's obligation to make further
disbursements of the Loan shall abate; and (ii) if the Event of Default shall
not be cured within the applicable notice and cure periods, then Lender shall,
at its option, have the remedies provided in the Loan Document breached by
Borrower, including, without limitation, the option to declare all outstanding
indebtedness to be immediately due and payable without presentment, demand,
protest or notice of any kind, and the following remedies: Lender's obligation
to make further disbursements to Borrower shall terminate; Lender may, at its
option, apply any of Borrower's funds in its possession to the outstanding
indebtedness under the Note whether or not such indebtedness is then due; Lender
may exercise all rights and remedies available to it under any or all of the
Loan Documents; and Lender shall have the right to cause an independent
contractor selected by Lender to enter into possession of the Property and to
perform any and all work and labor necessary for the completion of the Project
substantially in accordance with the Plans and Specifications and to perform
Borrower's obligations under this Agreement. All sums expended by Lender for
such purposes shall be deemed to have been disbursed to and borrowed by Borrower
and shall be secured by the Deed of Trust on the Property.

                      (a) Subject to the provisions of Sections 8.2.1(b) and
        8.2.1(c) below, Lender and Borrower acknowledge and agree that in each
        instance in which a Project ceases to be a Qualified Project so as to be
        included in the Borrowing Base, either due to (i) the failure of or
        non-compliance with any representations and warranties under Sections
        5.1.7, 5.1.9, 5.1.13-5.1.16, or (ii) the failure of or non-compliance
        with any affirmative covenants under Sections 6.3.1, 6.3.3-6.3.9, 6.9 or
        (iii) the failure to cure a default under Section 8.1.14, then such
        removal of said Project from the Borrowing Base shall not in and of
        itself constitute an Event of Default under this Agreement.

                      (b) Notwithstanding any other provision of this Agreement
        to the contrary, if any adjustment in the Borrowing Base shall arise
        from a Project ceasing to be a Qualified Project for the purpose of
        inclusion in the Borrowing Base and Borrower shall fail or refuse to
        timely make any principal payment required as a result of said
        adjustment, then such failure and/or refusal to timely make said payment
        shall constitute an Event of Default under this Agreement.

                      (c) Notwithstanding any other provision of this Agreement
        to the contrary, any failure or non-compliance by Borrower with any
        representation, warranty, covenant (including without limitation the
        financial covenants set forth in Section 6.15 above), duty, obligation,
        promise or agreement set forth herein shall constitute an Event of
        Default under this Agreement unless such failure or non-compliance is
        (i) cured as provided herein, or (ii) expressly waived in writing by
        Lender, or (iii) subject to the express provisions of Section 8.2.1(a)
        above.

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<PAGE>   79

             8.2.2 Borrower hereby constitutes and appoints Lender, or an
independent contractor selected by Lender, as its true and lawful
attorney-in-fact with full power of substitution, for the purposes of completion
of each and every Project and performance of Borrower's obligations under this
Agreement in the name of Borrower, and hereby empowers said attorney-in-fact to
do any or all of the following upon the occurrence of an Event of Default (it
being understood and agreed that said power of attorney shall be deemed to be a
power coupled with an interest which cannot be revoked until repayment of the
Loan):

                      (a) To use any of the funds of Borrower, including any
        balance of the Loan, as applicable, and any funds which may be held by
        Lender for Borrower, for the purpose of effecting completion of the
        Improvements in the manner called for by the Plans and Specifications;

                      (b) To make such additions, changes and corrections in the
        Plans and Specifications as shall be necessary or desirable to complete
        the Improvements in substantially the manner contemplated by the Plans
        and Specifications;

                      (c) To employ any contractors, subcontractors, agents,
        architects and inspectors required for said purposes;

                      (d) To employ attorneys to defend against attempts to
        interfere with the exercise of power granted hereby;

                      (e) To pay, settle or compromise all existing bills and
        claims which are or may be liens against the Property, the Improvements
        or the Project or may be necessary or desirable for the completion of
        the Improvements or clearance of objections to or encumbrances on title;

                      (f) To execute all applications and certificates in the
        name of Borrower which may be required by any other construction
        contract;

                      (g) To prosecute and defend all actions or proceedings in
        connection with the Project, and to take such action, require such
        performance and do any and every other act as is deemed necessary with
        respect to the completion of the Improvements which Borrower might do on
        its own behalf; and

                      (h) To let new or additional contracts (to the extent not
        prohibited by existing contracts) to employ watchmen and erect security
        fences to protect the Project from injury, and to take such action and
        require such performance as Lender deems necessary under any of the
        bonds or insurance policies to be furnished hereunder, to make
        settlements and compromises with the sureties or insurers thereunder,
        and in connection therewith to execute instruments of release and
        satisfaction.

9. BANK'S OBLIGATIONS TO BORROWER ONLY AND DISCLAIMER BY BANK. No Person, other
than Borrower and Lender, shall have any rights hereunder or be a third-party
beneficiary hereof. Lender is not a joint venturer or a partner with Borrower.
Prior to an Event of Default and thereafter until Lender elects in writing to

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<PAGE>   80

assume specific obligations of Borrower, Lender shall not be obligated to any
Person providing labor, materials, or other services for the Project and payment
of funds from Advances directly to any such Persons shall not give or be a
recognition of any third-party beneficiary status.

10. NO BROKERS. Except as disclosed by Borrower to Lender in writing prior to
the date of this Agreement, Borrower and Lender represent and warrant to the
other that it knows of no broker's or finder's fee due in respect of the
transaction described in this Agreement and that it has not used the services of
a broker or a finder in connection with this transaction.

11. PROVISIONS IN THE NOTE GOVERN THIS AGREEMENT. This Agreement is subject to
certain terms and provisions in the Note, to which reference is made for a
statement of such terms and provisions.

12. COUNTERPART EXECUTION. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Agreement
to physically form one document.

13. MISCELLANEOUS.

        13.1 ASSIGNMENT.

                      (a) Borrower shall not assign this Agreement or any
        interest it may have in the monies due hereunder, without the prior
        written consent of Lender, which consent may be granted or withheld in
        Lender's sole and absolute discretion. Notwithstanding the foregoing, in
        the event of any such assignment, Lender may nevertheless at its option
        continue to make disbursements under this Agreement to Borrower or to
        those who succeed to Borrower's title, and all sums shall be deemed to
        be disbursements under this Agreement, and not to be modifications
        hereof, and shall be secured by the Deed of Trust.

                      (b) Subject to the provisions of Section 13.18 below,
        Lender may at any time assign this Agreement, the Note, the Deed of
        Trust and other Loan Documents, and upon such assignment Lender shall
        have no further obligation or liability of any nature in connection
        herewith. Upon such assignment, the provisions of this Agreement shall
        continue to apply to the Loan and such assignee shall be substituted in
        the place and stead of Lender hereunder with all rights, obligations and
        remedies of Lender herein provided, including without limitation the
        right to so further assign this Agreement, the Note, the Deed of Trust
        and other Loan Documents.

        13.2 NOTICES. All notices, requests, demands and consents to be made
hereunder to the parties hereto shall be in writing and shall be delivered by
hand or sent by registered mail or certified mail, postage prepaid, return
receipt requested, through the United States Postal Service to the addresses
shown below or such other address which the parties may provide to one another
in accordance herewith. Such notices, requests,

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demands and consents, if sent by mail, shall be deemed given two (2) Business
Days after deposit in the United States mail, and if delivered by hand, shall be
deemed given when delivered.

                  If to Borrower:     WILLIAM LYON HOMES, INC.
                                      4490 Von Karman Avenue (P.O. Box 7520)
                                      Newport Beach, California 92658-7520
                                      Attn:  Richard Robinson and Michael Grubbs

                  With a copy to:     IRELL & MANELLA, LLP
                                      840 Newport Center Drive, Suite 400
                                      Newport Beach, California 92660-6324
                                      Attn:  Roy Geiger, Esq.

                  If to Lender:       CALIFORNIA BANK & TRUST
                                      11622 El Camino Real, Suite 200
                                      San Diego, California  92130
                                      Attn:  Peggy Standefer, Esq.

                  With a copy to:     CALIFORNIA BANK & TRUST
                                      3101 North Central Avenue, Suite 520
                                      Phoenix, Arizona  85012
                                      Attention:  Construction Risk Manager

                  With a copy to:     CALIFORNIA BANK & TRUST
                                      1900 Main Street, Suite 200
                                      Irvine, California  92614
                                      Attn:  Frank Henry

                  And a copy to:      BRYAN CAVE LLP
                                      2020 Main Street, Suite 600
                                      Irvine, California 92614
                                      Attn:  Ren R. Hayhurst, Esq.

        13.3 AUTHORITY TO FILE NOTICES. Upon the occurrence of any Event of
Default, Borrower irrevocably appoints Lender as its attorney-in-fact, with full
power of substitution, to file or record, at the Borrower's cost and expense and
in Borrower's name, any notices of completion, notices of cessation of labor, or
any other notices that Lender considers necessary or desirable to protect its
security.

        13.4 INCONSISTENCIES WITH THE LOAN DOCUMENTS. In the event of any
inconsistencies between the terms of this Agreement and any terms of any of the
Loan Documents, the terms of this Agreement shall govern and prevail.

        13.5 NO WAIVER. No disbursement of proceeds of the Loan shall constitute
a waiver of any conditions to Lender's obligation to make further disbursements
nor, in the event Borrower is unable to satisfy any such conditions, shall any
such waiver have the effect of precluding Lender from thereafter declaring such
inability to constitute an Event of Default under this Agreement.

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<PAGE>   82

        13.6 LENDER APPROVAL OF INSTRUMENTS AND PARTIES. All proceedings taken
in accordance with transactions provided for herein, and all surveys, appraisals
and documents required or contemplated by this Agreement and the persons
responsible for the execution and preparation thereof, shall be satisfactory to
and subject to approval by Lender. Lender's counsel shall be provided with
copies of all documents which they may reasonably request in connection with the
Agreement.

        13.7 LENDER DETERMINATION OF FACTS. Lender shall at all times be free to
establish independently, to its satisfaction, the existence or nonexistence of
any fact or facts, the existence or nonexistence of which is a condition of this
Agreement.

        13.8 INCORPORATION OF PREAMBLE: RECITALS AND EXHIBITS. The preamble,
recitals and exhibits hereto are hereby incorporated into this Agreement.

        13.9 THIRD-PARTY CONSULTANTS. Lender may hire such third-party
consultants as it deems necessary, the costs of which shall be paid by Borrower,
to provide the following services: (a) review final Plans and Specifications and
final construction cost breakdown and the construction schedule; (b) conduct
compliance inspections with respect to the progress of construction of the
Project and approve each element of a request for disbursement relating to
construction costs, and (c) perform such other services as may, from time to
time, be required by Lender. This obligation on the part of Borrower shall
survive the closing of the Loan and the repayment thereof. Borrower hereby
authorizes Lender, in its discretion, to pay such expenses, charges, costs and
fees at any time by a disbursement of the Loan, and to the extent the applicable
Loan Budget category is insufficient, such expenses, charges, costs and fees
shall be paid by Borrower from its own funds.

        13.10 PAYMENT OF EXPENSES. Borrower shall pay all taxes and assessments
and all expenses, charges, costs and fees provided for in this Agreement or
relating to the Loan or construction of the Improvements, including, without
limitation, any fees incurred for recording or filing any of the Loan Documents,
title insurance premiums and charges, tax service contract fees, fees of any
consultants, Lender's processing and closing fees, reasonable fees and expenses
of Lender's counsel, printing, photostatting and duplicating expenses, air
freight charges, escrow fees, costs of surveys, premiums of hazard insurance
policies and surety bonds and fees for any appraisal, appraisal review, market
or feasibility study required by Lender. Borrower hereby authorizes Lender to
disburse the proceeds of the Loan to pay such expenses, charges, costs and fees
notwithstanding that Borrower may not have requested a disbursement of such
amount, provided that Borrower acknowledges that Lender has no obligation to
disburse amounts listed under "BORROWER'S EQUITY" on the A&D Budget or the Home
Construction Budget. Such disbursement shall be added to the outstanding
principal balance of the Note. The authorization hereby granted shall be
irrevocable, and no further direction or authorization from Borrower shall be
necessary for Lender to make such disbursements. However, the provision of this
Section 13.10 shall not prevent Borrower from paying such expense, charges,
costs and fees from its own funds. All such expenses, charges, costs and fees
shall be Borrower's obligation regardless of whether or not Borrower has
requested and met the conditions for a disbursement of the Loan. The obligations
on the part of Borrower under this Section 13.10 shall survive the closing of
the Loan and the repayment thereof.

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<PAGE>   83

        13.11 DISCLAIMER BY LENDER. Lender shall not be liable to any
contractor, subcontractor, supplier, laborer, architect, engineer or any other
party for services performed or materials supplied in connection with the
Project. Lender shall not be liable for any debts or claims accruing in favor of
any such parties against Borrower or others or against the Property or the
Project. Borrower is not and shall not be an agent of Lender for any purpose.
Lender is not a joint venture partner with Borrower in any manner whatsoever.
Prior to default by Borrower under this Agreement and the exercise of remedies
granted herein, Lender shall not be deemed to be in privity of contract with any
contractor or provider of services to the Project, nor shall any payment of
funds directly to a contractor, subcontractor or provider of services be deemed
to create any third party beneficiary status or recognition of same by Lender.
Approvals granted by Lender for any matters covered under this Agreement shall
be narrowly construed to cover only the parties and facts identified in any
written approval or, if not in writing, such approvals shall be solely for the
benefit of Borrower.

        13.12 INDEMNIFICATION. To the fullest extent permitted by law, Borrower
agrees to protect, indemnify, defend and hold harmless Lender, and its
directors, officers, agents and employees, from and against any and all
liability, expense or damage of any kind or nature and from any suits, claims or
demands, including reasonable legal fees and expenses on account of any matter
or thing or action or failure to act by Lender, whether in suit or not, arising
out of this Agreement or in connection herewith, other than such claims and
liabilities as arise solely from the gross negligence or intentional misconduct
of Lender. Upon receiving knowledge of any suit, claim or demand asserted by a
third party that Lender believes is covered by this indemnity, Lender shall give
Borrower notice of the matter and an opportunity to defend it, at Borrower's
sole cost and expense, with legal counsel satisfactory to Lender. Lender may
also require Borrower to so defend the matter. The obligations on the part of
Borrower under this Section 13.12 shall survive the closing of the Loan and the
repayment thereof.

        13.13 TITLES AND HEADINGS. The titles and headings of sections of this
Agreement are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.

        13.14 BROKERS. Borrower and Lender represent to each other that neither
of them knows of any brokerage commissions or finders' fee due or claimed with
respect to the transaction contemplated hereby. Borrower and Lender shall
indemnify and hold harmless the other party from and against any and all loss,
damage, liability and expense, including costs and reasonable attorneys' fees,
which such other party may incur or sustain by reason of or in connection with
any misrepresentation by the indemnifying party with respect to the foregoing.

        13.15 CHANGE, DISCHARGE, TERMINATION OR WAIVER. No provision of this
Agreement may be changed, discharged, terminated or waived except in writing
signed by the party against whom enforcement of the chance, discharge,
termination or waiver is sought. No failure on the part of Lender to exercise
and no delay by Lender in exercising any right or remedy under the Loan
Documents or under the law shall operate as a waiver thereof.

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<PAGE>   84

        13.16 CHOICE OF LAW. This Agreement and the transaction contemplated
hereunder shall be governed by and construed in accordance with the laws of the
State of California, without giving effect to conflict of laws principles.

        13.17 DISBURSEMENTS IN EXCESS OF LOAN AMOUNT. In the event the total
disbursements by Lender exceed the amount of the Loan, the total of all
disbursements shall be secured by the Deed of Trust. All other sums expended by
Lender pursuant to this Agreement or any other Loan Documents shall be deemed to
have been paid to Borrower and shall be secured by, among other things, the Deed
of Trust.

        13.18 PARTICIPATIONS. Lender may at any time sell, assign, grant
participations in, or otherwise transfer to any other person, firm or
corporation (each a "PARTICIPANT") all or part of the indebtedness of Borrower
outstanding under this Agreement or the Note. Borrower hereby acknowledges and
agrees that any such disposition will give rise to each Participant becoming a
co-lender and an equitable owner of an undivided fractional interest in the Loan
and the Loan Documents, with California Bank & Trust, a California banking
corporation ("CB&T"), acting as the sole administrative agent for all said
Participants as co-lenders; provided, however, that after any such disposition,
as between Borrower and Lender under the Loan Documents, CB&T has the sole
authority to bind the co-lenders under said Loan Documents, and Borrower shall
have the right and the duty to continue to deal solely with CB&T concerning any
part of the Loan in the same manner as if CB&T were the sole owner thereof and
as if no sale of any participation interest had occurred. Subject to the
foregoing, Borrower agrees and consents CB&T's sale or transfer, whether now or
later, of one (1) or more participation interests in the Loan to one (1) or more
Participants, whether related or unrelated to Lender, with all references in the
Loan Documents to Lender (together with all participants, successors and
assigns) to include all said Participants as co-lenders hereunder. Lender may
provide, without any limitation whatsoever, to any one (1) or more Participants,
or potential Participant, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters as may be
disclosed to said Participants or potential Participants. Borrower additionally
waives any and all notices of sale of participation interests, as well as all
notice of any repurchase of a participation interest. Borrower also agrees that
any Participant will be considered as the absolute owner of such participation
interest in the Loan and will have all the rights granted under the
intercreditor agreement and/or other agreements between Lender and Participant
governing the sale of such participation interest. Subject to the foregoing,
Borrower further waives all rights of offset or counterclaim (excluding any
rights or counterclaims arising from the gross negligence or willful misconduct
of or breach of this Agreement by CB&T) that it may have now or later against
Lender or against any Participant and unconditionally agrees that either Lender
or such Participant, as provided in said intercreditor agreement, may enforce
Borrower's obligations under the Loan irrespective of the failure or insolvency
of any holder of any interest in the Loan. In no event shall any sale,
assignment or participation in the Loan result in any delay or change in the
requirements for the disbursement of Loan funds to Borrower or alter any of
Borrower's or Lender's obligations under the Loan.

        13.19 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.

                                       78
<PAGE>   85

        13.20 ATTORNEYS' FEES. Borrower shall promptly pay to Lender from
Borrower's own funds or from the proceeds of the Loan, upon demand, with
interest thereon from the date of demand at the Default Interest Rate,
reasonable attorneys' fees, expert witness fees and all costs and other expenses
paid or reasonably incurred by Lender in enforcing or exercising its rights or
remedies created by, connected with or provided for in this Agreement or any of
the other Loan Documents, and payment thereof shall be secured by the Deed of
Trust. If at any time Borrower fails, refuses or neglects to do any of the
things herein provided to be done by Borrower, Lender shall have the right, but
not the obligation, to do the same but at the expense and for the account of
Borrower. The amount of any moneys so expended or obligations so incurred by
Lender, together with interest thereon at the Default Interest Rate, shall be
repaid to Lender forthwith upon written demand therefor and payment thereof
shall be secured by the Deed of Trust.

        13.21 SIGNS. Throughout the term of the Loan, Lender shall have the
right to erect one or more signs on the Project indicating its provision of
financing for the Project, and Lender shall also have the right to publicize its
financing of the Project as Lender may deem appropriate.

        13.22 SUBORDINATION TO CERTAIN EASEMENTS, DEDICATIONS AND RESTRICTIONS.
Lender agrees to subordinate the lien and charge of the Deed of Trust to any
easements for any public utility purposes, drainage purposes or roadway
purposes, or to any roadway park or common area dedication, as specifically
approved by Lender and as required by the applicable governmental authorities as
a condition to its approval of the Final Map. In addition, Lender agrees to
subordinate the lien and charge of the Deed of Trust to any CC&Rs which Borrower
determines to be necessary or desirable in connection with the Project and which
CC&Rs are approved by Lender. In addition, Lender shall cause the lien of the
Deed of Trust to be partially reconveyed for any portion of the Property
approved by Lender which is required to be dedicated for roadway, park and
common area purposes. Lender agrees, without receipt of further consideration
but at the sole cost and expense of Borrower, to execute and acknowledge any and
all documents which are reasonably acceptable to Lender and which are reasonably
necessary for the processing and recording of the Final Map or are reasonably
necessary to effectuate the purposes of this Section 13.22.

        13.23 WAIVER OF RIGHT TO TRIAL BY JURY. BORROWER AND LENDER (BY ITS
ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG
BORROWER AND LENDER ARISING OUT OF OR IN ANY RELATED TO THE LOAN OR THE LOAN
DOCUMENTS. THIS PROVISION AND THE WAIVER SET FORTH HEREIN ARE MATERIAL
INDUCEMENTS TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN AND IN THE LOAN
DOCUMENTS.

14. EXHIBITS. The following Exhibits are attached to this Agreement and
incorporated herein by this reference:

<TABLE>
<CAPTION>

        <S>                         <C>
        EXHIBITS "A-1" TO "A-8"     Legal Descriptions for Existing Projects
</TABLE>

                                       79
<PAGE>   86

<TABLE>
<CAPTION>

        <S>                         <C>
        EXHIBIT "B"                 Form of Borrowing Base Certificate
        EXHIBIT "C"                 Letter of Credit Request Form
        EXHIBIT "D"                 Project Loan Request Form
        EXHIBIT "E"                 Form of Letter of Credit
        EXHIBIT "F"                 Form of Request for Admission of Entitled Land
        EXHIBIT "G"                 Form of Request for Admission of Lots Under Development
        EXHIBIT "H"                 Form of Request for Admission of Developed Lots
        EXHIBIT "I"                 Form of Request for Admission of Homes
        EXHIBIT "J"                 List of Material Agreements
        EXHIBIT "K"                 Required Project Information
</TABLE>

15. ADDITIONAL ADVANCES. Borrower agrees that any and all amounts advanced by
Lender to protect the Collateral or for any other purpose under the Loan
Documents shall be considered Advances pursuant to this Agreement, and Borrower
acknowledges that such advances may be made by Lender in its sole and absolute
discretion and without any request or authorization of Borrower. Any such
advances shall be immediately due and payable and shall bear interest at the
Default Interest Rate until paid. Borrower acknowledges and agrees that such
Advances may exceed the amount of Advances otherwise available, and Borrower
nonetheless agrees to pay such Advances as provided herein and agrees that such
Advances shall be secured by all Collateral.

DATED as of the date first above stated.

                                         LENDER:

                                         CALIFORNIA BANK & TRUST, a California
                                         banking corporation

                                              By:   /s/    FRANK HENRY
                                                 -------------------------------
                                                   Name: Frank Henry
                                                        ------------------------
                                                   Title: Senior Vice President
                                                         -----------------------

                      [Signatures continued on next page.]

                                       80
<PAGE>   87

                                       BORROWER:

                                       WILLIAM LYON HOMES, INC., a California
                                       corporation

                                           By:   /s/   RICHARD S. ROBINSON
                                              ----------------------------------
                                                Name: Richard S. Robinson
                                                Title:  Senior Vice President

                                           By:      /s/   MICHAEL D. GRUBBS
                                              ----------------------------------
                                                Name: Michael D. Grubbs
                                                Title: Senior Vice President

<PAGE>   88

<TABLE>
<CAPTION>

<S>                                                                  <C>   <C>
                                                                     |
STATE OF                            )                                |     CAPACITY CLAIMED BY SIGNER:
        ----------------------      )                                |     [ ] Individual(s)
COUNTY OF                           )                                |     [ ] Corporate
         ---------------------                                       |                  -----------------
                                                                     |         Officer(s)
                                                                     |                   ----------------
                                                                     |                       Title(s)
On _________________, before me, the undersigned, a Notary           |
Public in and for said State, personally appeared                    |
_____________________:                                               |
                                                                     |
                                                                     |
                                                                     |     [ ] Partner(s)
[ ] personally known to me - OR - [ ] proved to me on the basis of   |     [ ] Attorney-in-Fact
satisfactory evidence, to be the person(s) whose name(s)             |     [ ] Trustee(s)
is/are subscribed to the within instrument and acknowledged to       |     [ ] Subscribing Witness
me that he/she/they executed the same in his/her/their               |     [ ] Guardian/Conservator
authorized capacity(ies), and that by his/her/their                  |     [ ] Other:
signature(s) on the instrument the person(s), or the                 |               ----------------
entity upon behalf of which the person(s) acted, executed the        |         ----------------------
instrument.                                                          |         ----------------------
                                                                     |
WITNESS my hand and official seal.                                   |     SIGNER IS REPRESENTING:
                                                                     |     Name of person(s) or
                                                                     |     entity(ies)
----------------------------------                                   |
Signature of Notary                                                  |
                                                                     |     -----------------------------
                                                                     |
                                                                     |     -----------------------------
                                                                     |

STATE OF                            )                                |     CAPACITY CLAIMED BY SIGNER:
        ----------------------      )                                |     [ ] Individual(s)
COUNTY OF                           )                                |     [ ] Corporate
         ---------------------                                       |                  -----------------
                                                                     |         Officer(s)
                                                                     |                   ----------------
                                                                     |                       Title(s)
On _________________, before me, the undersigned, a Notary           |
Public in and for said State, personally appeared                    |
_____________________:                                               |
                                                                     |
                                                                     |
                                                                     |     [ ] Partner(s)
[ ] personally known to me - OR - [ ] proved to me on the basis of   |     [ ] Attorney-in-Fact
satisfactory evidence, to be the person(s) whose name(s)             |     [ ] Trustee(s)
is/are subscribed to the within instrument and acknowledged to       |     [ ] Subscribing Witness
me that he/she/they executed the same in his/her/their               |     [ ] Guardian/Conservator
authorized capacity(ies), and that by his/her/their                  |     [ ] Other:
signature(s) on the instrument the person(s), or the                 |               ----------------
entity upon behalf of which the person(s) acted, executed the        |         ----------------------
instrument.                                                          |         ----------------------
                                                                     |
WITNESS my hand and official seal.                                   |     SIGNER IS REPRESENTING:
                                                                     |     Name of person(s) or
                                                                     |     entity(ies)
----------------------------------                                   |
Signature of Notary                                                  |
                                                                     |     -----------------------------
                                                                     |
                                                                     |     -----------------------------
</TABLE>

                                       82
<PAGE>   89

<TABLE>
<CAPTION>

<S>                                                                  <C>   <C>

                                                                     |
STATE OF                            )                                |     CAPACITY CLAIMED BY SIGNER:
        ----------------------      )                                |     [ ] Individual(s)
COUNTY OF                           )                                |     [ ] Corporate
         ---------------------                                       |                  -----------------
                                                                     |         Officer(s)
                                                                     |                   ----------------
                                                                     |                       Title(s)
On _________________, before me, the undersigned, a Notary           |
Public in and for said State, personally appeared                    |
_____________________:                                               |
                                                                     |
                                                                     |     [ ] Partner(s)
[ ] personally known to me - OR - [ ] proved to me on the basis of   |     [ ] Attorney-in-Fact
satisfactory evidence, to be the person(s) whose name(s)             |     [ ] Trustee(s)
is/are subscribed to the within instrument and acknowledged to       |     [ ] Subscribing Witness
me that he/she/they executed the same in his/her/their               |     [ ] Guardian/Conservator
authorized capacity(ies), and that by his/her/their                  |     [ ] Other:
signature(s) on the instrument the person(s), or the                 |               ----------------
entity upon behalf of which the person(s) acted, executed the        |         ----------------------
instrument.                                                          |         ----------------------
                                                                     |
WITNESS my hand and official seal.                                   |     SIGNER IS REPRESENTING:
                                                                     |     Name of person(s) or
                                                                     |     entity(ies)
----------------------------------                                   |
Signature of Notary                                                  |
                                                                     |     -----------------------------
                                                                     |
                                                                     |     -----------------------------
                                                                     |

STATE OF                            )                                |     CAPACITY CLAIMED BY SIGNER:
        ----------------------      )                                |     [ ] Individual(s)
COUNTY OF                           )                                |     [ ] Corporate
         ---------------------                                       |                  -----------------
                                                                     |         Officer(s)
                                                                     |                   ----------------
                                                                     |                       Title(s)
On _________________, before me, the undersigned, a Notary           |
Public in and for said State, personally appeared                    |
_____________________:                                               |
                                                                     |
                                                                     |
                                                                     |     [ ] Partner(s)
[ ] personally known to me - OR - [ ] proved to me on the basis of   |     [ ] Attorney-in-Fact
satisfactory evidence, to be the person(s) whose name(s)             |     [ ] Trustee(s)
is/are subscribed to the within instrument and acknowledged to       |     [ ] Subscribing Witness
me that he/she/they executed the same in his/her/their               |     [ ] Guardian/Conservator
authorized capacity(ies), and that by his/her/their                  |     [ ] Other:
signature(s) on the instrument the person(s), or the                 |               ----------------
entity upon behalf of which the person(s) acted, executed the        |         ----------------------
instrument.                                                          |         ----------------------
                                                                     |
WITNESS my hand and official seal.                                   |     SIGNER IS REPRESENTING:
                                                                     |     Name of person(s) or
                                                                     |     entity(ies)
----------------------------------                                   |
Signature of Notary                                                  |
                                                                     |     -----------------------------
                                                                     |
                                                                     |     -----------------------------
</TABLE>

                                       83
<PAGE>   90

                                  EXHIBIT "A-1"
                 LEGAL DESCRIPTION (OAKHURST -- DIABLO VILLAGE)

THE LAND REFERRED TO IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF CONTRA
COSTA AND IS DESCRIBED AS FOLLOWS: LOTS 1 AND 8 THROUGH 33 OF TRACT 8215 (DIABLO
VILLAGE), FILED APRIL 14, 2000, IN BOOK 419 OF MAPS, AT PAGES 12 THROUGH 16, IN
THE COUNTY OF CONTRA COSTA RECORDS.

EXCEPTING THEREFROM:

ALL RIGHTS TO ALL OIL, GAS, CASINGHEAD GAS, ASPHALTUM AND OTHER HYDROCARBONS NOW
OR HEREAFTER FOUND, SITUATE OR LOCATED IN ALL OR ANY PART OR PORTION OF THE
PROPERTY LYING MORE THAN FIVE HUNDRED (500) FEET BELOW THE SURFACE THEREOF,
TOGETHER WITH THE RIGHT SLANT DRILL FOR AN REMOVE ALL OR ANY OF SAID OIL, GAS,
CASINGHEAD GAS, ASPHALTUM AND OTHER HYDROCARBONS LYING BELOW A DEPTH OF MORE
THAT FIVE HUNDRED (500) FEET BELOW THE SURFACE THEREOF, AND TO GRANT LEASES FOR
ALL OR ANY OF SAID PURPOSES, BUT WITHOUT ANY RIGHT WHATSOEVER TO ENTER UPON THE
SURFACE OF SAID PROPERTY, OR ANY PART OR PORTION THEREOF LYING WITHIN FIVE
HUNDRED (500) FEET VERTICAL DISTANCE BELOW THE SURFACE THEREOF, AS RESERVED IN
THE DEED FROM ALBERT D. SEENO CONSTRUCTION CO., A LIMITED PARTNERSHIP, RECORDED
NOVEMBER 18, 1987, IN BOOK 14024, AT PAGES 1 THROUGH 8, OFFICIAL RECORDS.

<PAGE>   91

                                  EXHIBIT "A-2"
                       LEGAL DESCRIPTION (LYON WOODFIELD)

THE LAND REFERRED TO IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF CONTRA
COSTA AND IS DESCRIBED AS FOLLOWS:

PARCEL ONE:

PORTION OF SECTION 7, TOWNSHIP 1 NORTH, RANGE 3 EAST, MOUNT DIABLO BASE AND
MERIDIAN , AS SAID SECTION IS SHOWN ON THE MAP OF RANCHO LOS MEGANOS, FILED
JANUARY 9, 1913, MAP BOOK 9, PAGE 202, CONTRA COSTA COUNTY RECORDS, DESCRIBED AS
FOLLOWS:

BEING A PORTION OF THAT CERTAIN PARCEL OF LAND DESCRIBED IN THAT CERTAIN DEED
RECORDED JANUARY 14, 1963, IN BOOK 4281 OF OFFICIAL RECORDS, AT PAGE 624, IN THE
OFFICE OF THE COUNTY RECORDER OF CONTRA COSTA COUNTY, MORE PARTICULARLY
DESCRIBED AS FOLLOWS:

BEGINNING AT THE NORTHWESTERN CORNER OF SAID PARCEL OF LAND;

THENCE FROM SAID POINT OF BEGINNING, ALONG THE NORTHERN LINE OF SAID PARCEL OF
LAND, SOUTH 89(degrees)24'18" EAST, 103.261 METERS;

THENCE LEAVING SAID NORTHERN LINE, SOUTH 01(degrees)19'46" WEST, 91.594 METERS;

THENCE SOUTH 21(degrees)29'12" EAST, 35.899 METERS TO A POINT ON THE SOUTHERN
LINE OF SAID PARCEL OF LAND;

THENCE ALONG SAID SOUTHERN LINE, NORTH 89(degrees)25'14" WEST, 117.192 METERS TO
THE SOUTHWESTERN CORNER OF SAID PARCEL OF LAND;

THENCE FROM SAID SOUTHWESTERN CORNER, ALONG THE WESTERN LINE OF SAID PARCEL OF
LAND, THE FOLLOWING TWO (2) COURSES:

        1.     NORTH 01(degrees)19'46" EAST, 115.090 METERS, AND
        2.     NORTH 01(degrees)23'00" EAST, 9.804 METERS TO SAID POINT OF
               BEGINNING.

ALSO DESCRIBED AS NEW LOT 1, PER LOT LINE ADJUSTMENT 00-01, RECORDED MAY 30,
2000, AS SERIES NO. 2000-0109695-00, AND RE-RECORDED JUNE 30, 2000, AS SERIES
NO. 2000-0138205-00, CONTRA COSTA COUNTY RECORDS.

PARCEL TWO:

PORTION OF SECTION 7, TOWNSHIP 1 NORTH, RANGE 3 EAST, MOUNT DIABLO BASE AND
MERIDIAN, AS SAID SECTION IS SHOWN ON THE MAP OF RANCHO LOS MEGANOS, FILED
JANUARY 9, 1913, MAP BOOK 9, PAGE 202, CONTRA COSTA COUNTY RECORDS, DESCRIBED AS
FOLLOWS:
<PAGE>   92

BEING A PORTION OF THAT CERTAIN PARCEL OF LAND DESCRIBED IN THAT CERTAIN DEED
RECORDED JUNE 10, 1991, IN SERIES NO. 91-111558 OF OFFICIAL RECORDS, IN THE
OFFICE OF THE COUNTY RECORDER OF CONTRA COSTA COUNTY, MORE PARTICULARLY
DESCRIBED AS FOLLOWS:

BEGINNING AT THE NORTHEASTERN CORNER OF SAID PARCEL OF LAND;

THENCE FROM SAID POINT OF BEGINNING, ALONG THE EASTERN LINE OF SAID PARCEL OF
LAND, SOUTH 01(degrees)20'42" WEST, 124.800 METERS TO THE SOUTHEASTERN CORNER OF
SAID PARCEL OF LAND;

THENCE FROM SAID SOUTHEASTERN CORNER, ALONG THE SOUTHERN LINE OF SAID PARCEL OF
LAND, THE FOLLOWING TWO (2) COURSES:

        1)     NORTH 89(degrees)24'39" WEST, 223.170 METERS, AND
        2)     NORTH 89(degrees)25'14" WEST, 146.433 METERS;

THENCE LEAVING SAID SOUTHERN LINE, THE FOLLOWING TWO (2) COURSES:

        1)     NORTH 21(degrees)29'12" WEST, 35.899 METERS, AND
        2)     NORTH 01(degrees)19'46" EAST, 91.594 METERS TO A POINT ON THE
        NORTHERN LINE OF SAID PARCEL OF LAND;

THENCE ALONG SAID NORTHERN LINE, SOUTH 89(degrees)24'18" EAST, 383.559 METERS OF
SAID POINT OF BEGINNING.

ALSO DESCRIBED AS NEW LOT 2, PER LOT LINE ADJUSTMENT 00-01, RECORDED MAY 30,
2000, AS SERIES NO. 2000-0109695-00, AND RE-RECORDED JUNE 30, 2000, AS SERIES
NO. 2000-0138205-00, CONTRA COSTA COUNTY RECORDS.

EXCEPTING FROM PARCELS ONE AND TWO:

RIGHTS RESERVED IN THE DEED FROM DONALD B. PUTNAM, ET UX, TO DONALD A. KAAE, ET
AL, RECORDED DECEMBER 7, 1979, BOOK 9649, OFFICIAL RECORDS, PAGE 234, AS
FOLLOWS:

"ALL OIL, GAS, CASINGHEAD GASOLINE AND OTHER HYDROCARBON MINERAL SUBSTANCES
BELOW A POINT 500 FEET BELOW THE SURFACE OF SAID LAND, TOGETHER WITH THE RIGHT
TO TAKE, REMOVE, MINE, PASS THROUGH AND DISPOSE OF ALL SAID OIL, GAS, CASINGHEAD
GASOLINE AND OTHER HYDROCARBON AND MINERAL SUBSTANCES, BUT WITHOUT ANY RIGHT
WHATSOEVER TO ENTER UPON THE SURFACE OF SAID LAND."

<PAGE>   93

                                  EXHIBIT "A-3"
                       LEGAL DESCRIPTION (SYCAMORE RANCH)

THE LAND REFERRED TO IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO
AND IS DESCRIBED AS FOLLOWS:

PARCEL 1:

ALL THAT PORTION OF LOT 44 OF TRACT NO. 3734-2 ACCORDING TO A MAP THEREOF NO.
9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER 13, 1980
TOGETHER WITH A PORTION OF GIGI COURT VACATED BY DOCUMENT RECORDED NOVEMBER 5,
1997 AS INSTRUMENT NO. 1997-557983 OF OFFICIAL RECORDS ALL IN THE COUNTY OF SAN
DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "C" (SITE 44) AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED NOVEMBER
14, 1997 AS INSTRUMENT NO. 1997-576366 OF OFFICIAL RECORDS AND FURTHER SHOWN AND
DELINEATED ON RECORD OF SURVEY NO. 15675 RECORDED NOVEMBER 21, 1997 AS
INSTRUMENT NO. 1997-592891 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 2:

ALL THAT PORTION OF LOTS 44 AND 45 OF TRACT NO. 3734-2 ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER
13, 1980 TOGETHER WITH A PORTION OF GIGI COURT VACATED BY DOCUMENT RECORDED
NOVEMBER 5, 1997 AS INSTRUMENT NO. 1997-557983 OF OFFICIAL RECORDS ALL IN THE
COUNTY OF SAN DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "D" (SITE 45) AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED NOVEMBER
14, 1997 AS INSTRUMENT NO. 1997-576366 OF OFFICIAL RECORDS AND FURTHER SHOWN AND
DELINEATED ON RECORD OF SURVEY NO. 15675 RECORDED NOVEMBER 21, 1997 AS
INSTRUMENT NO. 1997-592891 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 3:

ALL OF LOT 46 TOGETHER WITH A PORTION OF LOT 45 OF TRACT NO. 3734-2 ACCORDING TO
A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "E" (SITE 46) AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED NOVEMBER
14, 1997 AS INSTRUMENT NO. 1997-576366 OF OFFICIAL RECORDS AND FURTHER SHOWN AND
DELINEATED ON RECORD OF SURVEY NO. 15675 RECORDED NOVEMBER 21, 1997 AS
INSTRUMENT NO. 1997-592891 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.
<PAGE>   94

PARCEL 4:

ALL THAT PORTION OF LOTS 105 AND 106 OF TRACT NO. 3734-2, ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER
13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "A" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 5:

ALL THAT PORTION OF LOTS 105, 106 AND 114 OF TRACT NO. 3734-2, ACCORDING TO A
MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "B" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 6:

ALL THAT PORTION OF LOTS 106, 107, 113 AND 114 OF TRACT NO. 3734-2, ACCORDING TO
A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "C" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 7:

ALL THAT PORTION OF LOTS 107, 108, 111, 112 AND 113 OF TRACT NO. 3734-2,
ACCORDING TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY
RECORDED NOVEMBER 13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "D" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS
<PAGE>   95

INSTRUMENT NO. 2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 8:

ALL THAT PORTION OF LOTS 108, 111 AND 112 OF TRACT NO. 3734-2, ACCORDING TO A
MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "E" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 9:

ALL THAT PORTION OF LOTS 108, 109, 110 AND 111 OF TRACT NO. 3734-2, ACCORDING TO
A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "F" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 10:

ALL THAT PORTION OF LOTS 109 AND 110 OF TRACT NO. 3734-2, ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER
13, 1980, TOGETHER WITH A PORTION OF GENISTA PLACE VACATED BY DOCUMENT RECORDED
JULY 23, 1999 AS INSTRUMENT NO. 1999-510147 OF OFFICIAL RECORDS ALL IN THE
COUNTY OF SAN DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "G" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 11:

ALL THAT PORTION OF LOTS 87, 88, 95 AND 109 OF TRACT NO. 3734-2, ACCORDING TO A
MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF GENISTA PLACE AND MILKWOOD COURT
VACATED BY DOCUMENT RECORDED JULY 23, 1999 AS
<PAGE>   96

INSTRUMENT NO. 1999-510147 OF OFFICIAL RECORDS ALL IN THE COUNTY OF SAN
DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "H" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 12:

ALL THAT PORTION OF LOTS 87 AND 88 OF TRACT NO. 3734-2, ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER
13, 1980, TOGETHER WITH A PORTION OF MILKWOOD COURT VACATED BY DOCUMENT RECORDED
JULY 23, 1999 AS INSTRUMENT NO. 1999-510147 OF OFFICIAL RECORDS ALL IN THE
COUNTY OF SAN DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "I" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 13:

ALL THAT PORTION OF LOTS 86, 88 AND 89 OF TRACT NO. 3734-2, ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER
13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "J" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 14:

ALL THAT PORTION OF LOTS 86, 89 AND 90 OF TRACT NO. 3734-2, ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER
13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "K" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.
<PAGE>   97

PARCEL 15:

ALL THAT PORTION OF LOTS 90 AND 91 OF TRACT NO. 3734-2, ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER
13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "L" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 16:

ALL THAT PORTION OF LOTS 84, 90 AND 91 OF TRACT NO. 3734-2, ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED NOVEMBER
13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "M" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 17:

ALL THAT PORTION OF LOTS 91, 92, 99, 100 AND 101 OF TRACT NO. 3734-2, ACCORDING
TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "N" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 18:

ALL THAT PORTION OF LOTS 90, 91, 92, 93, 98, 99, 100 AND 101 OF TRACT NO.
3734-2, ACCORDING TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN
DIEGO COUNTY RECORDED NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF MILKWOOD
COURT AND GENISTA PLACE VACATED BY DOCUMENT RECORDED JULY 23, 1999 AS INSTRUMENT
NO. 1999-510147 OF OFFICIAL RECORDS ALL IN THE COUNTY OF SAN DIEGO, CALIFORNIA,
MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "O" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS
<PAGE>   98

INSTRUMENT NO. 2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 19:

ALL THAT PORTION OF LOTS 93, 94, 98, 99, 100 AND 101 OF TRACT NO. 3734-2,
ACCORDING TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY
RECORDED NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF MILKWOOD COURT AND
GENISTA PLACE VACATED BY DOCUMENT RECORDED JULY 23, 1999 AS INSTRUMENT NO.
1999-510147 OF OFFICIAL RECORDS ALL IN THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE
PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "P" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 20:

ALL THAT PORTION OF LOTS 93, 94, 95, 98, 99 AND 101 OF TRACT NO. 3734-2,
ACCORDING TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY
RECORDED NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF GENISTA PLACE AND
MILKWOOD COURT VACATED BY DOCUMENT RECORDED JULY 23, 1999 AS INSTRUMENT NO.
1999-510147 OF OFFICIAL RECORDS ALL IN THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE
PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "Q" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 21:

ALL THAT PORTION OF LOTS 94, 95, 97, 98, 99 AND 101 OF TRACT NO. 3734-2,
ACCORDING TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY
RECORDED NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF GENISTA PLACE VACATED BY
DOCUMENT RECORDED JULY 23, 1999 AS INSTRUMENT NO. 1999-510147 OF OFFICIAL
RECORDS ALL IN THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED
AS FOLLOWS:

PARCEL "R" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.
<PAGE>   99

PARCEL 22:

ALL THAT PORTION OF LOTS 95, 96, 97, 98, AND 101 OF TRACT NO. 3734-2, ACCORDING
TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF GENISTA PLACE VACATED BY DOCUMENT
RECORDED JULY 23, 1999 AS INSTRUMENT NO. 1999-510147 OF OFFICIAL RECORDS ALL IN
THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
PARCEL "S" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 23:

ALL THAT PORTION OF LOTS 95, 96, 97, AND 101 OF TRACT NO. 3734-2, ACCORDING TO A
MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF GENISTA PLACE VACATED BY DOCUMENT
RECORDED JULY 23, 1999 AS INSTRUMENT NO. 1999-510147 OF OFFICIAL RECORDS ALL IN
THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "T" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 24:

ALL THAT PORTION OF LOTS 96, 97, 101, 102, 108 AND 109 OF TRACT NO. 3734-2,
ACCORDING TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY
RECORDED NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF GENISTA PLACE AND
CHICKWOOD COURT VACATED BY DOCUMENT RECORDED JULY 23, 1999 AS INSTRUMENT NO.
1999-510147 OF OFFICIAL RECORDS ALL IN THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE
PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "U" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 25:

ALL THAT PORTION OF LOTS 96, 101, 102 AND 108 OF TRACT NO. 3734-2, ACCORDING TO
A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY
<PAGE>   100

RECORDED NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF GENISTA PLACE AND
CHICKWOOD COURT VACATED BY DOCUMENT RECORDED JULY 23, 1999 AS INSTRUMENT NO.
1999-510147 OF OFFICIAL RECORDS ALL IN THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE
PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "V" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 26:

ALL THAT PORTION OF LOTS 101, 102, 103, 107 AND 108 OF TRACT NO. 3734-2,
ACCORDING TO A MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY
RECORDED NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF CHICKWOOD COURT VACATED
BY DOCUMENT RECORDED JULY 23, 1999 AS INSTRUMENT NO. 1999-510147 OF OFFICIAL
RECORDS ALL IN THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED
AS FOLLOWS:

PARCEL "W" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 27:

ALL THAT PORTION OF LOTS 103, 104 AND 107 OF TRACT NO. 3734-2, ACCORDING TO A
MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980, TOGETHER WITH A PORTION OF CHICKWOOD COURT VACATED BY
DOCUMENT RECORDED JULY 23, 1999 AS INSTRUMENT NO. 1999-510147 OF OFFICIAL
RECORDS ALL IN THE COUNTY OF SAN DIEGO, CALIFORNIA, MORE PARTICULARLY DESCRIBED
AS FOLLOWS:

PARCEL "X" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 28:

ALL THAT PORTION OF LOTS 103, 104 AND 105 OF TRACT NO. 3734-2, ACCORDING TO A
MAP THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY RECORDED
NOVEMBER 13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:
<PAGE>   101

PARCEL "Y" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

PARCEL 29:

ALL THAT PORTION OF LOTS 104 AND 105 OF TRACT NO. 3734-2, ACCORDING TO A MAP
THEREOF NO. 9888, FILED IN THE OFFICE OF THE SAN DIEGO COUNTY R ECORDED NOVEMBER
13, 1980 MORE PARTICULARLY DESCRIBED AS FOLLOWS:

PARCEL "Z" AS DESCRIBED IN CERTIFICATE OF COMPLIANCE RECORDED MARCH 31, 2000 AS
INSTRUMENT NO. 2000-165254 OF OFFICIAL RECORDS, AND FURTHER SHOWN AND DELINEATED
ON RECORD OF SURVEY NO. 16650 RECORDED JULY 7, 2000 AS INSTRUMENT NO.
2000-359537 OF OFFICIAL RECORDS OF SAN DIEGO COUNTY, CALIFORNIA.

<PAGE>   102

                                  EXHIBIT "A-4"
                   LEGAL DESCRIPTION (MEADOWLARK -- LOMA REAL)

THE LAND REFERRED TO IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO
AND IS DESCRIBED AS FOLLOWS:

PARCEL 1:

LOTS 91 THROUGH 94, 104 THROUGH 118 AND 132 THROUGH 139, ALL INCLUSIVE, OF SAN
MARCOS TRACT NO. 391, MEADOWLARK ESTATES UNIT NO. 4, ACCORDING TO MAP NO. 13915,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, JANUARY 14,
2000.

PARCEL 2:

LOTS 140 AND 141 OF SAN MARCOS TRACT NO. 391, MEADOWLARK ESTATES UNIT NO. 3,
ACCORDING TO MAP NO, 13914, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN
DIEGO COUNTY, JANUARY 14, 2000.

<PAGE>   103

                                  EXHIBIT "A-5"
                         LEGAL DESCRIPTION (CROWN RIDGE)

THE LAND REFERRED TO HEREIN IS LOCATED IN THE CITY OF PALMDALE, COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

PARCEL 1:

LOTS 1 TO 15 INCLUSIVE, AND LOTS 24 TO 30 OF TRACT 46910, IN THE CITY OF
PALMDALE, AS PER MAP RECORDED IN BOOK 1149 PAGES 79 THROUGH 81 INCLUSIVE OF
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, AND AS AMENDED
BY THAT CERTIFICATE OF CORRECTION DATED MARCH 4, 1994 AND RECORDED MARCH 10,
1994 AS INSTRUMENT NO. 94-483380.

PARCEL 2:

LOTS 5 TO 17 INCLUSIVE, LOTS 19 TO 21 INCLUSIVE, LOTS 25, 29, 33 AND 34 OF TRACT
46911, IN THE CITY OF PALMDALE, AS PER MAP RECORDED IN BOOK 1149 PAGE 82 TO 85
INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY,
AND AS AMENDED BY THAT CERTIFICATE OF CORRECTION DATED MARCH 4, 1994 AND
RECORDED MARCH 10, 1994 AS INSTRUMENT NO. 94-483380.

PARCEL 3:

LOTS 2 TO 14 INCLUSIVE, OF TRACT 45291, IN THE CITY OF PALMDALE, AS PER MAP
RECORDED IN BOOK 1149 PAGE 86 TO 88 INCLUSIVE OF MAPS, IN THE OFFICE OF THE
COUNTY RECORDER OF LOS ANGELES COUNTY, AND AS AMENDED BY THAT CERTIFICATE OF
CORRECTION DATED MARCH 4, 1994 AND RECORDED MARCH 10, 1994 AS INSTRUMENT NO.
94-483380.

PARCEL 4:

PARCELS A THROUGH D, INCLUSIVE, AS SHOWN ON LOT LINE ADJUSTMENT NO. 513,
RECORDED JULY 24, 2000 AS INSTRUMENT NO. 00-1139361 OF OFFICIAL RECORDS, IN THE
OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA, BEING AN
ADJUSTMENT OF LOTS 19 TO 23 OF TRACT 46910.

EXCEPTING FROM LOT 23 ALL OIL, GAS, MINERAL AND HYDROCARBON SUBSTANCES IN AND
UNDER SAID LAND BUT WITHOUT THE RIGHT OF SURFACE ENTRY TO A DEPTH OF 500 FEET,
MEASURED FROM THE SURFACE THEREOF.

<PAGE>   104

                                  EXHIBIT "A-6"
                        LEGAL DESCRIPTION (RIO DEL VERDE)

THE LAND REFERRED TO IS SITUATED IN THE STATE OF ARIZONA, COUNTY OF MARICOPA AND
IS DESCRIBED AS FOLLOWS:

Lots 5, 6, 10 through 12, 15, 16, 47, 50, 57 through 74 inclusive, 78, 81, and
84, RIO DEL VERDE, according to Book 506, Page 33 of Maps, and Affidavit of
Correction recorded in Document No. 2000054790, records of Maricopa County,
Arizona.

<PAGE>   105

                                  EXHIBIT "A-7"
                       LEGAL DESCRIPTION (KINGSWAY RIDGE)

THE LAND REFERRED TO IS SITUATED IN THE STATE OF NEVADA, COUNTY OF CLARK AND IS
DESCRIBED AS FOLLOWS:

Lots 80-87 inclusive of Block 1; lots 150 thru 157 inclusive, of Block 2 as
recorded in the Final Map of Kingsway Ridge Unit No. 1 in Book 94 of Plats, Page
31, in the Office of the County Recorder of Clark County, Nevada.

Lots 88-106 inclusive of Block 1 as recorded in the Final Map of Kingsway Ridge
Unit No. 2 in Book 95 of Plats at Page 22, in the Office of the County Recorder
of Clark County, Nevada.

Lots 145-149 inclusive in Block 2 of Kingsway Ridge-Unit No. 2 in Book 95 of
Plats, Page 22, in the Office of the County Recorder of Clark County, Nevada.

Lots 1 -10 inclusive, Lots 15-33 inclusive in Block 1 as recorded in the Final
Map of Kingsway Ridge Unit No. 3 in Book 94 of plats, Page 77, in the Office of
the County Recorder of Clark County, Nevada.

Lots 73-79 inclusive in Block 2 as recorded in the Final Map of Kingsway
Ridge-Unit 3 in Book 94 of Plats, Page 77, in the Office of the County Recorder
of Clark County, Nevada.

Lots 107-134 inclusive of Block 1 as recorded in the Final Map of Kingsway Ridge
Unit No. 4 in Book 96 of Plats at Page 17, in the Office of the County Recorder
of Clark County, Nevada.

Lots 135-144 inclusive of Block 2 as recorded in the Final Map of Kingsway Ridge
Unit No. 4 in Book 96 of Plats at Page 17, in the Office of the County Recorder
of Clark County, Nevada.

Los 67 - 72 inclusive of Block 1 as recorded in the Final Map of Kingsway Ridge
Unit No. 5 in Book 96 of Plats at Page 18, in the Office of the County Recorder
of Clark County, Nevada.

Lots 34-66 inclusive of Block 2 as recorded in the Final Map of Kingsway Ridge
Unit No. 5 in Book 96 of Plats at Page 18, in the Office of the County Recorder
of Clark County, Nevada.

<PAGE>   106

                                  EXHIBIT "A-8"
                  LEGAL DESCRIPTION (SUMMERLIN IN THE GARDENS)

THE LAND REFERRED TO IS SITUATED IN THE STATE OF NEVADA, COUNTY OF CLARK AND IS
DESCRIBED AS FOLLOWS:

Parcel I:

Lots 71-96 inclusive of Block 1 and Lots 13-22 inclusive in Block 2 and Lots
35-46 inclusive in Block 3 as shown in the Final Map of Glenleigh Gardens, which
map recorded in Book 95 of Plats, Page 42, in the Office of the County Recorder
of Clark County, Nevada.

Parcel II:

Lot 3 of Block B, as shown on Final Map of Summerlin Village 14B on file in Book
90 of Plats at Page 1, in the Office of the County Recorder of Clark County,
Nevada

EXCEPTING THEREFROM all that land shown on and being a part of Final Map of
Glenleigh Gardens, which map recorded in Book 95, of Plats, Page 42, in the
Office of the County Recorder of Clark County, Nevada.

<PAGE>   107

                                   EXHIBIT "B"
                        BORROWING CASE CERTIFICATE FORMAT

Submission Date:_______________

<TABLE>
<CAPTION>

CATEGORY:                PROJECT       APPRAISED      BUDGETED       MAXIMUM      AMOUNT PERMITTED
                      NAME/DATE OF       VALUE      PROJECT COSTS    ALLOWED     IN BORROWING BASE
                       ENTRY INTO     MULTIPLIED     MULTIPLIED      ADVANCE      (DRAW PERCENTAGE
                          BASE        BY ADVANCE     BY ADVANCE     (LESSER OF   AMOUNT MULTIPLIED
                                         RATE           RATE         VALUE OR        BY MAXIMUM
                                                                   COST AMOUNT)   ALLOWED ADVANCE)
<S>                   <C>            <C>            <C>            <C>           <C>
I.   Entitled Land                    50% X Value    50% X Costs
      to be Developed

II.  Lots Under                       70% X Value    70% X Costs
      Development
III. Developed Lots                   70% X Value    70% X Costs
X.   TOTAL LOT
      INVENTORY

I.   Spec Homes                       75% X Value    85% X Costs
II.  Model Homes                      75% X Value    80% X Costs
III. Presold Homes                    80% X Value    90% X Costs
Y.   TOTAL HOME
      INVENTORY

A. Total Borrowing
Base (Items X + Y)

B. Less Outstanding
Advances

C. Less
Outstanding Letters
of Credit

D. Less
Adjustments under
Section 2.1.3(d)

E. Plus Funds in
Borrower's Funds
Account

BORROWING
AVAILABILITY
(DEFICIENCY)
(A-B-C-D+E)
</TABLE>

<PAGE>   108

                            CERTIFICATION OF BORROWER

Borrower hereby certifies as follows with respect to the information contained
in this Borrowing Base Certificate:

        1. All Lot and Home inventory is located in Qualified Projects.

        2. All Lot and Home inventory is owned by Borrower free of any liens or
encumbrances, other than liens and encumbrances in favor of Lender as security
for the Loan, or outstanding liens that have been bonded over, or outstanding
liens that are subject to signed released delivered to Borrower.

        3. Borrower has received lien waivers for all major scopes of
construction work in process with respect to the subject Property.

        4. As to any Lots Under Development, construction of the A&D
Improvements has begun or is scheduled to begin within ninety (90) days of
inclusion in the Borrowing Base as Lots Under Development.

        5. As to any Developed Lots, construction of the A&D Improvements has
been completed as of the date of inclusion in the Borrowing Base as Developed
Lots.

        6. As to any Homes, construction of the Home Improvements has begun or
is scheduled to begin within ninety (90) days of inclusion in the Borrowing Base
as Homes.

        7. As to any Presold Homes, said Homes were in compliance with all
requirements for a Presold Home as of the date of inclusion in the Borrowing
Base as Presold Homes and remain in compliance as of the date hereof.

        8. Attached hereto are the following request(s) for entry into the
Borrowing Base of new [__] Entitled Land, [__] Lots Under Development, [__]
Developed Lots, [__] Model Homes, [__] Spec Homes and/or [__] Presold Homes.

The undersigned hereby certifies to Lender that the foregoing information on
this Borrowing Base Certificate as of the Calendar Month ending
__________________, 200__, is true and correct and was provided from financial
information prepared according to GAAP. All capitalized terms not defined herein
shall have the meanings given to such terms in that certain Revolving Line of
Credit Loan Agreement dated as of September 21, 2000 ("LOAN AGREEMENT") by and
between CALIFORNIA BANK & TRUST, a California banking corporation ("LENDER") and
WILLIAM LYON HOMES, INC., a California corporation ("BORROWER").

                                            WILLIAM LYON HOMES, INC., a
                                            California corporation

                                            By:
                                               ---------------------------------
                                               Name:
                                                    ----------------------------
                                                    Title:
                                                          ----------------------

<PAGE>   109

                                   EXHIBIT "C"
                          LETTER OF CREDIT REQUEST FORM

CALIFORNIA BANK & TRUST
1900 Main Street, Suite 200
Irvine, California 92614
Attn:
     --------------------------

Ladies and Gentlemen:

               Reference is hereby made to that certain Revolving Line of Credit
Loan Agreement dated as of September 21, 2000 ("LOAN AGREEMENT") by and between
CALIFORNIA BANK & TRUST, a California banking corporation ("LENDER") and WILLIAM
LYON HOMES, INC., a California corporation ("BORROWER"). All capitalized terms
used herein and not otherwise defined shall have the meanings given to such
terms in the Loan Agreement.

        Pursuant to Section 2.3 of the Loan Agreement, Borrower hereby certifies
as follows:

        1. LETTER OF CREDIT. The undersigned Borrowers hereby request a Letter
of Credit to be issued under Section 2.3 of the Loan Agreement:

<TABLE>
<CAPTION>

                      <S>                   <C>
                      Principal Amount:     $

                      Beneficiary:
                                            --------------------

                      Issuance Date:
                                            --------------------
</TABLE>

        2. USE OF LETTER OF CREDIT. Such Letter of Credit shall be used for the
following purposes permitted by the Loan Agreement:

                                   [Describe]

        3. NO DEFAULT. Borrower certifies that Borrower is and will be in
compliance with all covenants under the Loan Agreement after giving effect to
the issuance of the Letter of Credit requested hereby.

        4. REPRESENTATIONS TRUE. Each of the representations and warranties made
by or on behalf of any of Borrower contained in the Loan Agreement, in the other
Loan Documents or in any document or instrument delivered pursuant to or in
connection with the Loan Agreement was true and correct in all material respects
as of the date as of which it was made and shall also be true and correct in all
material respects at and as of the issuance date for the Letter of Credit
requested hereby, with the same effect as if made at and as of such issuance
date (except to the extent of changes resulting from transactions contemplated
or permitted by the Loan Agreement and the other Loan Documents, changes
occurring in the ordinary course of business that singly or in the aggregate are
not materially adverse, changes previously disclosed in writing to and approved
by Lender in writing and except to the extent that such representations and
warranties relate expressly to an earlier date) and no Event of Default or
Unmatured Event of Default has occurred and is continuing.
<PAGE>   110

        5. OTHER CONDITIONS. All other conditions to the issuance of the Letter
of Credit requested hereby set forth in Section 2.3 of the Loan Agreement have
been satisfied.

        6. ISSUANCE DATE. Except to the extent, if any, specified by notice
actually received by Lender prior to the issuance date specified above, the
foregoing representations and warranties shall be deemed to have been made by
Borrower on and as of such issuance date.

        7. DEFINITIONS. Terms defined in the Loan Agreement are used herein with
the meanings so defined.

        IN WITNESS WHEREOF, we have hereunto set our hands and seals this _____
day of _________________, 200__.

                                            WILLIAM LYON HOMES, INC., a
                                            California corporation

                                            By:
                                               ---------------------------------
                                               Name:
                                                    ----------------------------
                                                    Title:
                                                          ----------------------

                                            By:
                                               ---------------------------------
                                               Name:
                                                    ----------------------------
                                                    Title:
                                                          ----------------------

<PAGE>   111

                                   EXHIBIT "D"
                            PROJECT LOAN REQUEST FORM

CALIFORNIA BANK & TRUST
1900 Main Street, Suite 200
Irvine, California 92614
Attn:
     ----------------------------

Ladies and Gentlemen:

               Reference is hereby made to that certain Revolving Line of Credit
Loan Agreement dated as of September 21, 2000 ("LOAN AGREEMENT") by and between
CALIFORNIA BANK & TRUST, a California banking corporation ("LENDER") and WILLIAM
LYON HOMES, INC., a California corporation ("BORROWER"). All capitalized terms
used herein and not otherwise defined shall have the meanings given to such
terms in the Loan Agreement.

        Pursuant to Section 2.1.4 of the Loan Agreement, Borrower hereby
certifies as follows:

        1. LOAN. The undersigned Borrowers hereby request entry of a Qualified
Project into the Borrowing Base under Section 2.1.4 of the Loan Agreement:

                      Name of Project:
                                        -----------------

                      Entry of Project into the Borrowing Base:
                                                                 ---------------

                      Description of initial Lot Inventory as of date of entry
into the Borrowing Base: ______________________________________

                      Description of initial Home Inventory as of date of entry
into the Borrowing Base: ______________________________________ :

        2. DUE DILIGENCE COMPLETED: (YES/NO)

               ____ Soils and Engineering Report

               ____ Approved Phase I Report

               ____ Approved Phase II Report (if required)

                    ___ Remediation completed by licensed environmental engineer

               ____ Tentative Map [__] or Final Map (recorded) [__]

                    ___ If Tentative Map, outstanding conditions to Final Map:
                       ______________________________________________________.

               ____ Title Insurance

                     ___ Owner's Policy
<PAGE>   112

                     ___ Title Policy in favor of Lender to be issued by Title
                         Company

              ____ No liens or encumbrances in violation of the Loan Agreement

              ____ Plans and Specifications

              ____ Compliance with Maximum Aggregate Loan Allocation limitations

              ____ Attach list of "Material Agreements" for Project (which list
        shall include those agreements listed in Exhibit "J" to the Loan
        Agreement for the Existing Projects included in the Borrowing Base as of
        the Initial Closing Date).

        3. USE OF PROCEEDS. Such Project Loan shall be used for the following
purposes permitted by the Loan Agreement:

          [Attach A&D Budget and/or Home Construction Budget, as applicable]

        4. LOAN DOCUMENTS. Borrower has executed and delivered to Lender the
following Loan Documents for the Qualified Project:

              ____ Deed of Trust;

              ____ Financing Statement;

              ____ Construction Assignments (as applicable);
                   ____ Assignment of Permits;
                   ____ Assignment of Architect's Agreement (if applicable);
                   ____ Assignment of Construction Contract (if applicable);
                   ____ Assignment of Engineering Contract (if applicable);

              ____ Environmental Indemnity.

        5. NO DEFAULT. The Borrower certifies that it is and will be in
compliance with all covenants under the Loan Agreement after inclusion of the
Qualified Project into the Borrowing Base as requested hereby. No condemnation
proceedings are pending or, to Borrowers' knowledge, threatened against any
Project, and there have been no changes in title as reflected in the Title
Policy since the date of the Title Policy, except as may have been previously
disclosed in writing to and approved in writing by Lender.

        6. REPRESENTATIONS TRUE. Each of the representations and warranties made
by or on behalf of Borrower contained in the Loan Agreement, in the other Loan
Documents or in any document or instrument delivered pursuant to or in
connection with the Loan Agreement was true and correct in all material respects
as of the date as of which it was made and shall also be true and correct in all
material respects at and as of the initial entry date for the Qualified Project
described herein, with the same effect as if made at and as of such date (except
to the extent of changes resulting from transactions contemplated or permitted
by the Loan Agreement and the other Loan Documents, changes
<PAGE>   113

occurring in the ordinary course of business that singly or in the aggregate are
not materially adverse, changes previously disclosed in writing to and approved
in writing by Lender, except to the extent that such representations and
warranties relate expressly to an earlier date) and no Event of Default or
Unmatured Event of Default has occurred and is continuing.

        7. OTHER CONDITIONS. All other conditions to the entry of the Qualified
Project into the Borrowing Base requested hereby set forth in Section 2.1.4 of
the Loan Agreement have been satisfied, including without limitation that
Borrower has provided any Project information set forth in EXHIBIT "K" to the
Loan Agreement required by Lender prior to or concurrent with the submission of
this request.

        8. DEFINITIONS. Terms defined in the Loan Agreement are used herein with
the meanings so defined.

        IN WITNESS WHEREOF, we have hereunto set our hands and seals this _____
day of _________________, 200__.

                                            WILLIAM LYON HOMES, INC., a
                                            California corporation

                                            By:
                                               ---------------------------------
                                               Name:
                                                    ----------------------------
                                                    Title:
                                                          ----------------------

                                            By:
                                               ---------------------------------
                                               Name:
                                                    ----------------------------
                                                    Title:
                                                          ----------------------

<PAGE>   114

                                   EXHIBIT "E"
                            FORM OF LETTER OF CREDIT

<PAGE>   115

                                   EXHIBIT "F"
                          REQUEST FOR INCLUSION OF LAND
                       IN BORROWING BASE AS ENTITLED LAND

                                                                   [INSERT DATE]

CALIFORNIA BANK & TRUST
1900 Main Street, Suite 200
Irvine, California 92614
Attn:
     ------------------------

Gentlemen:

        Reference is hereby made to that certain Revolving Line of Credit Loan
Agreement dated as of September 21, 2000 ("LOAN AGREEMENT") by and between
CALIFORNIA BANK & TRUST, a California banking corporation ("LENDER") and WILLIAM
LYON HOMES, INC., a California corporation ("BORROWER"). All capitalized terms
used herein and not otherwise defined shall have the meanings given to such
terms in the Loan Agreement.

        Pursuant to Section 4.2 of the Loan Agreement, Borrower hereby requests
that the portion of the Land more particularly described on SCHEDULE "1"
attached hereto be included in the Borrowing Base as Entitled Land. Borrower
represents and warrants that Borrower has provided all information and documents
and satisfied all conditions precedent with respect to the inclusion of such
portion of the Land in the Borrowing Base as Entitled Land. Borrower further
represents and warrants that (i) no Event of Default or Unmatured Event of
Default has occurred and is continuing and (ii) except as otherwise disclosed to
Lender in writing and approved in writing by Lender, all representations and
warranties set forth in the Loan Documents are true and correct as of the date
hereof.

WILLIAM LYON HOMES, INC., a
California corporation

         By:
            ----------------------------------
              Name:
                   ---------------------------
              Title:
                    --------------------------

         By:
            ----------------------------------
              Name:
                   ---------------------------
              Title:
                    --------------------------

<PAGE>   116

                                   EXHIBIT "G"
                          REQUEST FOR INCLUSION OF LAND
                   IN BORROWING BASE AS LOTS UNDER DEVELOPMENT
                                                                   [INSERT DATE]

CALIFORNIA BANK & TRUST
1900 Main Street, Suite 200
Irvine, California 92614
Attn:
     -----------------------

Gentlemen:

        Reference is hereby made to that certain Revolving Line of Credit Loan
Agreement dated as of September 21, 2000 ("LOAN AGREEMENT") by and between
CALIFORNIA BANK & TRUST, a California banking corporation ("LENDER") and WILLIAM
LYON HOMES, INC., a California corporation ("BORROWER"). All capitalized terms
used herein and not otherwise defined shall have the meanings given to such
terms in the Loan Agreement.

        Pursuant to Section 4.3 of the Loan Agreement, Borrower hereby requests
that the portion of the Land more particularly described on SCHEDULE "1"
attached hereto be included in the Borrowing Base as Lots Under Development.
Borrower represents and warrants that Borrower has provided all information and
documents and satisfied all conditions precedent with respect to the inclusion
of such portion of the Land in the Borrowing Base as Lots Under Development.
Borrower further represents and warrants that (i) no Event of Default or
Unmatured Event of Default has occurred and is continuing and (ii) except as
otherwise disclosed to Lender in writing and approved in writing by Lender, all
representations and warranties set forth in the Loan Documents are true and
correct as of the date hereof.

WILLIAM LYON HOMES, INC., a
California corporation

         By:
            ----------------------------------
              Name:
                   ---------------------------
              Title:
                    --------------------------

         By:
            ----------------------------------
              Name:
                   ---------------------------
              Title:
                    --------------------------

<PAGE>   117

                                   EXHIBIT "H"
                          REQUEST FOR INCLUSION OF LAND
                       IN BORROWING BASE AS DEVELOPED LOTS

                                                                   [INSERT DATE]

CALIFORNIA BANK & TRUST
1900 Main Street, Suite 200
Irvine, California 92614
Attn:
     -------------------------

Gentlemen:

        Reference is hereby made to that certain Revolving Line of Credit Loan
Agreement dated as of September 21, 2000 ("LOAN AGREEMENT") by and between
CALIFORNIA BANK & TRUST, a California banking corporation ("LENDER") and WILLIAM
LYON HOMES, INC., a California corporation ("BORROWER"). All capitalized terms
used herein and not otherwise defined shall have the meanings given to such
terms in the Loan Agreement.

        Pursuant to Section 4.4 of the Loan Agreement, Borrower hereby requests
that the portion of the Land more particularly described on SCHEDULE "1"
attached hereto be included in the Borrowing Base as Developed Lots. Borrower
represents and warrants that Borrower has provided all information and documents
and satisfied all conditions precedent with respect to the inclusion of such
portion of the Land in the Borrowing Base as Developed Lots. Borrower further
represents and warrants that (i) no Event of Default or Unmatured Event of
Default has occurred and is continuing and (ii) except as otherwise disclosed to
Lender in writing and approved in writing by Lender, all representations and
warranties set forth in the Loan Documents are true and correct as of the date
hereof.

WILLIAM LYON HOMES, INC., a California
corporation

         By:
            ----------------------------------
              Name:
                   ---------------------------
              Title:
                    --------------------------

         By:
            ----------------------------------
              Name:
                   ---------------------------
              Title:
                    --------------------------

<PAGE>   118

                                   EXHIBIT "I"
                          REQUEST FOR INCLUSION OF LAND
                IN BORROWING BASE AS PRESOLD, SPEC OR MODEL HOMES

                                                                   [INSERT DATE]

CALIFORNIA BANK & TRUST
1900 Main Street, Suite 200
Irvine, California 92614
Attn:
     -----------------------

Gentlemen:

        Reference is hereby made to that certain Revolving Line of Credit Loan
Agreement dated as of September 21, 2000 ("LOAN AGREEMENT") by and between
CALIFORNIA BANK & TRUST, a California banking corporation ("LENDER") and WILLIAM
LYON HOMES, INC., a California corporation ("BORROWER"). All capitalized terms
used herein and not otherwise defined shall have the meanings given to such
terms in the Loan Agreement.

        Pursuant to Section 4.5 of the Loan Agreement, Borrower hereby requests
that the portion of the Land more particularly described on SCHEDULE "1"
attached hereto be included in the Borrowing Base as [Presold] [Spec] [Model]
Homes. Borrower represents and warrants that Borrower has provided all
information and documents and satisfied all conditions precedent with respect to
the inclusion of such portion of the Land in the Borrowing Base as [Presold]
[Spec] [Model] Homes. Borrower further represents and warrants that (i) no Event
of Default or Unmatured Event of Default has occurred and is continuing and (ii)
except as otherwise disclosed to Lender in writing and approved in writing by
Lender, all representations and warranties set forth in the Loan Documents are
true and correct as of the date hereof.

WILLIAM LYON HOMES, INC., a
California corporation

         By:
            ----------------------------------
              Name:
                   ---------------------------
              Title:
                    --------------------------

         By:
            ----------------------------------
              Name:
                   ---------------------------
              Title:
                    --------------------------

<PAGE>   119

                                   EXHIBIT "J"
                           LIST OF MATERIAL AGREEMENTS

                   Agreements of Sale and Escrow Instructions

                        Declarations of Development CC&Rs

                       Payment and Performance Agreements

                    Option Agreements and Escrow Instructions

                                Other Agreements

<PAGE>   120

                                   EXHIBIT "K"
                          REQUIRED PROJECT INFORMATION

        Borrower shall not be entitled to any Advances for any Qualified Project
hereunder unless and until each of the following conditions precedent have been
satisfied to the extent said information is available for the A&D Improvements
and/or Home Improvements to be constructed as part of the Qualified Project:

               (a) FINAL PLANS. Borrower shall have submitted to Lender, and
Lender shall have reviewed and approved, Plans and Specifications for the
applicable Project, which Plans and Specifications shall (i) be prepared by
Architect and/or Engineer, and (ii) be otherwise satisfactory to Lender.

               (b) APPRAISALS. At Borrower's sole cost and expense, Lender shall
have obtained an Appraisal and/or Base Appraisals with respect to the Property
and each type of Improvements for the applicable Project, which Appraisal and/or
Base Appraisals shall be (i) prepared by an appraiser acceptable to Lender, and
(ii) otherwise satisfactory to Lender.

               (c) INDEPENDENT COST ANALYSIS. If required by Lender, at
Borrower's sole cost and expense, Lender shall have obtained a report in form
and content acceptable to Lender in its discretion from an independent cost
engineer validating the cost adequacy of the applicable Project.

               (d) ADDITIONAL ASSIGNMENTS. Borrower shall have executed and
delivered to Lender the Deed of Trust, Financing Statement and Construction
Assignments securing the Collateral to be included in the subject Project, and
Architect, Contractor and/or Engineer for the applicable Project shall have
consented to such assignments.

               (e) ENVIRONMENTAL REPORTS. Borrower shall have submitted to
Lender for each Project an environmental, toxics and/or soils report(s)
satisfactory to Lender, including drainage, boring (if applicable) and
compacting data, together with such hydrology and other engineering reports that
Lender may reasonably require, all of which shall be by engineers acceptable to
Lender and shall indicate that the condition of the Property is suitable for
construction of the A&D Improvements and Homes thereon (without extraordinary
land preparation) and for the operation and maintenance of the Project. Any
recommendations in the approved soils, hydrology and other engineering reports
must be complied with and incorporated into the Plans and Specifications. Each
environmental assessment (Phase I assessment) of the Property and adjacent
property shall be dated no earlier than one hundred eighty (180) days prior to
the date hereof, and Borrower shall deliver to Lender any sampling and analysis
(Phase II assessment) or special limited assessment that Lender may require
after review of the Phase I assessment, together with any other environmental
investigations and reports that Lender may reasonably require, all of which
shall be by a Lender-approved environmental consulting firm, and none of which
shall reveal any existing or potential environmental condition adversely
affecting the use or value of the Property.

               (f) BUILDING PERMITS, LICENSES, ETC. If required by Lender,
Borrower shall have submitted to Lender evidence for the applicable Project of
(i) building permits for the construction of the Homes (ii) all necessary
permits, licenses and approvals (including without limitation any required
consumer disclosure reports and approvals prior
<PAGE>   121

to the sale of any Homes) in connection with the sale of said Homes, and/or
(iii) Architectural Control Committee and other approvals, if any, required
under any CC&Rs affecting the Property.

               (g) TRUTH-IN-LENDING DISCLOSURES. Prior to entering into any
Purchase Contract for the sale of any Unit for the applicable Project, Borrower
shall have delivered to the purchaser all truth-in-lending and other required
consumer disclosures, in compliance with law and in form and substance
satisfactory to Lender.

               (h) APPROVED BUDGETS. The final approved Budget for the
applicable Project itemizing the Hard Costs and Soft Costs, including direct and
indirect costs, certified to be correct to the best knowledge and belief of
Borrower for each type of Improvement to be constructed as part of the Project.
Said Budget shall be subject to formal review and approval by Lender at Lender's
sole discretion, and if Lender determines that the Loan funds allocated for Hard
Costs are inadequate to pay for all Hard Costs, then Lender may require Borrower
to deposit cash into an account pledged as additional collateral for the Loan
the amount of the shortfall. In no event shall the costs of the Project as set
forth in any A&D Budget or any Home Construction Budget violate the applicable
Maximum Allowed Advance(s).

               (i) MISCELLANEOUS CONDITIONS. The following additional conditions
must be satisfied prior to the Closing Date for each Loan made hereunder:

                      (1) FINANCIAL STATEMENTS. Financial statements for
        Borrower in conformity with the requirements of the Loan Agreement
        covering the two-year period immediately preceding the Closing Date and
        showing a financial condition satisfactory to Lender in its sole
        discretion;

                      (2) SURVEY. If required by Lender, particularly if a
        Qualified Project is to be entered into the Borrowing Base prior to the
        recording of a Final Map for said Qualified Project, a current survey of
        the Property by a licensed surveyor acceptable to Lender describing the
        boundaries of said property and showing all means of ingress and egress,
        rights-of-way, easements (each of which shall be identified by docket
        and page or recording number where recorded) and all other customary and
        relevant information pursuant to ALTA standards and any Title Company
        requirements. All surveys shall be certified to Lender and the Title
        Company issuing the Title Policy required by the Loan Agreement;

                      (3) TITLE INSURANCE. The Title Insurance Policy, with such
        endorsements as Lender may require, issued by the Title Company
        satisfactory to Lender in the amount of the Loan (with direct access
        reinsurance in amounts and by companies and in form acceptable to Lender
        as Lender may require) insuring the lien of the Deed of Trust to be a
        first and prior lien upon the Property, as security for all Advances
        pursuant to the terms of this Agreement, subject only to such exceptions
        as Lender may expressly approve in writing, and insuring against any
        lien claims that could arise out of the construction of the Homes on the
        Property. During the course of construction of the Homes, Borrower shall
        provide Lender with such title insurance endorsements as Lender may
        require, including CLTA Form
<PAGE>   122

        122 Endorsements (or equivalent endorsements acceptable to Lender) for
        each disbursement, and any other endorsements Lender may require to
        insure that the Homes shall have been constructed within the boundaries
        of the Property and in accordance with all applicable laws, covenants,
        restrictions and/or CC&Rs. Upon completion of the Homes, Borrower shall
        deliver to Lender such further endorsements to the title insurance
        policy as Lender may require;

                      (4) ZONING. Evidence that the Property is properly zoned
        for the construction of the A&D Improvements and/or Homes to be
        constructed as part of the applicable Project;

                      (5) CONSTRUCTION MATERIALS. Copies of all agreements
        between Borrower and any architects, engineers, consultants, managers or
        supervisors, and, if required by Lender, copies of construction
        subcontracts related to the construction, maintenance, repair, leasing,
        management and operation of the Project, together with written
        agreements by such persons or entities that they will perform for Lender
        the services contracted to Borrower, notwithstanding the occurrence of
        any Event of Default and any trustee's sale or foreclosure of the Deed
        of Trust (provided that such persons or entities continue to receive
        payments under their respective contracts), and the consent of such
        persons or entities to the collateral assignment by Borrower to Lender
        of their respective contracts;

                      (6) CC&RS. Copies of any CC&Rs and related documents
        pertaining to the Property and the Project;

                      (7) TAXES. Evidence that all taxes and assessments levied
        against or affecting the Property have been paid current, together with
        a tax service contract for the Project in form and content acceptable to
        Lender in its sole discretion;

                      (8) ORGANIZATIONAL DOCUMENTS. Copies of Borrower's
        Organizational Documents, together with proper authorizations and
        certificates and such other documents as Lender may require, relating to
        the existence and good standing of such Persons and the authority of any
        officer, partner or member, as applicable, executing documents on behalf
        of such Persons;

                      (9) EQUITY. Evidence satisfactory to Lender that Borrower
        has equity in the Project in an amount sufficient to satisfy the
        applicable Maximum Allowed Advances for the Project;

                      (10) OTHER INSURANCE. In addition to evidence of all
        insurance coverages as set forth in Section 6.8 of the Loan Agreement,
        evidence of such other insurance as Lender may reasonably require
        herein, including without limitation (i) earthquake insurance, (ii)
        insurance covering vandalism and malicious mischief, and sprinkler
        leakage, and (iii) errors and omissions insurance for the contractors,
        architects, engineers, environmental engineers and the provider of the
        soils report with limits of liability in amounts reasonably acceptable
        to Lender;
<PAGE>   123

                      (11) FLOOD. Evidence whether the Property, or any part
        thereof, lies within a "special flood hazard area" as designated on maps
        prepared by the U.S. Department of Housing and Urban Development
        pursuant to the Flood Disaster Protection Act of 1973, as amended, and,
        if so designated, a National Flood Insurance Association standard flood
        insurance policy, plus insurance from a private insurance carrier if
        required by Lender, for the duration of the Loan in the amount of the
        full insurable value of the completed Improvements, naming Lender as an
        additional loss payee;

                      (12) UTILITIES. Evidence that all utilities and services
        to the Property and Improvements, including without limitation water,
        sewer, gas, electric and telephone, are available, or will be available
        as required, and will be provided in amounts that are sufficient to
        service the Improvements for their intended use;

                      (13) INGRESS/EGRESS. Evidence that there exists adequate
        legal ingress and egress to the Project;

                      (14) JOB SCHEDULE. A job progress schedule showing the
        planned timing, progress of construction and completion date for the
        Improvements of the Project;

                      (15) OFF-SITE IMPROVEMENTS. Evidence that each type of
        off-site improvement for the Property that has been completed shall have
        been certified and/or accepted by any municipality, utility, county or
        other governmental entity whose certification or acceptance thereof is
        required;

                      (16) LIST OF CONTRACTORS. If required by Lender, a list of
        all subcontractors, suppliers and materialmen employed or retained, or
        to be employed or retained, in connection with the construction of the
        Improvements. Such list shall show the name, address and telephone
        number of each such person, a general statement of the nature of the
        work to be done, the labor and materials to be supplied, the names of
        materialmen (if known) and the approximate dollar value of such labor or
        work with respect to the labor and materials to be supplied;

                      (17) LEGAL OPINION. If required by Lender, a legal opinion
        in form and content acceptable to Lender addressing such issues as
        required by Lender; and

                      (18) OTHER INFORMATION. Such other information and
        documents that Lender may reasonably require.
<PAGE>   124

                                   EXHIBIT "L"
                         HOME CONSTRUCTION DRAW SCHEDULE
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------
       STAGE OF COMPLETION                           DESCRIPTION
-------------------------------------------------------------------------------
<S>                                      <C>
Stage 1                                  Permits and Fees
-------------------------------------------------------------------------------
Stage 2 -- 5%                            Layout trench
                                         Underground plumbing
                                         Electrical stubs
-------------------------------------------------------------------------------
Stage 3 -- 10%                           Foundation complete
                                         Garage slab poured
-------------------------------------------------------------------------------
Stage 4 -- 15%                           Lumber & trusses on site
                                         First floor framing
-------------------------------------------------------------------------------
Stage 5 -- 15%                           Rough plumbing
                                         HVAC electrical
-------------------------------------------------------------------------------
Stage 6 -- 20%                           Framing complete
                                         Installed lath or siding
                                         Drywall stocked
                                         Roof loaded
-------------------------------------------------------------------------------
Stage 7 -- 15%                           Insulation
                                         Drywall complete
                                         Taped & texture
                                         Stucco brown complete
                                         Finish carpentry
                                         Cabinets
                                         Painting
-------------------------------------------------------------------------------
Stage 8 -- 15%                           HVAC
                                         Roofing
                                         Finish trades complete
-------------------------------------------------------------------------------
Stage 9 -- 5%                            Flooring complete
                                         City final
-------------------------------------------------------------------------------
</TABLE><PAGE>   1
                                                                    EXHIBIT 10.4

                              OPTION AGREEMENT AND

                               ESCROW INSTRUCTIONS

                                     BETWEEN

                            WILLIAM LYON HOMES, INC.,
                            a California corporation

                                       AND

                            LATHROP INVESTMENT, L.P.,
                        a California limited partnership

                                October 24, 2000

<PAGE>   2

                                OPTION AGREEMENT
                                       AND
                               ESCROW INSTRUCTIONS

        This Option Agreement and Escrow Instructions ("Agreement") is made and
entered into as of the 24th day of October, 2000, between LATHROP INVESTMENT,
L.P., a California limited partnership ("Seller"), and WILLIAM LYON HOMES, INC.,
a California corporation ("Buyer"). The parties agree as follows:

        1. Definitions. As used in this Agreement, the terms set forth below
shall have the following meanings:

               "Additional Purchase Price" means the portion of the purchase
price for a Phase specified in subsection 4.4 [entitled "Additional Purchase
Price and Payment"].

               "Adjusted Gross Proceeds" means, with respect to the sale,
transfer, or disposition of any Residential Lot, an amount equal to (a) the
Gross Proceeds generated by such sale, transfer or other disposition (including,
without limitation, any amounts generated as a result of any Extras), minus (b)
the actual costs incurred for any sales concessions and other sales incentives
in connection with such sale, transfer or other disposition.

               "Authorities" means the various governmental and
quasi-governmental bodies and agencies having jurisdiction over the Property,
including, without limitation, the County, courts, special taxing districts,
administrative tribunals and public and private utilities.

               "Base Purchase Price" means the portion of the purchase price for
a Phase as determined pursuant to subsection 4.3(a) [entitled "Base Purchase
Price"].

               "Buyer's Minimum Profit" means, with respect to each Unit, an
amount equal to six percent (6%) of Buyer's Adjusted Gross Proceeds from the
sale of Residential Lots in such Unit.

               "Buyer's Title Policy" means the policy of title insurance
described in subsection 4.7 [entitled "Title Insurance"].

               "County" means the County of San Joaquin, California.

               "Default" means each of the events so designated in Section 11
[entitled "Events of Default"].

               "Design Center Fees" means all fees paid to Buyer by the design
center for the Project in connection with options and/or extras sold by such
design center to homebuyers in the Project.

               "Entitlements" means all permits, authorizations, consents,
orders, certificates, licenses, general, specific and other plans, subdivision
maps, environmental impact report certifications, approvals, registrations,
qualifications and other entitlements

<PAGE>   3

granted, issued or otherwise enacted by any of the Authorities pertaining or
relating to the Property and all statutory and other rights, credits and
entitlements benefiting the Property.

               "Extras" means, collectively, all options and extras sold to
homebuyers by Buyer. "Extras" does not include options or extras sold to
homebuyers by the third party operated design center for the Project or by any
other third party.

               "Escrow Holder" means Fidelity National Title Company or, in the
event such corporation ceases to exist or fails or refuses to act as escrow
holder for the transactions contemplated by this Agreement, any other escrow
holder selected by Seller which is not affiliated with either party.

               "Final Map" means a final subdivision map covering a Phase and
recorded in the Official Records of the County.

               "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after the
date hereof so as to properly reflect the financial conditions, and the results
of operations and cash flows, except that any accounting principle or practice
required to be changed by the Accounting Principles Board or Financial
Accounting Standards Board (or other appropriate board or committee of such
boards) in order to continue as a generally accepted accounting principle or
practice may so be changed. In the event of a change in GAAP, this Agreement, to
the extent GAAP applies, shall continue to be construed in accordance with GAAP
as in existence on the date hereof; provided, however, Buyer and Seller will
thereafter negotiate in good faith to revise any affected covenants to make such
covenants consistent with GAAP as then in effect, and, after any such revision,
this Agreement will be construed in accordance with GAAP as then in effect.

               "General Provisions" of Escrow Holder shall mean any general or
standard escrow instructions supplemental to this Agreement which are prepared
by Escrow Holder and approved by both Seller and Buyer. In the event of any
conflict between the terms of any such General Provisions and the terms hereof,
the terms hereof shall control.

               "Grant Deed" shall mean a grant deed in the form of Exhibit C
hereto.

               "Gross Proceeds" means, with respect to any Residential Lot, the
sum of all amounts directly or indirectly paid or payable to Buyer by or on
behalf of the first owner of such Residential Lot sold by Buyer, as
consideration for the sale, including without limitation all amounts payable for
Extras. Gross Proceeds does not include Design Center Fees.

               "Hazardous Material" means (a) any "hazardous substance" as
deemed in Section 101(14) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended from time to time [42 U.S.C.
Sections 9601 et seq.]; (b) petroleum and petroleum products (including, without
limitation, crude oil, natural gas, natural gas liquids, liquefied natural gas
and synthetic gas); (c) polychlorinated biphenyls (PCBs); (d) asbestos; (e) urea
formaldehyde; (f) radon gas; and (g) any additional substances, materials or
waste

                                      -2-
<PAGE>   4

which are classified or considered to be hazardous or toxic under the Laws of
California or any other applicable Laws.

               "Hazardous Material Law" means all Laws, orders, licenses and
permits relating to Hazardous Material.

               "Improvements" means the improvements to the Property, or
portions thereof, completed by Buyer as contemplated in subsection 8.2 below.

               "Laws" means all federal, state and local laws, rules,
regulations, ordinances and codes. The term "Laws" includes Hazardous Material
Laws.

               "Net Profits" means, with respect to any Unit, net profits
computed under GAAP with respect to Adjusted Gross Proceeds from the sale of all
Residential Lots within such Unit, with the following adjustments:

                      (i) Costs deducted from Adjusted Gross Proceeds in
determining Net Profits for a Unit shall include a warranty reserve expense
equal to the following:

                          (A) If the Adjusted Gross Proceeds for a Residential
Lot exceed Two Hundred Fifty Thousand Dollars ($250,000), then the warranty
reserve expense will be equal to three-quarters of one percent (0.75%) of
Adjusted Gross Proceeds from such Residential Lot; and

                          (B) If the Adjusted Gross Proceeds for a Residential
Lot do not exceed Two Hundred Fifty Thousand Dollars ($250,000), then the
warranty reserve expense will be equal to one percent (1.00%) of Adjusted Gross
Proceeds from such Residential Lot.

The warranty reserve expense under this part (i) shall be in lieu of any other
cost deduction from Adjusted Gross Proceeds for warranty costs for such Unit.

                      (ii) Costs deducted from Adjusted Gross Proceeds in
determining Net Profits for a Unit shall include a general and administrative
expense deduction equal to three percent (3%) of Adjusted Gross Proceeds from
such Unit, which shall be in lieu of any other cost deduction from Adjusted
Gross Proceeds for general or administrative expenses for such Unit;

                      (iii) The actual costs of all Extras in such Unit (but
excluding the costs for any sales concessions and other sales incentives which
have already been deducted in calculating the Adjusted Gross Proceeds) shall be
deducted from Adjusted Gross Proceeds for such Unit in determining Net Profits
for such Unit;

                      (iv) Costs deducted from Adjusted Gross Proceeds in
determining Net Profits for a Unit shall include a financing (interest) expense
equal to the Prime Rate plus 1% on all costs (other than the costs referenced in
this subparagraph (iv)) deducted from Adjusted Gross Proceeds in determining Net
Profits for such Unit, which shall be in lieu of any other cost deduction for
financing costs for such Unit;

                                      -3-
<PAGE>   5

                      (v) Costs consisting of direct selling expenses paid to
outside brokers representing Buyer, as a homeseller, shall be limited to one and
one-half percent of the Adjusted Gross Proceeds for such Unit. The parties
acknowledge that such direct selling expenses do not include, and the foregoing
limitation does not apply to, brokerage commissions payable to outside brokers
representing homebuyers, if any;

                      (vi) Closing costs for the Unit shall not exceed the
amount of closing costs that are customarily paid by sellers of similar new
residential units in San Joaquin County;

                      (vii) To the extent that any amounts are paid to
affiliates of Buyer for services or materials rendered in connection with such
Unit, such costs shall not exceed the lesser of (A) the amounts actually
incurred by Buyer, or (B) the costs for such services and/or materials that is
customarily charged in an "arms-length" transaction in San Joaquin County; and

                      (viii) Net Profits for a Unit shall include all Design
Center Fees paid to Buyer for such Unit.

               "Options" means the options to purchase Phases granted to Buyer
in subsection 3.1 [entitled "Grant of Options"].

               "Options Price" shall have the meaning set forth in subsection
3.2 [entitled "Payment of Options Price"].

               "Permitted Exceptions" means real property taxes and assessments,
a lien not yet delinquent, and all items and exceptions approved by Buyer under
subsection 3.3(b)(vi).

               "Person" means any entity, whether an individual, trustee,
corporation, partnership, limited liability company, joint stock company, trust,
unincorporated organization, bank, business association or firm or otherwise.

               "Phase" means each group of Residential Lots designated as a
Phase pursuant to subsection 4.1(b).

               "Prime Rate" means a floating rate per annum (calculated on the
basis of a 360 day year, actual days elapsed) equal to the "Prime Rate" quoted
by The Wall Street Journal from time to time, or at Seller's election, the
"Prime Rate" announced from time to tame by any money center bank selected by
Seller from time to time.

               "Project" means the 579 unit for sale residential project
contemplated by Buyer on the Property.

               "Property" means the following described lands, improvements,
personalty and assets (collectively referred to as the "Property"):

                      (i) "Land." The land located in Lathrop, California, and
described more fully on Exhibit A attached;

                                      -4-
<PAGE>   6

                      (ii) "Existing Improvements." All structures and
improvements now situated on the Land;

                      (iii) "Personalty." All equipment, tools, supplies,
materials and personal property (whether or not stored on the Land), used in
connection with the Land or the Existing Improvements, and now owned or acquired
before closing by Seller; and

                      (iv) "Intangible Assets." All intangible assets used in
connection with the Land, the Existing Improvements, the Personalty or the
business conducted on the Land, and now owned or acquired before closing by
Seller, including, without limitation:

                          (A) All project contracts, development agreements,
development rights, utility agreements, warranties, guarantees, and bonds
(including construction, performance and payment bonds) and all deposits held by
any party with respect to any portion of the Property;

                          (B) All site plans, surveys, governmental
entitlements, soil and substrata studies, environmental studies and reports,
toxic waste data, architectural renderings, plans and specifications,
engineering plans and studies, floor plans, landscape plans and other plans,
diagrams or studies of any kind;

                          (C) All market studies and like material of any kind;

                          (D) All rights which Seller may have in any reciprocal
easement agreements, mutual egress and ingress agreements, mutual covenants,
conditions and restrictions, and any like rights or agreements in respect of the
Property; and

                          (E) All other rights, privileges, entitlements and
appurtenances owned by Seller which in any way relate to the ownership,
management or operation of the Property.

               "Purchase Escrow" means an escrow established pursuant to the
terms of subsection 4.7(a) [entitled "Opening of Purchase Escrows and Escrow
Instructions"].

               "Residential Lot" means each of the numbered and lettered lots
designated for residential use, as shown on any recorded Final Map covering all
or any part of the Property, together with all residential structures and
related improvements.

               "Title Company" means Chicago Title Company or, in the event such
corporation ceases to exist or fails or refuses to timely issue Buyer's Title
Policy on terms and at a price acceptable to both Seller and Buyer, any other
title company selected by Seller and Buyer which is not affiliated with either
party.

               "Unit" shall mean each of the seven tentative map units described
on Exhibit D hereto.

                                      -5-
<PAGE>   7

        2.     Recitals.

               2.1. Ownership of Property. Seller is the owner of the Property.

               2.2. Acquisition of Options. Buyer desires to acquire the Options
to purchase the Property, in Phases, from Seller for the purpose of building and
marketing residential dwellings on Residential Lots within the Phases.

        3.     Options.

               3.1. Grant of Options/Term. In consideration of the payment to
Seller of the Options Price as set forth in subsection 3.2 [entitled "Payment of
Options Price"], and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Seller, Seller grants to Buyer the
exclusive, irrevocable and separate right and option to purchase the Property,
in Phases, at the price and upon and subject to the terms set forth in this
Agreement. Subject to the earlier termination or expiration of this Agreement or
the Options as set forth elsewhere in this Agreement, the term of the Options
shall commence on the date the Memorandum of Options is recorded in the Official
Records of the County and shall finally expire on the last date for the exercise
of any Option set forth on Exhibit E hereto.

               3.2. Payment of Options Price. Concurrently with the execution of
this Agreement, Buyer shall deposit in cash into Escrow One Million Dollars
($1,000,000). The deposit shall be invested by Escrow as directed by Buyer (the
deposit, and all interest earned thereon, are collectively referred to herein as
the "Options Price"). The Options Price shall be released to Seller at the time
provided in subsection 3.3(c) below. Buyer shall receive a credit for the
Options Price against the Base Purchase Price of certain Phases of the Property
as specified on Exhibit G hereto. Following the end of the feasibility review
specified in subsection 3.3 below, except in the event of Seller's breach
hereunder and except as provided in subsection 4.7 hereof regarding failure of
conditions to close, no part of the Options Price shall be refundable to Buyer
for any reason. Without limiting the foregoing, if Buyer does not exercise its
Option to acquire a Phase of the Property with respect to which Buyer would have
received a credit for all or a portion of the Options Price pursuant to Exhibit
G hereof, no part of such unused credit amount shall be refundable to Buyer.

               3.3. Information and Approval of Buyer.

                      (a) Within three (3) days after the date of this
Agreement, Seller shall deliver to Buyer copies of: (i) any documents in
Seller's possession which relate to or concern the physical condition or the
development of the Land, and (ii) any documents in Seller's possession which
relate to or concern the Intangible Assets (collectively, the "Seller Work
Product"). Buyer hereby acknowledges its receipt of a preliminary title report
for the Property issued by the Title Company.

                      (b) Buyer's obligations under this Agreement are subject
to the approval or confirmation by Buyer of each of the following items by no
later than October 31, 2000:

                                      -6-
<PAGE>   8

                          (i) Buyer shall in writing approve or disapprove the
availability, on conditions acceptable to Buyer, of all financing necessary for
Buyer's purchase and intended development of the Property;

                          (ii) Buyer shall in writing approve or disapprove:

                               (A) zoning, subdivision maps, and all other
development entitlements, restrictions, and conditions;

                               (B) engineering, soils, geological, biological,
and hazardous substances investigations and reports, to be procured by Buyer at
its sole cost and expense;

                               (C) the availability of public utilities; and

                               (D) the amount and availability of sufficient
credits and other fee credits to service the single family residential units
proposed for development on the Property;

                          (iii) Buyer shall in writing approve or disapprove the
terms and conditions of the Seller Work Product, including, without limitation,
all contracts, leases, plans, studies, and reports, which are applicable to the
Property;

                          (iv) Buyer shall in writing approve or disapprove the
necessity for and availability of any governmental or third party approvals
required for Buyer's intended development of the Property;

                          (v) Buyer shall in writing approve or disapprove the
terms and conditions of all Mello-Roos, Improvement District, and other bonded
assessments which encumber the Property; and

                          (vi) Buyer shall in writing approve or disapprove the
preliminary title report issued by Title Company, and at Buyer's option and
expense, an ALTA survey ("Survey"), for the Land. If Title Company issues any
supplements to the preliminary title report, then Buyer shall approve or
disapprove such supplements within ten (10) days after receipt.

                      (c) Buyer's failure to either disapprove or approve in
writing any of the items described at subparagraphs (b)(i)-(v) within the time
period allotted to such item shall be deemed to constitute Buyer's disapproval
of same. All of the above approvals may be granted or withheld in the sole
discretion of Buyer. If Buyer disapproves any of the items described at
subparagraphs (b)(i)-(v), then such disapproval or failure shall, without any
further notice, constitute a termination of this Agreement by Buyer. If Buyer
disapproves any exception to title disclosed by the preliminary title report or
the Survey, as described at subparagraph (b)(vi), then, within five (5) days
following the date of Buyer's disapproval, Buyer and Seller shall confer and
attempt to formulate a method or manner in which any disapproved title
exceptions may be removed or cured. If, for any reason, in the sole discretion
of Buyer, Buyer rejects any such proposed cure, then, at the end of such five
(5) day period, Buyer's disapproval shall constitute a termination of this
Agreement by Buyer.

                                      -7-
<PAGE>   9

If Buyer so terminates this Agreement, then, on such date, this Agreement and
all of the obligations, duties, rights, and entitlements of Buyer and Seller
under this Agreement shall terminate, and the Options Price shall be disbursed
to Buyer (less Buyer's share of any escrow cancellation costs). If Buyer does
not so terminate this Agreement, then, on such date, Buyer's right of
termination under this subsection shall expire, and Buyer shall be deemed to
have approved all of the above items, and the Options Payment shall be released
to Seller.

                      (d) From the date of this Agreement and until the date
Escrow closes on the last Phase of the Property or the date of termination of
this Agreement, Seller shall send Buyer a copy of any correspondence concerning
the Property which Seller receives from any governmental agency or which Seller
sends to any governmental agency.

                      (e) In addition to the above conditions, this Agreement
shall terminate, on written notice from Buyer to Seller, if prior to the
expiration of the feasibility review period described in subsection 3.3(b)
above, (i) a majority of the disinterested members of the Board of Directors of
William Lyon Homes, Inc., a Delaware corporation, and of Buyer, fail to approve
this Agreement; or (ii) Buyer is unable to procure a written determination of
value or appraisal by a real estate appraisal firm, which is of regional
standing in the region in which the Property is located and is MAI certified, of
the Property at least equal to the Purchase Price for all Phases. In the event
Buyer terminates this Agreement pursuant to this subsection (e), the Options
Payment shall be returned to Buyer (less Buyer's share of any escrow
cancellation costs) and all of the obligations, duties, rights, and entitlements
of Buyer and Seller under this Agreement shall terminate.

               3.4. Exercise of Options and Conditions.

                      (a) Exercise of Options. Once Buyer's feasibility review
under subsection 3.3 above is complete, and provided that this Agreement has not
terminated as provided therein, Buyer may exercise an Option to purchase a Phase
by delivering written notice of such exercise (the "Notice of Exercise") to
Seller and Escrow Holder on or before the date for the exercise of the Option
for such Phase specified on Exhibit E hereto. Buyer's Notice of Exercise for
each Phase shall set forth the date on which Buyer shall close Escrow on such
Phase, which shall in any event (i) be on a day other than a Saturday, Sunday or
legal holiday, and (ii) be no later than five (5) days after the date of the
Notice of Exercise.

                      (b) Conditions to Exercise of Options. The right of Buyer
to exercise an Option for a Phase is subject to the satisfaction on the date of
exercise ("Date of Exercise") (unless otherwise provided) of the following
conditions:

                          (i) Buyer shall not be in Default under the terms of
this Agreement; and

                          (ii) Buyer's representations and warranties set forth
in this Agreement shall be true and correct in all material respects as of the
Date of Exercise.

                          The foregoing conditions are solely for the benefit of
Seller and may be waived only by Seller. Seller shall at all times have the
right to waive any condition, which waiver or waivers must be in writing to be
effective.

                                      -8-
<PAGE>   10

               3.5. Memorandum of Options. Upon execution of this Agreement, (a)
the parties shall promptly execute and cause to be recorded in the Official
Records of the County, a Memorandum of Options to Purchase ("Memorandum of
Options") in the form of and upon the terms set forth in Exhibit B, (b) the
parties shall deliver a fully executed copy of this Agreement to Escrow Holder
and (c) Buyer shall execute, acknowledge and deposit with Escrow Holder a
quitclaim deed for the Property in recordable form and otherwise in form and
substance satisfactory to Seller. Escrow Holder is authorized and directed to
open a special holding escrow for the deposit of the quitclaim deed. The costs
of the holding escrow shall be borne one-half by Seller and one-half by Buyer.
Escrow Holder is authorized and directed to deliver to Seller the quitclaim deed
for the Property (other than any Phase whose Purchase Escrow is already open or
has previously closed) in the event this Agreement is terminated by Buyer or
Seller pursuant to a right of termination under this Agreement.

        4.     Terms of Purchase and Escrow.

               4.1. Purchase and Sale of Phases.

                      (a) Purchase and Sale. Upon the exercise of an Option for
a Phase by Buyer in accordance with this Agreement, Seller agrees to sell to
Buyer, and Buyer agrees to purchase from Seller, the Phase upon the terms and
subject to the conditions set forth in this Agreement.

                      (b) Determination of Phases. Exhibit E to this Agreement
identifies the number of Residential Lots, broken down by Unit and calendar
month, which will comprise each Phase. All Residential Lots specified in Exhibit
E to be taken down in the same calendar month, even if in different Units, shall
be part of the same Phase. For any Phases for which Seller and Buyer have
already approved the specific Residential Lots to be included in such Phases,
Exhibit E specifies those Phases and the Residential Lots included therein. For
any Phases for which Seller and Buyer have not already approved the specific
Residential Lots to be included in such Phases, Seller shall have a reasonable
right of approval over Buyer's proposed Phases. No less than forty-five (45)
days prior to the outside delivery date of the Notice of Exercise for any Option
for a Phase for which Seller and Buyer have not already approved the specific
Residential Lots to be included therein, Buyer shall deliver to Seller for its
review and approval a proposed Phasing schedule for the remainder of the Unit in
which such Phase is located. In all events (i) successive Phases must be
contiguous so that there are no intervening Residential Lots between any two
Phases which have Notice of Exercise dates which are closest in time, and (ii)
all Residential Lots within a Phase must be contiguous or separated by only a
street or streets. Seller's approval of Buyer's proposed Phasing Schedule shall
not be unreasonably withheld or delayed.

               4.2. Purchase Price. The purchase price for each Phase shall
consist of the Base Purchase Price for the Phase plus the Additional Purchase
Price for the Unit of which such Phase is a part.

                                      -9-
<PAGE>   11

               4.3. Base Purchase Price.

                      (a) Base Purchase Price. The Base Purchase Price for each
Phase shall equal the sum of (i) the Base Purchase Price for all Residential
Lots in that Phase as shown on Exhibit E hereto (such amount herein referred to
as the "Base Amount"), plus (ii) the "Increase Amount" for such Phase. The
Increase Amount for any particular Phase shall equal the product of (i) the Base
Amount for such Phase, multiplied by (ii) a percentage equal to the Prime Rate
plus 1%, compounded annually, from the date of this Agreement to the date of the
Closing of such Phase.

                      (b) Payment of Base Purchase Price. The Base Purchase
Price for each Phase shall be paid by Buyer on or before the closing date for
the Purchase Escrow, or sooner if so required under the General Provisions of
the Escrow Agent, in immediately available funds. For Phases of the Property for
which some or all of the Options Price is to be credited against the Base
Purchase Price of such Phase as provided on Exhibit G hereto, such credit shall
be made on the Close of Escrow for such Phase.

               4.4. Additional Purchase Price and Payment.

                      (a) General. Within ninety (90) days following the close
of the last Residential Lot to a member of the homebuying public within the last
Phase purchased by Buyer within any Unit, Buyer shall pay an additional purchase
price ("Additional Purchase Price") to Seller in an amount equal to one-half
(1/2) of the amount by which Buyer's Net Profits from such Unit exceed Buyer's
Minimum Profit with respect to such Unit. Such payment shall be accompanied by a
report prepared by Buyer in such detail as Seller may reasonably request,
specifying the Gross Proceeds, Adjusted Gross Proceeds, Net Profits and Buyer's
Minimum Profit with respect to such Unit.

                      (b) No Partnership or Joint Venture Created. Neither the
execution and delivery of this Agreement by Seller and Buyer, the obligations
imposed upon Buyer under this Agreement to pay to Seller the amounts described
in this Agreement, nor the payment by Buyer to Seller of the amounts described
in this Agreement, shall (a) create a partnership, joint venture or other
business arrangement between Seller and Buyer, (b) create any lender/borrower or
debtor/creditor relationship between Seller and Buyer or (c) impose any
fiduciary or other duties or obligations upon Seller or Buyer.

               4.5. Condition of Title and Grant Deed. At the close of each
Purchase Escrow, Seller shall convey fee simple title to the Phase which is the
subject of the Purchase Escrow to Buyer by a Grant Deed, subject to (a) real
property taxes and assessments not delinquent as of the date of this Agreement,
(b) the Permitted Exceptions and any other matters of title approved in writing
by Buyer, (c) matters affecting the condition of title to the Phase suffered or
created by or with the written consent of Buyer, and (d) subdivision agreements,
subdivision improvement agreements, grants, easements, rights of way and other
interests in, or restrictions on, the Phase, created by Seller, and approved by
Buyer, pursuant to, or in connection with the satisfaction of, the terms and
conditions of the Final Map or other Entitlements affecting the Phase.

                                      -10-
<PAGE>   12

               4.6. Title Insurance. Seller shall use reasonable efforts to
cause the Title Company to issue or commit to issue to Buyer at the close of
each Purchase Escrow a policy of title insurance as described in subsection 4.7.

               4.7. Escrow and Conditions.

                      (a) Opening of Purchase Escrows and Escrow Instructions.
Concurrently with the delivery to Escrow Holder by Buyer of a Notice of
Exercise, Escrow Holder shall open an escrow for the purpose of consummating the
purchase by Buyer of the Phase which is the subject of such Notice of Exercise
and consummating any other transactions to be consummated through such Purchase
Escrow pursuant to the terms of this Agreement. This Agreement shall constitute
instructions to the Escrow Holder with respect to each Purchase Escrow and any
such transactions. The Escrow Holder immediately shall notify Buyer and Seller
of the date of opening of each Purchase Escrow. Buyer and Seller shall execute
such additional General Provisions as reasonably may be required to consummate
the transactions contemplated by this Agreement, as Buyer and Seller may
approve, which approval shall not be unreasonably withheld. To the extent the
General Provisions of Escrow Holder conflict with any provisions of this
Agreement, the provisions of this Agreement shall control.

                      (b) Close of Purchase Escrows. For purposes of this
Agreement, the close of a Purchase Escrow shall he deemed to be the date that
the Grant Deed for the Phase which is the subject of the Purchase Escrow is
recorded in the Official Records of the County. The Close of a Purchase Escrow
shall take place on the date therefore (the "Closing Date") set forth in Buyer's
Notice of Exercise.

                      (c) Buyer's Conditions to Close of Purchase Escrows. The
close of each Purchase Escrow, and Buyer's obligations to close each Purchase
Escrow, are subject to the satisfaction or waiver, not later than the Closing
Date (unless otherwise provided), of the following conditions:

                          (i) Seller's Representations. Seller's representations
and warranties set forth in Section 6 [entitled "Seller's Representations and
Warranties"] shall be true and correct in all material respects as of the close
of the Purchase Escrow.

                          (ii) Seller's Deliveries and Default. Seller shall
have delivered to Buyer and Escrow Holder all funds and documents required to be
delivered by Seller to Buyer and Escrow Holder, respectively, pursuant to the
terms of this Agreement, Seller shall not be in Default under the terms of this
Agreement and no event shall have occurred which would constitute a Default by
Seller under the terms of this Agreement but for the requirement that notice be
given or time elapse or both.

                          (iii) Buyer's Title Insurance. The Title Company has
committed to issue to Buyer its standard form ALTA (10-17-92) owner's extended
coverage policy of title insurance ("Buyer's Title Policy"), with liability
equal to the Purchase Price, with such endorsements as Buyer may reasonably
request, showing title vested in Buyer SUBJECT ONLY TO:

                                      -11-
<PAGE>   13

                               (A) The printed exceptions contained in Title
Company's standard policy of title insurance;

                               (B) General and special taxes and assessments not
then delinquent, and supplemental taxes, if any, assessed pursuant to Chapter
3.5, commencing with Section 75 of the California Revenue and Taxation Code,
which are a lien not yet due or payable (all delinquent taxes and assessments
shall be paid by Seller on or before the Closing);

                               (C) If Buyer does not elect to obtain the Survey,
the Title Company's standard "survey" exceptions; and

                               (D) All other items specified in Section 4.5
above.

                          (iv) Final Map. The Final Map for the Phase shall have
been duly recorded in the Official Records of the County.

                               The foregoing conditions are solely for the
benefit of Buyer and may be waived only by Buyer. Buyer shall at all times have
the right to waive any condition, which waiver or waivers must be in writing to
be effective. Neither the waiver by Buyer of any condition nor the satisfaction
of any condition shall relieve Seller of any liability or obligation as respects
any representation, warranty or covenant of Seller under this Agreement unless
Buyer shall so agree in writing. Any acknowledgments given by Buyer of the
satisfaction or failure of any conditions set forth in this subsection must be
in writing to be effective.

                      (d) Seller's Conditions to Close of Purchase Escrows. The
close of each Purchase Escrow, and Seller's obligations to close each Purchase
Escrow, are subject to the satisfaction or waiver, not later than the Closing
Date (unless otherwise provided), of the following conditions:

                          (i) Buyer's Representations. Buyer's representations
and warranties set forth in Section 5 [entitled "Buyer's Representations and
Warranties"] shall be true and correct in all material respects as of the close
of the Purchase Escrow.

                          (ii) Buyer's Deliveries and Default. Buyer shall have
delivered to Seller and Escrow Holder all funds and documents required to be
delivered by Buyer to Seller and Escrow Holder, respectively, pursuant to the
terms of this Agreement, Buyer shall not be in Default under the terms of this
Agreement and no event shall have occurred which would constitute a Default by
Buyer under the terms of this Agreement but for the requirement that notice be
given or time elapse or both.

                          (iii) Final Map. The Final Map for the Phase shall
have been duly recorded in the Official Records of the County.

                                The foregoing conditions are solely for the
benefit of Seller and may be waived only by Seller. Seller shall at all times
have the right to waive any condition, which waiver or waivers must be in
writing to be effective. Neither the waiver by Seller of any condition nor the
satisfaction of any condition shall relieve Buyer of any

                                      -12-

<PAGE>   14

liability or obligation as respects any representation, warranty or covenant of
Buyer under this Agreement unless Seller shall so agree in writing. Any
acknowledgments given by Seller of the satisfaction or failure of any conditions
set forth in this subsection must be in writing to be effective.

                      (e) Cooperation Regarding Conditions. Neither Seller nor
Buyer shall act or fail to act for the purpose of causing any condition to fail.
Each party shall cooperate with the other party, at the written request of the
other party, in the other party's efforts with respect to the satisfaction of
the conditions.

                      (f) Failure of Conditions to Close of Escrow.

                          (i) If any of Buyer's Conditions to Close of Purchase
Escrows or Seller's Conditions to Close of Purchase Escrows are not satisfied
for a reason other than the Default of Buyer or Seller under this Agreement, and
not waived, the Purchase Escrow shall terminate. Escrow Holder is instructed
promptly to return to Seller and Buyer all funds and documents deposited by
them, respectively, into the Purchase Escrow which are held by Escrow Holder on
the date of termination (unless the party entitled to such funds is required to
pay cancellation and other charges under the following subsection (g), in which
case the Escrow Holder shall deduct the amount of the charges from the funds to
which such party is entitled), and to record Buyer's quitclaim deed as to such
Phase. Any portion of the Options Price applicable to any unclosed Phases shall
also be returned to Buyer.

                          (ii) If Escrow fails to close because of a Default by
Seller, or because of a Default by Buyer, the terms of Section 11 [entitled
"Default"] shall be applicable and shall control. Buyer acknowledges its
obligation under Section 8.1 of this Agreement to use commercially reasonable
efforts to obtain a Final Map for each Unit, and that if the condition to its
obligation to close set forth in subsection 4.7(c)(iv) above fails to occur
because of Buyer's Default in performing such obligation, then the terms of
Section 11 below shall be applicable and shall control.

                      (g) Cancellation Fees and Expenses. If the Purchase Escrow
terminates because of the Default of Seller, the payment of the cancellation and
other charges required to be paid by and to Escrow Holder and the Title Company
shall be paid by Seller. If the Purchase Escrow terminates because of the
Default of Buyer, the payment of the cancellation and other charges required to
be paid by and to Escrow Holder and the Title Company shall be paid by Buyer. If
Escrow terminates because any of the other conditions are not satisfied, for a
reason other than the Default of Buyer or Seller, Buyer and Seller shall each be
responsible for the payment of one-half of the cancellation and other charges
required to be paid by and to the Escrow Holder and the Title Company.

               4.8. Closing Costs. If a Purchase Escrow closes, (a) one-half of
the cost of a CLTA owner's policy of title insurance for the Phase which is the
subject of the Purchase Escrow shall be paid by Seller; (b) any amounts in
excess of one-half of the cost of a CLTA owner's policy of title insurance for
the Phase which is the subject of the Purchase Escrow shall be paid by Buyer;
(c) the documentary transfer taxes shall be paid by Seller; (d) the escrow fee
of Escrow Holder shall be paid one half by Buyer and one half by Seller; and

                                      -13-
<PAGE>   15

                      (e) all other costs shall be allocated between Buyer and
Seller in accordance with customary practice in the County.

               4.9. Deliveries to Escrow Holder.

                      (a) Deliveries by Seller. Prior to the close of each
Purchase Escrow (unless otherwise provided), Seller shall deposit the following
documents and funds into the Purchase Escrow:

                          (i) Grant Deed. The Grant Deed for the Phase which is
the subject of the Purchase Escrow, duly executed by Seller, notarized and in
recordable form;

                          (ii) Seller's Proof of Authority. Such proof of
Seller's authority to enter into this Agreement and to perform the transactions
contemplated by this Agreement as reasonably may be required by the Title
Company and/or Buyer;

                          (iii) FIRPTA. A certification as to the nonforeign
status of Seller, completed and executed by Seller; and,

                          (iv) Form 597-W. A Withholding Exemption Certificate
on California Franchise Tax Board Form 597-W, duly executed by Seller.

                      (b) Deliveries by Buyer. Prior to the close of each
Purchase Escrow (unless otherwise provided), Buyer shall deposit the following
documents and funds into the Purchase Escrow:

                          (i) Buyer's Proof of Authority. Such proof of Buyer's
authority to enter into this Agreement and to perform the transactions
contemplated by this Agreement as reasonably may be required by the Title
Company and/or Seller; and

                          (ii) Purchase Price and Other Funds. An amount equal
to Base Purchase Price for the Phase which is the subject of the Purchase Escrow
in immediately available funds, together with any other funds necessary to pay
Buyer's share of prorations, closing and escrow costs.

               4.10. Disbursements and Other Actions by Escrow Holder. Upon the
close of each Purchase Escrow, Escrow Holder promptly shall undertake all of the
following:

                      (a) Disburse all funds deposited with Escrow Holder by
Buyer in payment of the Base Purchase Price of the Phase which is the subject of
the Purchase Escrow as follows:

                          (i) Deduct all items chargeable to the account of
Seller, and pay the amount of such items to the Persons entitled to the items;
and

                          (ii) Disburse the remaining balance of the funds to
Seller, or in accordance with Seller's written instructions, promptly upon the
close of the Purchase Escrow;

                                      -14-
<PAGE>   16

                      (b) Bill Buyer for or cause Buyer to pay all items
chargeable to Buyer;

                      (c) Cause the Grant Deed (with documentary transfer tax
information to be affixed after recording) to be recorded in the Official
Records of the County;

                      (d) Prepare and deliver to each of Buyer and Seller two
(2) conformed copies of the Grant Deed for the Phase which is the subject of the
Purchase Escrow;

                      (e) Cause the Title Company to issue Buyer's Title Policy
for the Phase which is the subject of the Purchase Escrow to Buyer;

                      (f) Deliver to Buyer the proof of authority deposited into
Escrow by Seller;

                      (g) Deliver to Buyer the FIRPTA Certification and
California Withholding Exemption Certificate deposited into Escrow by Seller;
and

                      (h) Deliver to Seller the proof of authority deposited
into Escrow by Buyer.

        5.      Buyer's Representations and Warranties. Buyer represents and
warrants to Seller as follows:

                      (a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. Buyer
has the right, power, legal capacity and authority to enter into and perform its
obligations under this Agreement. Those individuals executing this Agreement on
behalf of Buyer have the right, power, legal capacity and authority to enter
into this Agreement on behalf of Buyer and to execute all other documents and
perform all other acts as may be necessary to perform all of Buyer's obligations
under this Agreement;

                      (b) No approval or consent not previously obtained by any
Buyer is necessary in connection with the execution of this Agreement by Buyer
or the performance of Buyer's obligations under this Agreement;

                      (c) Neither this Agreement nor anything provided to be
done under this Agreement violates or shall violate any contract, document,
understanding, agreement or instrument to which Buyer is a party or by which it
may be bound;

                      (d) The Agreement constitutes the legally valid and
binding obligation of Buyer and is enforceable against Buyer in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws, or by equitable principals relating
to or limiting the rights of creditors generally;

                                      -15-
<PAGE>   17

                      (e) The consummation of the transactions contemplated by
this Agreement do not violate any Law with which Buyer must comply;

                      (f) No broker, salesman or finder has been engaged by
Buyer in connection with the transactions contemplated by this Agreement; and

                      (g) Subject to subsection 3.3 above, Buyer has the
financial ability and currently available financial resources to perform its
obligations under this Agreement.

                          Each of the foregoing representations and warranties
shall be, and Buyer shall cause them to be, true in all material respects on and
as of the date of exercise of each Option and the date of close of each Purchase
Escrow as though made at those times.

                          Buyer shall indemnify, defend, and hold Seller
harmless from all damages, costs, losses, and expenses (including, but not
limited to, actual attorney's fees) arising from or attributable to any breach
by Buyer of any of its warranties or representations in this Agreement and such
obligations of Buyer shall survive the Closing of each Phase.

        6.      Seller's Representations and Warranties. Seller represents and
warrants to Buyer as follows:

                      (a) Seller has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement. Those
individuals executing this Agreement on behalf of Seller have the right, power,
legal capacity and authority to enter into this Agreement on behalf of Seller
and to execute all other documents and perform all other acts as may be
necessary to perform all of Seller's obligations under this Agreement;

                      (b) No approval or consent from any Person holding any
interest in Seller and not previously obtained is necessary in connection with
the execution of this Agreement by Seller or the performance of Seller's
obligations under this Agreement;

                      (c) Neither this Agreement nor anything provided to be
done under this Agreement violates or shall violate any contract, document,
understanding, agreement or instrument to which Seller is a party or by which it
may be bound;

                      (d) The Agreement constitutes the legally valid and
binding obligation of Seller and is enforceable against Seller in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws, or by equitable principals relating
to or limiting the rights of creditors generally;

                      (e) The consummation of the transactions contemplated by
this Agreement do not violate any Law with which Seller must comply;

                      (f) No broker, salesman or finder has been engaged by
Seller in connection with the transactions contemplated by this Agreement;

                                      -16-
<PAGE>   18

                      (g) Except as otherwise disclosed to Buyer, to Seller's
best knowledge, Seller is not involved in or aware of any pending or threatened
litigation which may adversely affect the Property;

                      (h) To Seller's best knowledge, there are no actions or
proceedings pending or threatened against Seller before any administrative
agency which may adversely affect the Property;

                      (i) To Seller's best knowledge, there are no commitments
to or agreements with any governmental authority or agency (federal, state, or
local) affecting the Property which have not been disclosed by Seller to Buyer
in writing;

                      (j) There are no contracts or other obligations
outstanding for the sale, exchange, or transfer of the Property, or any portion
thereof, or the business operated thereon;

                      (k) Except as otherwise disclosed to Buyer, to Seller's
best knowledge (i) there are no Hazardous Materials present at, on, in, under or
about the Property (including, without limitation, the air, land, soil, surface
water, and ground water); (ii) there has not been any generation,
transportation, storage, treatment, or disposal of any Hazardous Materials at,
on, in, under or about the Property, or within one-half mile thereof, or any
migration of Hazardous Materials to or from the Property, now or in the past;
(iii) there is no pending or threatened litigation in which any person or entity
alleges, or threatens to allege, the presence, release, threat of release,
placement at, on, in, under or about, or migration from or to, the Property, or
the generation, transportation, storage, treatment, or disposal on the Property,
of any Hazardous Materials; (iv) Seller has not received any notice of any
governmental authority or any employee or agent thereof has determined or
alleged, or is investigating the possibility, that there is the presence,
release, threat of release, placement at, on, in, under or about, the Property,
or the generation, transportation, storage, treatment, or disposal on the
Property, of any hazardous substance; and (v) there are no communications or
agreements with any governmental authority or agency (federal, state, or local)
or any private person or entity (including, without limitation, any prior owner
of the Property or any present or former occupant of the Property) relating in
any way to the presence, release, threat of release, placement at, on, in, under
or about, or migration from or to, the Property, or the generation,
transportation, storage, treatment, or disposal at, on, in, under or about, the
Property, of any Hazardous Materials;

                      (l) Seller is a limited partnership, duly organized,
validly existing and in good standing under the laws of the State of California.
Lyon Realty, Inc., a California corporation, is the only general partner in
Seller, and William Lyon and The William Harwell Lyon 1976 Trust are the only
limited partners in Seller; and

                      (m) Seller shall not cause any change in the physical
condition of the Property from that which existed on the date of this Agreement.

                          Each of the foregoing representations and warranties
shall be true in all material respects on and as of the date of exercise of each
Option and the date of the close of each Purchase Escrow as though made at those
times.

                                      -17-
<PAGE>   19

                          Seller shall indemnify, defend, and hold Buyer
harmless from all damages, costs, losses, and expenses (including, but not
limited to, actual attorney's fees) arising from or attributable to any breach
by Seller of any of its warranties or representations in this Agreement and such
obligations of Seller shall survive the Closing of each Phase.

                          Reference to the "best knowledge" or "knowledge" or
words to that effect in connection with a representation or warranty of Seller
shall mean the current actual knowledge of General William Lyon and William H.
Lyon without any duty of inquiry or investigation.

        7.      Limitations. Except as set forth in Section 6 [entitled
"Seller's Representations and Warranties"], Buyer acknowledges and agrees that
upon the exercise of an Option for a Phase, it will purchase the Phase "as-is"
in its condition existing as of the date of close of the Purchase Escrow for the
Phase (including, without limitation, subject to all latent and patent defects
and the presence of any and all Hazardous Materials) and based on its own
inspection, investigation and evaluation. Buyer also acknowledges and agrees
that (a) except as set forth in Section 6 above, neither Seller nor any agent or
other representative of Seller has made any representation or warranty, express,
implied or statutory, concerning the Property or which induced Buyer to execute
this Agreement, and no such agent or representative is authorized to make any
such representation or warranty; (b) the exercise of an Option for a Phase shall
constitute Buyer's further acknowledgment and agreement that neither Seller nor
any agent or other representative of Seller has made any representation or
warranty, express, implied or statutory, concerning the Phase or which induced
Buyer to exercise the Option for the Phase, except as set forth in Section 6
[entitled "Seller's Representations and Warranties"], and no such agent or
representative is authorized to make any such representation or warranty; and
(c) except as set forth in Section 6 above, all such representations and
warranties are expressly disclaimed by Seller.

        8.     Additional Rights and Obligations.

               8.1. Final Map; Bonds. Buyer shall at its cost take all
commercially reasonable actions necessary to record a Final Map for each Unit
before the last date for the delivery by Buyer to Seller of a Notice of Exercise
for the first Phase in such Unit. Seller shall execute, acknowledge and deliver
to the applicable Authorities for recordation such subdivision agreements,
subdivision improvement agreements and similar agreements as such Authorities
may require to evidence the obligation of the owner of the Property to satisfy
any conditions to the recordation of the Final Map which are not satisfied prior
to the recordation of the Final Map. Effective upon the Close of a Purchase
Escrow, Buyer shall assume and perform the obligations of the property owner
under such subdivision agreements, subdivision improvement agreements and
similar agreements as to the Phase purchased, and shall indemnify, defend and
hold Seller harmless therefrom. Buyer shall post all bonds required in
connection with the recordation of any Final Maps for portions of the Property
after the date hereof, and shall pay all premiums therefore at its sole cost.
Within sixty (60) days after the execution of this Agreement, Buyer also agrees
to substitute its own bonds for any bonds now posted by Seller in connection
with existing Final Maps on the Property. In the event of any termination of
Buyer's Option as to any portion of the Property, Seller shall within sixty (60)
days after such termination obtain a release of any bonds Buyer has posted with
respect to such portion of the Property so long as such bonds

                                      -18-
<PAGE>   20

do not also pertain to other real property owned by Buyer. Buyer shall not
modify the size or number of the residential lots shown on the currently
approved tentative maps for the Property without the prior written consent of
Seller, which shall not be unreasonably withheld or delayed.

               8.2. License to Enter and Construct Improvements. To facilitate
Buyer's development of the Property, Seller hereby grants Buyer a nonexclusive
license to enter upon the Property for the purpose of grading and constructing
such improvements thereto and completing such work thereon (such improvements
and work hereinafter referred to collectively as the "Improvements") as Buyer
elects to construct in connection with its planned development of the Property.
The terms of such license are further specified on Exhibit F hereto. Such
license shall terminate (i) with respect to any Phase of the Property, upon the
Close of Escrow for such Phase, or (ii) upon the termination of this Agreement.
Seller agrees to execute such documents and agreements and take such other and
further action, at no out-of-pocket cost to Seller, as are reasonably requested
by Buyer in connection with the Improvements.

               8.3. Use and Compliance with Laws.

                      (a) Use. Each Phase purchased by Buyer shall be used only
for the development, construction and occupancy of detached single-family
residential dwellings, and for incidental accessory purposes. Buyer shall not
construct, place, maintain or permit to remain on any Residential Lot more than
one detached single-family residential dwelling, except such temporary
structures as may be necessary and permitted by Law during the course of
construction of the dwelling.

                      (b) Compliance with Laws. Buyer shall comply with all Laws
in connection with its use of the Property.

               8.4. Maintenance; Completion of Residences.

                      (a) Maintenance of Property. Buyer shall maintain the
Property in a neat, attractive, sanitary and orderly condition and in compliance
with all applicable Laws. All weeds, rubbish, trash, garbage, debris and other
unsightly waste and materials shall be regularly removed from the Property and
shall not be permitted to accumulate upon the Property.

                      (b) Completion of Residences. Once Buyer has commenced the
construction of a residential structure on the Property, Buyer shall, subject to
force majeure, diligently pursue such construction to completion.

               8.5. Periodic Reports. Buyer shall deliver the following reports
to Seller at the times set forth below:

                          (i) If requested by Seller, within five (5) business
days after the close of escrow for each sale by Buyer of a Residential Lot in a
Phase purchased by Buyer, a copy of the seller's escrow settlement statement and
the sales contract for the sale; and

                                      -19-
<PAGE>   21

                          (ii) within twenty-five (25) days after the end of
each calendar quarter, a report of Adjusted Gross Proceeds and Net Profits
generated by Buyer during such quarter in such detail as Seller reasonably may
request with respect to Phases purchased by Buyer.

               8.6. Books and Records. Buyer shall: (i) maintain full and
complete books of account and other records reflecting, on a Unit by Unit basis,
the Adjusted Gross Proceeds and Net Profits for all Units purchased by it in
accordance with GAAP; and (ii) permit Seller and its agents, from time to time
during normal business hours and at any other reasonable tunes, to inspect and
copy all such books and records.

                    Seller shall have the right, at any time and from time to
time, to cause an audit of Buyer's books and records with respect to the Phases
purchased by it (including the examination of such federal income tax returns of
Buyer or any affiliate of Buyer as Seller may deem necessary) to be made by a
certified public account or firm of certified public accountants of nationally
recognized standing selected by Seller to verify the accuracy of the statement
of Net Profits required by this Agreement. The cost of any such audit shall be
borne by Seller unless the audit reveals a deficiency of more than two percent
(2%) in the Additional Purchase Price which should have been paid by Buyer, in
which event, Buyer shall pay to Seller, on demand, the costs of such audit plus
the amount of the deficiency, together with two percent (2%) of the amount
underpaid as a late charge.

               8.7. Real Estate Taxes and Bond Premiums. During the term of this
Agreement, Buyer shall, before delinquency, pay all real property taxes and
assessments imposed on the Property and attributable to such term. Further,
during the term of this Agreement, Buyer shall pay before delinquency all
premiums on improvement bonds or other like indemnities provided by Seller to
any Authority in connection with the Project. Seller shall give written notice
to Buyer of the amount and due dates of such items not less than thirty (30)
calendar days prior to any due date. If any item covers a period of time either
before the commencement of this Agreement or following its expiration or
termination, then, such item shall be prorated. In the event that Seller pays
any such item, then, Buyer shall reimburse Seller within thirty (30) days
following receipt of a written request for reimbursement together with such
substantiation as Buyer may reasonably request.

               8.8. Approval of Plans. Before Buyer commences the construction
of any residences on the Property, Buyer shall submit the plans and
specifications for such residences to Seller for approval. Seller shall either
approve or disapprove such plans and specifications within ten (10) days of
receipt thereof. Seller's approval shall not be unreasonably withheld. If Seller
has not approved or disapproved such plans and specifications within such ten
(10) day period, Seller shall be deemed to have waived its right to approve or
disapprove such plans and specifications. The approval by Seller of any plans
and specifications shall not be deemed approval for architectural or engineering
design nor a representation or warranty as to the adequacy or sufficiency of
such plans and specifications or the construction contemplated thereby. By
approving any such plans and specifications, Seller assumes no liability or
responsibility therefor or for any defect in any structure constructed in
accordance with the items approved by Seller.

                                      -20-
<PAGE>   22

               8.9. No Homeowners' Association. Buyer hereby acknowledges that
it has no plans to form a homeowners' association for the Project. Seller's
prior written consent shall be required before Buyer forms a homeowners'
association for the Project. As a condition to granting any such consent, Seller
shall have the right to approve the form and substance of the governing
documents for such association, including any covenants, conditions and
restrictions and the respective rights granted or reserved to Buyer and Seller
thereunder.

        9.     Entry on Seller's Property.

                      (a) Purpose. In addition to the license referenced in
Section 8.2 above, during the term of this Agreement and subject to the terms of
this Section, Buyer and its guests, invitees, employees, agents and contractors
shall have the non-exclusive right to enter upon the Property solely for the
following purposes:

                          (i) making such feasibility and other studies,
inspections, appraisals, audits, tests, evaluations, investigations, surveys and
reports as Buyer may elect to make or obtain in connection with its exercise of
the Options and the purchase of the Phases; and

                          (ii) the performance by Buyer of its obligations under
this Agreement.

                      (b) Repair of Damages. Buyer promptly shall repair any
damage resulting from its entry on or use of the Property.

                      (c) Liens and Claims. Buyer shall not suffer or permit to
be enforced against the Property any mechanics', laborers', materialmen's,
contractors', subcontractors' or other liens or claims arising out of any entry
on or use of the Property, or the construction of the Improvements, by Buyer or
its guests, invitees, employees, agents or contractors. (d) Insurance. Buyer
shall also, at all times during the term of this Agreement, maintain all
insurance described in Paragraph 6 of Exhibit F hereto.

        10.    Release and Indemnification.

                      (a) To the maximum extent permitted by law, Seller,
Seller's partners and the officers, directors, shareholders, employees and
agents of Seller and/or Seller's partners shall not be liable for any loss,
damage, injury or claim of any kind or character to any person or property
arising from, caused by or relating to the development of the Project and the
construction or sale or other conveyance of residences or other improvements
thereon including, without limitation, any loss, damage, injury or claim arising
from or caused by or alleged to have arisen from or have been caused by (i) the
use of the Project or any part thereof by Buyer or its agents, employees,
licensees, invitees or contractors, (ii) a defect in the design or construction
of or material in any structure or other improvement on the Project, (iii) the
condition of the Project or, to the extent it affects the Project, the condition
of the land in the vicinity of the Project, including without limitation a
defect in soils or in the preparation of soils or in the design and
accomplishment of grading or other work on the Project or such other land
(including any mass or rough grading,

                                      -21-
<PAGE>   23

construction of retaining or other walls, or installation of infrastructure
performed on the Project or such other land prior to or after the date hereof by
Seller or any other party), (iv) any act or omission of Buyer or its agents,
employees, licensees, invitees or contractors, (v) an accident or casualty on
the Property caused by Buyer or its agents, employees, licensees, invitees or
contractors, (vi) the falsity of any representation by Buyer contained herein,
(vii) a violation or alleged violation by Buyer or its agents, employees,
licensees, invitees or contractors of any law now or hereinafter enacted, (viii)
a slope erosion, sluffing or failure or subsurface geologic or groundwater
condition, on, adjacent to or near the Project, including the effect of such
slope or subsurface condition on the Project and the residences constructed in
the Project, as well as the effect on such slopes and subsurface areas of
Buyer's development on the Project and use of the residences constructed thereon
(including watering), (ix) the design, construction, engineering or other work
with respect to the Project provided or performed by or for Buyer either before
or after the date of this Agreement, (x) any other cause whatsoever resulting
from Buyer's use of the Project, (xi) the application of the principles of
strict liability with respect to any act or omission of Buyer or its agents,
employees, licensees, invitees or contractors in connection with the Property,
including without limitation the grading thereof, or (xii) any act or failure to
act of Seller in reviewing, approving, disapproving, consenting to or joining in
any plans, specifications, application, permit, map or other document relating
to development of the Project or in observing, inspecting or testing any work or
improvement on the Project.

        BUYER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY ITS LEGAL COUNSEL AND IS
FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH
PROVIDES AS FOLLOWS:

        "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
        KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
        RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
        SETTLEMENT WITH THE DEBTOR."

        BUYER BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY
RIGHT IT MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTE OR COMMON LAW
PRINCIPLE OF SIMILAR EFFECT, WITH RESPECT TO THE ITEMS SPECIFIED IN THIS SECTION
10(a).

                      (b) As a material part of the consideration of this
Agreement, Buyer hereby waives on its behalf all claims and demands it may have
against Seller, Seller's partners and the officers, directors, shareholders,
employees and agents of Seller and/or Seller's partners for any such loss,
damage, injury or claim described in subsection 10(a) and agrees to indemnify,
defend and hold harmless Seller, Seller's partners and the officers, directors,
shareholders, employees and agents of Seller and/or Seller's partners from all
loss, liability, damages, costs and expenses (including attorneys' fees) arising
from or related to any such loss, damage, injury or claim whether incurred or
made by Buyer or any other person(s). The foregoing waiver and indemnity shall
apply to any claim or action brought by a private party or by a governmental
authority under any statute or common law now or hereinafter in effect and is
intended to apply with respect to loss, damage, injury or claim arising before
or after the conveyance of all of the residences

                                      -22-
<PAGE>   24

constructed on the Project. With respect to design, construction methods,
materials, locations and other matters for which Seller has given or will give
its approval or recommendation, the foregoing waiver and indemnity shall apply
irrespective of Seller approval or recommendation.

                      (c) Without limiting the generality of Subsection 10(b)
above, Buyer agrees to indemnify and protect Seller, and to defend Seller with
counsel reasonably acceptable to Seller, against any and all claims, demands,
liabilities, obligations, damages, causes of action, judgments, losses, costs
and expenses (including, without limitation, reasonable attorneys' fees) which
Seller may incur or suffer by reason of or in connection with (i) any breach of
or failure of Buyer to perform any of its Obligations contained in this
Agreement, and (ii) the development or disposal by Buyer of the Property
(including, without limitation, the construction of residential dwellings and
the sale or lease of such dwellings to the public or any Person). The
obligations of Buyer set forth in Section shall survive any termination of this
Agreement and the close of any Purchase Escrow.

                      (d) Notwithstanding the provisions of this Section 10
above, Buyer shall be relieved from liability for, and the waivers and
indemnities set forth in subsections (a), (b) and (c) above shall not apply to
the extent of, any loss, damage, liability, injury or claim to the extent the
same is found by reference of controversies under subsection 13.15, below, or by
a court of competent jurisdiction to have been caused solely by the gross
negligence and/or willful misconduct of Seller.

                      (e) Nothing in this Section 10 shall relieve Seller from
any liability for breach of any of Seller's representations or warranties under
Section 6 above.

        11.     Default.

               11.1. Events of Default.  The occurrence of any one or more of
the following events shall constitute a Default by a party under this Agreement:

                      (a) The failure of (i) either party to pay any amount
within five (5) days after such party receives written notice from the other
party that such amount is overdue, or (ii) Buyer to submit a proposed Phasing
schedule under subsection 4.1(b) of this Agreement within five (5) days after
Buyer receives written notice from Seller that such proposed Phasing schedule
has not been submitted to Seller in accordance with the time requirements set
forth in subsection 4.1(b) hereof;

                      (b) Other than as provided in subsection 11.1(a) above,
the failure of the party to perform any non-monetary obligation set forth in
this Agreement on its part to be performed if the failure should continue
uncured for a period of thirty (30) days after written notice is given to the
party of the occurrence of the failure; provided, however, that the failure
shall not be deemed to have occurred if the failure relates to a Purchase Escrow
and is of a nature that reasonably requires more than thirty (30) days to cure,
is capable of being cured fully before the close of the Purchase Escrow and the
party is proceeding continuously and diligently to cure the failure and does
cure the failure before close of the Purchase Escrow;

                                      -23-
<PAGE>   25

                      (c) Any representation or warranty made by the party in
this Agreement proves to have been incorrect in any material respect as of the
date made or as of any other date on which the representation and warranty was
required by the terms of this Agreement to be true;

                      (d) Institution by the party of proceedings under any law
of the United States or of any state or foreign jurisdiction for the relief of
debtors;

                      (e) A general assignment by the party for the benefit of
creditors or the filing of a voluntary petition in bankruptcy;

                      (f) The filing of an involuntary petition in bankruptcy
against the party by the creditors of such party, and such petition remaining
undischarged for a period of ninety (90) days after the date the same was filed
(or to the date of the next close of a Purchase Escrow if such date occurs
before the expiration of the ninety (90) day period);

                      (g) The appointment of a receiver to take possession of
any of the assets of the party, and such receivership remaining undischarged for
a period of thirty (30) days from the date of its appointment (or to the date of
the next close of a Purchase Escrow if such date occurs before the expiration of
the thirty (30) day period); or

                      (h) The attachment, execution or other judicial seizure of
the party's interest in this Agreement (and, in the case of Seller, in the
Property), such attachment, execution or seizure being in an amount not less
than Fifty Thousand Dollars ($50,000) and remaining undismissed or undischarged
for a period of thirty (30) days after the levy of the attachment, execution or
seizure (or to the date of the next close of a Purchase Escrow if such date
occurs before the expiration of the thirty (30) day period).

               11.2. Default by Buyer. If Buyer shall materially Default under
any of the terms of this Agreement, Seller shall have the right, in addition to
any other rights or remedies which it may have at law or in equity, to terminate
this Agreement by giving written notice of such termination to Buyer and Escrow
Holder. Upon the giving of such notice, this Agreement (excluding unclosed
Purchase Escrows), and the rights and obligations of Buyer and Seller under this
Agreement shall terminate.

               11.3. Default by Seller. If Seller shall materially Default under
any of the terms of this Agreement, Buyer shall have the right to terminate this
Agreement by giving written notice of such termination to Seller and Escrow
Holder, and shall also have all other rights and remedies available at law or in
equity, including without limitation an action for specific performance or for
monetary damages. Upon the giving of such a notice of termination, this
Agreement (excluding unclosed Purchase Escrows), and the rights and obligations
of Buyer and Seller under this Agreement shall terminate.

        12.    Indemnification.

               12.1. Indemnification of Seller. Buyer agrees to indemnify, hold
harmless and protect Seller, and to defend Seller with counsel reasonably
acceptable to Seller, against any and all claims, demands, liabilities,
obligations, damages, causes of action, judgments, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and all

                                      -24-
<PAGE>   26

fines, charges, penalties and consultants' fees, and all cleanup, repair,
detoxification, removal, remedial, response and abatement costs) (collectively,
the "Claims) which Seller may incur or suffer by reason of or in connection with
the use, generation, production, storage, release, discharge or disposal by
Buyer, or other presence of Hazardous Material caused by Buyer on, under or in
the vicinity of the Property, or the material violation of Hazardous Material
Laws with respect to the Property or property in the vicinity of the Property by
Buyer; provided, however, that Buyer shall not be obligated to indemnify, defend
or hold harmless Seller on account of any Claim caused by Seller's introduction
in, on or under the Property of any Hazardous Materials.

        13.    General Provisions.

               13.1. Legal Fees. Subject to the terms of subsection 13.15
[entitled "Reference of Controversies"], in the event of the bringing of any
action or suit by either party against the other party by reason of any breach
of any of the covenants, conditions, agreements or provisions on the part of the
other party arising out of this Agreement, the party in whose favor final
judgment shall be entered shall be entitled to have and recover of and from the
other party all costs and expenses of suit, including reasonable attorneys'
fees.

               13.2. Notices. All notices or other communication provided for
under this Agreement shall be in writing, shall be delivered personally or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed to the person to receive such notice or communication at the following
address and shall be effective upon receipt or refusal to accept delivery:

To Seller:

                      Lathrop Investment, L.P.
                      4490 Von Karman Avenue
                      Newport Beach, CA 92660
                      Attention:  Major General William Lyon (Retired)

(With copies to:)

                      Newmeyer & Dillion, LLP
                      895 Dove Street, Fifth Floor
                      Newport Beach, CA 92660
                      Attention: Michael S. Cucchissi, Esq.

                                      -25-
<PAGE>   27

To Buyer:

                      William Lyon Homes, Inc.
                      4490 Von Karman Avenue
                      Newport Beach, CA 92660
                      Attention:  Mr. Richard S. Robinson

 (With copies to:)

                      Irell & Manella LLP
                      840 Newport Center Drive, #400
                      Newport Beach, CA 92660-6324
                      Attention:  Frank A. Caput, Esq.

Notice of change of address shall be given by written notice in the manner set
forth in this subsection.

               13.3. Survival Upon Termination. Where the context shall
expressly or otherwise require, the provisions of this Agreement shall survive
the termination of this Agreement and the close of any Purchase Escrow.

               13.4. Successors and Assigns. Except to any Person (i) in which
Buyer has no less than a thirty-five percent (35%) interest, and (ii) with
respect to which Buyer has management control, Buyer shall not assign or
otherwise transfer this Agreement or any interest, right or obligation in this
Agreement, without the prior written consent of the Seller, and any such
assignment or other transfer without such written consent shall be null and
void. Subject to the foregoing, this Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns.

               13.5. Required Actions of Buyer and Seller. Buyer and Seller
agree to execute all instruments and documents and to take all actions as may be
required in order to consummate the transactions contemplated by this Agreement
and shall use their reasonable efforts to accomplish the close of each Purchase
Escrow in accordance with the provisions of this Agreement.

               13.6. Entire Agreement. This Agreement contains the entire
agreement between the parties concerning the subject matter of the Agreement and
supersedes any prior agreements, understandings or negotiations. No addition or
modification of any term or provision shall be effective unless set forth in
writing and signed by both Seller and Buyer.

               13.7. Time of Essence. Time is of the essence of each and every
term, condition, obligation and provision of this Agreement.

               13.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.

               13.9. Severability. If any portion of this Agreement shall be
declared by any court of competent jurisdiction to be invalid, illegal or
unenforceable, such portion shall

                                      -26-
<PAGE>   28

be deemed severed from this Agreement, and the remaining parts of this Agreement
shall remain in full force and effect, as fully as though such invalid, illegal
or unenforceable portion had never been part of this Agreement.

               13.10. Headlines. Headings at the beginning of each section and
subsection are solely for convenience of reference and are not a part of this
Agreement.

               13.11. Construction. Whenever the context of this Agreement
requires the same, the singular shall include the plural and the masculine,
feminine and neuter shall include the others. Without limitation, any defined
term used in the plural shall refer to all members of the relevant class, and
any defined term used in the singular shall refer to any member of the relevant
class. This Agreement shall not be construed as if it had been prepared by one
of the parries, but rather as if both parties had prepared the same. Unless
otherwise indicated, all references to sections and subsections are to this
Agreement. All exhibits are incorporated in this Agreement by reference. The
term "Agreement" includes such exhibits (as exhibits and, if appropriate, as
subsequently executed agreements and instruments). If the day on which Buyer or
Seller is required to take any action under the terms of this Agreement is not a
business day, the action shall be taken on the next succeeding business day. Any
reference in this Agreement to an agreement or other instrument shall mean such
agreement or instrument as it may from time to time be supplemented, modified,
amended and extended in accordance with any applicable terms of this Agreement.
This Agreement is executed and delivered in the State of California and shall be
construed and enforced in accordance with, and governed by, the laws of the
State of California.

               13.12. No Waiver. No waiver by a party of any Default by the
other party under this Agreement shall be implied from any omission or delay by
the nondefaulting party to take action on account of the Default if the Default
persists or is repeated. Any waiver of any covenant, term or condition contained
in this Agreement must be in writing. Any such express written waiver shall not
be construed as a waiver of any subsequent breach of the same covenant, term or
condition, nor shall it affect any Default other than the Default expressly made
the subject of the waiver. Any such express waiver shall be operative only for
the time and to the extent stated in the waiver. The consent or approval by a
party to or of any act by the other party shall not be deemed to waive or render
unnecessary consent or approval to or of any subsequent act.

               13.13. Relationship Between Parties. Seller and Buyer agree that
(a) the relationship between them is, is intended to be and shall at all times
remain, in connection with the transactions contemplated by this Agreement, that
of optionor and optionee, and upon exercise of an Option, seller and purchaser
and (b) neither party is, is intended to be or shall be construed as a partner,
joint venturer, trustee, fiduciary, alter ego, manager, controlling person or
other business associate or participant of any kind of the other party or any of
its Affiliates.

               13.14. Third Parties Not Benefited. This Agreement is made for
the purpose of defining and setting forth certain rights and obligations of
Buyer and Seller. It is made for the sole protection of Buyer and Seller and
Buyer's and Seller's successors and assigns. No other Person shall have any
rights of any nature under or by reason of this Agreement.

                                      -27-
<PAGE>   29

               13.15. Reference of Controversies. Any controversy between Seller
and Buyer under this Agreement which is the subject of an action or proceeding
brought by either Seller or Buyer shall be referred to a referee in accordance
with the provisions of Chapter 6 ("Chapter 6"), Title 8, Part II of California
Code of Civil Procedure ("Code"), (Sections 638 et seq.) as follows:

                      (a) Seller and Buyer shall submit to the appropriate court
a stipulation ("Stipulation") for a general order of reference to include all
issues in the action or proceeding, whether of fact or of law, including all
issues raised as affirmative defenses or cross-claims. If one party refuses or
fails to join in the submission of a Stipulation within fifteen (15) days after
being requested in writing to do so by the other party, the other party may make
a motion ("Motion") to the appropriate court for a general order of reference,
which the party failing to stipulate shall not oppose.

                      (b) Not later than ten (10) days after the filing of the
Stipulation, Buyer and Seller shall use their best efforts to agree on the
appointment of a Person to act as referee; provided, however, if a Motion is
made because one party fails or refuses to join in the submission of the
Stipulation, the party making the Motion may select, not later than ten (10)
days after the making of the Motion, any Person as the referee so long as the
Person selected does not have any business or social relationship with either
Seller or Buyer and is a judge or retired judge of the Superior Courts of the
State of California or a justice or retired justice of any appellate court of
the State of California. Any such selection shall be subject to the provisions
of Section 641 of the Code.

                      (c) If a referee is not selected in accordance with the
preceding subsection, or if the Person selected is not willing to act as
referee, a single referee shall be chosen in the manner set forth in Sections
640 and 641 of the Code. The referee must be a judge or retired judge of the
Superior Courts of the State of California or a justice or retired justice of
any appellate court of the State of California.

                      (d) Seller and Buyer expressly waive any right to a trial
by jury.

                      (e) A reporter shall be present at all proceedings before
the referee.

                      (f) If the reference is commenced by a Stipulation, each
party shall bear its own costs in connection with the reference (including
attorneys' fees) and one half of the referee's fees and reporter's fees. If the
reference is commenced by a Motion, the party against whom judgment is entered
shall bear all costs in connection with the reference (including, without
limitation, reasonable attorneys' fees and the referee's fees and reporters
fees).

                      (g) The referee shall apply all California roles of
procedure and evidence and shall apply the substantive laws of California in
deciding any and all issues submitted to the referee.

                      (h) The referee shall have the authority to hear law and
motion matters.

                                      -28-
<PAGE>   30

                      (i) All discovery which either of the parties may wish to
take shall be commenced within thirty (30) days and completed within sixty (60)
days after the reference is ordered in accordance with Section 638 of the Code.

                      (j) Section 998 of the Code shall be applicable under the
reference.

                      (k) The referee's findings and decision under Section 643
and 644 of the Code shall be final and binding on Seller and Buyer and shall not
be subject to appeal or review.

                      (l) Seller and Buyer desire to have any and all matters
referred to a referee determined as soon as practicable consistent with the
availability of the referee, counsel and witnesses.

                      (m) Seller and Buyer agree that neither party will be
permitted to defeat the provisions of this subsection 13.15 by including
non-parties to this Agreement as parties to the action or proceeding. If
nonparties to the Agreement are proper parties to the action or proceeding:

                          (i) The non-parties to the Agreement may, at their
sole option, elect to stipulate to the reference and comply with the terms of
this subsection 13.15.

                          (ii) If the non-parties do not so agree, Seller and
Buyer shall stipulate that all claims by and against the non-parties be severed
and determined separately.

                          (iii) The provisions of this subsection 13.15 shall
have no further force or effect in the event Chapter 6 is repealed or amended in
such a manner as to make it materially inconsistent with the provisions of this
subsection.

               13.16. Force Majeure. If Buyer is delayed at any time in the
performance of its obligations hereunder (other than any obligation which only
requires the payment of money), by reason or labor disputes, fire, governmental
moratoria, adverse weather conditions or other "acts of God" not reasonably
anticipatable, unavoidable casualties, or any causes beyond the Buyer's
reasonable control, then the time for such performance shall be extended for
such reasonable time as may compensate for such occurrences. Buyer's inability
to obtain financing will not be deemed to constitute an event of force majeure
in any event.

               13.17. Assignment on Termination. If this Agreement terminates
prior to Buyer's exercise of all the Options, Buyer shall assign to Seller (on a
non-exclusive basis to the extent possible) any and all entitlements,
development agreement rights and other intangible rights then owned by Buyer and
that relate to the development of the unpurchased portions of the Project.
Notwithstanding the foregoing, Buyer shall have no obligation pursuant to this
subsection 13.17 to assign to Seller any of Buyer's plans, specifications or
other architectural work product with respect to residences planned for the
Property.

                                      -29-
<PAGE>   31

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.

Seller:                            LATHROP INVESTMENT, L.P.,
                                   a California limited partnership

                                   By:     Lyon Realty, Inc.
                                           a California corporation
                                           General Partner

                                           By:    /s/ WILLIAM LYON
                                              ----------------------------------

                                           Title:
                                                 -------------------------------

                                           By:    /s/ WILLIAM H. LYON
                                              ----------------------------------

                                           Title:
                                                 -------------------------------

Buyer:                             WILLIAM LYON HOMES, INC.,
                                   a California corporation

                                   By:     /s/ WADE H. CABLE
                                      ------------------------------------------

                                   Title:
                                         ---------------------------------------

                                   By:     /s/ RICHARD S. ROBINSON
                                      ------------------------------------------

                                   Title:
                                         ---------------------------------------

                                      -30-
<PAGE>   32

              EXHIBITS TO OPTION AGREEMENT AND ESCROW INSTRUCTIONS
<TABLE>
<CAPTION>

<S>     <C>                                        <C>
Exhibit "A"........................................Land/Legal Description

Exhibit "B"........................................Memorandum of Options

Exhibit "C"........................................Grant Deed

Exhibit "D"........................................Description of Units

Exhibit "E"........................................Schedule of Base Purchase Prices and
                                                   Option Exercise Dates

Exhibit "F"........................................License Terms

Exhibit "G"........................................Options Price Credits
</TABLE>

                                      -31-
<PAGE>   33

                                    EXHIBIT A

                                LEGAL DESCRIPTION

<PAGE>   34

                                    EXHIBIT B

                              MEMORANDUM OF OPTIONS

<PAGE>   35

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

William Lyon Homes, Inc.
4490 Von Karman Avenue
Newport Beach, CA  92660

Attention:     Mr. Richard S. Robinson

--------------------------------------------------------------------------------
                        (Space Above for Recorder's Use)

                         MEMORANDUM OF OPTION AGREEMENT

        This Memorandum of Option Agreement ("Agreement") is made and entered
into as of this ___ day of ______________, 2000 by and between WILLIAM LYON
HOMES, INC., a California corporation ("Optionee"), and LATHROP INVESTMENT,
L.P., a California limited partnership ("Optionor").

                                   WITNESSETH

        1. Optionor and Optionee are the parties to that certain Option
Agreement and Escrow Instructions dated October 24, 2000 (the "Option
Agreement"), which relates to certain real property located in San Joaquin
County, California and more particularly described in Exhibit "A" attached
hereto and incorporated herein by this reference (the "Property").

        2. Optionor hereby grants to Optionee an exclusive and irrevocable
option to purchase the Property from Optionor, in phases, at the price and on
and subject to the terms and conditions set forth in the Option Agreement. The
last day for the exercise of the option with respect to the last phase of the
Property is September 15, 2004, and the option shall expire unless exercised on
or before such date as provided in the Option Agreement. Unless the option as to
a particular phase of the Property is exercised as provided in the Option
Agreement, Optionee will have no further interest in such phase of the Property.

        3. Nothing in this Agreement shall in any way amend or alter the Option
Agreement, and in the event of any conflict or inconsistency between the terms
hereof and the terms of the Option Agreement, the terms of the Option Agreement
shall control.

<PAGE>   36

        IN WITNESS WHEREOF, Optionor and Optionee have executed this Agreement
as of the date first set forth above.

                            OPTIONEE:

                            WILLIAM LYON HOMES, INC., a California
                            corporation

                            By:
                               -----------------------------------
                               Its:
                                   -------------------------------

                            By:
                               -----------------------------------
                               Its:
                                   -------------------------------

                            OPTIONOR:

                            LATHROP INVESTMENT, L.P., a California
                            limited partnership

                            By:    Lyon Realty, Inc., a California
                                   corporation, General Partner

                            By:
                               -----------------------------------
                               Its:
                                   -------------------------------

                            By:
                               -----------------------------------
                               Its:
                                   -------------------------------

<PAGE>   37

                                   EXHIBIT "A"

                        Legal Description of the Property

<PAGE>   38

STATE OF CALIFORNIA          )
                             ) SS
COUNTY OF_________________   )

        On ____________________ before me, _______________________, a Notary
Public in and for said County and State, personally appeared
________________________ ____________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed this instrument.

WITNESS my hand and official seal.

Signature_____________________

                            FOR NOTARY SEAL OR STAMP

                                      -37-
<PAGE>   39

STATE OF CALIFORNIA          )
                             ) SS
COUNTY OF_________________   )

        On ____________________ before me, _______________________, a Notary
Public in and for said County and State, personally appeared
________________________ ____________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed this instrument.

WITNESS my hand and official seal.

Signature_____________________

                            FOR NOTARY SEAL OR STAMP

<PAGE>   40

                                    EXHIBIT C

                                   GRANT DEED

<PAGE>   41

RECORDING REQUESTED BY:

William Lyon Homes, Inc.
4490 Von Karman Avenue
Newport Beach, CA  92660

Attention:     Richard S. Robinson

WHEN RECORDED MAIL TO AND
MAIL TAX STATEMENTS TO:

William Lyon Homes, Inc.
4490 Von Karman Avenue
Newport Beach, CA  92660

Attention:     Richard S. Robinson

--------------------------------------------------------------------------------
                        (Space Above for Recorder's Use)

                             PARTNERSHIP GRANT DEED

        The undersigned Grantor declares that Documentary Transfer Tax is not
shown pursuant to Section 11932 of the California Revenue and Taxation Code, as
amended.

        FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which is hereby acknowledged, LATHROP INVESTMENT, L.P., a California limited
partnership ("Grantor"), hereby grants to WILLIAM LYON HOMES, INC., a California
corporation ("Grantee"), that certain real property in the County of San
Joaquin, State of California, more particularly described in Exhibit "A"
attached hereto and incorporated herein by this reference.

SUBJECT TO:

        1. Nondelinquent general, special and supplemental real property taxes
and assessments, if any, for the current fiscal year.

        2. All covenants, conditions, restrictions, reservations, rights,
rights-of-way, dedications, offers of dedication, easements and other matters of
record or otherwise apparent as of the date hereof.

                            [signature page follows]

<PAGE>   42

        IN WITNESS WHEREOF, the Grantor has executed this Partnership Grant Deed
as of the date written below.

Dated:____________, ____       GRANTOR:

                               LATHROP INVESTMENT, L.P., a California limited
                               partnership

                               By: Lyon Realty, Inc., a California corporation,
                                   General Partner

                                   By:
                                      ------------------------------------------
                                      Its:
                                          --------------------------------------

                                   By:
                                      ------------------------------------------
                                      Its:
                                          --------------------------------------

<PAGE>   43

                                   EXHIBIT "A"

                                Legal Description

<PAGE>   44

STATE OF CALIFORNIA          )
                             ) SS
COUNTY OF_________________   )

        On ____________________ before me, _______________________, a Notary
Public in and for said County and State, personally appeared
________________________ ____________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed this instrument.

WITNESS my hand and official seal.

Signature
         ----------------------

                            FOR NOTARY SEAL OR STAMP

<PAGE>   45

Document No.
            --------------------------------------
Recorded                                    ,
         ----------------------------------- -----

                STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION NOT BE
                MADE A PART OF THE PERMANENT RECORD IN THE OFFICE OF THE COUNTY
                RECORDER (PURSUANT TO SECTION 11932 REVENUE AND TAXATION CODE)

TO:     Recorder
        County of San Joaquin

        Request is hereby made in accordance with the provisions of the
Documentary Transfer Tax Act that the amount of the tax due not be shown on the
original document which names:

Grantor:       Lathrop Investment, L.P., a California limited partnership

Grantee:       William Lyon Homes, Inc., a California corporation

        The property described in the accompanying document is located in:

        _______ the unincorporated area of the County of San Joaquin.

        _______ the City of ____________, County of San Joaquin.

        The amount of tax due on the accompanying document is $____________,
computed on the full value of the property conveyed.

(Signature of Grantor or Agent)
                                    ---------------------------

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

Note: After the permanent record is made, this form will be affixed to the
conveying document and returned with it.

<PAGE>   46

                                    EXHIBIT D

                              DESCRIPTION OF UNITS

<PAGE>   47

                                    EXHIBIT E

                        SCHEDULE OF BASE PURCHASE PRICES
                          AND SCHEDULED EXERCISE DATES

<PAGE>   48

                                    EXHIBIT F

                                  LICENSE TERMS

        The following terms shall apply to the license to enter the Property
granted to Buyer under subsection 8.2 of this Agreement.

        1. License to Enter. Subject to the terms and conditions hereof, Seller
hereby grants to Buyer a nonexclusive license and permission to enter upon and
into the Property for the purpose of grading and constructing such Improvements
thereto as Buyer elects to construct in accordance with its planned development
of the Property (all Improvements or other work completed by Buyer herein
referred to collectively as the "Work"). Buyer shall not allow or cause any
other party, except Buyer's duly authorized contractors, subcontractors,
representatives, agents and employees (collectively, "representatives") to enter
or use the Property during the term of this license without Seller's prior
written consent. As used in this Exhibit "F" only, the term "Property" shall
exclude those Phases of the Property from time to time acquired by Buyer, such
exclusion to be effective as to any such Phase from and after the date the same
is transferred to Buyer. Notwithstanding anything herein to the contrary, other
than with Seller's prior consent, Buyer shall not construct any residential
houses on any Residential Lot that Buyer has not yet acquired title to pursuant
to this Agreement.

        2. Term. The term of the license shall commence upon the execution of
this Agreement by both Seller and Buyer. The license shall terminate (i) with
respect to any Phase of the Property, upon the Close of Escrow for such Phase,
or (ii) upon the termination of this Agreement.

        3. Hazardous Materials. During the term of this license, Buyer shall not
introduce or release any Hazardous Materials in, to, from, under or on the
Property, or bring any Hazardous Materials onto or across the Property, except
as necessary to complete the Work and then only so long as the same are used,
handled and disposed of in accordance with applicable Laws. If Buyer becomes
aware of the presence of any Hazardous Materials on the Property, it shall
immediately notify Seller in writing of the same.

        4. Maintenance of Property; Performance of Work; Alterations.

               (a) Buyer shall not, except as required to complete the Work,
alter the physical condition of the Property. During the term of this license,
Buyer shall, at its sole cost, expense and liability, maintain in a safe and
sanitary condition those portions of the Property on which it is performing the
Work or which it is otherwise using. Without limiting the foregoing, Buyer shall
maintain any construction routes in a clean condition and establish and maintain
a regular dust control program. Buyer shall be responsible for any damage done
to the Property or other property of Seller and for any theft of Seller's
property from the Property or other real property of Seller by Buyer or its
representatives.

               (b) Buyer shall bear all costs of the Work. Buyer shall obtain at
its cost all permits and approvals required in connection with the Work
(including without limitation

<PAGE>   49

those required hereunder from Seller and also any required by any Authorities
with jurisdiction thereover) and shall comply with the requirements of all
Authorities with jurisdiction thereover, including without limitation all
requirements as to noise control, construction traffic and other construction
matters. If required by Seller, any equipment or materials placed or stored on
the Property by Buyer or its representatives shall be placed or stored only in
locations specifically approved by Seller. If required by Seller, any access by
Buyer and its representatives onto, over or across the Property shall be by way
of roads, paths or access points designated by Seller. Upon termination of this
license, Buyer shall remove any equipment or materials stored on the Property
and shall repair and restore every portion of the Property damaged or disturbed
during the term of this license to at least as good condition as existed prior
to Buyer's entry onto the Property; provided, however, Seller shall have the
option to do any necessary repairs and restoration and Buyer shall pay Seller
any and all amounts expended therefore upon demand. Buyer agrees to pay or
reimburse Seller for any utility or water charges allocable to Buyer's use of
the Property.

               (c) Buyer shall not use the Property in any manner or conduct any
activities thereon which will interfere with or delay Seller's use or
development of the Property. No Improvements (whether or not a part of the Work)
shall be constructed or installed on the Property until the plans and
specifications therefor have been approved by Seller. Seller's approval right
shall include, without limitation, the right to approve the architectural style
and exterior colors and materials of any structure, as well as landscaping plans
and the exact location of any such structure. All Improvements shall be
completed only in accordance with the approved plans and specifications
therefore, and in a good and workmanlike manner. Upon termination of this
license without an acquisition of the Property by Buyer, all improvements made
by Buyer upon any portion of the Property shall become the sole property of
Seller, without the payment of any consideration to Buyer.

        5. Seller Not Liable. All persons who enter onto the Property pursuant
to this license do so at their own risk, and shall comply with all necessary and
reasonable instructions and directions of Seller with respect to use of the
Property. As a material part of the consideration for this license and the
Agreement, Buyer hereby waives and agrees to indemnify, protect, defend and hold
Seller harmless from and against any loss, damage, injury, accident, fire or
other casualty, liability, claim, cost or expense (including but not limited to
actual attorneys' fees) of any kind or character to any person or property
arising from, caused by or related to (i) any use of the Property by Buyer or
its representatives, (ii) any act or omission of Buyer or any of its
representatives, (iii) any bodily injury, property damage, accident, fire or
other casualty on the Property caused by the entry or activities of Buyer or its
representatives, (iv) any violation or alleged violation by Buyer or its
representatives of any law, ordinance or regulation now or hereafter enacted,
(v) any failure of Buyer to maintain the Property in a safe, decent, and
sanitary condition, (vi) the breach or violation of the terms of this license by
Buyer, (vii) any statutory liens for labor or materials or other liens which may
arise out of the Work or Buyer's activities on the Property, and (viii) any
enforcement by Seller of any provision of this license and any costs of duly
removing Buyer from the Property or restoring the same as provided herein. Buyer
acknowledges and agrees that Seller has no responsibility for loss of any
property of Buyer
<PAGE>   50

by theft, and Seller has no obligation to provide any security in respect of
Buyer's property. The provisions of this Paragraph 5 shall survive any
termination of this license.

        6. Insurance. Prior to and at all times after initially entering upon
the Property for any purpose, Buyer shall at its expense maintain with a
reputable company or companies qualified to do business in California and
acceptable to Seller, a policy or policies of comprehensive or commercial
general liability insurance with respect to the Property and the operations and
activities of or on behalf of Buyer on or about the Property, including, but not
limited to, owned, rented and non-owned automobile (vehicle) liability, personal
injury, blanket contractual, broad form property damage, products liability,
manufacturer's and contractor's basic coverage with X, C and U exclusions
deleted, owners' and contractors' protective liability and products/completed
operations liability coverage. Such policy shall provide that its coverage is
primary to any insurance of Seller (whose insurance shall be excess and
noncontributing) and shall contain a provision stating that the naming of an
additional insured shall not negate any right the additional insured would have
had as a claimant under the policy if not so named. Such policy shall contain
severability of interest and cross liability clauses. Such policy or policies
shall have limits of liability of not less than Ten Million Dollars
($10,000,000) combined single limit per occurrence. The policy shall provide
that it is not cancelable without thirty (30) days prior written notice to
Seller. Seller shall be named as an additional insured on such policy or
policies, and a certificate or certificates of insurance evidencing such policy
or policies shall be delivered to Seller before Buyer's initial entry onto the
Property. Additional certificates evidencing renewal or replacement of such
policy or policies shall be delivered to Seller at least thirty (30) days prior
to the expiration of any such policy or policies. A copy of any such policy
shall also be delivered to Seller upon request. Seller also reserves the right
to require Buyer to maintain a standard "all risk" Builders Risk Policy during
any period of construction for not less than the full replacement cost of the
improvements, which shall include a replacement cost endorsement and otherwise
be in form and substance acceptable to Seller. Buyer shall also maintain workers
compensation insurance as required by law.

        7. Liens. Buyer shall not suffer or permit to be filed or enforced
against the Property, or any part thereof, any statutory lien for labor or
materials (including without limitation any mechanics' or materialmen's lien) or
any claim for damages arising from or out of Buyer's use of or activities on the
Property. Buyer shall pay or cause to be paid on a timely basis all bills or
claims which could give rise to any such statutory lien or claim for damages. If
any statutory or other lien is filed or asserted against the Property, Buyer
shall cause the same to be fully discharged, by payment, bonding or otherwise,
within twenty (20) days of such filing or assertion, and upon any failure of
Buyer to do so, Seller shall have the right to do so, by payment, bonding
(including without limitation obtaining and recording a lien release bond
pursuant to California Civil Code Section 3143) or otherwise and Buyer shall pay
Seller on demand all amounts expended in connection with obtaining such release
or discharge. Buyer shall notify Seller no less than five (5) days prior to
doing any Work on the Property in order to allow Seller to post and record, at
Seller's option, appropriate notices of nonresponsibility. The failure by Seller
to post or record such notices shall not affect or negate in any manner Buyer's
obligations under this license.
<PAGE>   51

                                    EXHIBIT G

                              Options Price Credits

        Buyer shall receive the following credits against the Base Purchase
Prices for the specified Phases on account of Buyer's payment of the Options
Price:

<TABLE>
<CAPTION>

Phase                                                     Credit Amount
-----                                                     -------------

<S>                                                       <C>
September 2003                                            $154,557
January 2004                                              $352,268
May 2004                                                  $352,268
September 2004                                            $140,907
</TABLE>

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