Document:

<PAGE>

                                                                   EXHIBIT 10.23

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

                            REVOLVING LOAN AGREEMENT

                          Dated as of October 24, 2003

                                      among

                                     KB HOME
                                   as Borrower

                             THE BANKS PARTY HERETO

                              BANK OF AMERICA, N.A.
                             as Administrative Agent

                                  BANK ONE, NA
                              as Syndication Agent

                               FLEET NATIONAL BANK
                         CREDIT LYONNAIS NEW YORK BRANCH
                       WACHOVIA BANK, NATIONAL ASSOCIATION
                          KEYBANK NATIONAL ASSOCIATION
                                  SUNTRUST BANK
                             as Documentation Agents

                                       and

                         BANC OF AMERICA SECURITIES LLC,
                   as Sole Lead Arranger and Sole Book Manager

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

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.................................................................    1

           1.1       Defined Terms ........................................................................    1

           1.2       Accounting Terms .....................................................................   25

           1.3       Rounding .............................................................................   26

           1.4       Other Interpretive Provisions ........................................................   26

           1.5       Exhibits and Schedules ...............................................................   26

           1.6       References to "Borrower and its Subsidiaries".........................................   27

           1.7       Time of Day...........................................................................   27

           1.8       Letter of Credit Amounts..............................................................   27

ARTICLE II LOANS AND LETTERS OF CREDIT.....................................................................   28

           2.1       Loans-General.........................................................................   28

           2.2       Base Rate Loans.......................................................................   29

           2.3       Eurodollar Rate Loans.................................................................   29

           2.4       Swing Line. ..........................................................................   29

           2.5       Letters of Credit. ...................................................................   31

           2.6       Reduction of Commitment ..............................................................   37

           2.7       [Intentionally Omitted] ..............................................................   38

           2.8       Borrowing Base........................................................................   38

ARTICLE III PAYMENTS AND FEES .............................................................................   39

           3.1       Principal and Interest................................................................   39

           3.2       Commitment Fee........................................................................   40

           3.3       Other Fees ...........................................................................   40

           3.4       [Intentionally Omitted] ..............................................................   40

           3.5       Capital Adequacy. ....................................................................   41
</TABLE>

                                       -i-

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<TABLE>
<S>                                                                                                           <C>
           3.6       Eurodollar Fees and Costs.............................................................   42

           3.7       Late Payments/Default Interest........................................................   44

           3.8       Computation of Interest and Fees .....................................................   45

           3.9       Holidays .............................................................................   45

           3.10      Payment Free of Taxes.................................................................   45

           3.11      Funding Sources.......................................................................   46

           3.12      Failure to Charge or Making of Payment Not Subsequent Waiver..........................   46

           3.13      Time and Place of Payments; Evidence of Payments; Application of Payments ............   46

           3.14      Administrative Agent's Right to Assume Payments Will be Made..........................   46

           3.15      Survivability ........................................................................   47

           3.16      Bank Calculation Certificate .........................................................   47

           3.17      Transition. ..........................................................................   47

ARTICLE IV REPRESENTATIONS AND WARRANTIES .................................................................   49

           4.1       Existence and Qualification; Power; Compliance with Law...............................   49

           4.2       Authority; Compliance with Other Instruments and Government Regulations ..............   49

           4.3       No Governmental Approvals Required ...................................................   50

           4.4       Subsidiaries..........................................................................   50

           4.5       Financial Statements..................................................................   50

           4.6       No Other Liabilities; No Material Adverse Effect......................................   51

           4.7       Title to Assets.......................................................................   51

           4.8       Intangible Assets ....................................................................   51

           4.9       Existing Indebtedness and Contingent Guaranty Obligations ............................   52

           4.10      Governmental Regulation ..............................................................   52

           4.11      Litigation ...........................................................................   52

           4.12      Binding Obligations...................................................................   52

           4.13      No Default ...........................................................................   52
</TABLE>

                                      -ii-

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<TABLE>
<S>                                                                                                           <C>
           4.14      Pension Plans ........................................................................   52

           4.15      Tax Liability ........................................................................   52

           4.16      Regulation U..........................................................................   52

           4.17      Environmental Matters ................................................................   52

           4.18      Disclosure............................................................................   53

           4.19      Projections ..........................................................................   53

           4.20      ERISA Compliance .....................................................................   53

           4.21      Tax Shelter Regulations ..............................................................   53

           4.22      Solvency..............................................................................   53

ARTICLE V AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS)........................   54

           5.1       Payment of Taxes and Other Potential Liens  ..........................................   54

           5.2       Preservation of Existence.............................................................   54

           5.3       Maintenance of Properties.............................................................   54

           5.4       Maintenance of Insurance .............................................................   54

           5.5       Compliance with Laws .................................................................   54

           5.6       Inspection Rights.....................................................................   55

           5.7       Keeping of Records and Books of Account ..............................................   55

           5.8       Use of Proceeds.......................................................................   55

           5.9       Subsidiary Guaranty ..................................................................   55

ARTICLE VI NEGATIVE COVENANTS..............................................................................   56

           6.1       Payment or Prepayment of Subordinated Obligations ....................................   56

           6.2       [Intentionally Omitted] ..............................................................   56

           6.3       Mergers and Sale of Assets............................................................   56

           6.4       Investments and Acquisitions .........................................................   57

           6.5       ERISA Compliance .....................................................................   57

           6.6       Change in Business ...................................................................   57
</TABLE>

                                      -iii-

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<TABLE>
<S>                                                                                                           <C>
           6.7       Liens and Negative Pledges............................................................   58

           6.8       Transactions with Affiliates .........................................................   59

           6.9       Consolidated Tangible Net Worth.......................................................   59

           6.10      Consolidated Leverage Ratio...........................................................   59

           6.11      Consolidated Interest Coverage Ratio .................................................   60

           6.12      Distributions ........................................................................   60

           6.13      Amendments............................................................................   60

           6.14      [Intentionally Omitted] ..............................................................   60

           6.15      Inventory ............................................................................   60

           6.16      Investment in Subsidiaries and Joint Ventures.........................................   60

           6.17      Senior Indebtedness Not to Exceed Borrowing Base......................................   60

           6.18      Maximum Speculative Units ............................................................   60

ARTICLE VII INFORMATION AND REPORTING REQUIREMENTS.........................................................   61

           7.1       Financial and Business Information of Borrower and Its Subsidiaries...................   61

           7.2       Compliance Certificate ...............................................................   63

ARTICLE VIII CONDITIONS....................................................................................   64

           8.1       Initial Advances, Etc.................................................................   64

           8.2       Any Advance...........................................................................   65

           8.3       Any Letter of Credit .................................................................   66

ARTICLE IX EVENTS OF DEFAULT AND REMEDIES UPON EVENTS OF DEFAULT...........................................   67

           9.1       Events of Default.....................................................................   67

           9.2       Remedies Upon Event of Default  ......................................................   68

ARTICLE X THE ADMINISTRATIVE AGENT.........................................................................   71

           10.1      Appointment and Authorization.........................................................   71

           10.2      Delegation of Duties..................................................................   71

           10.3      Liability of Administrative Agent.....................................................   71
</TABLE>

                                      -iv-

<PAGE>

<TABLE>
<S>                                                                                                           <C>
           10.4     Reliance by Administrative Agent. .....................................................   72

           10.5     Notice of Default .....................................................................   72

           10.6     Credit Decision; Disclosure of Information by Administrative Agent.....................   72

           10.7     Indemnification of Administrative Agent ...............................................   73

           10.8     Administrative Agent in its Individual Capacity .......................................   73

           10.9     Successor Administrative Agent.........................................................   74

           10.10    Administrative Agent May File Proofs of Claim .........................................   74

           10.11    Guaranty Matters.......................................................................   75

           10.12    Other Agents; Arrangers and Managers...................................................   75

           10.13    Defaulting Banks.......................................................................   75

           10.14    No Obligations of Borrower.............................................................   76

ARTICLE XI MISCELLANEOUS...................................................................................   77

           11.1     Cumulative Remedies; No Waiver.........................................................   77

           11.2     Amendments; Consents ..................................................................   77

           11.3     Costs, Expenses and Taxes..............................................................   77

           11.4     Nature of Banks' Obligations ..........................................................   78

           11.5     Survival of Representations and Warranties ............................................   79

           11.6     Notices and Other Communications; Facsimile Copies. ...................................   79

           11.7     Execution in Counterparts..............................................................   80

           11.8     Successors and Assigns.................................................................   80

           11.9     Sharing of Setoffs.....................................................................   83

           11.10    Indemnification by the Borrower........................................................   83

           11.11    Nonliability of Banks..................................................................   84

           11.12    Confidentiality .......................................................................   84

           11.13    No Third Parties Benefited.............................................................   85

           11.14    Other Dealings ........................................................................   85
</TABLE>

                                       -v-

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<TABLE>
<S>                                                                                                           <C>
           11.15    Right of Setoff - Deposit Accounts ....................................................   85

           11.16    Further Assurances.....................................................................   85

           11.17    Integration ...........................................................................   86

           11.18    Governing Law .........................................................................   86

           11.19    Severability of Provisions ............................................................   86

           11.20    Headings...............................................................................   86

           11.21    Conflict in Loan Documents.............................................................   86

           11.22    Waiver of Right to Trial by Jury.......................................................   86

           11.23    Purported Oral Amendments..............................................................   87

           11.24    Payments Set Aside ....................................................................   87

           11.25    Hazardous Materials Indemnity..........................................................   87
</TABLE>

                                      -vi-

<PAGE>

Exhibits

A     - Assignment and Assumption
B     - Borrowing Base Certificate
C     - Compliance Certificate
D     - Loan Notice
E     - Note
F-1   - Opinion of Counsel
F-2   - Opinion of Counsel
G     - Subsidiary Guaranty
H     - Swing Line Loan Notice

Schedules

1.1   Pro Rata Shares
3.17  Existing Letters of Credit
4.4   Subsidiaries
4.7   Existing Liens and Rights of Others
4.9   Existing Indebtedness and Contingent Obligations
6.4   Investments
11.6  Administrative Agent's Office

                                      -vii-

<PAGE>

                            REVOLVING LOAN AGREEMENT

                          Dated as of October 24, 2003

This Revolving Loan Agreement (as it may from time to time be supplemented,
modified, amended, renewed, extended or supplanted, this "Agreement"), dated as
of October 24, 2003, is entered into by and among KB HOME, a Delaware
corporation ("Borrower"), each financial institution set forth on the signature
pages of this Agreement or which from time to time becomes party hereto
(collectively, the "Banks " and individually, a "Bank"), Bank of America, N.A.,
as Administrative Agent, Bank One, NA, as Syndication Agent, Fleet National
Bank, Credit Lyonnais New York Branch, Wachovia Bank, National Association,
KeyBank National Association and Suntrust Bank, as Documentation Agents, and
Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager.

                                    RECITALS

This Agreement establishes a new credit facility replacing that certain 2000
Revolving Loan Agreement dated as of October 3, 2000 (as amended, the "Prior
Revolving Loan Agreement") by and among Borrower, the banks named therein, Bank
of America, N.A., as administrative agent, and various other banks in various
agent capacities and the 2000 Term Loan Agreement dated as of October 3, 2000
(as amended, the "2000 Term Loan Agreement") by and among Borrower, the banks
named therein, and Bank of America, N. A., as administrative agent, and various
other banks in various agent capacities. Subject to the transition provisions of
Section 3.17, and as contemplated by Sections 8.1(a)(viii) and (a)(ix), the
terms and provisions of this Agreement shall become effective, and the Prior
Revolving Loan Agreement and the 2000 Term Loan Agreement shall terminate, as of
the Closing Date.

WHEREFORE, in consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

1.1      Defined Terms. As used in this Agreement, the following terms shall
         have the meanings set forth below:

         "2000 Term Loan Agreement" has the meaning set forth in the recitals of
         the parties hereto.

         "Acquisition" means any transaction, or any series of related
         transactions, consummated after the Closing Date, by which Borrower or
         any of its Subsidiaries directly or indirectly (a) acquires any ongoing
         business or all or substantially all of the assets of any firm,
         corporation or division thereof, whether through purchase of assets,
         merger or otherwise, (b) acquires control of securities of a
         corporation representing 50% or more of the ordinary voting power for
         the election of directors or (c) acquires control of a 50% or more
         ownership interest in any partnership, joint venture or other business
         entity.

         "Administrative Agent" means Bank of America or any successor
         administrative agent.

         "Administrative Agent's Office" means the Administrative Agent's
         address and, as appropriate, account set forth on Schedule 11.6, or
         such other address or account as the Administrative Agent may, from
         time to time, notify the Borrower and the Banks.

                                       -1-

<PAGE>

         "Advance" means an advance made or to be made to Borrower by a Bank
         pursuant to Article II.

         "Affiliate" means, with respect to any Person, any other Person which
         directly or indirectly controls, or is under common control with, or is
         controlled by, such Person. As used in this definition, "control"
         (including its correlative meanings, "controlled by" and "under common
         control with") shall mean possession, directly or indirectly, of power
         to direct or cause the direction of management or policies (whether
         through ownership of securities or partnership or other ownership
         interests, by contract or otherwise); provided that, in any event, any
         Person which owns directly or indirectly 10% or more of the securities
         having ordinary voting power for the election of directors or other
         governing body of a corporation that has more than 100 record holders
         of such securities or 10% or more of the partnership or other ownership
         interests of any other Person that has more than 100 record holders of
         such interests will be deemed to control such corporation or other
         Person.

         "Agent-Related Persons" means the Administrative Agent, together with
         its Affiliates (including, in the case of Bank of America in its
         capacity as the Administrative Agent, the Sole Lead Arranger and Sole
         Book Manager), and the officers, directors, employees, agents and
         attorneys-in-fact of such Persons and Affiliates.

         "Agents" mean the Administrative Agent and the Sole Lead Arranger and
         Sole Book Manager.

         "Agreement" has the meaning set forth in the first paragraph hereof.

         "Applicable Base Rate Spread" means the applicable per annum percentage
         set forth in the definition of "Applicable Rates".

         "Applicable Commitment Fee Rate" means the applicable per annum
         percentage set forth in the definition of "Applicable Rates"; provided
         that if the Average Daily Usage for any 2 consecutive Fiscal Quarters
         is less than 30% of the average amount of the Commitment for such
         period, the Applicable Commitment Fee Rate for the immediately
         following Fiscal Quarter shall be equal to the sum of (a) the
         applicable per annum percentage set forth in the definition of
         "Applicable Rates" plus (b) 0.100%.

         "Applicable Eurodollar Rate Spread" means the applicable per annum
         percentage set forth in the definition of "Applicable Rates".

         "Applicable Federal Funds Rate" means, as of any date of determination,
         a rate per annum equal to the Federal Funds Rate in effect on such date
         and if such Federal Funds Rate is not available to the Swing Line Bank,
         such rate per annum as is reasonably determined by the Swing Line Bank
         as representing its actual cost of funding Swing Line Loans, without
         the addition of fees or markup of any kind.

         "Applicable Letter of Credit Fee" means the applicable per annum
         percentage set forth in the definition of "Applicable Rates".

         "Applicable Pricing Level" means Applicable Pricing Level I for any day
         on which Borrower holds an Investment Grade Credit Rating and, for any
         day on which Borrower does not hold an Investment Grade Credit Rating,
         the Applicable Pricing Level is determined in accordance with
         Borrower's Consolidated Leverage Ratio on such date as follows:

                                       -2-

<PAGE>

<TABLE>
<CAPTION>
 APPLICABLE
PRICING LEVEL                        CONSOLIDATED LEVERAGE RATIO
-------------                        ---------------------------
<S>                         <C>
     II                     Consolidated Leverage Ratio of less than or equal
                            to 1.00 to 1.00

     III                    Consolidated Leverage Ratio of greater than 1.00
                            to 1.00, but less than or equal to 1.25 to 1.00

     IV                     Consolidated Leverage Ratio of greater than 1.25
                            to 1.00, but less than or equal to 1.75 to 1.00

      V                     Consolidated Leverage Ratio of greater than 1.75 to
                            1.00 but less than or equal to 2.00 to 1.00.

     VI                     Consolidated Leverage Ratio of greater than 2.00
                            to 1.00
</TABLE>

         Borrower is responsible pursuant to Section 7.1(k) to provide the
         Administrative Agent with notice of each change in the Applicable
         Pricing Level that is due to the inception or cessation of an
         Investment Grade Credit Rating. For any day on which Borrower does not
         hold an Investment Grade Credit Rating, the Applicable Pricing Level
         will be determined according to the Consolidated Leverage Ratio
         reported by Borrower as of the first Business Day immediately following
         the date a Compliance Certificate is delivered pursuant to Section 7.2.

         "Applicable Rates" means, as of any date of determination, the
         following percentages per annum, based upon the Applicable Pricing
         Level on that date:

<TABLE>
<CAPTION>
                                                                        APPLICABLE LETTER OF
                                                     APPLICABLE              CREDIT FEE
 APPLICABLE                APPLICABLE BASE         COMMITMENT FEE       APPLICABLE EURODOLLAR
PRICING LEVEL                RATE SPREAD                RATE                 RATE SPREAD
-------------                -----------                ----                 -----------
<S>                        <C>                     <C>                  <C>
      I                         0.000%                 0.200%                   1.050%
      II                        0.000%                 0.200%                   1.100%
     III                        0.000%                 0.250%                   1.300%
      IV                        0.000%                 0.250%                   1.500%
      V                         0.000%                 0.275%                   1.750%
      VI                        0.000%                 0.300%                   2.000%
</TABLE>

         "Assignment and Assumption" means an assignment and assumption
         substantially in the form of Exhibit A.

         "Associate" shall have the meaning ascribed to such term in Rule 12b-2
         of the General Rules and Regulations under the Exchange Act, as in
         effect on the date hereof.

                                       -3-

<PAGE>

         "Attorney Costs" means and includes all reasonable fees, expenses and
         disbursements of any law firm or other external counsel.

         "Authorizations" has the meaning set forth for that term in Section
         4.1.

         "Average Daily Usage" means, for any period, the quotient of (a) the
         sum of (i) the sum of the principal balance of the Loans for each day
         of such period plus (ii) the sum of the Letter of Credit Usage for each
         day of such period divided by (b) the number of days in such period.

         "Bank" means each financial institution whose name is set forth in the
         signature pages of this Agreement and each lender which may hereafter
         become a party to this Agreement pursuant to Section 11.8.

         "Bank of America" means Bank of America, N.A. and its successors.

         "Base Rate" means for any day a fluctuating rate per annum equal to the
         higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of
         interest in effect for such day as publicly announced from time to time
         by Bank of America as its "prime rate." The "prime rate" is a rate set
         by Bank of America based upon various factors including Bank of
         America's costs and desired return, general economic conditions and
         other factors, and is used as a reference point for pricing some loans,
         which may be priced at, above, or below such announced rate. Any change
         in such rate announced by Bank of America shall take effect at the
         opening of business on the day specified in the public announcement of
         such change.

         "Base Rate Advance" means an Advance made by a Bank to fund its Pro
         Rata Share of a Base Rate Loan.

         "Base Rate Loan" means a Loan that bears interest based on the Base
         Rate.

         "Borrower" means KB Home, a Delaware corporation, and its successors
         and permitted assigns.

         "Borrowing Base" has the meaning set forth in Section 2.8(b).

         "Borrowing Base Certificate" means a written calculation of the
         Borrowing Base, substantially in the form of Exhibit B signed, on
         behalf of Borrower by a Senior Officer of Borrower.

         "Borrowing Base Subsidiary" means (a) any Guarantor Subsidiary and (b)
         any direct or indirect wholly-owned Domestic Subsidiary of Borrower or
         any Guarantor Subsidiary.

         "Business Day" means any day other than a Saturday, Sunday or other day
         on which commercial banks are authorized to close under the Laws of, or
         are in fact closed in, the state where the Administrative Agent's
         Office is located and, if such day relates to any Eurodollar Rate Loan,
         means any such day on which dealings in Dollar deposits are conducted
         by and between banks in the London interbank eurodollar market.

         "Capital Lease" means, with respect to any Person, a lease of any
         Property by that Person as lessee that is, or should be in accordance
         with Financial Accounting Standards Board Statement No. 13, recorded as
         a "capital lease" on a balance sheet of that Person prepared in
         accordance with Generally Accepted Accounting Principles consistently
         applied.

                                       -4-

<PAGE>

         "Cash" means all monetary items (including currency, coin and bank
         demand deposits) that are treated as cash under Generally Accepted
         Accounting Principles consistently applied.

         "Cash Collateralize" has the meaning set forth in Section 2.5(g).

         "Cash Equivalents" means, with respect to any Person, that Person's
         Investments in:

         (a)      Government Securities due within one year of the making of the
                  Investment;

         (b)      readily marketable direct obligations of any State of the
                  United States of America or any political subdivision of any
                  such State or any public agency or instrumentality thereof
                  given on the date of such Investment a credit rating of at
                  least Aa3 by Moody's or AA- by S&P, in each case due within
                  one year from the making of the Investment;

         (c)      certificates of deposit issued by, deposits in, deposits in
                  the London interbank eurodollar market made through, bankers'
                  acceptances of, and repurchase agreements covering Government
                  Securities executed by, (i) any Bank or (ii) any bank or
                  savings and loan association doing business in and
                  incorporated under the Laws of the United States of America,
                  any state thereof or the District of Columbia and having on
                  the date of such Investment combined capital, surplus and
                  undivided profits of at least $500,000,000 and which carries
                  on the date of such Investment a credit rating of P-1 or
                  higher by Moody's or A-1 or higher by S&P, in each case due
                  within one year after the date of the making of the
                  Investment;

         (d)      certificates of deposit issued by, bank deposits in, deposits
                  in the London interbank eurodollar market made through,
                  bankers' acceptances of, and repurchase agreements covering
                  Government Securities executed by any branch or office located
                  in the United States of America of a bank incorporated under
                  the Laws of any jurisdiction outside the United States of
                  America having on the date of such Investment combined
                  capital, surplus and undivided profits of at least
                  $500,000,000 and which carries on the date of such Investment
                  a credit rating of P-1 or higher by Moody's or A-1 or higher
                  by S&P, in each case due within one year after the date of the
                  making of the Investment;

         (e)      readily marketable commercial paper or other debt securities
                  of (i) any Bank that is a Bank as of the Closing Date, (ii)
                  corporations, commercial banks or financial institutions doing
                  business in and incorporated under the Laws of the United
                  States of America or any state thereof or the District of
                  Columbia or (iii) a holding company for a bank described in
                  clause (c) or (d) above, given on the date of such Investment
                  a credit rating of P-1 or higher by Moody's, of A-1 or higher
                  by S&P, or F-1 or higher by Fitch, in each case due within one
                  year of the making of the Investment;

         (f)      repurchase agreements covering Government Securities executed
                  by a broker or dealer registered under Section 15(b) of the
                  Exchange Act, having on the date of the Investment capital of
                  at least $50,000,000, due within 90 days after the date of the
                  making of the Investment; provided, that the maker of the
                  Investment receives written confirmation of the transfer to it
                  of record ownership of the Government Securities on the books
                  of a "primary dealer" in such government Securities or on the
                  books of such registered broker or dealer, as soon as
                  practicable after the making of the Investment;

         (g)      "money market preferred stock" issued by a corporation
                  incorporated under the Laws of the United States of America or
                  any State thereof (i) given on the date of such Investment

                                       -5-

<PAGE>

                  a credit rating of at least Aa3 by Moody's and AA- by S&P, in
                  each case having an investment period not exceeding 50 days or
                  (ii) to the extent that investors therein have the benefit of
                  a standby letter of credit issued by a Bank or a bank
                  described in clauses (c) or (d) above; provided, that (y) the
                  amount of all such Investments issued by the same issuer does
                  not exceed $10,000,000 and (z) the aggregate amount of all
                  such Investments does not exceed $25,000,000;

         (h)      a readily redeemable" money market mutual fund" sponsored by a
                  bank described in clause (c) or (d) hereof, or a registered
                  broker or dealer described in clause (f) hereof, that has and
                  maintains an investment policy limiting its investments
                  primarily to instruments of the types described in clauses (a)
                  through (g) hereof and given on the date of such Investment a
                  credit rating of at least Aa3 by Moody's and AA- by S&P; and

         (i)      corporate notes or bonds having an original term to maturity
                  of not more than one year issued by a corporation incorporated
                  under the Laws of the United States of America or any state
                  thereof, or a participation interest therein; provided, that
                  (i) commercial paper issued by such corporation is given on
                  the date of such Investment a credit rating of at least Aa3 by
                  Moody's and AA- by S&P, (ii) the amount of all such
                  Investments issued by the same issuer does not exceed
                  $10,000,000 and (iii) the aggregate amount of all such
                  Investments does not exceed $25,000,000.

         "Change in Control" means, and shall be deemed to have occurred at such
         time as any of the following events shall occur:

         (a)      there shall be consummated any consolidation or merger of
                  Borrower in which Borrower is not the continuing or surviving
                  corporation or pursuant to which the Voting Stock would be
                  converted into Cash, securities or other property, other than
                  a merger or consolidation of Borrower where the Borrower is
                  not the continuing or surviving corporation and in which the
                  holders of Voting Stock immediately prior to the merger have
                  75% ownership, directly or indirectly, of the Voting Stock of
                  the surviving corporation immediately after such merger or
                  consolidation; or

         (b)      there is a report filed by any person, including its
                  Affiliates and Associates, on Schedule 13D or 14D-1 (or any
                  successor schedule, form or report) pursuant to the Exchange
                  Act, disclosing that such person (for the purposes of the
                  definition of Change in Control only, the term "person" is
                  used as defined in Section 13(d)(3) or Section 14(d)(2) of the
                  Exchange Act or any successor provision to either of the
                  foregoing) has become the beneficial owner (as the term
                  "beneficial owner" is defined under Rule 13d-3 or any
                  successor rule or regulation promulgated under the Exchange
                  Act) of 50% or more of the voting power of Borrower's Voting
                  Stock then outstanding; provided, however, that a person shall
                  not be deemed beneficial owner of, or to own beneficially (1)
                  any Securities tendered pursuant to a tender or exchange offer
                  made by or on behalf of such person or any of such person's
                  Affiliates or Associates until such tendered Securities are
                  accepted for purchase or exchange thereunder, or (2) any
                  Securities if such beneficial ownership (a) arises solely as a
                  result of a revocable proxy delivered in response to a proxy
                  or consent solicitation made pursuant to, and in accordance
                  with, the applicable rules and regulations under the Exchange
                  Act, and (b) is not also then reportable on Schedule 13D (or
                  any successor schedule) under the Exchange Act; or

                                       -6-

<PAGE>

         (c)      a "Change in Control" (or analogous term) as defined in one or
                  more indentures or agreements governing any Subordinated
                  Obligations occur and $25,000,000 of Subordinated Obligations
                  thereupon become due and payable by Borrower or its
                  Subsidiaries.

         Notwithstanding the foregoing, a Change in Control shall not be deemed
         to have occurred if at any time Borrower, any Subsidiary of Borrower,
         any employee stock ownership plan or any other employee benefit plan,
         including any Pension Plan of Borrower or any Subsidiary of Borrower,
         or any person holding Voting Stock for or pursuant to the terms of such
         employee benefit plan, files or becomes obligated to file a report
         under or in response to Schedule 13D or Schedule 14D-1 (or any
         successor schedule, form or report) under the Exchange Act disclosing
         beneficial ownership by it of shares of Voting Stock, whether in excess
         of 50% or otherwise.

         "Closing Date" means the date of this Agreement.

         "Code" means the Internal Revenue Code of 1986, as amended or replaced
         and as in effect from time to time.

         "Commission" means the Securities and Exchange Commission and any
         successor commission.

         "Commitment" means, subject to Sections 2.6, $1,000,000,000. The Pro
         Rata Shares of the Banks with respect to the Commitment are set forth
         in Schedule 1.1.

         "Compensation Period" has the meaning set forth for that term in
         Section 3.14.

         "Compliance Certificate" means a compliance certificate in the form of
         Exhibit C signed, on behalf of Borrower, by a Senior Officer of
         Borrower.

         "Consolidated Adjusted EBITDA" means, for any period, Consolidated
         EBITDA for such period plus (a) the amount of capitalized interest that
         was included in cost of sales in determining Consolidated Net Income
         for such period plus (b) all non-Cash Net Realizable Value Adjustments
         made during such period.

         "Consolidated EBITDA" means, for any period, the sum of (a)
         Consolidated Net Income for such period, plus (b) any extraordinary
         loss reflected in such Consolidated Net Income, minus (c) any
         extraordinary gain reflected in such Consolidated Net Income, plus (d)
         Consolidated Interest Expense for such period plus (e) the aggregate
         amount of federal, state and foreign income taxes for such period, plus
         (f) depreciation, amortization and all other non-cash expenses for such
         period, in each case as determined in accordance with Generally
         Accepted Accounting Principles consistently applied, and in the case of
         items (d), (e) and (f), only to the extent deducted in the
         determination of Consolidated Net Income for such period.

         "Consolidated FIN 46 Subsidiaries" means entities that would not be
         Consolidated Subsidiaries but for the issuance of the pronouncement
         entitled Financial Interpretation Number 46 ("FIN 46") "Consolidation
         of Variable Interest Entities" by the Financial Accounting Standards
         Board on January 17, 2003.

         "Consolidated Interest Coverage Ratio" means, as of any date of
         determination, the ratio of (a) Consolidated Adjusted EBITDA for the 12
         month period ending on such date to (b) the sum of (i) Consolidated
         Interest Expense for the 12 month period ending on such date plus (ii)
         all

                                       -7-

<PAGE>

         dividends (other than dividends paid in the same class of stock) paid
         on any preferred stock of Borrower during the 12 month period ending on
         such date.

         "Consolidated Interest Expense" means, for any period, the aggregate
         amount of interest, fees, charges and related expenses paid or payable
         to a lender by Borrower and its Consolidated Subsidiaries on a
         consolidated basis in connection with borrowed money (including any
         capitalized interest and accretion of original issue discount on
         long-term debt) and the interest portion of any capitalized lease
         payments.

         "Consolidated Leverage Ratio" means, as of any date of determination,
         the ratio of (a) Consolidated Total Indebtedness on that date to (b)
         Consolidated Tangible Net Worth on that date.

         "Consolidated Net Income" means, for any period, the net income of
         Borrower and its Consolidated Subsidiaries on a consolidated basis
         determined in accordance with Generally Accepted Accounting Principles
         consistently applied.

         "Consolidated Subsidiaries" means, with respect to Borrower, all
         entities whose financial statements are consolidated with the
         consolidated financial statements of Borrower under Generally Accepted
         Accounting Principles; provided, however, that the term "Consolidated
         Subsidiaries" excludes Consolidated FIN 46 Subsidiaries for the purpose
         of determining the Applicable Pricing Level and compliance with
         Sections 4.5, 4.6, 4.7, 4.14, 6.9, 6.10, 6.11, 6.15 and 6.16.

         "Consolidated Tangible Net Worth" means, as of any date of
         determination, the Shareholders' Equity of Borrower and its
         Consolidated Subsidiaries on a consolidated basis on that date minus
         the Intangible Assets of Borrower and its Consolidated Subsidiaries on
         a consolidated basis on that date minus any non-cash gain (or plus any
         non-cash loss, as applicable) resulting from any marked to market
         adjustments made directly to Consolidated Tangible Net Worth as a
         result of fluctuations in the value of foreign currency instruments
         owned by Borrower or any of its Consolidated Subsidiaries as mandated
         under FAS 133.

         "Consolidated Total Indebtedness" means, as of any date of
         determination, all Indebtedness and Contingent Guaranty Obligations of
         Borrower and its Consolidated Subsidiaries on a consolidated basis on
         that date (without duplication for any guaranty by Borrower of a
         Consolidated Subsidiary's Indebtedness or any guaranty by a
         Consolidated Subsidiary of either Borrower's or another Consolidated
         Subsidiary's Indebtedness or otherwise) minus (a) all Indebtedness and
         Contingent Guaranty Obligations of Financial Subsidiaries on a
         consolidated basis (but only to the extent that such Financial
         Subsidiaries are also Consolidated Subsidiaries and there is no
         recourse to Borrower or any other Consolidated Subsidiary) on that date
         minus (b) the amount, if any, by which the aggregate Cash and Cash
         Equivalents of Borrower and its Consolidated Subsidiaries (other than
         the Financial Subsidiaries) on a consolidated basis on that date are in
         excess of $15,000,000 (but not to exceed $300,000,000).

         "Construction Costs" means, as of any date of determination, all costs
         actually incurred by Borrower or any Borrowing Base Subsidiary with
         respect to the construction of Units on Developed Lots, including land
         basis.

         "Contingent Guaranty Obligation" means, as to any Person, any (a)
         direct or indirect guarantee of Indebtedness of, or other obligation
         performable by, any other Person (other than a performance obligation
         undertaken in the ordinary and usual course of business or obligations
         with respect to

                                       -8-

<PAGE>

         letters of credit), including any endorsement (other than for
         collection or deposit in the ordinary course of business), co-making or
         sale with recourse of the obligations of any other Person or (b)
         assurance given to an obligee with respect to the performance of an
         obligation (other than a performance obligation undertaken in the
         ordinary and usual course of business) by, or the financial condition
         of, any other Person, whether direct, indirect or contingent, including
         any purchase or repurchase agreement covering such obligation or any
         collateral security therefor, any agreement to provide funds (by means
         of loans, capital contributions or otherwise) to such other Person, any
         agreement to support the solvency or level of any balance sheet item of
         such other Person, any "keep-well", "take-or-pay", "through put" or
         other arrangement of whatever nature having the effect of assuring or
         holding harmless any obligee against loss with respect to any
         obligation of such other Person, or the LTV Maintenance Exposure
         resulting from any LTV Maintenance Agreement. The amount of any
         Contingent Guaranty Obligation shall be deemed to be an amount equal to
         the stated or determinable amount of the related primary obligation
         (unless the Contingent Guaranty Obligation is limited by its terms to a
         lesser amount, in which case to the extent of such amount) or, if not
         stated or determinable, the maximum reasonably anticipated liability in
         respect thereof as determined by the Person in good faith.

         "Contractual Obligation" means, as to any Person, any provision of any
         outstanding Securities issued by that Person or of any material
         agreement, instrument or undertaking to which that Person is a party or
         by which it or any of its Property is bound, other than, in the case of
         Borrower and its Subsidiaries, any of the Loan Documents.

         "Debtor Relief Laws" means the Bankruptcy Code of the United States of
         America, as amended from time to time, and all other applicable
         liquidation, conservatorship, insolvency, reorganization, or similar
         debtor relief Laws from time to time in effect affecting the rights of
         creditors generally.

         "Default" means any event that, with the giving of any notice or
         passage of time, or both, would be an Event of Default.

         "Default Rate" has the meaning set forth for that term in Section 3.7.

         "Defaulting Bank" has the meaning set forth for that term in Section
         10.13.

         "Designated Deposit Account" means a demand deposit account to be
         maintained by Borrower with Bank of America, as from time to time
         designated by Borrower by written notification to the Administrative
         Agent.

         "Developed Lots" means, as of any date of determination, subdivision
         lots located in the United States that are wholly-owned by Borrower or
         its Borrowing Base Subsidiaries, unencumbered by any Lien or Liens
         (other than Permitted Encumbrances), and that are subject to a recorded
         plat or subdivision map, in substantial compliance with all applicable
         Laws and available for the construction thereon of foundations for
         Units.

         "Distribution" means, with respect to any shares of capital stock or
         any warrant or right to acquire shares of capital stock or any other
         equity security issued by a Person, (a) the retirement, redemption,
         purchase, or other acquisition for value (other than for capital stock
         of the same type of such Person) by such Person of any such security,
         (b) the declaration or payment by such Person of any dividend in Cash
         or in Property (other than in capital stock of the same type of such
         Person) on or with respect to any such security, and (c) any Investment
         by such Person in any holder of 5% or more of the capital stock (or
         other equity securities) of such Person, if a purpose

                                       -9-

<PAGE>

         of such Investment is to avoid the characterization of the transaction
         between such Person and such holder as a Distribution under clause (a)
         or (b) above. In addition, to the extent any loan or advance by
         Borrower to one of its Subsidiaries is deemed to be an "Investment" for
         purposes of this Agreement, then any principal payment made by such
         Subsidiary in respect of such loan or advance shall be considered a
         Distribution for purposes of Section 6.12.

         "Dollars" means the national currency of the United States of America.

         "Domestic Lending Office" means, with respect to each Bank, its office,
         branch or affiliate identified on the signature pages hereof as its
         Domestic Lending Office or such other office, branch or affiliate as
         such Bank may hereafter designate as its Domestic Lending Office by
         notice to the Borrower and the Administrative Agent.

         "Domestic Subsidiary" means, with respect to any Person and as of any
         date of determination, a Subsidiary of such Person (a) that is
         organized under the Laws of the United States of America or any state
         thereof and (b) the majority of the assets of which (as reflected on a
         balance sheet of such Subsidiary prepared in accordance with Generally
         Accepted Accounting Principles consistently applied) is located in the
         United States of America; provided that Kaufman and Broad
         International, Inc., a California corporation, shall in no event be
         considered a Domestic Subsidiary of Borrower.

         "Domestic Unimproved Land" means, as of any date of determination, real
         Property located in the United States of America that is: (a) owned by
         Borrower or any of its Subsidiaries if on that date there has been
         expended by Borrower or any of its Subsidiaries less than 50% of the
         costs reasonably estimated by Borrower (in accordance with its past
         practices as of the Closing Date) to develop such real Property into
         Developed Lots; or (b) owned by Persons other than Borrower or any of
         its Subsidiaries but which, if owned by Borrower or any of its
         Subsidiaries on that date, would have satisfied the requirement set
         forth in clause (a) and if on that date Borrower or any of its
         Subsidiaries holds an option to purchase such real Property for which
         it has paid an amount equal to 33% or more of the purchase price
         provided for in such option to purchase, provided, that in the event an
         option to purchase land covers more than one parcel, phase or lot, any
         deposit paid by Borrower or any of its Subsidiaries shall be allocated
         to each parcel, phase or lot pro rata in accordance with the purchase
         price of the parcels, phases or lots. The "book value" with respect to
         Domestic Unimproved Land referred to in Section 6.15 shall be
         calculated as if the option to purchase had been exercised as of the
         date of determination, and otherwise in accordance with Generally
         Accepted Accounting Principles, consistently applied.

         "Eligible Assignee" means (a) another Bank, (b) any commercial bank,
         savings bank, savings and loan association or similar financial
         institution which, (i) has total assets of $5,000,000,000 or more, (ii)
         is "well capitalized" within the meaning of such term under the Federal
         Depository Institutions Control Act, (iii) is engaged in the business
         of lending money and extending credit under credit facilities
         substantially similar to those extended under this Agreement and (iv)
         is operationally and procedurally able to meet the obligations of a
         Bank hereunder to the same degree as a commercial bank, (c) any
         insurance company engaged in the business of writing insurance which
         (i) has total assets of $5,000,000,000 or more, (ii) is "best
         capitalized" under applicable regulations of the National Association
         of Insurance Commissioners, and (iii) meets the requirements set forth
         in subclauses (iii) and (iv) of clause (b) above and (d) any other
         financial institution having total assets of $5,000,000,000 or more
         (including a mutual fund or other fund under management of an
         investment manager having under its management total assets of
         $5,000,000,000 or more) which meets the requirements set forth in
         subclauses (iii) and (iv) of clause (b) above; provided that each
         Eligible Assignee must (A) be organized under the

                                      -10-

<PAGE>

         Laws of the United States of America, any state thereof or the District
         of Columbia or (B) if a commercial bank, be organized under the Laws
         set forth in clause (A) or under the Laws of the Cayman Islands or any
         country which is a member of the Organization for Economic Cooperation
         and Development, or a political subdivision of such a country, and (C)
         act under the Loan Documents through a branch, agency or funding office
         located in the United States of America and (D) be exempt from
         withholding of tax on interest and deliver the documents related
         thereto pursuant to the Code.

         "ERISA" means, at any date, the Employee Retirement Income Security Act
         of 1974 and the regulations thereunder, all as the same shall be in
         effect at such date.

         "ERISA Affiliate" means, with respect to any Person, any other Person
         (or any trade or business, whether or not incorporated) that is under
         common control with that Person within the meaning of Section 414 of
         the Code.

         "ERISA Event" means: (a) a Reportable Event with respect to a Pension
         Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a
         Pension Plan subject to Section 4063 of ERISA during a plan year in
         which it was a substantial employer (as defined in Section 4001(a)(2)
         of ERISA) or a cessation of operations that is treated as such a
         withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
         withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer
         Plan or notification that a Multiemployer Plan is in reorganization;
         (d) the filing of a notice of intent to terminate, the treatment of a
         Plan amendment as a termination under Sections 4041 or 4041A of ERISA,
         or the commencement of proceedings by the PBGC to terminate a Pension
         Plan or Multiemployer Plan; (e) an event or condition which constitutes
         grounds under Section 4042 of ERISA for the termination of, or the
         appointment of a trustee to administer, any Pension Plan or
         Multiemployer Plan; or (f) the imposition of any liability under Title
         IV of ERISA, other than for PBGC premiums due but not delinquent under
         Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

         "Escrow Receivables" means, as of any date of determination, the
         amounts due to Borrower or any Borrowing Base Subsidiary and held at an
         escrow or title company following the sale and conveyance of title of a
         Model Home or Unit to a buyer (including an escrow or title company
         that is a Subsidiary of the Borrower) to the extent that such amounts
         are free and clear of all Liens and Rights of Others and are not
         subject to any restriction pursuant to any Contractual Obligations.

         "Eurodollar Advance" means an Advance made by a Bank to fund its Pro
         Rata Share of a Eurodollar Rate Loan.

         "Eurodollar Base Rate" has the meaning set forth in the definition of
         Eurodollar Rate.

         "Eurodollar Lending Office" means, with respect to each Bank, its
         office, branch or affiliate so designated by written notice to the
         Administrative Agent as its Eurodollar Lending Office. If no Eurodollar
         Lending Office is designated by a Bank, its Eurodollar Lending Office
         shall be its office at its address for purposes of notices hereunder.

         "Eurodollar Rate" means for any Interest Period with respect to any
         Eurodollar Rate Loan, a rate per annum determined by the Administrative
         Agent pursuant to the following formula:

                                        Eurodollar Base Rate
               Eurodollar Rate =   ------------------------------------
                                   1.00 - Eurodollar Reserve Percentage

                                      -11-

<PAGE>

         Where, "Eurodollar Base Rate" means, for such Interest Period:

                  (a)      the rate per annum equal to the rate determined by
                           the Administrative Agent to be the offered rate that
                           appears on the page of the Telerate screen (or any
                           successor thereto) that displays an average British
                           Bankers Association Interest Settlement Rate for
                           deposits in Dollars (for delivery on the first day of
                           such Interest Period) with a term equivalent to such
                           Interest Period, determined as of approximately 11:00
                           a.m. (London time) 2 Business Days prior to the first
                           day of such Interest Period, or

                  (b)      if the rate referenced in the preceding clause (a)
                           does not appear on such page or service or such page
                           or service shall not be available, the rate per annum
                           equal to the rate determined by the Administrative
                           Agent to be the offered rate on such other page or
                           other service that displays an average British
                           Bankers Association Interest Settlement Rate for
                           deposits in Dollars (for delivery on the first day of
                           such Interest Period) with a term equivalent to such
                           Interest Period, determined as of approximately 11:00
                           a.m. (London time) 2 Business Days prior to the first
                           day of such Interest Period, or

                  (c)      if the rates referenced in the preceding clauses (a)
                           and (b) are not available, the rate per annum
                           determined by the Administrative Agent as the rate of
                           interest at which deposits in Dollars for delivery on
                           the first day of such Interest Period in same day
                           funds in the approximate amount of the Eurodollar
                           Rate Loan being made, continued or converted by Bank
                           of America and with a term equivalent to such
                           Interest Period would be offered by Bank of America's
                           London Branch to major banks in the London interbank
                           eurodollar market at their request at approximately
                           4:00 p.m. (London time) 2 Business Days prior to the
                           first day of such Interest Period.

         "Eurodollar Rate Loan" means a Loan that bears interest at a rate based
         on the Eurodollar Rate.

         "Eurodollar Reserve Percentage" means, for any day during any Interest
         Period, the reserve percentage (expressed as a decimal, carried out to
         5 decimal places) in effect on such day, whether or not applicable to
         any Bank, under regulations issued from time to time by the FRB for
         determining the maximum reserve requirement (including any emergency,
         supplemental or other marginal reserve requirement) with respect to
         Eurocurrency funding (currently referred to as "Eurocurrency
         liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate
         Loan shall be adjusted automatically as of the effective date of any
         change in the Eurodollar Reserve Percentage.

         "Event of Default" has the meaning provided in Section 9.1.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "Existing Letters of Credit" has the meaning set forth in Section 3.17.

         "Exposure" means for any Bank, as of any date of determination, the
         product obtained by multiplying that Bank's then effective Pro Rata
         Share by the then effective Commitment.

                                      -12-

<PAGE>

         "Federal Funds Rate" means, for any day, the rate per annum equal to
         the weighted average of the rates on overnight Federal funds
         transactions with members of the Federal Reserve System arranged by
         Federal funds brokers on such day, as published by the Federal Reserve
         Bank on the Business Day next succeeding such day; provided that (a) if
         such day is not a Business Day, the Federal Funds Rate for such day
         shall be such rate on such transactions on the next preceding Business
         Day as so published on the next succeeding Business Day, and (b) if no
         such rate is so published on such next succeeding Business Day, the
         Federal Funds Rate for such day shall be the average rate (rounded
         upward, if necessary, to a whole multiple of 1/100 of 1%) charged to
         Bank of America on such day on such transactions as determined by the
         Administrative Agent.

         "Financial Letter of Credit" means any letter of credit issued by an
         issuer for the account of the Borrower or a Subsidiary that represents
         an irrevocable obligation on the part of the issuer:

         (a)      to repay money borrowed by or advanced to the Borrower or a
                  Subsidiary; or

         (b)      to make payment on account of any indebtedness undertaken by
                  the Borrower or a Subsidiary, in the event that the Borrower
                  or Subsidiary fails to fulfill its financial obligations to
                  the beneficiary.

         "Financial Subsidiary" means (a) the Mortgage Company and its
         Subsidiaries, so long as such entities continue to engage in the
         mortgage banking business, (b) any Subsidiary of Borrower that is
         organized and operates solely to issue (i) collateralized mortgage
         obligations or (ii) other similar asset-backed obligations, and (c) any
         other Subsidiary of Borrower that (i) is engaged primarily in the
         business of origination, marketing, and servicing of residential
         mortgage loans, the sale of servicing rights, or the financing of long
         term residential mortgage loans, (ii) holds not less than 95% of its
         total assets in the form of Cash, Cash Equivalents, notes and mortgages
         receivable, Cash held by a trustee for the benefit of such Subsidiary
         or other financial instruments and (iii) is the subject of an Officer's
         Certificate of Borrower delivered to the Administrative Agent stating
         that such Subsidiary is a Financial Subsidiary within the meaning
         hereof. As of the Closing Date, the Financial Subsidiaries are
         International Mortgage Acceptance Corporation, KBASW Mortgage
         Acceptance Corporation, KBI/Mortgage Acceptance Corporation, KBRAC IV
         Mortgage Acceptance Corporation, KB Home Mortgage Company, rateOne Home
         Loans, LLC, Rate One Associates, Inc., Rate One Holdings, Inc.,
         Westview Company, KB Home Title Services Inc., KB Home Insurance Agency
         Inc., KB Home Insurance Agency of Texas Holdings Inc., Homesafe Company
         and San Antonio Title Co.

         "Fiscal Quarter" means each of the fiscal quarters of Borrower ending
         on each February 28 (or 29, if a leap year), May 31, August 31 and
         November 30, or as otherwise changed by the Borrower upon advance
         written notice to the Administrative Agent, but subject to the
         requirements of Section 1.2.

         "Fiscal Year" means each of the fiscal years of Borrower ending on each
         November 30 or as otherwise changed by the Borrower upon advance
         written notice to the Administrative Agent, but subject to the
         requirements of Section 1.2.

         "Fitch" means Fitch IBCA, Duff & Phelps, a division of Fitch, Inc., or
         any successor thereto.

         "Foreign Subsidiary" means, with respect to any Person, a Subsidiary of
         that Person which is not a Domestic Subsidiary and with respect to
         Borrower, includes Kaufman and Broad International, Inc., a California
         corporation.

                                      -13-

<PAGE>

         "GAAP Value" means, with respect to any property or asset, the book
         value for such property or asset determined in accordance with
         Generally Accepted Accounting Principles consistently applied.

         "Generally Accepted Accounting Principles" means, as of any date of
         determination, accounting principles set forth as "generally accepted"
         in then currently effective statements of the Auditing Standards Board
         of the American Institute of Certified Public Accountants, or, if such
         statements are not then in effect, accounting principles that are then
         approved by a significant segment of the accounting profession in the
         United States of America. The term "consistently applied," as used in
         connection therewith, means that the accounting principles applied to
         financial statements of a Person as of any date or for any period are
         consistent in all material respects (subject to Section 1.2) to those
         applied to financial statements of that Person as of recent prior dates
         and for recent prior periods.

         "Government Securities" means (a) readily marketable direct full faith
         and credit obligations of the United States of America or obligations
         unconditionally guaranteed by the full faith and credit of the United
         States of America and (b) obligations of an agency or instrumentality
         of, or corporation owned, controlled or sponsored by, the United States
         of America that are generally considered in the securities industry to
         be implicit obligations of the United States of America.

         "Governmental Agency" means (a) any federal, state, county or municipal
         government, or political subdivision thereof, (b) any governmental or
         quasi-governmental agency, authority, board, bureau, commission,
         department, instrumentality, or public body, (c) any court or
         administrative tribunal, or (d) any arbitration tribunal or other
         non-governmental authority to whose jurisdiction a Person has
         consented, in each case whether of the United States of America or any
         other nation.

         "Guarantor Subsidiary" means (a) any Domestic Subsidiary which is a
         Significant Subsidiary, other than any Financial Subsidiary and (b) any
         other Domestic Subsidiary, other than any Financial Subsidiary, that is
         designated in writing by Borrower as a Guarantor Subsidiary.

         "Hazardous Materials" means substances defined as "hazardous
         substances" pursuant to the Comprehensive Environmental Response,
         Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq.,
         or as "hazardous", "toxic" or "pollutant" substances or as "solid
         waste" pursuant to the Hazardous Materials Transportation Act, 49
         U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
         Act, 42 U.S.C. Section 6901, et seq., or as "friable asbestos" pursuant
         to the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. or
         any other applicable Hazardous Materials Law, in each case as such Laws
         are amended from time to time.

         "Hazardous Materials Laws" means all Laws governing the treatment,
         transportation or disposal of Hazardous Materials applicable to any
         real Property of Borrower or its Subsidiaries.

         "Indebtedness" means, with respect to any Person, (a) all indebtedness
         of such Person for borrowed money, (b) that portion of the obligations
         of such Person under Capital Leases which should properly be recorded
         as a liability on a balance sheet of that Person prepared in accordance
         with Generally Accepted Accounting Principles consistently applied, (c)
         any obligation of such Person that is evidenced by a promissory note or
         other instrument representing an extension of credit to such Person,
         whether or not for borrowed money, (d) any obligation of such Person
         for the deferred purchase price of Property or services (other than
         trade or other accounts payable in the ordinary course of business in
         accordance with customary industry terms), (e) any obligation of the
         types referred to in clauses (a) through (d) above that is secured by a
         Lien (other than a

                                      -14-

<PAGE>

         Permitted Encumbrance) on assets of such Person, whether or not that
         Person has assumed such obligation or whether or not such obligation is
         non-recourse to the credit of such Person, but only to the extent of
         the fair market value of the assets so subject to the Lien if such
         obligation is non-recourse, (f) obligations of such Person arising
         under acceptance facilities or under facilities for the discount of
         accounts receivable of such Person and (g) any obligation of such
         Person under Financial Letters of Credit issued for the account of such
         Person.

         "Indemnified Liabilities" has the meaning set forth in Section 11.10.

         "Indemnitees" has the meaning set forth in Section 11.10.

         "Intangible Assets" means assets that are considered intangible assets
         under Generally Accepted Accounting Principles consistently applied,
         including (a) customer lists, goodwill, computer software, unamortized
         deferred charges, unamortized debt discount, capitalized research and
         development costs and other intangible assets and (b) any write-up in
         book value of any asset subsequent to its acquisition, but excluding
         any existing write-up in book value of any asset acquired by Borrower
         or any of its Subsidiaries prior to October 3, 2000, as such write-up
         may decrease (but not increase) from time to time.

         "Interest Period" means, as to each Eurodollar Rate Loan, a period of
         1, 2, 3 or 6 months or, subject to the consent of the Administrative
         Agent, in its reasonable discretion, a period of 1, 2 or 3 weeks, as
         designated by Borrower; provided that (a) the first day of each
         Interest Period must be a Business Day, (b) any Interest Period that
         would otherwise end on a day that is not a Business Day shall be
         extended to the next succeeding Business Day, unless such Business Day
         falls in the next calendar month, in which case the Interest Period
         shall end on the next preceding Business Day, and (c) no Interest
         Period may extend beyond the Maturity Date.

         "Investment" means, with respect to any Person, any investment by that
         Person, whether by means of purchase or other acquisition of capital
         stock or other Securities of any other Person or by means of loan,
         advance, capital contribution, or other debt or equity participation or
         interest in any other Person, including any partnership or joint
         venture interest in any other Person; provided that an Investment of a
         Person shall not include any trade or account receivable arising in the
         ordinary course of the business of such Person, whether or not
         evidenced by a note or other writing. The amount of any Investment
         shall be the amount actually invested, less any return of capital,
         without adjustment for subsequent increases or decreases in the market
         value of such Investment.

         "Investment Grade Credit Rating" means, as of any date of
         determination, that at least 2 Rating Agencies have as of that date
         issued credit ratings for Borrower's long-term senior unsecured debt of
         (a) at least BBB- in the case of S&P, (b) at least Baa3 in the case of
         Moody's and (c) at least BBB- in the case of Fitch.

         "IRS" means the United States Internal Revenue Service.

         "ISP98" has the meaning set forth in Section 2.5(h).

         "Issuing Bank" means:

         (a)      Bank of America or other Bank which is an issuer with respect
                  to the Existing Letters of Credit; or

                                      -15-

<PAGE>

         (b)      Bank of America or any Bank in its capacity as issuer in
                  Letters of Credit hereunder.

         "Joint Venture" means any Person, other than a Subsidiary, (a) in which
         Borrower or any Subsidiary of Borrower holds an equity Investment which
         entitles Borrower or such Subsidiary to more than 10% of (i) the
         ordinary voting power for the election of the board of directors or
         other governing body of such Person or (ii) the partnership, membership
         or other ownership interest in such Person, and (b) which has at least
         one holder of its equity interests that is not an Affiliate of Borrower
         or any Subsidiary of Borrower. Notwithstanding the foregoing, for the
         purposes of Section 6.16, the term "Joint Venture" will not include any
         equity Investment in any Person if the dollar amount of that investment
         is less than $1,000,000, computed in accordance with Generally Accepted
         Accounting Principles consistently applied, but only to the extent that
         the aggregate dollar amount of such equity Investments is less than
         $25,000,000.

         "L/C Advance" means, with respect to each Bank, such Bank's funding of
         its participation in any L/C Borrowing in accordance with its Pro Rata
         Share.

         "L/C Borrowing" means an extension of credit resulting from a drawing
         under a Letter of Credit which has not been reimbursed on the date
         required or refinanced as a Loan.

         "Land Parcels" means parcels of land located in the United States
         wholly-owned by Borrower or any Borrowing Base Subsidiary that are
         unencumbered by any Lien or Liens (other than Permitted Encumbrances).

         "Laws" means, collectively, all foreign, federal, state and local
         statutes, treaties, codes, ordinances, rules, regulations and
         controlling precedents of any Governmental Agency.

         "Letter of Credit" means any of the standby letters of credit issued by
         an Issuing Bank under the Commitment pursuant to Section 2.5, either as
         originally issued or as the same may be supplemented, modified,
         amended, renewed, extended or supplanted. A Letter of Credit shall be a
         Financial Letter of Credit or a Performance Letter of Credit.

         "Letter of Credit Application" means an application and agreement for
         the issuance or amendment of a Letter of Credit in the form, from time
         to time, that is in use by the Issuing Bank.

         "Letter of Credit Usage" means, as of any date of determination, the
         aggregate undrawn face amount of outstanding Letters of Credit plus the
         aggregate amount of all Unreimbursed Amounts, including all L/C
         Borrowings.

         "Lien" means any mortgage, deed of trust, pledge, hypothecation,
         assignment for security, security interest, encumbrance, lien or charge
         of any kind, whether voluntarily incurred or arising by operation of
         Law or otherwise, affecting any Property, including any agreement to
         grant any of the foregoing (other than an agreement which gives to a
         Person the right to become equally and ratably secured with any other
         Person to whom a Lien is granted on any item of Property) any
         conditional sale or other title retention agreement, any lease in the
         nature of a security interest, or the filing of or agreement to give
         any financing statement (other than a precautionary financing statement
         with respect to a lease that is not in the nature of a security
         interest) under the Uniform Commercial Code or comparable Law of any
         jurisdiction with respect to any Property.

         "Loan" means the aggregate of the Advances made at any one time by the
         Banks pursuant to Article II.

                                      -16-

<PAGE>

         "Loan Documents" means, collectively, this Agreement, the Notes, the
         Letters of Credit, the Swing Line Documents, the Subsidiary Guaranty,
         any Loan Notice, any Swing Line Loan Notice, any Request for Letter of
         Credit, any Compliance Certificate, any Borrowing Base Certificate and
         any other instruments, documents or agreements of any type or nature
         hereafter executed and delivered by Borrower or any of its Subsidiaries
         or Affiliates to the Administrative Agent or any other Bank in any way
         relating to or in furtherance of this Agreement, in each case either as
         originally executed or as the same may from time to time be
         supplemented, modified, amended, restated, extended or supplanted.

         "Loan Notice" means a notice of (a) a request for a Loan, (b) a
         conversion of Loans from one Type to the other or (c) a continuation of
         Eurodollar Rate Loans, which may be given by telephone and, if in
         writing, shall be substantially in the form of Exhibit D.

         "Loan Parties" means, collectively, the Borrower and each Guarantor
         Subsidiary.

         "Lots Under Development" means, as of any date of determination, Land
         Parcels that are being developed into Developed Lots or that are
         scheduled for the commencement of development into Developed Lots
         within 6 calendar months after the date of determination.

         "LTV Maintenance Agreement" means a guaranty or other agreement entered
         into by the Borrower or any of its Subsidiaries, for the benefit of the
         holder of any secured Indebtedness of a Person that is not the Borrower
         or any of its Subsidiaries, to maintain a specified loan-to-value ratio
         with respect to real Property that secures such Indebtedness.

         "LTV Maintenance Exposure" means, with respect to any LTV Maintenance
         Agreement, the amount equal to (a) the amount of the Indebtedness with
         respect to which the LTV Maintenance Agreement is delivered exceeds (b)
         the product of (i) the book value of the real Property securing such
         Indebtedness (or such lesser value as is provided in or determined
         under the agreements governing such Indebtedness) and (ii) a percentage
         equal to the loan-to-value ratio (stated as a fraction) that the
         Borrower or any of its Subsidiaries agrees to maintain under the
         applicable LTV Maintenance Agreement; provided that if the Borrower and
         its Subsidiaries are liable severally but not jointly and severally
         with one or more other obligors under the LTV Maintenance Agreement,
         the amount of the Contingent Guaranty Obligation in respect of such LTV
         Maintenance Agreement shall be the product of (x) the amount determined
         as set forth above and (y) the maximum percentage of the aggregate
         liability under such LTV Maintenance Agreement with respect to which
         the Borrower and its Subsidiaries are liable ; provided further, that
         if the LTV Maintenance Exposure with respect to a LTV Maintenance
         Agreement is less than zero, the LTV Maintenance Exposure for that LTV
         Maintenance Agreement shall be deemed to be zero.

         "Material Adverse Effect" means any circumstance or event, or any set
         of circumstances or events which, individually or when aggregated with
         any other circumstances or events, (a) has or is reasonably likely to
         have any material adverse effect upon the validity or enforceability of
         any Loan Document, (b) is or is reasonably likely to be material and
         adverse to the condition (financial or otherwise) or operations of
         Borrower and its Subsidiaries, taken as a whole, or (c) materially
         impairs or is reasonably likely to materially impair the ability of
         Borrower and its Subsidiaries, taken as a whole, to perform the
         Obligations.

         "Material Amount of Assets" means, as of any date of determination,
         more than 10% of the consolidated total assets (other than assets of
         Financial Subsidiaries) of Borrower and its Subsidiaries as of such
         date.

                                      -17-

<PAGE>

         "Maturity Date" means October 24, 2007.

         "Model Homes" means housing Units which have been completed, furnished
         and landscaped and are used in the marketing efforts with respect to a
         residential home community.

         "Moody's" means Moody's Investors Service, Inc. and any successor
         thereto.

         "Mortgage Company" means KB Home Mortgage Company, an Illinois
         corporation and a wholly owned Financial Subsidiary of Borrower.

         "Mortgage Warehousing Agreements" means that certain Mortgage Loan
         Warehousing Agreement, dated as of June 30, 2003 by and among Mortgage
         Company, rateOne, the lenders from time to time party thereto, and Bank
         One, NA, as administrative agent for the lenders and that certain
         Master Loan and Security Agreement, dated as of May 13, 2002, by and
         among Mortgage Company, rateOne and UBS Warburg Real Estate Securities
         Inc., as amended by the First Amendment to Master Loan and Security
         Agreement, dated as of November 13, 2002, the Second Amendment to
         Master Loan and Security Agreement, dated as of May 12, 2003, the Third
         Amendment to Master Loan and Security Agreement, dated as of June 30,
         2003, the Fourth Amendment to Master Loan and Security Agreement, dated
         as of July 31, 2003, and the Fifth Amendment to Master Loan and
         Security Agreement, dated as of October 6, 2003, as the foregoing may
         from time to time be amended, modified, refinanced or replaced, and
         substantially similar loan or credit agreements or arrangements entered
         into from time to time by Mortgage Company for loans to be used for the
         purpose of funding the origination of residential mortgage loans,
         secured by a pledge of such mortgage loans.

         "Multiemployer Plan" means any employee benefit plan of a type
         described in Section 4001(a)(3) of ERISA.

         "Net Realizable Value Adjustment" means the adjustment required
         pursuant to Generally Accepted Accounting Principles consistently
         applied (including FAS 121 issued by the Financial Accounting Standards
         Board) to reflect a decrease in the book value of assets below their
         historical costs.

         "Non-Recourse Indebtedness" means Indebtedness incurred in connection
         with the purchase or improvement of Property (a) that is secured solely
         by the Property purchased or improved, (b) with respect to which the
         holder of such Indebtedness has recourse only to such Property, and (c)
         that is otherwise non-recourse (whether by contract or under applicable
         Law) to any Person.

         "Note" means each promissory note made by Borrower to a Bank
         evidencing the Advances under that Bank's Pro Rata Share of the
         Commitment, substantially in the form of Exhibit E, either as
         originally executed or as the same may from time to time be
         supplemented, modified, amended, renewed, extended or supplanted.

         "Obligations" means all present and future obligations of every kind or
         nature of Borrower or any Party at any time and from time to time owed
         to the Administrative Agent or the Banks or any one or more of them
         under any one or more of the Loan Documents, whether due or to become
         due, matured or unmatured, liquidated or unliquidated, or contingent or
         noncontingent, including obligations of performance as well as
         obligations of payment, and including interest that accrues to the
         extent permitted by applicable Law after the commencement of any
         proceeding under any Debtor Relief Law by or against Borrower.

                                      -18-

<PAGE>

         "Officer's Certificate" means, when used with reference to any Person,
         a certificate signed by a Senior Officer of such Person.

         "Opinions of Counsel" means the favorable written legal opinions of (a)
         Munger, Tolles & Olson LLP, special counsel to Borrower and (b)
         Kimberly N. King, Vice President, Corporate Legal Affairs of Borrower,
         substantially in the form of Exhibits F-1 and F-2, respectively,
         together with copies of all factual certificates and legal opinions
         upon which such counsel has relied.

         "Outstanding Amount" means:

         (a)      with respect to Loans and Swing Line Loans on any date, the
                  aggregate outstanding principal amount thereof after giving
                  effect to any borrowings and prepayments or repayments of
                  Loans and Swing Line Loans, as the case may be, occurring on
                  such date; and

         (b)      with respect to any Letter of Credit Usage on any date, the
                  amount of such Letter of Credit Usage on such date, after
                  giving effect to the issuance, extension, expiry, renewal or
                  increase of any Letter of Credits occurring on such date and
                  any other changes in the aggregate amount of the Letter of
                  Credit Usage as of such date, including as a result of any
                  reimbursements of outstanding unpaid drawings under any
                  Letters of Credit or any reductions in the maximum amount
                  available for drawing under Letters of Credit taking effect on
                  such date.

         "Participant" has the meaning set forth in Section 11.8(d).

         "Party" means any Person other than the Banks or the Agents which now
         or hereafter is a party to any of the Loan Documents.

         "PBGC" means the Pension Benefit Guaranty Corporation or any successor
         thereto established under ERISA.

         "Pension Plan" means any "employee pension benefit plan" (as such term
         is defined in ERISA) which is subject to Title IV of ERISA and which is
         maintained for employees of Borrower or any of its ERISA Affiliates.

         "Performance Letter of Credit" means any letter of credit issued by an
         issuer for the account of the Borrower or a Subsidiary that is not a
         Financial Letter of Credit.

         "Permitted Encumbrances" means:

         (a)      inchoate Liens incident to construction or maintenance of real
                  property; or Liens incident to construction or maintenance of
                  real property now or hereafter filed of record for which
                  adequate reserves have been set aside and which are being
                  contested in good faith by appropriate proceedings and have
                  not proceeded to judgment, provided that, by reason of
                  nonpayment of the obligations secured by such Liens, no
                  material property is subject to a material risk of loss or
                  forfeiture;

         (b)      Liens for taxes and assessments on real property which are not
                  yet past due; or Liens for taxes and assessments on real
                  property for which adequate reserves have been set aside and
                  are being contested in good faith by appropriate proceedings
                  and have not proceeded

                                      -19-

<PAGE>

                  to judgment, provided that, by reason of nonpayment of the
                  obligations secured by such Liens, no material property is
                  subject to a material risk of loss or forfeiture;

         (c)      minor defects and irregularities in title to any real property
                  which in the aggregate do not materially impair the fair
                  market value or use of the real property for the purposes for
                  which it is or may reasonably be expected to be held;

         (d)      easements, exceptions, reservations, or other agreements for
                  the purpose of pipelines, conduits, cables, wire communication
                  lines, power lines and substations, streets, trails, walkways,
                  drainage, irrigation, water, utilities, and sewerage purposes,
                  dikes, canals, ditches, the removal of oil, gas, coal, or
                  other minerals, and other like purposes affecting real
                  property, facilities, or equipment which in the aggregate do
                  not materially burden or impair the fair market value or use
                  of such property for the purposes for which it is or may
                  reasonably be expected to be held;

         (e)      easements, exceptions, reservations, or other agreements for
                  the purpose of facilitating the joint or common use of
                  property affecting real property which in the aggregate do not
                  materially burden or impair the fair market value or use of
                  such property for the purposes for which it is or may
                  reasonably be expected to be held;

         (f)      rights reserved to or vested in any Governmental Agency to
                  control or regulate the use of any real property;

         (g)      any obligations or duties affecting any real property to any
                  Governmental Agency with respect to any right, power,
                  franchise, grant, license, or permit;

         (h)      present or future zoning laws and ordinances or other laws and
                  ordinances restricting the occupancy, use, or enjoyment of
                  real property;

         (i)      statutory Liens, including warehouseman's liens, other than
                  those described in clauses (a) or (b) above, arising in the
                  ordinary course of business with respect to obligations which
                  are not delinquent or are being contested in good faith,
                  provided that, if delinquent, adequate reserves have been set
                  aside with respect thereto and, by reason of nonpayment, no
                  material property is subject to a material risk of loss or
                  forfeiture;

         (j)      covenants, conditions, and restrictions affecting the use of
                  real property which in the aggregate do not materially impair
                  the fair market value or use of the real property for the
                  purposes for which it is or may reasonably be expected to be
                  held;

         (k)      rights of tenants under leases and rental agreements covering
                  real property entered into in the ordinary course of business
                  of the Person owning such real property;

         (l)      Liens consisting of pledges or deposits to secure obligations
                  under workers' compensation laws or similar legislation,
                  including Liens of judgments thereunder which are not
                  currently dischargeable;

         (m)      Liens consisting of pledges or deposits of property to secure
                  performance in connection with operating leases made in the
                  ordinary course of business to which the Borrower or a
                  Subsidiary is a party as lessee, provided the aggregate value
                  of all such pledges and deposits in connection with any such
                  lease does not at any time exceed 25% of the annual fixed
                  rentals payable under such lease;

                                      -20-

<PAGE>

         (n)      Liens consisting of deposits of property to secure statutory
                  obligations of the Borrower or a Subsidiary of Borrower in the
                  ordinary course of its business; and

         (o)      Liens consisting of deposits of property to secure (or in lieu
                  of) surety, appeal or customs bonds in proceedings to which
                  Borrower or a Subsidiary of Borrower is a party in the
                  ordinary course of its business.

         "Permitted Right of Others" means a Right of Others consisting of (a)
         an interest (other than a legal or equitable co-ownership interest, an
         option or right to acquire a legal or equitable co-ownership interest
         and any interest of a ground lessor under a ground lease), that does
         not materially impair the value or use of property for the purposes for
         which it is or may reasonably be expected to be held, (b) an option or
         right to acquire a Lien that would be a Permitted Encumbrance or (c)
         the reversionary interest of a landlord under a lease of Property.

         "Person" means an individual, trustee, corporation, general
         partnership, limited partnership, limited liability company, joint
         stock company, trust, estate, unincorporated organization, union,
         tribe, business association or firm, joint venture, Governmental
         Agency, or other entity.

         "Plan" means any "employee benefit plan" (as such term is defined in
         Section 3(3) of ERISA) established by the Borrower or, with respect to
         any such plan that is subject to Section 412 of the Code or Title IV of
         ERISA, any ERISA Affiliate.

         "Prior Loan Agreements" means the Prior Revolving Loan Agreement and
         the 2000 Term Loan Agreement.

         "Prior Revolving Loan Agreement" has the meaning set forth for that
         term in the recitals of the parties hereto.

         "Pro Rata Share" of a Bank, as pertains to the Commitment, means the
         applicable percentage set forth opposite the name of that Bank on
         Schedule 1.1 to this Agreement.

         "Projections" means the financial projections of Borrower delivered to
         the Banks and dated as of September 5, 2003.

         "Property" means any interest in any kind of property or asset, whether
         real, personal or mixed, or tangible or intangible.

         "Quarterly Payment Date" means December 31, 2003, and each March 31,
         June 30, September 30 and December 31 thereafter through and including
         the Maturity Date.

         "rateOne" means rateOne Home Loan, LLC, a Delaware limited liability
         company and a Subsidiary of Mortgage Company.

         "Rating Agencies" means S&P, Moody's and Fitch.

         "Register" has the meaning set forth in Section 11.8(c).

         "Regulation D" means Regulation D, as at any time amended, of the Board
         of Governors of the Federal Reserve System or any other regulation in
         substance substituted therefor.

                                      -21-

<PAGE>

         "Regulatory Development" means (a) any change in the Laws, (b) change
         in the application of any existing Laws or the interpretation thereof
         by any Governmental Agency or central bank or comparable authority
         (whether or not having the force of Law), or (c) compliance by any Bank
         with any request or directive (whether or not having the force of Law)
         of any Governmental Agency or central bank or comparable authority.

         "Reportable Event" means any of the events set forth in Section 4043(c)
         of ERISA, other than events for which the 30 day notice period has been
         waived.

         "Request for Letter of Credit" means a written request for the
         issuance of a Letter of Credit signed by a Responsible Official of
         Borrower, in a form reasonably designated from time to time by the
         Administrative Agent.

         "Required Banks" means, as of any date of determination, Banks having
         more than 66 2/3% of the Commitment or, if the commitment of each Bank
         to make Advances and the obligation of the Issuing Banks to issue
         Letters of Credit have been terminated or suspended, Banks holding in
         the aggregate more than 66 2/3% of the Total Outstandings (with the
         aggregate amount of each Bank's risk participation and funded
         participation in Letter of Credit Usage and Swing Line Loans being
         deemed "held" by such Bank for purposes of this definition); provided
         that the Commitment of, and the portion of the Total Outstandings held
         or deemed held by, any Defaulting Bank shall be excluded for purposes
         of making a determination of Required Banks.

         "Requirement of Law" means, as to any Person, any Law or any judgment,
         award, decree, writ or determination of, or any consent or similar
         agreement with, a Governmental Agency, in each case applicable to or
         binding upon such Person or any of its Property or to which such Person
         or any of its Property is subject.

         "Responsible Official" means (a) when used with reference to a Person
         other than an individual, any corporate officer of such Person, general
         partner of such Person, corporate officer of a corporate general
         partner of such Person, or corporate officer of a corporate general
         partner of a partnership that is a general partner of such Person, or
         any other responsible official thereof duly acting on behalf thereof,
         and (b) when used with reference to a Person who is an individual, such
         Person. Any document or certificate hereunder that is signed or
         executed by a Responsible Official of a Person shall be conclusively
         presumed to have been authorized by all necessary corporate,
         partnership or other action on the part of that Person.

         "Right of Others" means, with respect to any Property in which a Person
         has an interest, (a) any legal or equitable claim or other interest
         (other than a Lien) in or with respect to that Property held by any
         other Person, and (b) any option or right held by any other Person to
         acquire any such claim or other interest (including a Lien).

         "S&P" means Standard & Poor's Ratings Services, a division of The
         McGraw-Hill Companies, Inc., and any successor thereto.

         "Securities" means any capital stock, share, voting trust certificate,
         bonds, debentures, notes or other evidences of indebtedness, limited
         partnership interests, or any warrant, option or other right to
         purchase or acquire any of the foregoing.

         "Senior Indebtedness" means, as of any date of determination, the
         aggregate amount of Indebtedness for borrowed money, and the aggregate
         amount of obligations under Financial

                                      -22-
<PAGE>

         Letters of Credit, of Borrower and Borrowing Base Subsidiaries that is
         not Subordinated Obligations and that is not Non-Recourse Indebtedness.

         "Senior Officer" means the (a) chief executive officer, (b) chief
         operating officer, (c) chief financial officer, (d) vice president and
         controller, (e) vice president, treasury, or (f) treasurer, in each
         case whatever the title nomenclature may be, of the Person designated.

         "Shareholders' Equity" means, as of any date of determination,
         shareholders' equity as of that date determined in accordance with
         Generally Accepted Accounting Principles consistently applied; provided
         that there shall be excluded from Shareholders' Equity any amount
         attributable to capital stock that is, directly or indirectly, required
         to be redeemed or repurchased by the issuer thereof prior to the date
         which is one year after the Maturity Date or upon the occurrence of
         specified events or at the election of the holder thereof.

         "Significant Subsidiary" means, as of the Closing Date, those
         Subsidiaries of Borrower identified as such in Schedule 4.4 and, as of
         any other date of determination, any Subsidiary of Borrower (other than
         a Joint Venture) with respect to which any of the following conditions
         is met:

         (a)      the aggregate book value of all Investments of Borrower and
                  its Subsidiaries in such Subsidiary exceeds 5% of the
                  consolidated total assets (other than assets of Financial
                  Subsidiaries) of Borrower and its Subsidiaries as of such
                  date; or

         (b)      the proportionate share of Borrower and its Subsidiaries in
                  the total assets of such Subsidiary (after intercompany
                  eliminations) exceeds 5% of the consolidated total assets
                  (other than assets of Financial Subsidiaries) of Borrower and
                  its Subsidiaries as of such date; or

         (c)      the equity of Borrower and its Subsidiaries in the net income
                  of such Subsidiary (before income taxes, extraordinary items
                  and cumulative effect of a change in accounting principles) as
                  of the end of the most recently ended fiscal year of such
                  Subsidiary exceeds the greater of (i) an amount equal to 5% of
                  the consolidated net income (other than net income of
                  Financial Subsidiaries) of Borrower and its Subsidiaries
                  (computed as aforesaid) as of the end of the most recent
                  Fiscal Year ended prior to such date or (ii) $3,000,000.

         "Sole Lead Arranger and Sole Book Manager" means Banc of America
         Securities LLC, in its capacity as sole lead arranger and sole book
         manager.

         "Solvent" means, as to any Person, that such Person (a) owns Property
         whose fair saleable value is greater than the amount required to pay
         all of such Person's indebtedness and other obligations (including
         contingent debts), (b) is able to pay all of its indebtedness and other
         obligations as such indebtedness and other obligations mature and (c)
         has capital sufficient to carry on its business and transactions and
         all business and transactions in which it is about to engage.

         "Speculative Units" means Developed Lots having fully or partially
         constructed Units thereon (including, at a minimum, a completed
         foundation for any such Unit) that are not subject to bona fide
         contracts for the sale of such Units to a third party, excluding
         Developed Lots containing Units used as Model Homes.

                                      -23-
<PAGE>

         "Subordinated Notes" means (i) Borrower's 8 5/8% Senior Subordinated
         Notes due 2008, (ii) Borrower's 7 3/4% Senior Subordinated Notes due
         2010 and (iii) Borrower's 9 1/2% Senior Subordinated Notes due 2011.

         "Subordinated Obligations" means, collectively, all obligations of
         Borrower or any of its Subsidiaries that (a) do not provide for any
         scheduled redemption on or before 30 days after the Maturity Date, (b)
         are expressly subordinated to the Obligations by a written instrument
         containing subordination and related provisions (including interest
         payment blockage, standstill and related provisions) not materially
         less favorable to the Banks in any respect whatsoever from those
         applicable to Borrower's Subordinated Notes (or such other
         subordination and related provisions as may be approved in writing by
         the Required Banks), (c) are subject to financial covenants not
         materially more burdensome to Borrower taken as a whole than those
         applicable to the Subordinated Notes, except such covenants as may be
         approved in writing by the Required Banks and (d) are subject to other
         covenants (other than the covenant to pay interest) and events of
         default which in the aggregate are not materially more burdensome to
         Borrower than those applicable to the Subordinated Notes, except such
         covenants or events of default as may be approved in writing by the
         Required Banks.

         "Subsidiary" means, with respect to any Person, any corporation,
         limited liability company, partnership or joint venture whether now
         existing or hereafter organized or acquired: (a) in the case of a
         corporation or limited liability company, of which securities having a
         majority of the ordinary voting power for the election of the board of
         directors (other than securities having such power only by reason of
         the happening of a contingency) are at the time owned by such Person or
         one or more Subsidiaries of such Person; or (b) in the case of a
         partnership, joint venture or other business entity, in which such
         Person or a Subsidiary of such Person is a general partner.

         "Subsidiary Guaranty" means the guaranty of the Indebtedness of
         Borrower under this Agreement executed by each Guarantor Subsidiary of
         Borrower substantially in the form of Exhibit G, either as originally
         executed or as the same may from time to time be supplemented,
         modified, amended, renewed, extended or supplanted.

         "Swing Line" means the revolving line of credit established by the
         Swing Line Bank in favor of Borrower pursuant to Section 2.4.

         "Swing Line Bank" means Bank of America or any successor swing line
         lender hereunder.

         "Swing Line Documents" means the promissory note and any other
         documents executed by Borrower in favor of the Swing Line Bank in
         connection with the Swing Line.

         "Swing Line Loan Notice" means a notice of a request for a Swing Line
         Loan, which may be given by telephone and, if in writing, shall be
         substantially in the form of Exhibit H.

         "Swing Line Loans" means loans made by the Swing Line Bank to Borrower
         pursuant to Section 2.4.

         "Swing Line Maturity Date" means the date 10 days following the date of
         disbursement of a Swing Line Loan or, if such day is not a Business
         Day, the next Business Day.

         "Swing Line Outstandings " means, as of any date of determination, the
         aggregate principal Indebtedness of Borrower on all Swing Line Loans
         then outstanding.

                                      -24-
<PAGE>

         "Termination Event" means (a) a "reportable event" as defined in
         Section 4043 of ERISA (other than a "reportable event" that is not
         subject to the provision for 30 day notice to the PBGC), (b) the
         withdrawal of Borrower or any of its ERISA Affiliates from a Pension
         Plan during any plan year in which it was a "substantial employer" as
         defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of
         intent to terminate a Pension Plan or the treatment of an amendment to
         a Pension Plan as a termination thereof pursuant to Section 4041 of
         ERISA, other than pursuant to Section 4041(b) of ERISA, (d) the
         institution of proceedings to terminate a Pension Plan by the PBGC or
         (e) any other event or condition which might reasonably be expected to
         constitute grounds under ERISA for the termination of, or the
         appointment of a trustee to administer, any Pension Plan.

         "to the best knowledge of" means, when modifying a representation,
         warranty or other statement of any Person, that such representation,
         warranty or statement is a representation, warranty or statement that
         (a) the Person making it has no actual knowledge of the inaccuracy of
         the matters therein stated and (b) assuming the exercise by the Person
         making it of reasonable due diligence under the circumstances (in
         accordance with the standard of what a reasonable Person would have
         done under similar circumstances), the Person making it would have no
         actual knowledge of the inaccuracy of the matters therein stated. Where
         the Person making the representation, warranty or statement is not a
         natural Person, the aforesaid actual or constructive knowledge shall be
         that of any Senior Officer of that Person.

         "Total Outstandings " means the aggregate Outstanding Amount of all
         Loans (including Swing Line Loans) and all Letter of Credit Usage.

         "Type" means, with respect to a Loan, its character as a Base Rate Loan
         or a Eurodollar Rate Loan.

         "Unit " means a residential housing unit available for sale located in
         the United States.

         "Unreimbursed Amount" has the meaning set forth in Section 2.5(c)(i).

         "Unrestricted Cash" means, as of any date of determination, the Cash
         and Cash Equivalents of Borrower and its Borrowing Base Subsidiaries to
         the extent that such Cash and Cash Equivalents are free and clear of
         all Liens and Rights of Others and are not subject to any restriction
         pursuant to any Contractual Obligations.

         "Voting Stock" means, with respect to any Person, the capital stock of
         such Person having general voting power under ordinary circumstances to
         elect at least a majority of the board of directors, managers or
         trustees of such Person (irrespective of whether or not at the time
         capital stock of any other class or classes shall have or might have
         voting power by reason of the happening of any contingency).

1.2      Accounting Terms. All accounting terms not specifically defined in this
         Agreement shall be construed in conformity with, and all financial data
         required to be submitted by this Agreement shall be prepared in
         conformity with, Generally Accepted Accounting Principles consistently
         applied, except as otherwise specifically prescribed herein. In the
         event that Generally Accepted Accounting Principles change during the
         term of this Agreement such that the financial covenants contained in
         Sections 6.9, 6.10, 6.11, 6.15 or 6.16 would then be calculated in a
         different manner or with different components or would render the same
         not meaningful criteria for evaluating Borrower's financial condition,
         (a) Borrower and the Banks agree to amend this Agreement in such
         respects as are necessary to conform those covenants as criteria for
         evaluating Borrower's

                                      -25-
<PAGE>

         financial condition to substantially the same criteria as were
         effective prior to such change in Generally Accepted Accounting
         Principles and (b) Borrower shall be deemed to be in compliance with
         the financial covenants contained in such Sections during the 90 day
         period following such change in Generally Accepted Accounting
         Principles if and to the extent that Borrower would have been in
         compliance therewith under Generally Accepted Accounting Principles as
         in effect immediately prior to such change. In the event that the
         Borrower changes its Fiscal Year during the term of this Agreement,
         Borrower and the Banks agree to amend this Agreement and the other Loan
         Documents in such respects as are necessary to conform the definitions,
         the financial covenants, the reporting requirements and the other
         provisions thereof to fairly reflect such change in the Borrower's
         Fiscal Year.

1.3      Rounding. Any financial ratios required to be maintained by Borrower
         pursuant to this Agreement shall be calculated by dividing the
         appropriate component by the other component, carrying the result to
         one place more than the number of places by which such ratio is
         expressed in this Agreement and rounding the result up or down to the
         nearest number (with a round-up if there is no nearest number) to the
         number of places by which such ratio is expressed in this Agreement.

1.4      Other Interpretive Provisions. With reference to this Agreement and
         each other Loan Document, unless otherwise specified herein or in such
         other Loan Document:

         (a)      The meanings of defined terms are equally applicable to the
                  singular and plural forms of the defined terms.

         (b)      The words "herein," "hereto," "hereof" and "hereunder" and
                  words of similar import when used in any Loan Document shall
                  refer to such Loan Document as a whole and not to any
                  particular provision thereof.

         (c)      Article, Section, Exhibit and Schedule references are to the
                  Loan Document in which such reference appears.

         (d)      The term "including" is by way of example and not limitation.

         (e)      The term "or" is not exclusive.

         (f)      The term "documents" includes any and all instruments,
                  documents, agreements, certificates, notices, reports,
                  financial statements and other writings, however evidenced,
                  whether in physical or electronic form.

         (g)      In the computation of periods of time from a specified date to
                  a later specified date, the word "from" means "from and
                  including;" the words "to" and "until" each mean "to but
                  excluding;" and the word "through" means "to and including."

         (h)      Section headings herein and in the other Loan Documents are
                  included for convenience of reference only and shall not
                  affect the interpretation of this Agreement or any other Loan
                  Document.

1.5      Exhibits and Schedules. All Exhibits and Schedules to this Agreement,
         either as originally existing or as the same may from time to time be
         supplemented, modified, or amended, are incorporated herein by
         reference. A matter disclosed on any Schedule shall be deemed disclosed
         on all Schedules.

                                      -26-
<PAGE>

1.6      References to "Borrower and its Subsidiaries". Any reference herein to
         "Borrower and its Subsidiaries" or the like shall refer solely to
         Borrower during such times, if any, as Borrower shall have no
         Subsidiaries.

1.7      Time of Day. Unless otherwise specified, all references herein to times
         of day shall be references to Central time (daylight or standard, as
         applicable).

1.8      Letter of Credit Amounts. Unless otherwise specified, all references
         herein to the amount of a Letter of Credit at any time shall be deemed
         to mean the maximum face amount of such Letter of Credit after giving
         effect to all increases thereof contemplated by such Letter of Credit
         or the Letter of Credit Application therefor, whether or not such
         maximum face amount is in effect at such time.

                                      -27-
<PAGE>

                                   ARTICLE II
                          LOANS AND LETTERS OF CREDIT

2.1      Loans-General.

         (a)      Subject to the terms and conditions set forth in this
                  Agreement (including Section 8.2), at any time and from time
                  to time from the Closing Date through the Business Day
                  immediately preceding the Maturity Date, each Bank shall, pro
                  rata according to that Bank's Pro Rata Share of the Commitment
                  then in effect, make Advances to Borrower under the Commitment
                  in such amounts as Borrower may request; provided that after
                  giving effect to such Advance, the Total Outstandings shall
                  not exceed the Commitment. Subject to the limitations set
                  forth herein, Borrower may borrow, repay and reborrow under
                  this Section 2.1(a) without premium or penalty. In no event
                  shall the Banks be obligated to make Loans to the Borrower at
                  any time if, after giving effect to such Loans, the provisions
                  of Section 6.17 would be violated.

         (b)      [Intentionally Omitted]

         (c)      Subject to the next sentence and to Sections 2.4(e) and
                  2.5(c), each Loan shall be made pursuant to Borrower's
                  irrevocable Loan Notice to the Administrative Agent, which
                  shall specify the requested (i) date of such Loan, (ii) type
                  of Loan, (iii) amount of such Loan and (iv) in the case of a
                  Eurodollar Rate Loan, Interest Period for such Loan. Each
                  telephonic Loan Notice by the Borrower pursuant to this
                  Section 2.1(c) must be confirmed promptly by delivery to the
                  Administrative Agent of a written Loan Notice, appropriately
                  completed and signed by a Responsible Official of the
                  Borrower.

         (d)      Promptly following receipt of a Loan Notice, the
                  Administrative Agent shall notify each Bank by telephone,
                  telecopier or telex of the date and type of the Loan, the
                  applicable Interest Period in the case of a Eurodollar Rate
                  Loan, and that Bank's Pro Rata Share of the Loan. Not later
                  than 12:00 noon, Los Angeles time, on the date specified for
                  any Loan, each Bank shall make its Pro Rata Share of the Loan
                  in immediately available funds available to the Administrative
                  Agent at the Administrative Agent's Office. Upon fulfillment
                  of the applicable conditions set forth in Article VIII, all
                  Advances shall be credited in immediately available funds to
                  the Designated Deposit Account.

         (e)      The principal amount of each Loan shall be an integral
                  multiple of $1,000,000 and shall be in an amount not less than
                  (i) $1,000,000 if such Loan is a Base Rate Loan and (ii)
                  $5,000,000 if such Loan is a Eurodollar Rate Loan.

         (f)      A Loan Notice shall be irrevocable upon the Administrative
                  Agent's first notification thereof. The obligation of each
                  Bank to make any Advance is several, and not joint or joint
                  and several, and is not conditioned upon the performance by
                  any other Bank of its obligation to make Advances. The failure
                  by any Bank to perform its obligation to make any Advance will
                  not increase the obligation of any other Bank to make
                  Advances.

         (g)      Borrower may redesignate a Base Rate Loan as a Eurodollar Rate
                  Loan, or a Eurodollar Rate Loan as a Base Rate Loan or a
                  Eurodollar Rate Loan with a new Interest Period, by delivering
                  a Loan Notice to the Administrative Agent, within the time
                  periods and pursuant to the conditions set forth in Section
                  2.1(c), 2.2 or 2.3, as applicable, and elsewhere in this
                  Agreement. If no Loan Notice has been made prior to the last
                  day of the Interest Period for an outstanding Eurodollar Rate
                  Loan within the requisite notice

                                      -28-
<PAGE>

                  periods set forth in Section 2.3, then Borrower shall be
                  deemed to have requested that such Eurodollar Rate Loan be
                  redesignated as a Base Rate Loan.

         (h)      The Advances made by each Bank under this Section 2.1 shall be
                  evidenced by that Bank's Note.

2.2      Base Rate Loans. Each request by Borrower for a Base Rate Loan shall be
         made pursuant to a Loan Notice received by the Administrative Agent, at
         the Administrative Agent's Office, not later than 10:00 a.m., Los
         Angeles time, on the Business Day on which the requested Base Rate Loan
         is to be made. The Administrative Agent shall notify each Bank of a
         request for a Base Rate Loan as soon as practicable after receipt of
         the same. All Loans shall constitute Base Rate Loans unless properly
         designated as Eurodollar Rate Loans pursuant to Section 2.3.

2.3      Eurodollar Rate Loans.

         (a)      Each request by Borrower for a Eurodollar Rate Loan shall be
                  made pursuant to a Loan Notice received by the Administrative
                  Agent, at the Administrative Agent's Office, not later than
                  10:00 a.m., Los Angeles time, at least 3 Business Days before
                  the first day of the applicable Interest Period, provided that
                  such advance notice period may be reduced by the
                  Administrative Agent in its discretion with respect to any
                  Eurodollar Rate Loan made on the Closing Date. The
                  Administrative Agent shall notify each Bank of a request for a
                  Eurodollar Rate Loan as soon as practicable after receipt of
                  the same.

         (b)      At or about 10:00 a.m., Los Angeles time, 2 Business Days
                  before the first day of the applicable Interest Period, the
                  Administrative Agent shall determine the applicable Eurodollar
                  Rate (which determination shall be conclusive in the absence
                  of manifest error) and promptly shall give notice of the same
                  to Borrower and the Banks by telephone, telecopier or, in the
                  case of Banks, telex.

         (c)      No more than 10 Eurodollar Rate Loans may be outstanding at
                  any particular time.

         (d)      Unless the Required Banks otherwise consent, no Eurodollar
                  Rate Loan may be requested during the continuance of an Event
                  of Default.

2.4      Swing Line.

         (a)      The Swing Line Bank shall from time to time through the day
                  prior to the Maturity Date make Swing Line Loans to Borrower
                  in such amounts as Borrower may request, provided that (i)
                  giving effect to such Swing Line Loan, the Swing Line
                  Outstandings do not exceed $50,000,000, (ii) the conditions
                  to an Advance specified in Article VIII have been satisfied
                  (other than delivery of a Loan Notice), (iii) without the
                  consent of all of the Banks, no Swing Line Loan may be made
                  during the continuation of an Event of Default, (iv) the Swing
                  Line Bank has not given at least 24 hours prior notice to
                  Borrower that availability under the Swing Line is suspended
                  or terminated, (v) after giving effect to such Swing Line
                  Loan, the Total Outstandings shall not exceed the Commitment
                  and (vi) in no event shall the Swing Line Bank be obligated to
                  make a Swing Line Loan to Borrower if, after giving effect to
                  such Swing Line Loan, the provisions of Section 6.17 would be
                  violated. Borrower may borrow, repay and reborrow under this
                  Section 2.4. Unless notified to the contrary by the Swing Line
                  Bank, borrowings under the Swing Line shall be made in amounts
                  which are integral multiples of $100,000. Unless notified to
                  the contrary by the Swing Line Bank, each repayment of a Swing
                  Line Loan

                                      -29-
<PAGE>

                  shall be in an amount which is an integral multiple of
                  $100,000. A Swing Line Loan may, at any time and from time to
                  time, voluntarily be prepaid at the election of Borrower in
                  whole or in part without premium or penalty. Each Swing Line
                  Loan shall be made pursuant to Borrower's irrevocable Swing
                  Line Loan Notice to the Administrative Agent at the
                  Administrative Agent's Office not later than 4:00 p.m. Los
                  Angeles time on the day the requested Swing Line Loan is to be
                  made. Each telephonic Swing Line Loan Notice by the Borrower
                  pursuant to this Section 2.4(a) must be confirmed promptly by
                  delivery to the Administrative Agent of a written Swing Line
                  Loan Notice, appropriately completed and signed by a
                  Responsible Official of the Borrower.

         (b)      Swing Line Loans shall bear interest at a fluctuating rate per
                  annum equal to the sum of the Applicable Federal Funds Rate
                  plus the Applicable Eurodollar Rate Spread plus 0.15%, payable
                  on the dates principal is due and in any event on the Maturity
                  Date. The Swing Line Bank shall be responsible for invoicing
                  Borrower for such interest. The interest payable on Swing Line
                  Loans is solely for the account of the Swing Line Bank (or, if
                  applicable, for the account of the Banks funding such Swing
                  Line Loans pursuant to Section 2.4(d)).

         (c)      Each Swing Line Loan shall be payable on the applicable Swing
                  Line Maturity Date and in any event on the Maturity Date.

         (d)      Upon the making of a Swing Line Loan, each Bank shall be
                  deemed to have purchased from the Swing Line Bank a
                  participation therein in an amount equal to that Bank's Pro
                  Rata Share of the Commitment times the amount of the Swing
                  Line Loan. Upon demand made by the Swing Line Bank, each Bank
                  shall, according to its Pro Rata Share of the Commitment,
                  promptly provide to the Swing Line Bank its purchase price
                  therefor in an amount equal to its participation therein. The
                  obligation of each Bank to so provide its purchase price to
                  the Swing Line Bank shall be absolute and unconditional and
                  shall not be affected by the occurrence of an Event of Default
                  or any other occurrence or event.

         (e)      In the event that any Swing Line Outstandings have not been
                  repaid by the applicable Swing Line Maturity Date, then on the
                  next Business Day (unless Borrower has made other arrangements
                  acceptable to the Swing Line Bank to repay the Swing Line
                  Outstandings), Borrower shall request a Base Rate Loan under
                  the Commitment pursuant to Section 2.2 in an amount complying
                  with Section 2.1(e) and sufficient to repay the Swing Line
                  Outstandings. The Administrative Agent shall automatically
                  provide such amount to the Swing Line Bank (which the Swing
                  Line Bank shall then apply to the Swing Line Outstandings or,
                  if applicable, pay such amount ratably to such Banks as have
                  funded their purchase of a participation pursuant to Section
                  2.4(d) in accordance with their Pro Rata Shares) and credit
                  any balance of the Loan in immediately available funds to the
                  Designated Deposit Account. In the event that Borrower fails
                  to request a Base Rate Loan under the Commitment within the
                  time specified by Section 2.2 on any such Swing Line Maturity
                  Date, the Administrative Agent may, but is not required to,
                  without notice to or the consent of Borrower, cause Base Rate
                  Advances to be made by the Banks under the Commitment in the
                  amount necessary to comply with Section 2.1(e) and sufficient
                  to repay the Swing Line Outstandings and, for this purpose,
                  the conditions precedent set forth in Section 8.2 shall not
                  apply. The proceeds of such Advances shall be paid to the
                  Swing Line Bank for application to the Swing Line
                  Outstandings, with any balance credited in immediately
                  available funds to the Designated Deposit Account.

                                      -30-
<PAGE>

2.5      Letters of Credit.

         (a)      Letter of Credit Commitment. Subject to the terms and
                  conditions of this Agreement (including Section 8.3), Borrower
                  may request from time to time during the period from the
                  Closing Date through the day 30 days prior to the Maturity
                  Date (unless the Issuing Bank otherwise agrees to a later date
                  prior to the Maturity Date) that the Issuing Bank, in reliance
                  upon the agreements of the other Banks set forth in this
                  Section 2.5, issue Letters of Credit for the account of
                  Borrower, and the Issuing Bank agrees to issue for the account
                  of Borrower one or more Letters of Credit and to amend Letters
                  of Credit previously issued by it in accordance with Section
                  2.5(b), provided that (i) Borrower shall not request that the
                  Issuing Bank issue any Letter of Credit if, after giving
                  effect to such issuance, the Total Outstandings exceeds the
                  Commitment, (ii) Borrower shall not request that the Issuing
                  Bank issue any Letter of Credit if, after giving effect to
                  such issuance, Borrower would not be in compliance with
                  Section 6.17, (iii) Borrower shall not request that the
                  Issuing Bank issue any Letter of Credit having an expiration
                  date after the Maturity Date and (iv) the Borrower shall not
                  request that the Issuing Bank issue any Letter of Credit if,
                  after giving effect to such issuance, the Letter of Credit
                  Usage would exceed $300,000,000 or any limit established by
                  Law after the Closing Date on the Issuing Bank's ability to
                  issue the requested Letter of Credit at any time.
                  Notwithstanding the foregoing, the Issuing Bank shall not be
                  obligated to issue a Letter of Credit if, (A) on or prior to
                  the Business Day immediately preceding the issuance thereof
                  any Bank has notified the Issuing Bank in writing that the
                  conditions set forth in Section 8.3 have not been satisfied
                  with respect to the issuance of such Letter of Credit, (B) any
                  order, judgment or decree of any Governmental Agency or
                  arbitrator shall by its terms purport to enjoin or restrain
                  the Issuing Bank from issuing such Letter of Credit, or any
                  Law applicable to the Issuing Bank or any request or directive
                  (whether or not having the force of law) from any Governmental
                  Agency with jurisdiction over the Issuing Bank shall prohibit,
                  or request that the Issuing Bank refrain from, the issuance of
                  letters of credit generally or such Letter of Credit in
                  particular or shall impose upon the Issuing Bank with respect
                  to such Letter of Credit any restriction, reserve or capital
                  requirement (for which the Issuing Bank is not otherwise
                  compensated hereunder) not in effect on the Closing Date, or
                  shall impose upon the Issuing Bank any unreimbursed loss, cost
                  or expense which was not applicable on the Closing Date and
                  which the Issuing Bank in good faith deems material to it,
                  (C) the issuance of such Letter of Credit would violate one or
                  more policies of the Issuing Bank, (D) the expiry date of such
                  requested Letter of Credit would occur after the Maturity
                  Date, unless all of the Banks have approved such expiry date
                  or (E) after issuing such Letter of Credit the provisions of
                  Section 6.17 would be violated.

         (b)      Procedures for Issuance and Amendment of Letters of Credit.

                  (i)      Each Letter of Credit shall be issued or amended, as
                           the case may be, upon the request of the Borrower
                           delivered to the Issuing Bank (with a copy to the
                           Administrative Agent) in the form of a Letter of
                           Credit Application, appropriately completed and
                           signed by a Responsible Official of the Borrower.
                           Such Letter of Credit Application must be received by
                           the Issuing Bank and the Administrative Agent not
                           later than 1:00 p.m., Los Angeles time, at least 3
                           Business Days (or such later date and time as the
                           Issuing Bank may agree in a particular instance in
                           its sole discretion) prior to the proposed issuance
                           date or date of amendment, as the case may be. In the
                           case of a request for an initial issuance of a Letter
                           of Credit, such Letter of Credit Application shall
                           specify in

                                      -31-
<PAGE>

                           form and detail satisfactory to the Issuing Bank: (A)
                           the proposed issuance date of the requested Letter of
                           Credit (which shall be a Business Day); (B) the
                           amount thereof; (C) the expiry date thereof; (D) the
                           name and address of the beneficiary thereof; (E) the
                           documents to be presented by such beneficiary in
                           case of any drawing thereunder; (F) the full text of
                           any certificate to be presented by such beneficiary
                           in case of any drawing thereunder; and (G) such other
                           matters as the Issuing Bank may require. In the case
                           of a request for an amendment of any outstanding
                           Letter of Credit, such Letter of Credit Application
                           shall specify in form and detail satisfactory to the
                           Issuing Bank (w) the Letter of Credit to be amended;
                           (x) the proposed date of amendment thereof (which
                           shall be a Business Day); (y) the nature of the
                           proposed amendment; and (z) such other matters as the
                           Issuing Bank may require.

                  (ii)     Promptly after receipt of any Letter of Credit
                           Application, the Issuing Bank will confirm with the
                           Administrative Agent (by telephone or in writing)
                           that the Administrative Agent has received a copy of
                           such Letter of Credit Application from the Borrower
                           and, if not, the Issuing Bank will provide the
                           Administrative Agent with a copy thereof. Upon
                           receipt by the Issuing Bank of confirmation from the
                           Administrative Agent that the requested issuance or
                           amendment is permitted in accordance with the terms
                           hereof, then, subject to the terms and conditions
                           hereof, the Issuing Bank shall, on the requested
                           date, issue a Letter of Credit for the account of the
                           Borrower or enter into the applicable amendment, as
                           the case may be, in each case in accordance with the
                           Issuing Bank's usual and customary business
                           practices. Immediately upon the issuance of each
                           Letter of Credit, each Bank shall be deemed to, and
                           hereby irrevocably and unconditionally agrees to,
                           purchase from the Issuing Bank a risk participation
                           in such Letter of Credit in an amount equal to the
                           product of such Bank's Pro Rata Share times the
                           amount of such Letter of Credit.

                  (iii)    Promptly after its delivery of any Letter of Credit
                           or any amendment to a Letter of Credit to an advising
                           bank with respect thereto or to the beneficiary
                           thereof, the Issuing Bank will also (x) deliver to
                           the Borrower and the Administrative Agent a true and
                           complete copy of such Letter of Credit or amendment
                           and (y) notify the Borrower and the Administrative
                           Agent of any return, surrender or cancellation of any
                           Letter of Credit.

         (c)      Drawings and Reimbursements; Funding of Participations.

                  (i)      Upon receipt from the beneficiary of any Letter of
                           Credit of any notice of a drawing under such Letter
                           of Credit, the Issuing Bank shall promptly notify the
                           Borrower and the Administrative Agent thereof and of
                           the date the Issuing Bank proposes to pay such
                           drawing. The Borrower shall reimburse the Issuing
                           Bank through the Administrative Agent in an amount
                           equal to the amount of any payment by the Issuing
                           Bank under a Letter of Credit, which reimbursement
                           shall be made, (x) if the Issuing Bank notifies the
                           Borrower and the Administrative Agent of such payment
                           before 2:00 p.m. Los Angeles time on the Business Day
                           immediately preceding the date of such payment (the
                           date of such payment being, the "Honor Date"), then
                           on the Honor Date, or (y) if the Issuing Bank
                           notifies the Borrower and the Administrative Agent
                           after 2:00 p.m. Los Angeles time on the Business Day
                           immediately preceding the Honor Date or any Business
                           Day thereafter, then on the Business Day immediately
                           following such notice

                                      -32-
<PAGE>

                           (with any notice received on or after 2:00 p.m. Los
                           Angeles time on any day deemed to be received before
                           2:00 p.m. Los Angeles time on the next Business Day).
                           If the Borrower fails to so reimburse the Issuing
                           Bank by such date, the Administrative Agent shall
                           promptly notify each Bank of the Honor Date, the
                           amount of the unreimbursed drawing (the "Unreimbursed
                           Amount"), and the amount of such Bank's Pro Rata
                           Share thereof. In such event, the Borrower shall be
                           deemed to have requested a Base Rate Loan in an
                           amount equal to the Unreimbursed Amount, without
                           regard to the minimum and multiples specified in
                           Section 2.1(e) for the principal amount of Base Rate
                           Loans, but subject to the amount of the unutilized
                           portion of the Commitments and the conditions set
                           forth in Section 8.2 (other than the delivery of a
                           Loan Notice). Any notice given by the Issuing Bank or
                           the Administrative Agent pursuant to this Section
                           2.5(c)(i) may be given by telephone if immediately
                           confirmed in writing; provided that the lack of such
                           an immediate confirmation shall not affect the
                           conclusiveness or binding effect of such notice.

                  (ii)     Each Bank (including the Bank acting as Issuing Bank)
                           shall upon any notice pursuant to Section 2.5(c)(i)
                           make funds available to the Administrative Agent for
                           the account of the Issuing Bank at the Administrative
                           Agent's Office in an amount equal to its Pro Rata
                           Share of the Unreimbursed Amount not later than 1:00
                           p.m. on the Business Day specified in such notice by
                           the Administrative Agent (provided that the
                           Administrative Agent gives notice on or prior to
                           11:00 a.m. on such Business Day), whereupon, subject
                           to the provisions of Section 2.5(c)(iii), each Bank
                           that so makes funds available shall be deemed to have
                           made an Advance to the Borrower in such amount. The
                           Administrative Agent shall remit the funds so
                           received to the Issuing Bank.

                  (iii)    With respect to any Unreimbursed Amount that is not
                           fully refinanced by a Base Rate Loan because the
                           conditions set forth in Section 8.2 cannot be
                           satisfied or for any other reason, the Borrower shall
                           be deemed to have incurred from the Issuing Bank an
                           L/C Borrowing in the amount of the Unreimbursed
                           Amount that is not so refinanced, which L/C Borrowing
                           shall be due and payable on demand (together with
                           interest) and shall bear interest at the Default
                           Rate. In such event, each Bank's payment to the
                           Administrative Agent for the account of the Issuing
                           Bank pursuant to Section 2.5(c)(ii) shall be deemed
                           payment in respect of its participation in such L/C
                           Borrowing and shall constitute an L/C Advance from
                           such Bank in satisfaction of its participation
                           obligation under this Section 2.5.

                  (iv)     Until each Bank funds its Advance or L/C Advance
                           pursuant to this Section 2.5(c) to reimburse the
                           Issuing Bank for any amount drawn under any Letter of
                           Credit, interest in respect of such Bank's Pro Rata
                           Share of such amount shall be solely for the account
                           of the Issuing Bank.

                  (v)      Each Bank's obligation to make Advances or L/C
                           Advances to reimburse the Issuing Bank for amounts
                           drawn under Letters of Credit, as contemplated by
                           this Section 2.5(c), shall be absolute and
                           unconditional and shall not be affected by any
                           circumstance, including (A) any set-off,
                           counterclaim, recoupment, defense or other right
                           which such Bank may have against the Issuing Bank,
                           the Borrower or any other Person for any reason
                           whatsoever; (B) the occurrence or continuance of a
                           Default, or (C) any other occurrence, event or
                           condition, whether or not similar to any of the
                           foregoing; provided, however, that each Bank's
                           obligation to

                                      -33-
<PAGE>

                           make Advances pursuant to this Section 2.5(c) is
                           subject to the conditions set forth in Section 8.2
                           (other than delivery by the Borrower of a Loan
                           Notice). No such making of an L/C Advance shall
                           relieve or otherwise impair the obligation of the
                           Borrower to reimburse the Issuing Bank for the amount
                           of any payment made by the Issuing Bank under any
                           Letter of Credit, together with interest as provided
                           herein.

                  (vi)     If any Bank fails to make available to the
                           Administrative Agent for the account of the Issuing
                           Bank any amount required to be paid by such Bank
                           pursuant to the foregoing provisions of this Section
                           2.5(c) by the time specified in Section 2.5(c)(ii),
                           the Issuing Bank shall be entitled to recover from
                           such Bank (acting through the Administrative Agent),
                           on demand, such amount with interest thereon for the
                           period from the date such payment is required to the
                           date on which such payment is immediately available
                           to the Issuing Bank at a rate per annum equal to the
                           Federal Funds Rate from time to time in effect. A
                           certificate of the Issuing Bank submitted to any Bank
                           (through the Administrative Agent) with respect to
                           any amounts owing under this clause (vi) shall be
                           conclusive absent manifest error.

         (d)      Repayment of Participations.

                  (i)      At any time after the Issuing Bank has made a payment
                           under any Letter of Credit and has received from any
                           Bank such Bank's L/C Advance in respect of such
                           payment in accordance with Section 2.5(c), if the
                           Administrative Agent receives for the account of the
                           Issuing Bank any payment in respect of the related
                           Unreimbursed Amount or interest thereon (whether
                           directly from the Borrower or otherwise, including
                           proceeds of cash collateral applied thereto by the
                           Administrative Agent), the Administrative Agent will
                           distribute to such Bank its Pro Rata Share thereof
                           (appropriately adjusted, in the case of interest
                           payments, to reflect the period of time during which
                           such Bank's L/C Advance was outstanding) in the same
                           funds as those received by the Administrative Agent.

                  (ii)     If any payment received by the Administrative Agent
                           for the account of the Issuing Bank pursuant to
                           Section 2.5(c)(i) is required to be returned under
                           any of the circumstances described in Section 11.24
                           (including pursuant to any settlement entered into by
                           the Issuing Bank in its discretion), each Bank shall
                           pay to the Administrative Agent for the account of
                           the Issuing Bank its Pro Rata Share thereof on demand
                           of the Administrative Agent, plus interest thereon
                           from the date of such demand to the date such amount
                           is returned by such Bank, at a rate per annum equal
                           to the Federal Funds Rate from time to time in
                           effect.

         (e)      Obligations Absolute. The obligation of the Borrower to
                  reimburse the Issuing Bank for each drawing under each Letter
                  of Credit and to repay each L/C Borrowing shall be absolute,
                  unconditional and irrevocable, and shall be paid strictly in
                  accordance with the terms of this Agreement under all
                  circumstances (except as otherwise provided in clauses (ii)
                  through (v) below), including the following:

                  (i)      any lack of validity or enforceability of such Letter
                           of Credit, this Agreement, or any other agreement or
                           instrument relating thereto;

                                      -34-
<PAGE>

                  (ii)     the existence of any claim, counterclaim, set-off,
                           defense or other right that the Borrower may have at
                           any time against any beneficiary or any transferee of
                           such Letter of Credit (or any Person for whom any
                           such beneficiary or any such transferee may be
                           acting), the Issuing Bank or any other Person,
                           whether in connection with this Agreement, the
                           transactions contemplated hereby or by such Letter of
                           Credit or any agreement or instrument relating
                           thereto, or any unrelated transaction, except for
                           payment with respect to a Letter of Credit when such
                           payment violates the terms of ISP98;

                  (iii)    any draft, demand, certificate or other document
                           presented under such Letter of Credit proving to be
                           forged, fraudulent, invalid or insufficient in any
                           respect (so long as payment under such Letter of
                           Credit would otherwise be permitted under the terms
                           of ISP98) or any statement therein being untrue or
                           inaccurate in any respect; or any loss or delay in
                           the transmission or otherwise of any document
                           required in order to make a drawing under such Letter
                           of Credit;

                  (iv)     any payment by the Issuing Bank under such Letter of
                           Credit against presentation of a draft or certificate
                           that does not strictly comply with the terms of such
                           Letter of Credit (except if such payment violates the
                           terms of ISP98); or any payment made by the Issuing
                           Bank under such Letter of Credit to any Person
                           purporting to be a trustee in bankruptcy,
                           debtor-in-possession, assignee for the benefit of
                           creditors, liquidator, receiver or other
                           representative of or successor to any beneficiary or
                           any transferee of such Letter of Credit, including
                           any arising in connection with any proceeding under
                           any Debtor Relief Law; or

                  (v)      any other circumstance or happening whatsoever,
                           whether or not similar to any of the foregoing,
                           including any other circumstance that might otherwise
                           constitute a defense available to, or a discharge of,
                           the Borrower (except for payment by an Issuing Bank
                           (or any other applicable "issuer" within the meaning
                           of ISP98) with respect to a Letter of Credit that
                           violates the terms of ISP98).

                  The Borrower shall promptly examine a copy of each Letter of
                  Credit and each amendment thereto that is delivered to it and,
                  in the event of any claim of noncompliance with the Borrower's
                  instructions or other irregularity, the Borrower will promptly
                  notify the Issuing Bank. The Borrower shall be conclusively
                  deemed to have waived any such claim against the Issuing Bank
                  and its correspondents unless such notice is given as
                  aforesaid.

         (f)      Role of Issuing Bank. Each Bank and the Borrower agree that,
                  in paying any drawing under a Letter of Credit, the Issuing
                  Bank shall not have any responsibility to obtain any document
                  (other than any sight draft, certificates and documents
                  expressly required by the Letter of Credit) or to ascertain or
                  inquire as to the validity or accuracy of any such document or
                  the authority of the Person executing or delivering any such
                  document. None of the Issuing Bank, any Agent-Related Person
                  nor any of the respective correspondents, participants or
                  assignees of the Issuing Bank shall be liable to any Bank for
                  (i) any action taken or omitted in connection herewith at the
                  request or with the approval of the Banks or the Required
                  Banks, as applicable; (ii) any action taken or omitted in the
                  absence of gross negligence or willful misconduct; or (iii)
                  the due execution, effectiveness, validity or enforceability
                  of any document or instrument related to any Letter of Credit
                  or Letter of Credit Application. The Borrower hereby assumes
                  all risks of the acts or omissions of any beneficiary or
                  transferee with respect to its use of

                                      -35-
<PAGE>

                  any Letter of Credit; provided, however, that this assumption
                  is not intended to, and shall not, preclude the Borrower's
                  pursuing such rights and remedies as it may have against the
                  beneficiary or transferee at law or under any other agreement.
                  None of the Issuing Bank, any Agent-Related Person, nor any of
                  the respective correspondents, participants or assignees of
                  the Issuing Bank, shall be liable or responsible for any of
                  the matters described in clauses (i) through (v) of Section
                  2.5(e); provided, however, that anything in such clauses to
                  the contrary notwithstanding, the Borrower may have a claim
                  against the Issuing Bank (and any other applicable "issuer"
                  within the meaning of ISP98), and the Issuing Bank (or such
                  issuer) may be liable to the Borrower, to the extent, but only
                  to the extent, of any direct, as opposed to consequential or
                  exemplary, damages suffered by the Borrower which the Borrower
                  proves were caused by the Issuing Bank's (or such issuer's)
                  willful misconduct or gross negligence or the Issuing Bank's
                  (or such issuer's) failure to pay under any Letter of Credit
                  after the presentation to it by the beneficiary of a sight
                  draft and certificate(s) strictly complying with the terms and
                  conditions of a Letter of Credit or for payment with respect
                  to a Letter of Credit by an Issuing Bank (or such issuer) when
                  such payment violates the terms of ISP98. In furtherance and
                  not in limitation of the foregoing, the Issuing Bank may
                  accept documents that appear on their face to be in order,
                  without responsibility for further investigation, regardless
                  of any notice or information to the contrary, and the Issuing
                  Bank shall not be responsible for the validity or sufficiency
                  of any instrument transferring or assigning or purporting to
                  transfer or assign a 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.

         (g)      Cash Collateral. Upon the request of the Administrative Agent,
                  (i) if the Issuing Bank has honored any full or partial
                  drawing request under any Letter of Credit and such drawing
                  has resulted in an L/C Borrowing, (ii) if, as of the Maturity
                  Date or acceleration pursuant to Section 9.2(a)(ii), any
                  Letter of Credit may for any reason remain outstanding and
                  partially or wholly undrawn or (iii) if any amount remains
                  available to be drawn under any Letter of Credit by reason of
                  the operation of Section 3.14 of the "International Standby
                  Practices 1998" published by the Institute of International
                  Banking Law & Practice (or such later version thereof as may
                  be in effect at the time of issuance), the Borrower shall
                  immediately Cash Collateralize the then outstanding amount of
                  the Letter of Credit Usage (in an amount equal to such
                  outstanding amount determined as of the date of such L/C
                  Borrowing or the Maturity Date, as the case may be). For
                  purposes hereof, "Cash Collateralize " means to pledge and
                  deposit with or deliver to the Administrative Agent, for the
                  benefit of the Issuing Bank and the Banks, as collateral for
                  the then outstanding amount of the Letter of Credit Usage,
                  cash or deposit account balances pursuant to documentation in
                  form and substance satisfactory to the Administrative Agent
                  and the Issuing Bank (which documents are hereby consented to
                  by the Banks). Derivatives of such term have corresponding
                  meanings. The Borrower hereby grants to the Administrative
                  Agent, for the benefit of the Issuing Bank and the Banks, a
                  security interest in all such cash, deposit accounts and all
                  balances therein and all proceeds of the foregoing. Cash
                  collateral shall be maintained in a blocked, non-interest
                  bearing deposit account at Bank of America.

         (h)      Applicability of ISP98. The rules of the "International
                  Standby Practices 1998" published by the Institute of
                  International Banking Law & Practice (or such later version
                  thereof as may be in effect at the time of issuance) ("ISP98")
                  shall apply to each Letter of Credit, except as provided in
                  Section 2.5(l) below.

                                      -36-
<PAGE>

         (i)      Conflict with Letter of Credit Application. In the event of
                  any conflict between the terms hereof and the terms of any
                  Letter of Credit Application, the terms hereof shall control.

         (j)      Letter of Credit Fees.

                  (i)      Borrower shall pay to Administrative Agent for the
                           account of the Banks a letter of credit fee payable
                           to the Banks in accordance with their Pro Rata Shares
                           with respect to each Letter of Credit issued or
                           renewed equal to the Applicable Letter of Credit Fee
                           times the daily maximum amount available to be drawn
                           under such Letter of Credit (whether or not such
                           maximum amount is then in effect under such Letter of
                           Credit). Such letter of credit fee shall accrue and
                           be computed on a quarterly basis in arrears, and
                           shall be due and payable on the Quarterly Payment
                           Date, commencing with the first such date to occur
                           after the issuance of such Letter of Credit and on
                           the Maturity Date.

                  (ii)     Borrower shall pay directly to the applicable Issuing
                           Bank for its own account a fronting fee with respect
                           to each Letter of Credit issued or renewed by such
                           Issuing Bank equal to 0.125% per annum times the
                           daily maximum amount which is available to be drawn
                           under such Letter of Credit (whether or not such
                           maximum amount is then in effect under such Letter of
                           Credit). Such fronting fee shall accrue and be
                           computed on a quarterly basis in arrears, and shall
                           be due and payable on the Quarterly Payment Date,
                           commencing with the first such date to occur after
                           the issuance of such Letter of Credit and on the
                           expiry date of such Letter of Credit. In addition,
                           Borrower shall pay directly to the applicable Issuing
                           Bank for its own account the customary issuance,
                           presentation, amendment, and other processing fees,
                           and other standard costs and charges, of such Issuing
                           Bank relating to letters of credit as from time to
                           time in effect. Such customary fees and standard
                           costs and charges are due and payable on demand and
                           are nonrefundable.

         (k)      Number of Issuing Banks/Reports to the Administrative Agent.
                  In addition to Bank of America, Borrower may, with the consent
                  of the Administrative Agent (and the consent of any Bank
                  requested to be an Issuing Bank), designate up to 3 additional
                  Issuing Banks, each of which must be Banks, for the purposes
                  of this Agreement; provided that there shall not be more than
                  4 Issuing Banks hereunder at any time. Each Issuing Bank
                  shall, no later than the 3rd Business Day following the last
                  day of each month, provide to Administrative Agent a report in
                  form and substance reasonably satisfactory to Administrative
                  Agent, showing the date of issuance or amendment of each
                  Letter of Credit, the account party, the original face amount
                  (if any), the expiration date, and the reference number of any
                  Letter of Credit issued or amended during such month. Upon
                  request of any Bank, the Administrative Agent shall forward
                  copies of such reports to such Bank.

         (l)      Existing Letters of Credit. For an Existing Letter of Credit,
                  references to "ISP98" in this Agreement will be deemed to mean
                  references to UCP500, if such Existing Letter of Credit is
                  governed by UCP500.

2.6      Reduction of Commitment. Borrower shall have the right, at any time and
         from time to time, without penalty or charge, upon at least 5 Business
         Days prior written notice voluntarily to reduce or terminate
         permanently and irrevocably, in aggregate principal amounts in an
         integral multiple of $1,000,000 but not less than $5,000,000 (unless
         all of the unused Commitment is being

                                      -37-
<PAGE>

         terminated), all or a portion of the unused Commitment. Borrower shall
         pay to the Administrative Agent on the date of such termination all
         unpaid commitment fees which have accrued to such date in respect of
         the terminated portion of the Commitment.

2.7      [Intentionally Omitted]

2.8      Borrowing Base.

         (a)      Reporting of Borrowing Base. Within 45 days after the end of
                  each Fiscal Quarter, and within 30 days after Borrower loses
                  an Investment Grade Credit Rating, the Borrower shall provide
                  the Administrative Agent with a Borrowing Base Certificate in
                  a form satisfactory to the Administrative Agent showing the
                  Borrower's calculations of the components of the Borrowing
                  Base as of the end of the last Fiscal Quarter and such data
                  supporting such calculations per Exhibit B or in another form
                  as the Administrative Agent may reasonably require; provided
                  that Borrower shall have no obligation to provide a Borrowing
                  Base Certificate to Administrative Agent at any time at which
                  Borrower holds an Investment Grade Credit Rating. Any change
                  in the Borrowing Base shall be effective upon receipt of a
                  Borrowing Base Certificate.

         (b)      Amount of Borrowing Base. As used in this Agreement, the term
                  "Borrowing Base" means a Dollar amount equal to the sum of the
                  following:

                  (i)      Escrow Receivables. 90% of the aggregate GAAP Value
                           of Escrow Receivables; plus

                  (ii)     Developed Lots. 65% of the aggregate GAAP Value of
                           Developed Lots; plus

                  (iii)    Lots Under Development. 65% of the aggregate GAAP
                           Value of Lots Under Development; plus

                  (iv)     Construction Costs. 85% of the aggregate GAAP Value
                           of Construction Costs; plus

                  (v)      Unrestricted Cash. 100% of Unrestricted Cash in
                           excess of $15,000,000;

                  provided, however, that the aggregate of the amounts set forth
                  in clauses (ii) and (iii) shall be less than 50% of the
                  Borrowing Base.

                                      -38-
<PAGE>

                                   ARTICLE III
                               PAYMENTS AND FEES

3.1      Principal and Interest.

         (a)      Interest shall be payable on the outstanding daily unpaid
                  principal amount of each Advance from the date of such Advance
                  until payment in full and shall accrue and be payable at the
                  rates set forth herein, to the extent permitted by applicable
                  Laws, before and after default, before and after maturity,
                  before and after any judgment, and before and after the
                  commencement of any proceeding under any Debtor Relief Law,
                  with interest on overdue interest to bear interest at the
                  Default Rate.

         (b)      Interest accrued on each Base Rate Loan shall be due and
                  payable on the last day of each calendar month. Except as
                  otherwise provided in Section 3.7, the unpaid principal amount
                  of any Base Rate Loan shall bear interest at a fluctuating
                  rate per annum equal to the sum of the Base Rate plus the
                  Applicable Base Rate Spread.

         (c)      Interest accrued on each Eurodollar Rate Loan shall be due and
                  payable on the last day of each calendar month. Except as
                  otherwise provided in Section 3.7, the unpaid principal amount
                  of any Eurodollar Rate Loan shall bear interest at a rate per
                  annum equal to the sum of the Eurodollar Rate for that
                  Eurodollar Rate Loan plus the Applicable Eurodollar Rate
                  Spread.

         (d)      If not sooner paid, the principal Indebtedness evidenced by
                  the Notes shall be payable as follows:

                  (i)      the principal Indebtedness evidenced by the Notes
                           shall be payable within one Business Day in Cash to
                           the extent that the Total Outstandings exceeds at any
                           time the Commitment as then in effect; and

                  (ii)     the principal Indebtedness evidenced by the Notes
                           shall in any event be immediately payable in Cash on
                           the Maturity Date.

         (e)      The Notes may, at any time and from time to time, voluntarily
                  be prepaid at the election of Borrower in whole or in part
                  without premium or penalty; provided that: (i) any partial
                  prepayment shall be in integral multiples of $1,000,000, (ii)
                  any partial prepayment shall be in an amount not less than
                  $1,000,000 on a Base Rate Loan, and not less than $5,000,000
                  on a Eurodollar Rate Loan, (iii) the Administrative Agent must
                  have received written notice (or telephonic notice confirmed
                  promptly in writing) of any prepayment at least 3 Business
                  Days before the date of prepayment in the case of a Eurodollar
                  Rate Loan and by 10:00 a.m., Los Angeles time, on the date of
                  prepayment in the case of a Base Rate Loan, (iv) each
                  prepayment of principal, except for partial prepayments on
                  Base Rate Loans, shall be accompanied by prepayment of
                  interest accrued to the date of payment on the amount of
                  principal paid and (v) in the case of any prepayment of any
                  Eurodollar Rate Loan, Borrower shall promptly upon demand
                  reimburse each Bank for any loss or cost directly or
                  indirectly resulting from the prepayment, determined as set
                  forth in Section 3.6.

                                      -39-
<PAGE>

         (f)      Change in Control.

                  (i)      If a Change in Control shall have occurred, at the
                           option of the Required Banks, Borrower shall repay in
                           Cash the entire principal Indebtedness evidenced by
                           the Notes, together with interest thereon and all
                           other amounts due in connection with the Notes and
                           this Agreement, and deliver to the Administrative
                           Agent an amount equal to the Letter of Credit Usage
                           then outstanding, to be held as cash collateral as
                           provided in Section 9.2(c) (the "Change in Control
                           Repayment"), on the date that is no more than 27
                           Business Days after the occurrence of the Change in
                           Control (the "Change in Control Payment Date"),
                           subject to receipt by Borrower of a Change in Control
                           Payment Notice as set forth in Section 3.1(f)(iii).
                           On the Change in Control Payment Date, the Commitment
                           shall automatically terminate.

                  (ii)     Within 15 Business Days after the occurrence of a
                           Change in Control, Borrower shall provide written
                           notice of the Change in Control to the Administrative
                           Agent and each Bank. The notice shall state:

                           (A)      the events causing a Change in Control and
                                    the date of such Change in Control;

                           (B)      the date by which the Change in Control
                                    Payment Notice (as defined in Section
                                    3.1(f)(iii)) must be given; and

                           (C)      the Change in Control Payment Date.

                  (iii)    At the direction of the Required Banks, the
                           Administrative Agent shall, on behalf of the Banks,
                           exercise the rights specified in Section 3.1(f)(i) by
                           delivery of a written notice (a "Change in Control
                           Payment Notice") to Borrower at any time prior to or
                           on the Change in Control Payment Date, stating that
                           the Notes shall be prepaid and cash collateral shall
                           be provided for the Letter of Credit Usage on the
                           Change in Control Payment Date. On the Change in
                           Control Payment Date, Borrower shall make the Change
                           in Control Repayment to the Administrative Agent for
                           the benefit of the Banks, and the Commitment shall
                           terminate.

3.2      Commitment Fee. From the Closing Date until the Maturity Date, Borrower
         shall pay to the Administrative Agent, for the account of each Bank,
         pro rata according to that Bank's Pro Rata Share of the Commitment, a
         commitment fee equal to the Applicable Commitment Fee Rate per annum in
         effect from time to time times the average daily amount by which the
         Commitment exceeds the aggregate outstanding principal of the Loans
         evidenced by the Notes plus the Letter of Credit Usage plus the Swing
         Line Outstandings. This commitment fee shall accrue daily and be
         payable in arrears with respect to each calendar quarter on the
         Quarterly Payment Date falling at the end of such calendar quarter. The
         Administrative Agent shall calculate the commitment fee and the amount
         thereof allocable to each Bank according to that Bank's Pro Rata Share
         of the Commitment and shall notify Borrower in writing of such amounts.

3.3      Other Fees. Borrower shall pay to Bank of America such other fees in
         such amounts and at such times as heretofore agreed upon by letter
         agreement between Borrower and Bank of America.

3.4      [Intentionally Omitted].

                                      -40-
<PAGE>

3.5      Capital Adequacy.

         (a)      If any Bank (an "Affected Bank") determines that compliance
                  with any Law or regulation or with any guideline or request
                  from any central bank or other Governmental Agency (whether or
                  not having the force of Law) enacted or issued after the
                  Closing Date relating to the capital adequacy of banks or
                  corporations in control of banks has or would have the effect
                  of reducing the rate of return on the capital of such Affected
                  Bank or any corporation controlling such Affected Bank as a
                  consequence of, or with reference to, such Affected Bank's Pro
                  Rata Share of the Commitment below the rate which the Bank or
                  such other corporation could have achieved but for such
                  compliance (taking into account the policies of such Bank or
                  corporation with regard to capital adequacy), then Borrower
                  shall from time to time, upon demand by such Affected Bank in
                  accordance with this Section 3.5 (with a copy of such demand
                  to the Administrative Agent), within 15 days after demand pay
                  to such Affected Bank additional amounts sufficient to
                  compensate such Affected Bank or other corporation for such
                  reduction.

         (b)      An Affected Bank may not seek compensation under Section
                  3.5(a) unless the demand for such compensation is delivered to
                  Borrower within 6 months following the date of enactment or
                  issuance of the Law, regulation, guideline or request giving
                  rise to such demand for compensation.

         (c)      A certificate as to any amounts for which an Affected Bank is
                  seeking compensation under Section 3.5(a), submitted to
                  Borrower and the Administrative Agent by such Affected Bank,
                  shall be conclusive and binding for all purposes, absent
                  manifest error. Each Affected Bank shall calculate such
                  amounts in a manner which is consistent with the manner in
                  which it makes calculations for comparable claims with respect
                  to similarly situated borrowers from such Affected Bank, will
                  not allocate to Borrower a proportionately greater amount of
                  such compensation than it allocates to each of its other
                  commitments to lend or other loans with respect to which it is
                  entitled to demand comparable compensation, and will not
                  include amounts already factored into the rates of interest or
                  fees already provided for herein. Each Bank agrees promptly to
                  notify Borrower and the Administrative Agent of any
                  circumstances that would cause Borrower to pay additional
                  amounts pursuant to this Section, provided that the failure to
                  give such notice shall not affect Borrower's obligation to pay
                  such additional amounts hereunder.

         (d)      Without limiting its obligation to reimburse an Affected Bank
                  for compensation theretofore claimed by an Affected Bank
                  pursuant to Section 3.5(a), Borrower may, within 60 days
                  following any demand by an Affected Bank, request that one or
                  more Persons that are Eligible Assignees and that are
                  acceptable to Borrower and approved by the Administrative
                  Agent (which approval shall not be unreasonably withheld)
                  purchase all (but not part) of the Affected Bank's then
                  outstanding Advances, its Note and its participation interest
                  in outstanding Letters of Credit, and assume its Pro Rata
                  Share of the Commitment and its obligations hereunder. If one
                  or more such Banks or banks so agree in writing (each, an
                  "Assuming Bank" and collectively, the "Assuming Banks"), the
                  Affected Bank shall assign its Pro Rata Share of the
                  Commitment, together with the Indebtedness then evidenced by
                  its Note and its participation interest in outstanding Letters
                  of Credit, to the Assuming Bank or Assuming Banks in
                  accordance with Section 11.8. On the date of any such
                  assignment, the Affected Bank which is being so replaced shall
                  cease to be a "Bank" for all purposes of this Agreement and
                  shall receive (x) from the Assuming Bank or Assuming Banks the
                  principal amount of its Advances then outstanding and (y) from
                  Borrower all interest and fees accrued and then unpaid

                                      -41-
<PAGE>

                  with respect to such Advances, together with any other amounts
                  accrued or then payable to such Bank by Borrower. In the event
                  the Affected Bank is also an Issuing Bank, then the Assuming
                  Bank shall become an Issuing Bank for all purposes of this
                  Agreement and shall either (at the Affected Bank's election,
                  subject to the approval of Borrower, the Administrative Agent
                  and the Assuming Bank (which approvals shall not be
                  unreasonably withheld) and, in the case of clause (i) below,
                  the approval of the applicable Letter of Credit beneficiaries)
                  (i) issue new letters of credit to replace the outstanding
                  Letters of Credit issued by the Affected Bank, or (ii) issue
                  new letters of credit to the Affected Bank in support of the
                  outstanding Letters of Credit issued by the Affected Bank,
                  whereupon such outstanding Letters of Credit shall no longer
                  be considered "Letters of Credit" under this Agreement, and
                  such new letters of credit shall be considered Letters of
                  Credit for all purposes of this Agreement (including the
                  participation therein by the other Banks pursuant to Section
                  2.5).

3.6      Eurodollar Fees and Costs.

         (a)      If the occurrence of any Regulatory Development after the
                  Closing Date:

                  (i)      shall subject any Bank or its Eurodollar Lending
                           Office to any tax, duty or other charge or cost with
                           respect to any Eurodollar Advance or its obligation
                           to make Eurodollar Advances, or shall change the
                           basis of taxation of payments to any Bank of the
                           principal of or interest on any Eurodollar Advance or
                           any other amounts due under this Agreement in respect
                           of any Eurodollar Advance or its obligation to make
                           Eurodollar Advances (except for changes in any tax on
                           the overall net income, gross income or gross
                           receipts of such Bank or its Eurodollar Lending
                           Office);

                  (ii)     shall impose, modify or deem applicable any reserve
                           (including any reserve imposed by the Board of
                           Governors of the Federal Reserve System), special
                           deposit or similar requirements (excluding any such
                           requirement included in any applicable Eurodollar
                           Reserve Percentage) against assets of, deposits with
                           or for the account of, or credit extended by, any
                           Bank or its Eurodollar Lending Office; or

                  (iii)    shall impose on any Bank or its Eurodollar Lending
                           Office or the London interbank eurodollar market any
                           other condition affecting any Eurodollar Advance or
                           its obligation to make Eurodollar Advances, or shall
                           otherwise affect any of the same;

                  and the result of any of the foregoing, as determined by such
                  Bank, increases the cost to such Bank or its Eurodollar
                  Lending Office of making or maintaining any Eurodollar Advance
                  or in respect of any Eurodollar Advance or its obligation to
                  make Eurodollar Advances or reduces the amount of any sum
                  received or receivable by such Bank or its Eurodollar Lending
                  Office with respect to any Eurodollar Advance or its
                  obligation to make Eurodollar Advances (assuming such Bank's
                  Eurodollar Lending Office had funded 100% of its Eurodollar
                  Advance in the London interbank eurodollar market), then,
                  within 15 days after demand by such Bank (with a copy to the
                  Administrative Agent), Borrower shall pay to such Bank such
                  additional amount or amounts as will compensate such Bank for
                  such increased cost or reduction (determined as though such
                  Bank's Eurodollar Lending Office had funded 100% of its
                  Eurodollar Advance in the London interbank eurodollar market);
                  provided that Borrower shall not be liable to any Bank for any
                  such

                                      -42-
<PAGE>

                  increased cost or reduction pursuant to this Section in
                  respect of any period which is more than 6 months prior to
                  such Bank's demand for such compensation. A statement of any
                  Bank claiming compensation under this subsection and setting
                  forth the additional amount or amounts to be paid to it
                  hereunder shall be conclusive in the absence of manifest
                  error. Each Bank agrees to endeavor promptly to notify
                  Borrower of any event of which it has actual knowledge which
                  will entitle such Bank to compensation pursuant to this
                  Section, and agrees to designate a different Eurodollar
                  Lending Office if such designation will avoid the need for or
                  reduce the amount of such compensation and will not, in the
                  judgment of such Bank, otherwise be disadvantageous to such
                  Bank. If any Bank claims compensation under this Section,
                  Borrower may at any time, upon at least 4 Business Days' prior
                  notice to the Administrative Agent and such Bank and upon
                  payment in full of the amounts provided for in this Section
                  through the date of such payment plus any prepayment fee
                  required by Section 3.6(d), pay in full the affected
                  Eurodollar Advances of such Bank or request that such
                  Eurodollar Advances be converted to Base Rate Advances.

         (b)      If after the Closing Date the occurrence of any Regulatory
                  Development shall, in the opinion of any Bank, make it
                  unlawful or impossible for such Bank or its Eurodollar Lending
                  Office to make, maintain or fund its portion of any Eurodollar
                  Rate Loan, or to take deposits of, dollars in the London
                  interbank eurodollar market, or to determine or charge
                  interest rates based upon the Eurodollar Rate, and such Bank
                  shall so notify the Administrative Agent, then such Bank's
                  obligation to make Eurodollar Advances shall be suspended for
                  the duration of such illegality or impossibility and the
                  Administrative Agent forthwith shall give notice thereof to
                  the other Banks and Borrower. Before giving any notice to the
                  Administrative Agent pursuant to this Section, such Bank shall
                  designate a different Lending Office if such designation will
                  avoid the need for giving such notice and will not, in the
                  judgment of such Bank, be otherwise disadvantageous to such
                  Bank. Upon receipt of such notice, the outstanding principal
                  amount of such Bank's Eurodollar Advances, together with
                  accrued interest thereon, automatically shall be converted to
                  Base Rate Advances with Interest Periods corresponding to the
                  Eurodollar Rate Loans of which such Eurodollar Advances were a
                  part on either (1) the last day of the Interest Period(s)
                  applicable to such Eurodollar Advances if such Bank may
                  lawfully continue to maintain and fund such Eurodollar
                  Advances to such day(s) or (2) immediately if such Bank may
                  not lawfully continue to fund and maintain such Eurodollar
                  Advances to such day(s), provided that in such event the
                  conversion shall not be subject to payment of a prepayment fee
                  under Section 3.6(d). In the event that any Bank is unable,
                  for the reasons set forth above, to make, maintain or fund its
                  portion of any Eurodollar Rate Loan, such Bank shall fund such
                  amount as a Base Rate Advance for the same period of time, and
                  such amount shall be treated in all respects as a Base Rate
                  Advance.

         (c)      If, with respect to any proposed Eurodollar Rate Loan:

                  (i)      the Administrative Agent reasonably determines that,
                           by reason of circumstances affecting the London
                           interbank eurodollar market generally that are beyond
                           the reasonable control of the Banks, deposits in
                           dollars (in the applicable amounts) are not being
                           offered to each of the Banks in the London interbank
                           eurodollar market for the applicable Interest Period;
                           or

                                      -43-
<PAGE>

                  (ii)     the Required Banks advise the Administrative Agent
                           that the Eurodollar Rate as determined by the
                           Administrative Agent will not adequately and fairly
                           reflect the cost to such Banks of making the
                           applicable Eurodollar Advances;

                  then the Administrative Agent forthwith shall give notice
                  thereof to Borrower and the Banks, whereupon until the
                  Administrative Agent notifies Borrower that the circumstances
                  giving rise to such suspension no longer exist, the obligation
                  of the Banks to make any future Eurodollar Advances shall be
                  suspended. If at the time of such notice there is then pending
                  a Loan Notice that specifies a Eurodollar Rate Loan, such Loan
                  Notice shall be deemed to specify a Base Rate Loan.

         (d)      Upon payment or prepayment of any Eurodollar Advance (other
                  than as the result of a conversion required under Section
                  3.6(b)) on a day other than the last day in the applicable
                  Interest Period (whether voluntarily, involuntarily, by reason
                  of acceleration, or otherwise), or upon the failure of
                  Borrower to borrow on the date or in the amount specified for
                  a Eurodollar Rate Loan in any Loan Notice, Borrower shall pay
                  to each Bank an amount equal to the sum of

                  (i)      $250; plus

                  (ii)     the amount, if any, by which (x) the additional
                           interest that would have accrued (without any
                           Applicable Eurodollar Rate Spread) on the principal
                           amount prepaid on account of the Eurodollar Advance
                           had it remained outstanding until the last day of the
                           applicable Interest Period, exceeds (y) the interest
                           that Bank could recover by placing funds in the
                           amount of the prepayment on deposit in the London
                           interbank eurodollar market selected by that Bank for
                           a period beginning on the date of the prepayment and
                           ending on the last day of the applicable Interest
                           Period, or for a comparable period for which an
                           appropriate rate quote may be obtained; plus

                  (iii)    an amount equal to all costs and expenses which that
                           Bank incurred or reasonably expects to incur in
                           liquidating and reinvesting the prepayment.

                  Each Bank's determination of the amount of any prepayment fee
                  or failure to borrow fee payable under this Section 3.6(d)
                  shall be conclusive in the absence of manifest error.

         (e)      Any statement or certificate given by a Bank under this
                  Section 3.6 shall satisfy the requirements set forth in
                  Section 3.6(c) with respect to requests for reimbursement
                  under Section 3.6(a).

         (f)      Should any Bank demand payment under the provisions of Section
                  3.6(a) or should any Bank's Eurodollar Advances be suspended
                  under the provisions of Section 3.6(b), then without limiting
                  its obligation to reimburse any Bank for compensation claimed
                  by such Bank pursuant to this Section 3.6, Borrower may,
                  within 60 days following such occurrence, treat that Bank as
                  an "Affected Bank" under Section 3.5(d), and exercise the
                  remedies set forth in such Section 3.5(d).

3.7      Late Payments/Default Interest. If any installment of principal or
         interest under the Notes or any other amount payable to the Banks under
         any Loan Document is not paid when due, it shall thereafter bear
         interest at a fluctuating interest rate per annum at all times equal to
         the sum of the Base Rate plus the Applicable Base Rate Spread plus 2%
         (the "Default Rate"), provided however

                                      -44-
<PAGE>

         that, subject to the following sentence, principal, interest or other
         amounts due with respect to Eurodollar Rate Loans shall bear interest
         at a fluctuating rate per annum at all times equal to the sum of the
         Eurodollar Rate plus the Applicable Eurodollar Rate Spread plus 2%; in
         each case, to the extent permitted by applicable Law, until paid in
         full (whether before or after judgment). Upon and during the
         continuance of any Event of Default, the Indebtedness evidenced by the
         Notes shall, at the election of the Required Banks and upon notice to
         Borrower (and in lieu of interest provided for in the preceding
         sentence), bear interest at a fluctuating interest rate per annum at
         all times equal to the Default Rate, to the extent permitted by
         applicable Law, until no Event of Default exists (whether before or
         after judgment). Notwithstanding the preceding sentence, after the
         occurrence of any Event of Default under Sections 6.7, 6.10 or 6.16,
         the Indebtedness evidenced by the Notes may not bear interest at the
         increased rate provided for in the preceding sentence until such Event
         of Default has continued for at least 15 days, in the case of Section
         6.7, or 30 days, in the case of Sections 6.10 or 6.16.

3.8      Computation of Interest and Fees. All computations of interest and fees
         hereunder shall be calculated on the basis of a year of 360 days and
         paid for the actual number of days elapsed (including the first day and
         excluding the last day), which results in greater interest than if a
         year of 365 days were used. Any Loan that is repaid on the same day on
         which it is made shall bear interest for one day.

3.9      Holidays. If any payment to be made by the Borrower shall come due on a
         day other than a Business Day, payment shall be made on the next
         following Business Day, and such extension of time shall be reflected
         in computing interest or fees, as the case may be.

3.10     Payment Free of Taxes.

         (a)      Any payments made by any Party under the Loan Documents shall
                  be made free and clear of, and without reduction by reason of,
                  any tax, assessment or other charge imposed by any
                  Governmental Agency, central bank or comparable authority
                  (other than taxes on income or gross receipts generally
                  applicable to banks). To the extent that Borrower is obligated
                  by applicable Laws to make any deduction or withholding on
                  account of taxes, assessments or other charges imposed by any
                  Governmental Agency from any amount payable to any Bank under
                  this Agreement, Borrower shall (a) make such deduction or
                  withholding and pay the same to the relevant Governmental
                  Agency and (b) pay such additional amount to that Bank as is
                  necessary to result in that Bank's receiving a net after-tax
                  (or after-assessment or after-charge) amount equal to the
                  amount to which that Bank would have been entitled under this
                  Agreement absent such deduction or withholding. If and when
                  receipt of such payment results in an excess payment or credit
                  to that Bank on account of such taxes, assessments or other
                  charges, that Bank shall refund such excess to Borrower. Each
                  Bank that is incorporated under the Laws of a jurisdiction
                  other than the United States of America or any state thereof
                  shall deliver to Borrower, with a copy to the Administrative
                  Agent, within twenty days after the Closing Date (or such
                  later date on which such Bank becomes a "Bank" hereunder), a
                  certificate signed by a Responsible Official of that Bank to
                  the effect that such Bank is entitled to receive payments of
                  interest and other amounts payable under this Agreement
                  without deduction or withholding on account of United States
                  of America federal income taxes, which certificate shall be
                  accompanied by 2 copies of Internal Revenue Service Form
                  W-8BEN, or any successor thereto, or Form W-8ECI, or any
                  successor thereto, as applicable, also executed by a
                  Responsible Official of that Bank. Each such Bank agrees (i)
                  promptly to notify the Administrative Agent and Borrower if
                  any fact set forth in such certificate ceases to be true and
                  correct and (ii) to take such steps as may be reasonably

                                      -45-
<PAGE>

                  necessary to avoid any requirement of applicable Laws that
                  Borrower make any deduction or withholding for taxes from
                  amounts payable to that Bank under this Agreement.

         (b)      Without limiting its obligation to pay any additional amount
                  to a Bank pursuant to Section 3.10(a), Borrower may, within 60
                  days following any such payment by that Bank, treat that Bank
                  as an "Affected Bank" under Section 3.5(d), and exercise the
                  remedies set forth in such Section 3.5(d).

3.11     Funding Sources. Nothing in this Agreement shall be deemed to obligate
         any Bank to obtain the funds for its share of any Loan in any
         particular place or manner or to constitute a representation by any
         Bank that it has obtained or will obtain the funds for its share of any
         Loan in any particular place or manner.

3.12     Failure to Charge or Making of Payment Not Subsequent Waiver. Any
         decision by any Bank not to require payment of any fee or costs, or to
         reduce the amount of the payment required for any fee or costs, or to
         calculate any fee or any cost in any particular manner, shall not limit
         or be deemed a waiver of any Bank's right to require full payment of
         any fee or costs, or to calculate any fee or any costs in any other
         manner. Any decision by Borrower to pay any fee or costs shall not
         limit or be deemed a waiver of any right of Borrower to protest or
         dispute the payment amount of such fee or costs.

3.13     Time and Place of Payments; Evidence of Payments; Application of
         Payments. All payments to be made by the Borrower shall be made without
         conditions or deduction for any counterclaim, defense, recoupment or
         setoff. The amount of each payment hereunder, under the Notes or under
         any Loan Document shall be made to the Administrative Agent at the
         Administrative Agent's Office, for the account of each of the Banks or
         the Administrative Agent, as the case may be, in lawful money of the
         United States of America without deduction, offset or counterclaim and
         in immediately available funds on the day of payment (which must be a
         Business Day). All payments of principal received after 10:00 a.m., Los
         Angeles time, on any Business Day, shall be deemed received on the next
         succeeding Business Day for purposes of calculating interest thereon.
         The amount of all payments received by the Administrative Agent for the
         account of a Bank shall be promptly paid by the Administrative Agent to
         that Bank in immediately available funds. Each Bank shall keep a record
         of Advances made by it and payments of principal with respect to each
         Note, and such record shall be presumptive evidence of the principal
         amount owing under such Note; provided that failure to keep such record
         shall in no way affect the Obligations of Borrower hereunder. Prior to
         the Maturity Date or an acceleration of the maturity of the Loans,
         payments under the Loan Documents shall be applied first to amounts
         owing under the Loan Documents other than the principal amount of and
         accrued interest on the Loans and Borrower's obligations with respect
         to Letter of Credit Usage, second to accrued interest on the Swing Line
         Loans, third to accrued interest on the Loans (other than the Swing
         Line Loans), fourth, to the principal amount of the Swing Line Loans,
         fifth, to the principal amount of the Loans (other than the Swing Line
         Loans) and sixth to Borrower's Obligations with respect to Letter of
         Credit Usage then due and owing. Following the Maturity Date or an
         acceleration of the maturity of the Loans, payments and recoveries
         under the Loan Documents shall be applied in a manner designated in
         Section 9.2(e). All payments with respect to principal and interest
         shall be applied ratably in accordance with the Pro Rata Shares.

3.14     Administrative Agent's Right to Assume Payments Will be Made. Unless
         the Borrower or any Bank has notified the Administrative Agent, prior
         to the date any payment is required to be made by it to the
         Administrative Agent hereunder, that the Borrower or such Bank, as the
         case may be,

                                      -46-
<PAGE>

         will not make such payment, the Administrative Agent may assume that
         the Borrower or such Bank, as the case may be, has timely made such
         payment and may (but shall not be so required to), in reliance thereon,
         make available a corresponding amount to the Person entitled thereto.
         If and to the extent that such payment was not in fact made to the
         Administrative Agent in immediately available funds, then:

         (a)      if the Borrower failed to make such payment, each Bank shall
                  forthwith on demand repay to the Administrative Agent the
                  portion of such assumed payment that was made available to
                  such Bank in immediately available funds, together with
                  interest thereon in respect of each day from and including the
                  date such amount was made available by the Administrative
                  Agent to such Bank to the date such amount is repaid to the
                  Administrative Agent in immediately available funds at the
                  Federal Funds Rate from time to time in effect; and

         (b)      if any Bank failed to make such payment, such Bank shall
                  forthwith on demand pay to the Administrative Agent the amount
                  thereof in immediately available funds, together with interest
                  thereon for the period from the date such amount was made
                  available by the Administrative Agent to the Borrower to the
                  date such amount is recovered by the Administrative Agent (the
                  "Compensation Period") at a rate per annum equal to the
                  Federal Funds Rate from time to time in effect. If such Bank
                  pays such amount to the Administrative Agent, then such amount
                  shall constitute such Bank's Advance included in the
                  applicable Loan. If such Bank does not pay such amount
                  forthwith upon the Administrative Agent's demand therefor, the
                  Administrative Agent may make a demand therefor upon the
                  Borrower, and the Borrower shall pay such amount to the
                  Administrative Agent, together with interest thereon for the
                  Compensation Period at a rate per annum equal to the rate of
                  interest applicable to the applicable Advance. Nothing herein
                  shall be deemed to relieve any Bank from its obligation to
                  fulfill its Pro Rata Share of the Commitment or to prejudice
                  any rights which the Administrative Agent or the Borrower may
                  have against any Bank as a result of any default by such Bank
                  hereunder.

         A notice of the Administrative Agent to any Bank or the Borrower with
         respect to any amount owing under this Section 3.14 shall be
         conclusive, absent manifest error.

3.15     Survivability. All of Borrower's obligations under this Article III
         shall survive termination of the Commitments and repayment of all other
         Obligations hereunder.

3.16     Bank Calculation Certificate. Any request for compensation pursuant to
         Section 3.5 or 3.6 shall be accompanied by a statement of an officer of
         the Bank requesting such compensation and describing the methodology
         used by such Bank in calculating the amount of such compensation, which
         methodology (i) may consist of any reasonable averaging and attribution
         methods and (ii) in the case of Section 3.5 hereof shall be consistent
         with the methodology used by such Bank in making similar calculations
         in respect of loans or commitments to other borrowers.

3.17     Transition.

         (a)      Borrower warrants and covenants that as of the Closing Date
                  there will be no loans of any nature outstanding under the
                  Prior Loan Agreements. The parties hereto agree that as of the
                  Closing Date all commitments to extend credit under the Prior
                  Loan Agreements shall terminate.

                                      -47-
<PAGE>

         (b)      The letters of credit identified on Schedule 3.17 ("Existing
                  Letters of Credit") were issued by Bank of America for the
                  account of Borrower as "Letters of Credit" pursuant to the
                  terms of the Prior Revolving Loan Agreement and are expected
                  to remain outstanding on the Closing Date. The parties hereto
                  agree that the Existing Letters of Credit shall be deemed for
                  all purposes to be Letters of Credit issued pursuant to the
                  terms of Section 2.5.

         (c)      The Banks hereby agree to make appropriate adjustments among
                  themselves (and any "Bank" under the Prior Revolving Loan
                  Agreement who is not a party to this Agreement) with respect
                  to the letter of credit fees to be paid with respect to the
                  Existing Letters of Credit. Such adjustments shall be as of
                  the Closing Date and shall be based upon any change in the pro
                  rata share held by each such Bank in the Commitment under this
                  Agreement from the pro rata share held by each such Bank in
                  the "Commitment" under the Prior Revolving Loan Agreement. The
                  Administrative Agent shall, on or prior to January 31, 2004,
                  send a settlement billing to each such Bank with respect to
                  such adjustments, which settlement billing shall be conclusive
                  in the absence of manifest error.

                                      -48-
<PAGE>

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to the Banks that:

4.1      Existence and Qualification; Power; Compliance with Law. Borrower is a
         corporation duly organized, validly existing and in good standing under
         the Laws of Delaware, and its certificate of incorporation does not
         provide for the termination of its existence. Borrower is duly
         qualified or registered to transact business as a foreign corporation
         in the State of California, and in each other jurisdiction in which the
         conduct of its business or the ownership of its properties makes such
         qualification or registration necessary, except where the failure so to
         qualify or register would not constitute a Material Adverse Effect.
         Borrower has all requisite corporate power and authority to conduct its
         business, to own and lease its Properties and to execute, deliver and
         perform all of its obligations under the Loan Documents. All
         outstanding shares of capital stock of Borrower are duly authorized,
         validly issued, fully paid, non-assessable, and were issued in
         compliance with all applicable state and federal securities Laws,
         except where the failure to so comply would not constitute a Material
         Adverse Effect. Borrower is in substantial compliance with all Laws and
         other legal requirements applicable to its business, has obtained all
         authorizations, consents, approvals, orders, licenses and permits
         (collectively, "Authorizations") from, and has accomplished all
         filings, registrations and qualifications with, or obtained exemptions
         from any of the foregoing from, any Governmental Agency that are
         necessary for the transaction of its business, except where the failure
         so to obtain Authorizations, comply, file, register, qualify or obtain
         exemptions does not constitute a Material Adverse Effect.

4.2      Authority; Compliance with Other Instruments and Government
         Regulations. The execution, delivery, and performance by Borrower, and
         by each Guarantor Subsidiary of Borrower, of the Loan Documents to
         which it is a Party, have been duly authorized by all necessary
         corporate action, and do not:

         (a)      require any consent or approval not heretofore obtained of any
                  stockholder, partner, security holder, or creditor of such
                  Party;

         (b)      violate or conflict with any provision of such Party's
                  charter, certificate or articles of incorporation, bylaws,
                  certificate or articles of organization, operating agreement,
                  partnership agreement or other organizational or governing
                  documents of such Party;

         (c)      result in or require the creation or imposition of any Lien or
                  Right of Others upon or with respect to any Property now owned
                  or leased or hereafter acquired by such Party;

         (d)      constitute a "transfer of an interest" or an "obligation
                  incurred" that is avoidable by a trustee under Section 548 of
                  the Bankruptcy Code of 1978, as amended, or constitute a
                  "fraudulent transfer" or "fraudulent obligation" within the
                  meaning of the Uniform Fraudulent Transfer Act as enacted in
                  any jurisdiction or any analogous Law;

         (e)      violate any Requirement of Law applicable to such Party; or

         (f)      result in a breach of or constitute a default under, or cause
                  or permit the acceleration of any obligation owed under, any
                  indenture or loan or credit agreement or any other Contractual
                  Obligation to which such Party or any of its Property is bound
                  or affected;

                                      -49-
<PAGE>

         and neither Borrower nor any Subsidiary of Borrower is in violation of,
         or default under, any Requirement of Law or Contractual Obligation, or
         any indenture, loan or credit agreement described in Section 4.2(f) in
         any respect that would constitute a Material Adverse Effect.

4.3      No Governmental Approvals Required. Except such as have heretofore been
         obtained, no authorization, consent, approval, order, license or permit
         from, or filing, registration, or qualification with, or exemption from
         any of the foregoing from, any Governmental Agency is or will be
         required to authorize or permit the execution, delivery and performance
         by Borrower or any Significant Subsidiary of Borrower of the Loan
         Documents to which it is a Party.

4.4      Subsidiaries.

         (a)      Schedule 4.4 correctly sets forth the names, the form of legal
                  entity and jurisdictions of organization of all Subsidiaries
                  of Borrower as of the Closing Date and identifies each such
                  Subsidiary that is a Consolidated Subsidiary, a Significant
                  Subsidiary, a Guarantor Subsidiary, a Foreign Subsidiary and a
                  Financial Subsidiary. As of the Closing Date, unless otherwise
                  indicated in Schedule 4.4, all of the outstanding shares of
                  capital stock, or all of the units of equity interest, as the
                  case may be, of each Subsidiary indicated thereon are owned of
                  record and beneficially by Borrower or one of such
                  Subsidiaries, and all such shares or equity interests so owned
                  were issued in compliance with all state and federal
                  securities Laws and are duly authorized, validly issued, fully
                  paid and non-assessable (other than with respect to required
                  capital contributions to any joint venture in accordance with
                  customary terms and provisions of the related joint venture
                  agreement), except where the failure to so comply would not
                  constitute a Material Adverse Effect, and are free and clear
                  of all Liens and Rights of Others, except for Permitted
                  Encumbrances and Permitted Rights of Others.

         (b)      Each Significant Subsidiary is duly organized, validly
                  existing and in good standing under the Laws of its
                  jurisdiction of organization, is duly qualified to do business
                  as a foreign organization and is in good standing as such in
                  each jurisdiction in which the conduct of its business or the
                  ownership or leasing of its Properties makes such
                  qualification necessary (except where the failure to be so
                  duly qualified and in good standing does not constitute a
                  Material Adverse Effect) and has all requisite power and
                  authority to conduct its business, to own and lease its
                  Properties and to execute, deliver and perform the Loan
                  Documents to which it is a Party.

         (c)      Each Significant Subsidiary is in substantial compliance with
                  all Laws and other requirements applicable to its business and
                  has obtained all Authorizations from, and each such
                  Significant Subsidiary has accomplished all filings,
                  registrations, and qualifications with, or obtained exemptions
                  from any of the foregoing from, any Governmental Agency that
                  are necessary for the transaction of its business, except
                  where the failure so to obtain Authorizations, comply, file,
                  register, qualify or obtain exemptions does not constitute a
                  Material Adverse Effect.

4.5      Financial Statements. Borrower has furnished to each Bank the following
         financial statements:

         (a)      the audited consolidated financial statements of Borrower and
                  its Consolidated Subsidiaries as at November 30, 2002 and for
                  the Fiscal Year then ended; and

                                      -50-
<PAGE>

         (b)      the unaudited consolidating financial statements of Borrower
                  and its Consolidated Subsidiaries as at August 31, 2003 for
                  the Fiscal Quarter then ended and for the portion of the
                  Fiscal Year ended with such Fiscal Quarter.

         The audited financial statements described in clause (a) are in
         accordance with the books and records of Borrower and its Consolidated
         Subsidiaries, were prepared in accordance with Generally Accepted
         Accounting Principles consistently applied and fairly present in
         accordance with Generally Accepted Accounting Principles consistently
         applied the consolidated financial condition and results of operations
         of Borrower and its Consolidated Subsidiaries as at the date and for
         the period covered thereby. The unaudited financial statements
         described in clause (b), are in accordance with the books and records
         of Borrower and its Consolidated Subsidiaries, were prepared in
         accordance with Generally Accepted Accounting Principles consistently
         applied and fairly present in accordance with Generally Accepted
         Accounting Principles consistently applied the consolidating financial
         condition and results of operation of Borrower and its Consolidated
         Subsidiaries as at the date and for the period covered thereby.

4.6      No Other Liabilities; No Material Adverse Effect. Borrower and its
         Consolidated Subsidiaries do not have any material liability or
         material contingent liability not reflected or disclosed in the
         financial statements or in the notes to the financial statements
         described in Section 4.5, other than liabilities and contingent
         liabilities arising in the ordinary course of business subsequent to
         November 30, 2002. Since November 30, 2002, no event or circumstance
         has occurred that constitutes a Material Adverse Effect with respect to
         Borrower and its Subsidiaries.

4.7      Title to Assets.

         (a)      Borrower and its Consolidated Subsidiaries have good and valid
                  title to all of the assets reflected in the financial
                  statements described in Section 4.5 owned by them or any of
                  them (other than assets disposed of in the ordinary course of
                  business), free and clear of all Liens and Rights of Others
                  other than (i) those reflected or disclosed in the notes to
                  the financial statements described in Section 4.5, (ii)
                  immaterial Liens or Rights of Others not required under
                  Generally Accepted Accounting Principles consistently applied
                  to be so reflected or disclosed, (iii) Liens permitted
                  pursuant to Section 6.7, (iv) Permitted Rights of Others, and
                  (v) such existing Liens or Rights of Others as are described
                  on Schedule 4.7 hereto.

         (b)      The Borrower and its Borrowing Base Subsidiaries have good
                  record and marketable title in fee simple to all Developed
                  Lots, Lots Under Development and Units being constructed on
                  Developed Lots included in the Borrowing Base (as set forth in
                  the Borrowing Base Certificate delivered by Borrower to the
                  Administrative Agent pursuant to Section 8.1(a)(x)), except
                  for defects in title that do not interfere in any material
                  respect with its ability to conduct its business as currently
                  conducted or to utilize such properties for their intended
                  purposes.

4.8      Intangible Assets. Borrower and its Subsidiaries own, or possess the
         unrestricted right to use, all trademarks, trade names, copyrights,
         patents, patent rights, licenses and other intangible assets that are
         necessary in the conduct of their businesses as operated, and no such
         intangible asset, to the best knowledge of Borrower, conflicts with the
         valid trademark, trade name, copyright, patent, patent right or
         intangible asset of any other Person to the extent that such conflict
         would constitute a Material Adverse Effect.

                                      -51-
<PAGE>

4.9      Existing Indebtedness and Contingent Guaranty Obligations. As of August
         31, 2003, except as set forth in Schedule 4.9, neither Borrower nor any
         of its Subsidiaries has (a) any Indebtedness owed to any Person or (b)
         outstanding any Contingent Guaranty Obligation with respect to
         obligations of another Person that is not a Subsidiary of Borrower.

4.10     Governmental Regulation. Neither Borrower nor any of its Subsidiaries
         is subject to regulation under the Public Utility Holding Company Act
         of 1935, the Federal Power Act, the Interstate Commerce Act or the
         Investment Company Act of 1940.

4.11     Litigation. There are no actions, suits, or proceedings pending or, to
         the best knowledge of Borrower, threatened against or affecting
         Borrower or any of its Subsidiaries or any Property of any of them
         before any Governmental Agency which would constitute a Material
         Adverse Effect. To the best knowledge of the Borrower, there are no
         investigations by any Governmental Agency pending or threatened against
         or affecting Borrower or any of its Subsidiaries or any Property of any
         of them which would constitute a Material Adverse Effect.

4.12     Binding Obligations. Each of the Loan Documents to which Borrower or
         any Guarantor Subsidiary of Borrower is a Party constitutes the legal,
         valid and binding obligation of Borrower or the Guarantor Subsidiary,
         as the case may be, enforceable against Borrower or the Guarantor
         Subsidiary, as the case may be, in accordance with its terms, except as
         enforcement may be limited by Debtor Relief Laws or by equitable
         principles relating to the granting of specific performance and other
         equitable remedies as a matter of judicial discretion.

4.13     No Default. No event has occurred and is continuing that is a Default
         or an Event of Default.

4.14     Pension Plans. All contributions required to be made under any Pension
         Plan maintained by Borrower or any of its ERISA Affiliates (or to which
         Borrower or any ERISA Affiliate contributes or is required to
         contribute) have been made or accrued in the most recent balance sheet
         of Borrower and its Consolidated Subsidiaries. There is no "accumulated
         funding deficiency" within the meaning of Section 302 of ERISA or any
         liability to the PBGC (other than for premiums) with respect to any
         such Pension Plan other than a Multiemployer Plan.

4.15     Tax Liability. Borrower and its Subsidiaries have filed all tax returns
         which are required to be filed, and have paid, or made provision for
         the payment of, all taxes which have become due pursuant to said
         returns or pursuant to any assessment received by Borrower or any
         Subsidiary, except (a) such taxes, if any, as are being contested in
         good faith by appropriate proceedings (and with respect to which
         Borrower or its Subsidiary has established adequate reserves for the
         payment of the same), and (b) such taxes the failure of which to pay
         will not constitute a Material Adverse Effect.

4.16     Regulation U. Neither Borrower nor any of its Subsidiaries is engaged
         principally, or as one of its important activities, in the business of
         extending credit for the purpose of "purchasing" or "carrying" any
         "margin stock" within the meanings of Regulation U of the Board of
         Governors of the Federal Reserve System, and no Loan hereunder will be
         used to purchase or carry any such margin stock in violation of
         Regulation U.

4.17     Environmental Matters. To the best knowledge of Borrower, Borrower and
         its Subsidiaries are in substantial compliance with all applicable Laws
         relating to environmental protection where the failure to comply would
         constitute a Material Adverse Effect. To Borrower's best knowledge,
         neither Borrower nor any of its Subsidiaries has received any notice
         from any Governmental

                                      -52-
<PAGE>

         Agency respecting the alleged violation by Borrower or any Subsidiary
         of such Laws which would constitute a Material Adverse Effect and which
         has not been or is not being corrected.

4.18     Disclosure. The information provided by Borrower to the Banks in
         connection with this Agreement or any Loan, taken as a whole, has not
         contained any untrue statement of a material fact and has not omitted a
         material fact necessary to make the statements contained therein, taken
         as a whole, not misleading under the totality of the circumstances
         existing at the date such information was provided and in the context
         in which it was provided.

4.19     Projections. As of the Closing Date, the assumptions upon which the
         Projections are based are reasonable and consistent with each other
         assumption and with all facts known to Borrower and that the
         Projections are reasonably based on those assumptions. Nothing in this
         Section 4.19 shall be construed as a representation or warranty as of
         any date other than the Closing Date or that the Projections will in
         fact be achieved by Borrower.

4.20     ERISA Compliance

         (a)      Each Plan is in compliance in all material respects with the
                  applicable provisions of ERISA, the Code and other Federal or
                  state Laws. Each Plan that is intended to qualify under
                  Section 401(a) of the Code has received a favorable
                  determination letter from the IRS or an application for such a
                  letter is currently being processed by the IRS with respect
                  thereto and, to the best knowledge of the Borrower, nothing
                  has occurred which would prevent, or cause the loss of, such
                  qualification. Neither the Borrower nor any ERISA Affiliate
                  sponsors, or has sponsored within the past 10 years, a defined
                  benefit pension plan, or is a participant, or has participated
                  within the past 10 years, in a Multiemployer Plan.

         (b)      There are no pending or, to the best knowledge of the
                  Borrower, threatened claims, actions or lawsuits, or action by
                  any Governmental Agency, with respect to any Plan that could
                  be reasonably be expected to have a Material Adverse Effect.
                  There has been no prohibited transaction or violation of the
                  fiduciary responsibility rules with respect to any Plan that
                  has resulted or could reasonably be expected to result in a
                  Material Adverse Effect. No ERISA Event has occurred or is
                  reasonably expected to occur.

4.21     Tax Shelter Regulations. The Borrower does not intend to treat the
         Loans or Letters of Credit as being a "reportable transaction" (within
         the meaning of Treasury Regulation Section 1.6011-4). In the event the
         Borrower determines to take any action inconsistent with such
         intention, it will promptly notify the Administrative Agent thereof.
         Accordingly, if the Borrower so notifies the Administrative Agent, the
         Borrower acknowledges that one or more of the Banks may treat its Loans
         or its interest in Swing Line Loans or Letters of Credit as part of a
         transaction that is subject to Treasury Regulation Section 301.6112-1,
         and such Bank or Banks, as applicable, will maintain the lists and
         other records required by such Treasury Regulation.

4.22     Solvency. The Borrower and each Guarantor Subsidiary is and will be,
         after giving effect to the making of the Loans and issuance of the
         Letters of Credit, Solvent.

                                      -53-
<PAGE>

                                    ARTICLE V
                              AFFIRMATIVE COVENANTS
               (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS)

As long as any Loan remains unpaid, or any other Obligation remains unpaid, or
any portion of the Commitment or any Letter of Credit remains outstanding,
Borrower shall, and shall cause each of its Subsidiaries to, unless the
Administrative Agent (with the approval of the Required Banks) otherwise
consents in writing:

5.1      Payment of Taxes and Other Potential Liens. Pay and discharge promptly,
         all taxes, assessments, and governmental charges or levies imposed upon
         Borrower or any of its Subsidiaries, upon their respective Property or
         any part thereof, upon their respective income or profits or any part
         thereof, except any tax, assessment, charge, or levy that is not yet
         past due, or is being contested in good faith by appropriate
         proceedings, as long as Borrower or its Subsidiary has established and
         maintains adequate reserves for the payment of the same and by reason
         of such nonpayment no material Property of Borrower or its Subsidiaries
         is subject to a risk of loss or forfeiture.

5.2      Preservation of Existence. Preserve and maintain their respective
         existence, licenses, rights, franchises, and privileges in the
         jurisdiction of their formation and all authorizations, consents,
         approvals, orders, licenses, permits, or exemptions from, or
         registrations with, any Governmental Agency that are necessary for the
         transaction of their respective business, and qualify and remain
         qualified to transact business in each jurisdiction in which such
         qualification is necessary in view of their respective business or the
         ownership or leasing of their respective Properties; provided that (a)
         the failure to preserve and maintain any particular right, franchise,
         privilege, authorization, consent, approval, order, license, permit,
         exemption, or registration, or to qualify or remain qualified in any
         jurisdiction, that does not constitute a Material Adverse Effect will
         not constitute a violation of this covenant, and (b) nothing in this
         Section 5.2 shall prevent any consolidation or merger or disposition of
         assets permitted by Section 6.3 or shall prevent the termination of the
         business or existence (corporate or otherwise) of any Subsidiary of
         Borrower which in the reasonable judgment of the management of Borrower
         is no longer necessary or desirable.

5.3      Maintenance of Properties. Maintain, preserve and protect all of their
         respective real Properties in good order and condition, subject to wear
         and tear in the ordinary course of business and damage caused by the
         natural elements, and not permit any waste of their respective real
         Properties, except that the failure to so maintain, preserve or protect
         any particular real Property, or the permitting of waste on any
         particular real Property, where such failure or waste with respect to
         all real Properties of Borrower and its Subsidiaries, in the aggregate,
         would not constitute a Material Adverse Effect.

5.4      Maintenance of Insurance. Maintain insurance with responsible insurance
         companies in such amounts and against such risks as in Borrower's
         reasonable business judgment is adequate in light of Borrower's and its
         Subsidiaries' size, business, assets and location of operations.

5.5      Compliance with Laws. Comply with all Requirements of Laws
         noncompliance with which would constitute a Material Adverse Effect,
         except that Borrower and its Subsidiaries need not comply with a
         Requirement of Law then being contested by any of them in good faith by
         appropriate procedures, so long as such contest (or a bond or surety
         posted in connection therewith) operates as a stay of enforcement of
         any penalty that would otherwise apply as a result of such failure to
         comply.

                                      -54-
<PAGE>

5.6      Inspection Rights. At any time during regular business hours and as
         often as reasonably requested (and, in any event, upon 24 hours' prior
         notice), permit any Bank or any appropriately designated employee,
         agent or representative thereof at the expense of such Bank (unless a
         Default or an Event of Default has occurred and is continuing) to
         examine, audit and make copies and abstracts from the records and books
         of account of, and to visit and inspect the Properties of Borrower and
         its Subsidiaries, and to discuss the affairs, finances and accounts of
         Borrower and its Subsidiaries with any of their officers or employees;
         provided that none of the foregoing unreasonably interferes with the
         normal business operations of Borrower or any of its Subsidiaries and
         that the Banks shall engage in any such inspections on a cooperative
         basis, if there has been no Default or Event of Default.

5.7      Keeping of Records and Books of Account. Keep adequate records and
         books of account fairly reflecting all financial transactions in
         conformity with Generally Accepted Accounting Principles applied on a
         consistent basis (except for changes concurred with by Borrower's
         independent certified public accountants) and all applicable
         requirements of any Governmental Agency having jurisdiction over
         Borrower or any of its Subsidiaries.

5.8      Use of Proceeds. Use the proceeds of all Loans solely for working
         capital, Acquisitions permitted hereunder and other general corporate
         purposes of Borrower and its Subsidiaries and not in contravention of
         any Law or of any Loan Document.

5.9      Subsidiary Guaranty. Cause each of its Guarantor Subsidiaries hereafter
         formed, acquired or qualifying as a Guarantor Subsidiary, to execute
         and deliver a joinder of the Subsidiary Guaranty promptly following
         such formation, acquisition or qualification.

                                      -55-
<PAGE>

                                   ARTICLE VI
                               NEGATIVE COVENANTS

As long as any Loan remains unpaid, or any other Obligation remains unpaid, or
any portion of the Commitment or any Letter of Credit remains outstanding,
Borrower shall not, and shall not permit any of its Subsidiaries to, unless the
Administrative Agent (with the approval of the Required Banks) otherwise
consents in writing:

6.1      Payment or Prepayment of Subordinated Obligations.

         (a)      Make any payment with respect to any Subordinated Obligation
                  in violation of the provisions in the instruments governing
                  such Subordinated Obligation; or

         (b)      if a Default or Event of Default then exists or would result
                  therefrom:

                  (i)      make an optional or unscheduled payment or prepayment
                           of any principal (including an optional or
                           unscheduled sinking fund payment), interest or any
                           other amount with respect to any Subordinated
                           Obligation; or

                  (ii)     make a purchase or redemption of any Subordinated
                           Obligation.

6.2      [Intentionally Omitted]

6.3      Mergers and Sale of Assets. Merge or consolidate with or into any
         Person, or sell a Material Amount of Assets to any Person, except,
         subject to Section 6.6;

         (a)      a merger of Borrower into a wholly-owned Subsidiary of
                  Borrower that has nominal assets and liabilities, the primary
                  purpose of which is to effect the reincorporation of Borrower
                  in another state;

         (b)      mergers or consolidations of a Subsidiary of Borrower into
                  Borrower (with Borrower as the surviving corporation) or into
                  any other Subsidiary of Borrower, provided that (i) the
                  reduction in the proportionate share of Borrower and its
                  Subsidiaries in the total assets of such resulting Subsidiary
                  (after intercompany eliminations) does not constitute a
                  Material Amount of Assets and (ii) immediately after giving
                  effect to such transaction, no Default or Event of Default
                  shall have occurred and be continuing;

         (c)      mergers, consolidations, liquidations, or sales of all or
                  substantially all of the assets of a Subsidiary; provided that
                  (i) any such transaction does not involve a transfer by
                  Borrower or its Subsidiaries of a Material Amount of Assets
                  and (ii) immediately after giving effect to such transaction,
                  no Default or Event of Default shall have occurred and be
                  continuing; or

         (d)      a merger or consolidation of Borrower with another Person if
                  (i) no Change in Control results therefrom, (ii) Borrower does
                  not transfer a Material Amount of Assets to one or more
                  Persons in connection with the merger or consolidation and
                  (iii) immediately after giving effect to such merger, no
                  Default or Event of Default shall have occurred and be
                  continuing.

                                      -56-
<PAGE>

6.4      Investments and Acquisitions. Make any Acquisition, or enter into an
         agreement to make any Acquisition, or make or suffer to exist any
         Investment, other than:

         (a)      Investments in Cash or Cash Equivalents;

         (b)      advances to officers, directors and employees of Borrower or
                  its Subsidiaries for travel, entertainment, housing expenses,
                  relocation, stock option plans, or otherwise in connection
                  with their employment or the business of Borrower or any of
                  its Subsidiaries;

         (c)      Investments of Borrower in any of its wholly-owned
                  Subsidiaries and Investments of any Subsidiary of Borrower in
                  Borrower or any of Borrower's wholly-owned Subsidiaries;

         (d)      Acquisitions of or Investments in Persons engaged primarily in
                  the same businesses as Borrower and its Subsidiaries, or in a
                  business reasonably related to such businesses, including
                  electronic commerce and similar activities related to real
                  estate;

         (e)      Acquisitions and Investments by the Mortgage Company permitted
                  under the Mortgage Warehousing Agreements;

         (f)      Acquisitions of or Investments in Persons engaged primarily in
                  businesses other than those permitted by Sections 6.4(d),
                  provided that the aggregate cost of all such Acquisitions and
                  Investments made in any fiscal year does not exceed
                  $50,000,000;

         (g)      Investments in Subsidiaries in existence on the Closing Date
                  or as otherwise disclosed on Schedule 6.4;

         (h)      Investments received in connection with the settlement of a
                  bona fide dispute with another Person;

         (i)      Investments consisting of readily marketable securities
                  actively traded on a public exchange, provided that the
                  aggregate amount of any such Investments at any one time do
                  not exceed $50,000,000; and

         (j)      Investments consisting of the extension of credit to suppliers
                  in the ordinary course of business and any Investments
                  received in satisfaction or partial satisfaction thereof,
                  provided that the aggregate amount of any such Investments at
                  any one time do not exceed $25,000,000;

         but in all events, subject to the restrictions of Section 6.16.

6.5      ERISA Compliance. Permit any Pension Plan maintained by Borrower or any
         of its ERISA Affiliates (or to which Borrower or any ERISA Affiliate
         contributes or is required to contribute), other than a Multiemployer
         Plan, to incur any material "accumulated funding deficiency," as such
         term is defined in Section 302 of ERISA, unless waived, or permit any
         Pension Plan maintained by any of them to suffer a Termination Event or
         incur withdrawal liability under any Multiemployer Plan if any of such
         events would result in a liability of Borrower or any ERISA affiliate
         exceeding in the aggregate $25,000,000.

6.6      Change in Business. Engage in any business other than the businesses as
         now conducted by Borrower or its Subsidiaries, and any business
         reasonably related to such businesses, other than:

                                      -57-
<PAGE>

         (a)      businesses in which Borrower and its Subsidiaries have
                  invested no more than $50,000,000 in any Fiscal Year; and

         (b)      as permitted pursuant to Section 6.4(f).

6.7      Liens and Negative Pledges. Create, incur, assume, or suffer to exist,
         any Lien of any nature upon or with respect to any of their respective
         Properties, whether now owned or hereafter acquired, or enter or suffer
         to exist any Contractual Obligation wherein Borrower or any of its
         Subsidiaries agrees not to grant any Lien on any of their Properties,
         except:

         (a)      Liens and Contractual Obligations existing on the date hereof
                  and described in Schedule 4.7, provided that the obligations
                  secured by such Liens are not increased and that no such Lien
                  extends to any Property of Borrower or any Subsidiary other
                  than the Property subject to such Lien on the Closing Date;

         (b)      Liens on Property of any Financial Subsidiary or Foreign
                  Subsidiary securing Indebtedness of that Financial Subsidiary
                  or Foreign Subsidiary;

         (c)      Liens on Property securing Indebtedness of Borrower or any of
                  its Subsidiaries, provided that the aggregate Indebtedness
                  (other than Indebtedness described in clause (b) above and
                  clause (q) below) secured by all such Liens shall at no time
                  exceed $100,000,000;

         (d)      Liens that may exist from time to time under the Loan
                  Documents;

         (e)      Liens consisting of a Capital Lease covering personal
                  Property;

         (f)      Permitted Encumbrances;

         (g)      attachment, judgment and other similar Liens arising in
                  connection with court proceedings; provided that the execution
                  or enforcement of such Lien is effectively stayed and the
                  claims secured thereby do not in the aggregate exceed
                  $25,000,000 and are being contested in good faith by
                  appropriate proceedings timely commenced and diligently
                  prosecuted;

         (h)      Liens existing on any asset of any Person at the time such
                  Person becomes a Subsidiary and not created in contemplation
                  of such event;

         (i)      Liens on any asset of any Person existing at the time such
                  Person is merged or consolidated with or into Borrower or any
                  of its Subsidiaries and not created in contemplation of such
                  event;

         (j)      Liens existing on any asset prior to the acquisition thereof
                  by Borrower or any of its Subsidiaries and not created in
                  contemplation of such acquisition;

         (k)      Liens arising out of the refinancing, extension, renewal or
                  refunding of any Indebtedness secured by any Lien permitted by
                  any of the foregoing clauses of this Section, provided that
                  such Indebtedness is not increased and is not secured by
                  additional assets;

         (l)      Liens arising in the ordinary course of business which (i) do
                  not secure Indebtedness, (ii) do not secure any obligation in
                  an amount exceeding $1,000,000 individually, or $5,000,000 in
                  the aggregate, and (iii) do not in the aggregate materially
                  detract from the

                                      -58-
<PAGE>

                  value of the assets covered by such Liens or materially impair
                  the use thereof in the operation of Borrower's business;

         (m)      Liens not otherwise permitted by the foregoing clauses of this
                  Section which secure Indebtedness not exceeding $5,000,000 in
                  the aggregate;

         (n)      assessment district or similar Liens in connection with
                  municipal financings;

         (o)      a Contractual Obligation wherein Borrower or any of its
                  Subsidiaries agrees to grant any Lien on any of their
                  Properties, if such Contractual Obligation provides for the
                  grant of a Lien on a pari passu basis in favor of the
                  Administrative Agent for the benefit of the Banks with respect
                  to the Obligations and in favor of the holders of such other
                  Senior Indebtedness, if any, as the Borrower designates (and
                  Borrower shall, as soon as reasonably possible, provide to the
                  Banks a copy of any such Contractual Obligation);

         (p)      Liens on Property of a Joint Venture; and

         (q)      Liens on Property of the Borrower or any of its Subsidiaries
                  that secure Non-Recourse Indebtedness to the seller of such
                  Property incurred by the Borrower or any of its Subsidiaries
                  upon acquisition of such Property.

         For purposes of compliance with this Section: (x) in the event that any
         Lien meets the criteria set forth in more than one of clauses (a)
         through (q) of this Section, Borrower, in its sole discretion, may
         classify or reclassify such Lien in any manner that complies with this
         Section and such Lien shall be treated as having been permitted
         pursuant to only one of the clauses of this Section; and (y) any
         Indebtedness secured by a Lien may be divided and classified among more
         than one of the clauses of this Section.

6.8      Transactions with Affiliates. Enter into any transaction of any kind
         with any Affiliate of Borrower other than (a) a transaction that
         results in Subordinated Obligations, (b) a transaction between or among
         Borrower and its wholly-owned Subsidiaries, (c) a transaction that has
         been authorized by the board of directors of Borrower with the
         favorable vote of a majority of the directors who have no financial or
         other interest in the transaction or by the vote of a majority of the
         outstanding shares of capital stock of Borrower, (d) a transaction
         entered into on terms and under conditions not less favorable to
         Borrower or any of its Subsidiaries than could be obtained from a
         Person that is not an Affiliate of Borrower, (e) salary, bonus,
         employee stock options and other compensation arrangements and
         indemnification arrangements with directors or officers or (f)
         transactions permitted by Sections 6.4 or 6.16.

6.9      Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth
         to be, at the end of any Fiscal Quarter, less than an amount equal to
         (a) $901,469,000, plus (b) an amount equal to 50% of aggregate of
         Consolidated Net Income for each Fiscal Quarter contained in the fiscal
         period commencing on September 1, 2003 and ending as of the last day of
         such Fiscal Quarter (provided that there shall be no reduction
         hereunder in the event of a consolidated net loss in any such Fiscal
         Quarter), plus (c) an amount equal to 50% of the cumulative net
         proceeds received by Borrower from the issuance of its capital stock
         subsequent to August 31, 2003.

6.10     Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio to
         be, at the end of any Fiscal Quarter, greater than 2.25 to 1.00.

                                      -59-
<PAGE>

6.11     Consolidated Interest Coverage Ratio. Permit the Consolidated Interest
         Coverage Ratio to be, at the end of any Fiscal Quarter, less than 2.25
         to 1.00.

6.12     Distributions. Make any Distribution (other than a Distribution made to
         Borrower or to a Guarantor Subsidiary) if an Event of Default then
         exists or if an Event of Default or Default would result therefrom.

6.13     Amendments. Amend, waive or terminate any provision in any instrument
         or agreement governing Subordinated Obligations unless such amendment,
         waiver or termination would not be materially adverse to the interests
         of the Banks under this Agreement.

6.14     [Intentionally Omitted]

6.15     Inventory. Permit, as of the end of any Fiscal Quarter, the book value
         of Domestic Unimproved Land to exceed an amount equal to 100% of
         Consolidated Tangible Net Worth.

6.16     Investment in Subsidiaries and Joint Ventures. Permit, as of the last
         day of any Fiscal Quarter, Borrower's equity interest, computed in
         accordance with Generally Accepted Accounting Principles consistently
         applied, in all Subsidiaries of Borrower (other than Guarantor
         Subsidiaries), Financial Subsidiaries, Foreign Subsidiaries, all Joint
         Ventures and all other entities with financial statements not
         consolidated with those of Borrower under Generally Accepted Accounting
         Principles consistently applied to exceed 30% of Consolidated Tangible
         Net Worth.

6.17     Senior Indebtedness Not to Exceed Borrowing Base. Permit, at any time
         at which the Borrower does not hold an Investment Grade Credit Rating,
         the Senior Indebtedness at such time to exceed the Borrowing Base (as
         set forth in the then most recent Borrowing Base Certificate delivered
         hereunder by Borrower to the Administrative Agent).

6.18     Maximum Speculative Units. Permit, at any time at which the Borrower
         does not hold an Investment Grade Credit Rating, the total number of
         Speculative Units to exceed 40% of the number of Units that were sold
         and conveyed to buyers during the previous 4 Fiscal Quarters.

                                      -60-
<PAGE>

                                   ARTICLE VII
                     INFORMATION AND REPORTING REQUIREMENTS

7.1      Financial and Business Information of Borrower and Its Subsidiaries. As
         long as any Loan remains unpaid or any other Obligation remains unpaid,
         or any portion of the Commitment or any Letter of Credit remains
         outstanding, Borrower shall, unless the Administrative Agent (with the
         approval of the Required Banks) otherwise consents in writing, deliver
         to the Administrative Agent and each of the Banks (except as otherwise
         provided below) at its own expense:

         (a)      As soon as reasonably possible, and in any event within 50
                  days after the close of each Fiscal Quarter of Borrower (other
                  than the fourth Fiscal Quarter), (i) the consolidated and
                  consolidating balance sheet of Borrower and its Consolidated
                  Subsidiaries as of the end of such Fiscal Quarter, setting
                  forth in comparative form the corresponding figures for the
                  corresponding Fiscal Quarter of the preceding Fiscal Year, if
                  available, and (ii) the consolidated and consolidating
                  statements of profit and loss and the consolidated statements
                  of cash flows of Borrower and its Consolidated Subsidiaries
                  for such Fiscal Quarter and for the portion of the Fiscal Year
                  ended with such Fiscal Quarter, setting forth in comparative
                  form the corresponding periods of the preceding Fiscal Year.
                  Such consolidated and consolidating balance sheets and
                  statements shall be prepared in reasonable detail in
                  accordance with Generally Accepted Accounting Principles
                  consistently applied (other than those which require footnote
                  disclosure of certain matters), and shall be certified by the
                  principal financial officer of Borrower, subject to normal
                  year-end accruals and audit adjustments;

         (b)      As soon as reasonably possible, and in any event within 90
                  days after the close of each Fiscal Year of Borrower, (i) the
                  consolidated and consolidating (in accordance with past
                  practices of Borrower) balance sheets of Borrower and its
                  Consolidated Subsidiaries as at the end of such Fiscal Year,
                  setting forth in comparative form the corresponding figures at
                  the end of the preceding Fiscal Year and (ii) the consolidated
                  and consolidating (in accordance with past practices of
                  Borrower) statements of profit and loss and the consolidated
                  statements of cash flows of Borrower and its Consolidated
                  Subsidiaries for such Fiscal Year, setting forth in
                  comparative form the corresponding figures for the previous
                  Fiscal Year. Such consolidated and consolidating balance sheet
                  and statements shall be prepared in reasonable detail in
                  accordance with Generally Accepted Accounting Principles
                  consistently applied. Such consolidated balance sheet and
                  statements shall be accompanied by a report and opinion of
                  Ernst & Young LLP or other independent certified public
                  accountants of recognized national standing selected by
                  Borrower, which report and opinion shall state that the
                  examination of such consolidated financial statements by such
                  accountants was made in accordance with generally accepted
                  auditing standards and that such consolidated financial
                  statements fairly present the financial condition, results of
                  operations and of cash flows of Borrower and its Subsidiaries
                  subject to no exceptions as to scope of audit and subject to
                  no other exceptions or qualifications (other than changes in
                  accounting principles in which the auditors concur) unless
                  such other exceptions or qualifications are approved by the
                  Required Banks in their reasonable discretion. Such
                  accountants' report and opinion shall be accompanied by a
                  certificate stating that, in conducting the audit examination
                  of books and records necessary for the certification of such
                  financial statements, such accountants have obtained no
                  knowledge of any Default or Event of Default hereunder or, if
                  in the opinion of such accountants, any such Default or Event
                  of Default shall exist, stating the nature and status of such
                  event, and setting forth the applicable calculations under
                  Sections 6.9, 6.10, 6.11, 6.15 (without requiring any physical
                  count of inventory), 6.16, 6.17 and 6.18 as of the date of

                                      -61-
<PAGE>

                  the balance sheet. Such consolidating balance sheet and
                  statements shall be certified by a Responsible Official of
                  Borrower;

         (c)      Promptly after the receipt thereof by Borrower, copies of any
                  audit or management reports submitted to it by independent
                  accountants in connection with any audit or interim audit
                  submitted to the board of directors of Borrower or any of its
                  Subsidiaries;

         (d)      Promptly after the same are available, copies of each annual
                  report, proxy or financial statement or other report or
                  communication sent to its stockholders, and copies of all
                  annual, regular, periodic and special reports and registration
                  statements which Borrower may file or be required to file with
                  the Commission or any similar or corresponding Governmental
                  Agency or with any securities exchange;

         (e)      Promptly upon a Senior Officer of Borrower becoming aware, and
                  in any event within 10 Business Days after becoming aware, of
                  the occurrence of any (i) "reportable event" (as such term is
                  defined in Section 4043 of ERISA) other than any such event as
                  to which the PBGC has by regulation waived the requirement of
                  30 days' notice or (ii) "prohibited transaction" (as such term
                  is defined in Section 406 of ERISA or Section 4975 of the
                  Code) in connection with any Pension Plan, other than a
                  Multiemployer Plan, or any trust created thereunder, a written
                  notice specifying the nature thereof, what action Borrower and
                  any of its Subsidiaries is taking or proposes to take with
                  respect thereto, and, when known, any action taken by the
                  Internal Revenue Service with respect thereto;

         (f)      Promptly upon a Senior Officer of Borrower becoming aware, and
                  in any event within 5 Business Days after becoming aware, of
                  the existence of a Default or an Event of Default, a written
                  notice specifying the nature and period of existence thereof
                  and what action Borrower is taking or proposes to take with
                  respect thereto;

         (g)      Promptly upon a Senior Officer of Borrower becoming aware, and
                  in any event within 5 Business Days after becoming aware, that
                  the holder of any evidence of Indebtedness (in a principal
                  amount in excess of $25,000,000) of Borrower or any of its
                  Subsidiaries has given notice or taken any other action with
                  respect to a default or event of default, a written notice
                  specifying the notice given or action taken by such holder and
                  the nature of such default or event of default and what action
                  Borrower or its Subsidiary is taking or proposes to take with
                  respect thereto;

         (h)      Promptly upon a Senior Officer of Borrower becoming aware, and
                  in any event within 5 Business Days after becoming aware, of
                  the existence of any pending or threatened litigation or any
                  investigation by any Governmental Agency that would constitute
                  a Material Adverse Effect (provided, that no failure of a
                  Senior Officer to provide notice of any such event shall be
                  the sole basis for any Default or Event of Default hereunder);

         (i)      [Intentionally Omitted];

         (j)      As soon as reasonably possible, and in any event prior to the
                  date that is 60 days after the commencement of each Fiscal
                  Year, deliver to the Administrative Agent the business plan of
                  Borrower and its Subsidiaries for that Fiscal Year, together
                  with projections (in substantially the same format as the
                  Projections) covering the next 2 Fiscal Years;

                                      -62-
<PAGE>

         (k)      Promptly following obtaining knowledge thereof by a Senior
                  Officer of Borrower, written notice to the Administrative
                  Agent of the inception or cessation of the Investment Grade
                  Credit Rating;

         (l)      Promptly after the Borrower has notified the Administrative
                  Agent of any intention by the Borrower to treat the Loans or
                  Letters of Credit as being a "reportable transaction" (within
                  the meaning of Treasury Regulation Section 1.6011-4), a duly
                  completed copy of IRS Form 8886 or any successor form; and

         (m)      Such other data and information as from time to time may be
                  reasonably requested by any of the Banks.

7.2      Compliance Certificate. Concurrently with the delivery of the financial
         statements described in Section 7.1(a) and (b), Borrower shall deliver
         to the Administrative Agent and the Banks, at Borrower's sole expense,
         a Compliance Certificate dated as of the last day of the Fiscal Quarter
         or Fiscal Year, as the case may be:

         (a)      setting forth computations showing, in detail reasonably
                  satisfactory to the Administrative Agent, whether Borrower and
                  its Subsidiaries were in compliance with their obligations to
                  the Banks pursuant to Sections 6.9, 6.10, 6.11, 6.15, 6.16,
                  6.17 and 6.18;

         (b)      certifying a sales report by geographical region, in the form
                  attached to the Compliance Certificate, setting forth the
                  number of homes or other units sold and delivered during such
                  period and in backlog at the end of such period;

         (c)      certifying an inventory report for such period in the form
                  attached to the Compliance Certificate, summarizing such
                  inventory by type and geographical region;

         (d)      reporting any change, as of the last day of such Fiscal
                  Quarter, in the listing of Subsidiaries set forth in Schedule
                  4.4 (as the same may have been revised by previous Compliance
                  Certificates), including changes in Guarantor Subsidiaries;

         (e)      either

                  (i)      stating that to the best knowledge of the certifying
                           officer as of the date of such certificate there is
                           no Default or Event of Default, or

                  (ii)     if there is a Default or Event of Default as of the
                           date of such certificate, specifying all such
                           Defaults or Events of Default and their nature and
                           status; and

         (f)      stating, to the best knowledge of the certifying officer,
                  whether any event or circumstance constituting a Material
                  Adverse Effect (other than a Material Adverse Effect which is
                  not particular to the Borrower and which is generally known)
                  has occurred since the date of the most recent Compliance
                  Certificate delivered under this Section and, if so,
                  describing such Material Adverse Effect in reasonable detail.
                  No failure of the certifying officer to describe the existence
                  of an event or circumstance constituting a Material Adverse
                  Effect shall be the sole basis for any Default or Event of
                  Default hereunder.

                                      -63-
<PAGE>

                                  ARTICLE VIII
                                   CONDITIONS

8.1      Initial Advances, Etc. The obligation of each Bank to make the initial
         Advance to be made by it and of the Issuing Bank to issue the initial
         Letter of Credit are subject to the following conditions precedent,
         each of which shall be satisfied prior to the making of the initial
         Advances (unless all of the Banks, in their sole and absolute
         discretion, shall agree otherwise):

         (a)      The Administrative Agent shall have received all of the
                  following, each dated as of the Closing Date (unless otherwise
                  specified or unless the Administrative Agent otherwise agrees)
                  and all in form and substance satisfactory to the
                  Administrative Agent and legal counsel for the Administrative
                  Agent:

                  (i)      executed counterparts of this Agreement, sufficient
                           in number for distribution to the Banks and Borrower;

                  (ii)     a Note executed by Borrower in favor of each Bank,
                           each in a principal amount equal to that Bank's Pro
                           Rata Share of the Commitment. Promptly following the
                           Closing Date, the promissory notes delivered to the
                           Banks pursuant to the Prior Loan Agreements shall be
                           canceled and promptly returned to Borrower;

                  (iii)    the Subsidiary Guaranty executed by each Subsidiary
                           which is a Guarantor Subsidiary as of the Closing
                           Date;

                  (iv)     the Swing Line Documents, executed by Borrower;

                  (v)      with respect to Borrower and each Subsidiary which is
                           a Guarantor Subsidiary as of the Closing Date, such
                           documentation as the Administrative Agent may
                           reasonably require to establish the due organization,
                           valid existence and good standing of Borrower and
                           each such Subsidiary, its qualification to engage in
                           business in each jurisdiction in which it is required
                           to be so qualified, its authority to execute, deliver
                           and perform any Loan Documents to which it is a
                           Party, and the identity, authority and capacity of
                           each Responsible Official thereof authorized to act
                           on its behalf, including certified copies of articles
                           of incorporation and amendments thereto, bylaws and
                           amendments thereto, certificates of good standing or
                           qualification to engage in business, tax clearance
                           certificates, certificates of corporate resolutions,
                           incumbency certificates, and the like;

                  (vi)     the Opinions of Counsel;

                  (vii)    an Officer's Certificate of Borrower affirming, to
                           the best knowledge of the certifying Senior Officer,
                           that the conditions set forth in Sections 8.1(c) and
                           8.1(d) have been satisfied;

                  (viii)   a side letter executed by each "Bank" under the Prior
                           Revolving Loan Agreement that is not a "Bank"
                           hereunder acknowledging a termination of the
                           "Commitments" under the Prior Revolving Loan
                           Agreement without charge to Borrower (except for
                           Eurodollar Rate breakage fees, if any) and agreeing
                           to the other matters specified in Section 3.17;

                                      -64-
<PAGE>

                  (ix)     a side letter executed by each "Bank" under the 2000
                           Term Loan Agreement that is not a "Bank" hereunder
                           acknowledging a termination of the "Commitment" under
                           the 2000 Term Loan Agreement without charge to
                           Borrower (except for Eurodollar Rate breakage fees,
                           if any); and

                  (x)      a Borrowing Base Certificate calculated as of the
                           last day of the Fiscal Quarter ending on August 31,
                           2003, showing the Borrower to be in compliance with
                           Section 6.17 after giving effect to the Loans made
                           and Letters of Credit issued on the Closing Date;

                  (xi)     the financial statements described in Section 4.5;

                  (xii)    a Compliance Certificate calculated as of the last
                           day of the Fiscal Quarter ending on August 31, 2003;
                           and

                  (xiii)   such other assurances, certificates, documents,
                           consents or opinions relevant hereto as the
                           Administrative Agent may reasonably require.

         (b)      All fees then payable under the letter agreement referred to
                  in Section 3.3 shall have been paid.

         (c)      The representations and warranties of Borrower contained in
                  Article IV shall be true and correct in all material respects
                  on and as of the Closing Date.

         (d)      Borrower and its Subsidiaries and any other Parties shall be
                  in compliance with all the terms and provisions of the Loan
                  Documents, and at and after giving effect to the initial
                  Advance, no Default or Event of Default shall have occurred
                  and be continuing.

8.2      Any Advance. The obligations of the Banks to make any Advance are
         subject to the following conditions precedent:

         (a)      the Administrative Agent shall have received a Loan Notice;

         (b)      the representations and warranties contained in Article IV
                  (other than the representations and warranties contained in
                  Sections 4.4(a), 4.6, 4.9, 4.18 and 4.19) shall be true and
                  correct in all material respects on and as of the date of the
                  Loan as though made on and as of that date (except that the
                  financial statements referred to in Section 4.5(a) shall be
                  deemed to refer to the most recent statements furnished
                  pursuant to Section 7.1(b) and the financial statements
                  referred to in Section 4.5(b) shall be deemed to refer to the
                  most recent statements furnished pursuant to Section 7.1(a))
                  and no event or circumstance that constitutes a Material
                  Adverse Effect shall have occurred since the Closing Date;

         (c)      the Administrative Agent shall have received such other
                  information relating to any matters which are the subject of
                  Section 8.2(b) or the compliance by Borrower with this
                  Agreement as may reasonably be requested by the Administrative
                  Agent on behalf of a Bank; and

         (d)      at and after giving effect to such Advance, no Default or
                  Event of Default shall have occurred and be continuing.

                                      -65-
<PAGE>

         Each Loan Notice (or Swing Line Loan Notice) submitted by the Borrower
         shall be deemed to be a representation and warranty that the conditions
         specified in this Section have been satisfied on and as of the date of
         the Loan requested thereby.

8.3      Any Letter of Credit. The obligations of an Issuing Bank to issue any
         Letter of Credit are subject to the following conditions precedent:

         (a)      the Administrative Agent and the Issuing Bank shall have
                  received a Request for Letter of Credit;

         (b)      the representations and warranties contained in Article IV
                  (other than the representations and warranties contained in
                  Sections 4.4(a), 4.6, 4.9, 4.18 and 4.19) shall be true and
                  correct in all material respects on and as of the date of the
                  issuance of the Letter of Credit as though made on and as of
                  that date (except that the financial statements referred to in
                  Section 4.5(a) shall be deemed to refer to the most recent
                  statements furnished pursuant to Section 7.1(b) and the
                  financial statements referred to in Section 4.5(b) shall be
                  deemed to refer to the most recent statements furnished
                  pursuant to Section 7.1(a)) and no event or circumstance that
                  constitutes a Material Adverse Effect shall have occurred
                  since the Closing Date;

         (c)      the Administrative Agent shall have received such other
                  information relating to any matters which are the subject of
                  Section 8.3(b) or the compliance by Borrower with this
                  Agreement as may reasonably be requested by the Administrative
                  Agent on behalf of a Bank; and

         (d)      at and after giving effect to the issuance of such Letter of
                  Credit, no Default or Event of Default shall have occurred and
                  be continuing.

         Each Request for Letter of Credit submitted by the Borrower shall be
         deemed to be a representation and warranty that the conditions
         specified in this Section have been satisfied on and as of the date of
         the issuance of the Letter of Credit requested thereby.

                                      -66-
<PAGE>

                                   ARTICLE IX
              EVENTS OF DEFAULT AND REMEDIES UPON EVENTS OF DEFAULT

9.1      Events of Default. There will be a default hereunder if any one or more
         of the following events ("Events of Default") occurs and is continuing,
         whatever the reason therefor:

         (a)      failure to pay any installment of principal on any of the
                  Notes or a Swing Line note on the date, or any payment in
                  respect of a Letter of Credit pursuant to Section 2.5, when
                  due; or

         (b)      failure to pay any installment of interest on any of the
                  Notes, or to pay any fee or other amounts due the
                  Administrative Agent or any Bank hereunder, within 5 Business
                  Days after the date when due; or

         (c)      any failure to comply with Sections 6.1, 6.3, 6.4 (with
                  respect to Acquisitions), 6.7, 6.10, 6.11, 6.17 or 7.1(f); or

         (d)      any failure to comply with Sections 2.8(a), 5.8, 5.9, 6.4
                  (with respect to Investments), 6.8, 6.9, 6.15, 6.16 or 6.18
                  that remains unremedied for a period of 15 calendar days after
                  notice by the Administrative Agent of such Default or 20
                  calendar days after a Senior Officer becomes aware of such
                  Default, whichever occurs first; or

         (e)      Borrower or any other Party fails to perform or observe any
                  other term, covenant, or agreement contained in any Loan
                  Document on its part to be performed or observed within 30
                  calendar days after notice by the Administrative Agent of
                  such Default; or

         (f)      any representation or warranty in any Loan Document or in any
                  certificate, agreement, instrument, or other document made or
                  delivered, on or after the Closing Date, pursuant to or in
                  connection with any Loan Document proves to have been
                  incorrect when made in any respect material to the ability of
                  Borrower to duly and punctually perform all of the
                  Obligations; or

         (g)      Borrower or any of its Significant Subsidiaries (i) fails to
                  pay the principal, or any principal installment, of any
                  present or future Indebtedness (other than Non-Recourse
                  Indebtedness, and in the case of the Mortgage Company, arising
                  under the Mortgage Warehousing Agreements), or any guaranty of
                  present or future Indebtedness (other than Non-Recourse
                  Indebtedness) on its part to be paid, when due (or within any
                  stated grace period), whether at the stated maturity, upon
                  acceleration, by reason of required prepayment or otherwise in
                  excess of $25,000,000 individually or $50,000,000 in the
                  aggregate or (ii) fails to perform or observe any other
                  material term, covenant, or agreement on its part to be
                  performed or observed, or suffers to exist any condition, in
                  connection with any present or future Indebtedness (other than
                  Non-Recourse Indebtedness, and in the case of the Mortgage
                  Company, arising under the Mortgage Warehousing Agreements) or
                  any guaranty of present or future Indebtedness (other than
                  Non-Recourse Indebtedness), in excess of $25,000,000
                  individually or $50,000,000 in the aggregate, if as a result
                  of such failure or such condition any holder or holders
                  thereof (or an agent or trustee on its or their behalf) has
                  the right to declare it due before the date on which it
                  otherwise would become due; or

         (h)      any Loan Document, at any time after its execution and
                  delivery and for any reason other than the agreement of all
                  the Banks or satisfaction in full of all the Obligations,
                  ceases to

                                      -67-
<PAGE>

                  be in full force and effect or is declared by a court of
                  competent jurisdiction to be null and void, invalid, or
                  unenforceable in any respect which is, in the reasonable
                  opinion of the Required Banks, materially adverse to the
                  interest of the Banks; or

         (i)      a final judgment (or judgments) against Borrower or any of its
                  Significant Subsidiaries is entered for the payment of money
                  in excess of $25,000,000 individually or $50,000,000 in the
                  aggregate over the amount of any insurance proceeds reasonably
                  expected to be received and remains unsatisfied without
                  procurement of a stay of execution within thirty (30) calendar
                  days after the issuance of any writ of execution or similar
                  legal process or the date of entry of judgment, whichever is
                  earlier, or in any event at least 5 calendar days prior to the
                  sale of any assets pursuant to such legal process; or

         (j)      Borrower or any Significant Subsidiary of Borrower institutes
                  or consents to any proceeding under a Debtor Relief Law
                  relating to it or to all or any part of its Property, or fails
                  generally, or admits in writing its inability, to pay its
                  debts as they mature, or makes a general assignment for the
                  benefit of creditors; or applies for or consents to the
                  appointment of any receiver, trustee, custodian, conservator,
                  liquidator, rehabilitator, or similar officer for it or for
                  all or any part of its property; or any receiver, trustee,
                  custodian, conservator, liquidator, rehabilitator, or similar
                  officer is appointed without the application or consent of
                  that Person and the appointment continues undischarged or
                  unstayed for 60 calendar days; or any proceeding under any
                  Debtor Relief Law relating to any such Person or to all or any
                  part of its Property is instituted without the consent of that
                  Person, and continues undismissed or unstayed for 60 calendar
                  days; or

         (k)      the occurrence of a Termination Event with respect to any
                  Pension Plan if the aggregate liability of Borrower and its
                  ERISA Affiliates under ERISA as a result thereof exceeds
                  $25,000,000; or the complete or partial withdrawal by Borrower
                  or any of its ERISA Affiliates from any Multiemployer Plan if
                  the aggregate liability of Borrower and its ERISA Affiliates
                  as a result thereof exceeds $25,000,000; or

         (l)      any determination is made by a court of competent jurisdiction
                  that payment of principal or interest or both is due to the
                  holder of any Subordinated Obligations which would not be
                  permitted by Section 6.1 or that any Subordinated Obligation
                  is not subordinated in accordance with its terms to the
                  Obligations.

9.2      Remedies Upon Event of Default. Without limiting any other rights or
         remedies of the Administrative Agent or the Banks provided for
         elsewhere in this Agreement or the Loan Documents, or by applicable Law
         or in equity, or otherwise:

         (a)      Upon the occurrence of any Event of Default, and so long as
                  any such Event of Default shall be continuing (other than an
                  Event of Default described in Section 9.1(j) with respect to
                  Borrower or a Guarantor Subsidiary):

                  (i)      all commitments to make Advances or issue Letters of
                           Credit, and all other obligations of the
                           Administrative Agent, any Issuing Bank or the Banks
                           shall be suspended without notice to or demand upon
                           Borrower, which are expressly waived by Borrower,
                           except that the Required Banks (or greater number, if
                           so required) may waive the Event of Default or,
                           without waiving, determine, upon terms and conditions
                           satisfactory to the Required Banks (or greater
                           number, if so required), to reinstate the Commitment
                           and make further Advances or issue

                                      -68-
<PAGE>

                           Letters of Credit, which waiver or determination
                           shall apply equally to, and shall be binding upon,
                           all the Banks; and

                  (ii)     the Required Banks may request the Administrative
                           Agent to, and the Administrative Agent thereupon
                           shall, declare the unpaid principal of all
                           Obligations due to the Banks hereunder and under the
                           Notes, an amount equal to the Letter of Credit Usage,
                           all interest accrued and unpaid thereon, and all
                           other amounts payable to the Banks under the Loan
                           Documents to be forthwith due and payable, whereupon
                           the same shall become and be forthwith due and
                           payable, without protest, presentment, notice of
                           dishonor, demand, or further notice of any kind, all
                           of which are expressly waived by Borrower; provided
                           that the Administrative Agent shall notify Borrower
                           (by telecopy and, if practicable, by telephone)
                           substantially concurrently with any such acceleration
                           (but the failure of Borrower to receive such notice
                           shall not affect such acceleration); provided
                           further, that all commitments to make Advances or
                           issue Letters of Credit, and all other obligations of
                           the Administrative Agent, any Issuing Bank or the
                           Banks under the Loan Documents shall terminate
                           concurrently with such acceleration.

         (b)      Upon the occurrence of any Event of Default described in
                  Section 9.1(j) with respect to Borrower or a Guarantor
                  Subsidiary:

                  (i)      all commitments to make Advances or issue Letters of
                           Credit, and all other obligations of the
                           Administrative Agent, any Issuing Bank or the Banks
                           under the Loan Documents shall terminate without
                           notice to or demand upon Borrower, which are
                           expressly waived by Borrower, except that all the
                           Banks may waive the Event of Default or, without
                           waiving, determine, upon terms and conditions
                           satisfactory to all the Banks, to reinstate the
                           Commitment and make further Advances; and

                  (ii)     the unpaid principal of all Obligations due to the
                           Banks hereunder and under the Notes, an amount equal
                           to the Letter of Credit Usage and all interest
                           accrued and unpaid on such Obligations, and all other
                           amounts payable under the Loan Documents shall be
                           forthwith due and payable, without protest,
                           presentment, notice of dishonor, demand, or further
                           notice of any kind, all of which are expressly waived
                           by Borrower.

         (c)      So long as any Letter of Credit shall remain outstanding, any
                  amounts received by the Administrative Agent in respect of the
                  Letter of Credit Usage pursuant to Section 9.2(a)(ii) or
                  9.2(b)(ii) may be held as cash collateral for the obligation
                  of Borrower to reimburse the Issuing Bank in event of any
                  drawing under any Letter of Credit (and Borrower hereby grants
                  to the Administrative Agent a security interest in such cash
                  collateral). In the event any Letter of Credit in respect of
                  which Borrower has deposited cash collateral with the
                  Administrative Agent is canceled or expires, the cash
                  collateral shall be applied first to the reimbursement of the
                  Issuing Bank (or all of the Banks, as the case may be) for any
                  drawings thereunder, and second to the payment of any
                  outstanding Obligations of Borrower hereunder or under any
                  other Loan Document.

         (d)      Upon the occurrence of an Event of Default, the Banks and the
                  Administrative Agent, or any of them, may proceed to protect,
                  exercise, and enforce their rights and remedies under the Loan
                  Documents against Borrower or any other Party and such other
                  rights and remedies as are provided by Law or equity, without
                  notice to or demand upon Borrower

                                      -69-
<PAGE>

                  (which are expressly waived by Borrower) except to the extent
                  required by applicable Laws. The order and manner in which the
                  rights and remedies of the Banks under the Loan Documents and
                  otherwise are exercised shall be determined by the Required
                  Banks.

         (e)      All payments received by the Administrative Agent and the
                  Banks, or any of them, after the acceleration of the maturity
                  of the Loans shall be applied first to the costs and expenses
                  (including Attorney Costs) of the Administrative Agent, acting
                  as Administrative Agent, and of the Banks and thereafter paid
                  pro rata to the Banks in the same proportion that the
                  aggregate of the unpaid principal amount owing on the
                  Obligations of Borrower to each Bank, plus accrued and unpaid
                  interest thereon, bears to the aggregate of the unpaid
                  principal amount owing on all the Obligations, plus accrued
                  and unpaid interest thereon. Regardless of how each Bank may
                  treat the payments for the purpose of its own accounting, for
                  the purpose of computing Borrower's Obligations, the payments
                  shall be applied first, to the costs and expenses of the
                  Administrative Agent, acting as Administrative Agent, and the
                  Banks as set forth above, second, to the payment of accrued
                  and unpaid fees hereunder and interest on all Obligations to
                  the Banks, to and including the date of such application
                  (ratably according to the accrued and unpaid interest on the
                  Loans), third, to the ratable payment of the unpaid principal
                  of all Obligations to the Banks, and fourth, to the payment of
                  all other amounts then owing to the Administrative Agent or
                  the Banks under the Loan Documents. Subject to Section
                  9.2(a)(i), no application of the payments will cure any Event
                  of Default or prevent acceleration, or continued acceleration,
                  of amounts payable under the Loan Documents or prevent the
                  exercise, or continued exercise, of rights or remedies of the
                  Banks hereunder or under applicable Law unless all amounts
                  then due (whether by acceleration or otherwise) have been paid
                  in full.

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<PAGE>

                                    ARTICLE X
                            THE ADMINISTRATIVE AGENT

10.1     Appointment and Authorization.

         (a)      Each Bank hereby irrevocably appoints, designates and
                  authorizes the Administrative Agent to take such action on its
                  behalf under the provisions of this Agreement and each other
                  Loan Document and to exercise such powers and perform such
                  duties as are expressly delegated to it by the terms of this
                  Agreement or any other Loan Document, together with such
                  powers as are reasonably incidental thereto. Notwithstanding
                  any provision to the contrary contained elsewhere herein or in
                  any other Loan Document, the Administrative Agent shall not
                  have any duties or responsibilities, except those expressly
                  set forth herein, nor shall the Administrative Agent have or
                  be deemed to have any fiduciary relationship with any Bank or
                  participant, and no implied covenants, functions,
                  responsibilities, duties, obligations or liabilities shall be
                  read into this Agreement or any other Loan Document or
                  otherwise exist against the Administrative Agent. Without
                  limiting the generality of the foregoing sentence, the use of
                  the term "agent" herein and in the other Loan Documents with
                  reference to the Administrative Agent is not intended to
                  connote any fiduciary or other implied (or express)
                  obligations arising under agency doctrine of any applicable
                  Law. Instead, such term is used merely as a matter of market
                  custom, and is intended to create or reflect only an
                  administrative relationship between independent contracting
                  parties.

         (b)      The Issuing Bank shall act on behalf of the Banks with respect
                  to any Letters of Credit issued by it and the documents
                  associated therewith, and the Issuing Bank shall have all of
                  the benefits and immunities (i) provided to the Administrative
                  Agent in this Article X with respect to any acts taken or
                  omissions suffered by the Issuing Bank in connection with
                  Letters of Credit issued by it or proposed to be issued by it
                  and the applications and agreements for letters of credit
                  pertaining to such Letters of Credit as fully as if the term
                  "Administrative Agent" as used in this Article X and in the
                  definition of "Agent-Related Person" included the Issuing Bank
                  with respect to such acts or omissions, and (ii) as
                  additionally provided herein with respect to the Issuing Bank.

10.2     Delegation of Duties. The Administrative Agent may execute any of its
         duties under this Agreement or any other Loan Document by or through
         agents, employees or attorneys-in-fact and shall be entitled to advice
         of counsel and other consultants or experts concerning all matters
         pertaining to such duties. The Administrative Agent shall not be
         responsible for the negligence or misconduct of any agent or
         attorney-in-fact that it selects in the absence of gross negligence or
         willful misconduct.

10.3     Liability of Administrative Agent. No Agent-Related Person shall (a) be
         liable for any action taken or omitted to be taken by any of them under
         or in connection with this Agreement or any other Loan Document or the
         transactions contemplated hereby (except for its own gross negligence
         or willful misconduct in connection with its duties expressly set forth
         herein, and with respect to the Borrower, except as set forth in
         Sections 2.5(e) and 2.5(f) and for any failure to comply with Section
         11.12), or (b) be responsible in any manner to any Bank or participant
         for any recital, statement, representation or warranty made by any
         Party or any officer thereof, contained herein or in any other Loan
         Document, or in any certificate, report, statement or other document
         referred to or provided for in, or received by the Administrative Agent
         under or in connection with, this Agreement or any other Loan Document,
         or the validity, effectiveness, genuineness, enforceability or
         sufficiency of this Agreement or any other Loan Document, or for

                                      -71-
<PAGE>

         any failure of any Party or any other party to any Loan Document to
         perform its obligations hereunder or thereunder. No Agent-Related
         Person shall be under any obligation to any Bank or participant to
         ascertain or to inquire as to the observance or performance of any of
         the agreements contained in, or conditions of, this Agreement or any
         other Loan Document, or to inspect the properties, books or records of
         any Party or any Affiliate thereof.

10.4     Reliance by Administrative Agent.

         (a)      The Administrative Agent shall be entitled to rely, and shall
                  be fully protected in relying, upon any writing,
                  communication, signature, resolution, representation, notice,
                  consent, certificate, affidavit, letter, telegram, facsimile,
                  telex or telephone message, electronic mail message, statement
                  or other document or conversation believed by it to be genuine
                  and correct and to have been signed, sent or made by the
                  proper Person or Persons, and upon advice and statements of
                  legal counsel (including counsel to any Party), independent
                  accountants and other experts selected by the Administrative
                  Agent. The Administrative Agent shall be fully justified in
                  failing or refusing to take any action under any Loan Document
                  unless it shall first receive such advice or concurrence of
                  the Required Banks as it deems appropriate and, if it so
                  requests, it shall first be indemnified to its satisfaction by
                  the Banks against any and all liability and expense which may
                  be incurred by it by reason of taking or continuing to take
                  any such action. The Administrative Agent shall in all cases
                  be fully protected in acting, or in refraining from acting,
                  under this Agreement or any other Loan Document in accordance
                  with a request or consent of the Required Banks (or such
                  greater number of Banks as may be expressly required hereby in
                  any instance) and such request and any action taken or failure
                  to act pursuant thereto shall be binding upon all the Banks.

         (b)      For purposes of determining compliance with the conditions
                  specified in Section 8.1, each Bank that has signed this
                  Agreement shall be deemed to have consented to, approved or
                  accepted or to be satisfied with, each document or other
                  matter required thereunder to be consented to or approved by
                  or acceptable or satisfactory to a Bank unless the
                  Administrative Agent shall have received notice from such Bank
                  prior to the proposed Closing Date specifying its objection
                  thereto.

10.5     Notice of Default. The Administrative Agent shall not be deemed to have
         knowledge or notice of the occurrence of any Default or Event of
         Default, except with respect to defaults in the payment of principal,
         interest and fees required to be paid to the Administrative Agent for
         the account of the Banks, unless the Administrative Agent shall have
         received written notice from a Bank or the Borrower referring to this
         Agreement, describing such Default or Event of Default and stating that
         such notice is a "notice of default." The Administrative Agent will
         notify the Banks of its receipt of any such notice. The Administrative
         Agent shall take such action with respect to such Default or Event of
         Default as may be directed by the Required Banks in accordance with
         Article IX; provided, however, that unless and until the Administrative
         Agent has received any such direction, the Administrative Agent may
         (but shall not be obligated to) take such action, or refrain from
         taking such action, with respect to such Default or Event of Default as
         it shall deem advisable or in the best interest of the Banks.

10.6     Credit Decision; Disclosure of Information by Administrative Agent.
         Each Bank acknowledges that no Agent-Related Person has made any
         representation or warranty to it, and that no act by the Administrative
         Agent hereafter taken, including any consent to and acceptance of any
         assignment or review of the affairs of any Party or any Affiliate
         thereof, shall be deemed to constitute any representation or warranty
         by any Agent-Related Person to any Bank as to any matter, including

                                      -72-
<PAGE>

         whether Agent-Related Persons have disclosed material information in
         their possession. Each Bank represents to the Administrative Agent that
         it has, independently and without reliance upon any Agent-Related
         Person and based on such documents and information as it has deemed
         appropriate, made its own appraisal of and investigation into the
         business, prospects, operations, property, financial and other
         condition and creditworthiness of the Parties and their respective
         Subsidiaries, and all applicable bank or other regulatory Laws relating
         to the transactions contemplated hereby, and made its own decision to
         enter into this Agreement and to extend credit to the Borrower
         hereunder. Each Bank also represents that it will, independently and
         without reliance upon any Agent-Related Person and based on such
         documents and information as it shall deem appropriate at the time,
         continue to make its own credit analysis, appraisals and decisions in
         taking or not taking action under this Agreement and the other Loan
         Documents, and to make such investigations as it deems necessary to
         inform itself as to the business, prospects, operations, property,
         financial and other condition and creditworthiness of the Borrower and
         the other Parties. Except for notices, reports and other documents
         expressly required to be furnished to the Banks by the Administrative
         Agent herein, the Administrative Agent shall not have any duty or
         responsibility to provide any Bank with any credit or other information
         concerning the business, prospects, operations, property, financial and
         other condition or creditworthiness of any of the Parties or any of
         their respective Affiliates which may come into the possession of any
         Agent- Related Person.

10.7     Indemnification of Administrative Agent. Whether or not the
         transactions contemplated hereby are consummated, the Banks shall,
         ratably in accordance with their respective Pro Rata Shares, indemnify
         upon demand each Agent-Related Person (to the extent not reimbursed by
         or on behalf of any Party and without limiting the obligation of any
         Party to do so), and hold harmless each Agent-Related Person from and
         against any and all Indemnified Liabilities incurred by it; provided,
         however, that no Bank shall be liable for the payment to any
         Agent-Related Person of any portion of such Indemnified Liabilities to
         the extent determined in a final, nonappealable judgment by a court of
         competent jurisdiction to have resulted from such Agent-Related
         Person's own gross negligence or willful misconduct; provided, however,
         that no action taken in accordance with the directions of the Required
         Banks (or greater number, if so required) shall be deemed to constitute
         gross negligence or willful misconduct for purposes of this Section.
         Without limitation of the foregoing, each Bank shall reimburse the
         Administrative Agent upon demand for its ratable share of any costs or
         out-of-pocket expenses (including Attorney Costs) incurred by the
         Administrative Agent in connection with the preparation, execution,
         delivery, administration, modification, amendment or enforcement
         (whether through negotiations, legal proceedings or otherwise) of, or
         legal advice in respect of rights or responsibilities under, this
         Agreement, any other Loan Document, or any document contemplated by or
         referred to herein, to the extent that the Administrative Agent is not
         reimbursed for such expenses by or on behalf of the Borrower. The
         undertaking in this Section shall survive termination of the
         Commitments, the payment of all other Obligations and the resignation
         of the Administrative Agent.

10.8     Administrative Agent in its Individual Capacity. Bank of America and
         its Affiliates may make loans to, issue letters of credit for the
         account of, accept deposits from, acquire equity interests in and
         generally engage in any kind of banking, trust, financial advisory,
         underwriting or other business with each of the Loan Parties and their
         respective Affiliates as though Bank of America were not the
         Administrative Agent or the Issuing Bank hereunder and without notice
         to or consent of the Banks. The Banks acknowledge that, pursuant to
         such activities, Bank of America or its Affiliates may receive
         information regarding any Party or its Affiliates (including
         information that may be subject to confidentiality obligations in favor
         of such Party or such Affiliate) and acknowledge that the
         Administrative Agent shall be under no obligation to provide such
         information to them. With respect to its Loans, Bank of America shall
         have the same rights

                                      -73-
<PAGE>

         and powers under this Agreement as any other Bank and may exercise such
         rights and powers as though it were not the Administrative Agent or the
         Issuing Bank, and the terms "Bank" and "Banks" include Bank of America
         in its individual capacity.

10.9     Successor Administrative Agent. The Administrative Agent may resign as
         Administrative Agent upon 60 days' notice to the Banks. If the
         Administrative Agent resigns under this Agreement, the Required Banks
         shall appoint from among the Banks a successor administrative agent for
         the Banks, which successor administrative agent shall be consented to
         by the Borrower at all times other than during the existence of an
         Event of Default (which consent of the Borrower shall not be
         unreasonably withheld or delayed). If no successor administrative agent
         is appointed 15 days prior to the effective date of the resignation of
         the Administrative Agent, the Administrative Agent may appoint, after
         consulting with the Banks and the Borrower, a successor administrative
         agent from among the Banks. Upon the acceptance of its appointment as
         successor administrative agent hereunder, the Person acting as such
         successor administrative agent shall succeed to all the rights, powers
         and duties of the retiring Administrative Agent and the term
         "Administrative Agent" shall mean such successor administrative agent
         and the retiring Administrative Agent's appointment, powers and duties
         as Administrative Agent shall be terminated. After any retiring
         Administrative Agent's resignation hereunder as Administrative Agent,
         the provisions of this Article X and Sections 11.3 and 11.10 shall
         inure to its benefit as to any actions taken or omitted to be taken by
         it while it was Administrative Agent under this Agreement. If no
         successor administrative agent has accepted appointment as
         Administrative Agent by the date which is 60 days following a retiring
         Administrative Agent's notice of resignation, the retiring
         Administrative Agent's resignation shall nevertheless thereupon become
         effective and the Banks shall perform all of the duties of the
         Administrative Agent hereunder until such time, if any, as the Required
         Banks appoint a successor agent as provided for above. In addition,
         upon a good faith, written allegation by the Required Banks that the
         Administrative Agent has committed an act of gross negligence or
         wilfull misconduct, which written allegation sets forth the specifics
         of such alleged gross negligence or wilfull misconduct, the Required
         Banks may remove the Administrative Agent by giving written notice to
         the Administrative Agent to that effect to be effective on such date as
         the Required Banks designate, provided however that no such removal
         shall be effective until Required Banks have appointed a Bank, and such
         Bank has accepted its appointment as, successor administrative agent,
         which successor administrative agent shall be consented to by the
         Borrower at all times other than during the existence of an Event of
         Default (which consent of the Borrower shall not be unreasonably
         withheld or delayed).

10.10    Administrative Agent May File Proofs of Claim. In case of the pendency
         of any receivership, insolvency, liquidation, bankruptcy,
         reorganization, arrangement, adjustment, composition or other judicial
         proceeding relative to any Party, the Administrative Agent
         (irrespective of whether the principal of any Loan or other Obligation
         shall then be due and payable as herein expressed or by declaration or
         otherwise and irrespective of whether the Administrative Agent shall
         have made any demand on the Borrower) shall be entitled and empowered,
         by intervention in such proceeding or otherwise

         (a)      to file and prove a claim for the whole amount of the
                  principal and interest owing and unpaid in respect of the
                  Loans and all other Obligations that are owing and unpaid and
                  to file such other documents as may be necessary or advisable
                  in order to have the claims of the Banks and the
                  Administrative Agent (including any claim for the reasonable
                  compensation, expenses, disbursements and advances of the
                  Banks and the Administrative Agent and their respective agents
                  and counsel and all other amounts due

                                      -74-
<PAGE>

                  the Banks and the Administrative Agent under Sections 2.5, 3.2
                  and 11.3) allowed in such judicial proceeding; and

         (b)      to collect and receive any monies or other property payable or
                  deliverable on any such claims and to distribute the same;

         and any custodian, receiver, assignee, trustee, liquidator,
         sequestrator or other similar official in any such judicial proceeding
         is hereby authorized by each Bank to make such payments to the
         Administrative Agent and, in the event that the Administrative Agent
         shall consent to the making of such payments directly to the Banks, to
         pay to the Administrative Agent any amount due for the reasonable
         compensation, expenses, disbursements and advances of the
         Administrative Agent and its agents and counsel, and any other amounts
         due the Administrative Agent under Sections 3.2, 3.3 and 11.3.

         Nothing contained herein shall be deemed to authorize the
         Administrative Agent to authorize or consent to or accept or adopt on
         behalf of any Bank any plan of reorganization, arrangement, adjustment
         or composition affecting the Obligations or the rights of any Bank or
         to authorize the Administrative Agent to vote in respect of the claim
         of any Bank in any such proceeding.

10.11    Guaranty Matters. The Banks irrevocably authorize the Administrative
         Agent, at its option and in its discretion, to release any Guarantor
         Subsidiary from its obligations under the Subsidiary Guaranty if such
         Person ceases to be a Subsidiary as a result of a transaction permitted
         hereunder. Upon request by the Administrative Agent at any time, the
         Required Banks will confirm in writing the Administrative Agent's
         authority to release any Guarantor Subsidiary from its obligations
         under the Subsidiary Guaranty pursuant to this Section 10.11.

10.12    Other Agents; Arrangers and Managers. None of the Banks or other
         Persons identified on the facing page or signature pages of this
         Agreement as a "syndication agent," "documentation agent," "senior
         managing agent," "managing agent," "co-agent," "sole book manager,"
         "lead manager," "sole lead arranger," "arranger" or "co-arranger" shall
         have any right, power, obligation, liability, responsibility or duty
         under this Agreement other than, in the case of such Banks, those
         applicable to all Banks as such. Without limiting the foregoing, none
         of the Banks or other Persons so identified shall have or be deemed to
         have any fiduciary relationship with any Bank. Each Bank acknowledges
         that it has not relied, and will not rely, on any of the Banks or other
         Persons so identified in deciding to enter into this Agreement or in
         taking or not taking action hereunder.

10.13    Defaulting Banks. If for any reason any Bank wrongfully (in violation
         of this Agreement) fails or refuses to timely make any Advance required
         of it, or otherwise defaults on any of its material obligations under
         this Agreement, and fails to cure its default within 5 Business Days of
         receiving notice of its failure to perform (such Bank being a
         "Defaulting Bank"), then in addition to the rights and remedies that
         may be available to the Administrative Agent and the Banks at law or in
         equity, the Defaulting Bank's right to participate in the Loan and the
         Agreement will be suspended during the pendency of the Defaulting
         Bank's uncured default, and (without limiting the foregoing) the
         Administrative Agent may (or at the direction of the Required Banks,
         shall) withhold from the Defaulting Bank any interest payments, fees,
         principal payments or other sums otherwise payable to such Defaulting
         Bank under the Loan Documents until such default of such Defaulting
         Bank has been cured. Each non-defaulting Bank will have the right, but
         not the obligation, in its sole discretion, to acquire at par a
         proportionate share (based on the ratio of its Pro Rata Share of the
         Commitment to the aggregate amount of the Pro Rata Shares of the
         Commitments of all of the non-defaulting Banks that elect to acquire a
         share of the Defaulting

                                      -75-
<PAGE>

         Bank's Pro Rata Share of the Commitment) of the Defaulting Bank's Pro
         Rata Share of the Commitment, including its proportionate share in the
         outstanding principal balance of the Loans. The Defaulting Bank will
         pay and protect, defend and indemnify Administrative Agent and each of
         the other Banks against, and hold Administrative Agent, and each of the
         other Banks harmless from, all claims, actions, proceedings,
         liabilities, damages, losses, and expenses (including Attorney Costs,
         and interest at the Base Rate plus 2.0% per annum for the funds
         advanced by Administrative Agent or any Banks on account of the
         Defaulting Bank) they may sustain or incur by reason of or in
         consequence of the Defaulting Bank's failure or refusal to perform its
         obligations under the Loan Documents. Administrative Agent may set off
         against payments due to the Defaulting Bank for the claims of
         Administrative Agent and the other Banks against the Defaulting Bank.
         The exercise of these remedies will not reduce, diminish or liquidate
         the Defaulting Bank's Pro Rata Share of the Commitment (except to the
         extent that part or all of such Pro Rata Share of the Commitment is
         acquired by the other Banks as specified above) or its obligations to
         share losses and reimbursement for costs, liabilities and expenses
         under this Agreement. This indemnification will survive the payment and
         satisfaction of all of the Borrower's obligations and liabilities to
         the Banks. The foregoing provisions of this Section 10.13 are solely
         for the benefit of the Administrative Agent and the Banks, and may not
         be enforced or relied upon by the Borrower.

10.14    No Obligations of Borrower. Nothing contained in this Article X shall
         be deemed to impose upon Borrower any obligation in respect of the due
         and punctual performance by the Administrative Agent of its obligations
         to the Banks under any provision of this Agreement, and Borrower shall
         have no liability to the Administrative Agent or any of the Banks in
         respect of any failure by the Administrative Agent or any Bank to
         perform any of its obligations to the Administrative Agent or the Banks
         under this Agreement. Without limiting the generality of the foregoing,
         where any provision of this Agreement relating to the payment of any
         amounts due and owing under the Loan Documents provides that such
         payments shall be made by Borrower to the Administrative Agent for the
         account of the Banks, Borrower's obligations to the Banks in respect of
         such payments shall be deemed to be satisfied upon the making of such
         payments to the Administrative Agent in the manner provided by this
         Agreement.

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<PAGE>

                                   ARTICLE XI
                                  MISCELLANEOUS

11.1     Cumulative Remedies; No Waiver. The rights, powers, and remedies of the
         Administrative Agent or any Bank provided herein or in any Note or
         other Loan Document are cumulative and not exclusive of any right,
         power, or remedy provided by law or equity. No failure or delay on the
         part of the Administrative Agent or any Bank in exercising any right,
         power, or remedy may be, or may be deemed to be, a waiver thereof; nor
         may any single or partial exercise of any right, power, or remedy
         preclude any other or further exercise of any other right, power, or
         remedy. The terms and conditions of Sections 8.1, 8.2, and 8.3 hereof
         are inserted for the sole benefit of the Banks and the Administrative
         Agent may (with the approval of the Required Banks) waive them in whole
         or in part with or without terms or conditions in respect of any Loan,
         without prejudicing the Banks' rights to assert them in whole or in
         part in respect of any other Loans.

11.2     Amendments; Consents. No amendment, modification, supplement,
         termination, or waiver of any provision of this Agreement or any other
         Loan Document, and no consent to any departure by Borrower or any other
         Party therefrom, may in any event be effective unless in writing signed
         by the Administrative Agent with the approval of the Required Banks and
         Borrower, and then only in the specific instance and for the specific
         purpose given; and without the approval in writing of all of the
         affected Banks, no amendment, modification, supplement, termination,
         waiver, or consent may be effective:

         (a)      to amend or modify the principal of, or the amount of
                  principal or principal prepayments, payable on any Obligation
                  or (except as provided in Section 2.6) the amount of the
                  Commitment, to decrease the rate of any interest or fee
                  payable to any Bank, or to reduce or waive any interest or
                  other amount payable to any Bank;

         (b)      to postpone any date fixed for any payment of principal of,
                  prepayment of principal of, or any installment of interest on,
                  any Obligation or any installment of any fee or to extend the
                  term of the Commitment;

         (c)      to amend or modify the provisions of the definitions in
                  Section 1.1 of "Required Banks" or of Sections 11.2, 11.9,
                  11.10, or 11.11, or any provision providing for the ratable or
                  pro rata treatment of the Banks;

         (d)      release any Guarantor Subsidiary from liability under the
                  Subsidiary Guaranty (except as provided below); or

         (e)      to amend or modify any provision of this Agreement or the Loan
                  Documents that expressly requires the consent or approval of
                  all the Banks.

         Any amendment, modification, supplement, termination, waiver or consent
         pursuant to this Section 11.2 shall apply equally to, and shall be
         binding upon, all the Banks and the Agents. Any amendment,
         modification, supplement, termination, waiver or consent pursuant to
         this Section 11.2 that permits the sale or other transfer of the
         capital stock of (or all or substantially all of the assets of) a
         Guarantor Subsidiary shall automatically release the Guarantor
         Subsidiary effective concurrently with such sale or other transfer.

11.3     Costs, Expenses and Taxes. Borrower shall pay within 30 days after
         demand (which demand shall be accompanied by an invoice in reasonable
         detail) the reasonable actual out-of-pocket costs and expenses of the
         Administrative Agent and the Sole Lead Arranger and Sole Book Manager
         in

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<PAGE>

         connection with (a) the negotiation, preparation, execution, delivery,
         arrangement, syndication and closing of the Loan Documents, (b)
         administration of the Loan Documents and (c) any amendment, waiver or
         modification of the Loan Documents. Borrower shall pay within 30 days
         after demand the reasonable actual out-of-pocket costs and expenses of
         the Administrative Agent and each of the Banks in connection with the
         enforcement of any Loan Documents following the occurrence of a Default
         or an Event of Default, including in connection with any refinancing,
         restructuring, reorganization (including a bankruptcy reorganization,
         if such payment is approved by the bankruptcy court or any similar
         proceeding). The costs and expenses referred to in the first sentence
         above (for which Borrower shall be liable solely with respect to costs
         and expenses of the Administrative Agent and the Sole Lead Arranger and
         Sole Book Manager) and the second sentence above (which shall apply to
         costs and expenses of the Administrative Agent and the Banks) shall
         include filing fees, recording fees, title insurance fees, appraisal
         fees, search fees, and other out-of-pocket expenses and Attorney Costs
         of the Administrative Agent and the Sole Lead Arranger and Sole Book
         Manager or any of the Banks, as the case may be, or independent public
         accountants and other outside experts retained by the Administrative
         Agent and the Sole Lead Arranger and Sole Book Manager (provided that
         (i) Borrower shall not be liable under this Section 11.3 for fees and
         expenses of more than one firm of independent public accountants, or
         more than one expert with respect to a specific subject matter, at any
         one time and (ii) with respect to the costs and expenses referred to in
         the second sentence above (pertaining to enforcement matters), Borrower
         shall not be liable for the fees and expenses of more than one firm of
         outside legal counsel retained to represent the Administrative Agent
         and the Banks, but if any of such parties does not consent to such
         joint representation, Borrower shall be liable for the fees and
         expenses of not more than one firm of outside legal counsel retained to
         represent the Administrative Agent and also for not more than one
         additional firm of outside legal counsel retained to otherwise
         represent one or more of the Banks). Nothing herein shall obligate
         Borrower to pay any costs and expenses in connection with an assignment
         of or participation in a Bank's Pro Rata Share of a Commitment.
         Borrower shall pay any and all documentary and transfer taxes,
         assessments or charges made by any Governmental Agency and all
         reasonable actual costs, expenses, fees, and charges of Persons (other
         than the Administrative Agent and the Sole Lead Arranger and Sole Book
         Manager or the Banks) payable or determined to be payable in connection
         with the execution, delivery, filing or recording of this Agreement,
         any other Loan Document, or any other instrument or writing to be
         delivered hereunder or thereunder, and shall reimburse, hold harmless,
         and indemnify the Administrative Agent and the Sole Lead Arranger and
         Sole Book Manager and each Bank from and against any and all loss,
         liability, or legal or other expense with respect to or resulting from
         any delay in paying or failure to pay any such tax, cost, expense, fee,
         or charge or that any of them may suffer or incur by reason of the
         failure of Borrower to perform any of its Obligations. Any amount
         payable to the Administrative Agent and the Sole Lead Arranger and Sole
         Book Manager or any Bank under this Section shall bear interest from
         the date which is 30 days after Borrower's receipt of demand (together
         with reasonable supporting documentation) for payment at the rate then
         in effect for Base Rate Loans.

11.4     Nature of Banks' Obligations. Nothing contained in this Agreement or
         any other Loan Document and no action taken by the Administrative Agent
         or the Banks or any of them pursuant hereto or thereto may, or may be
         deemed to, make the Banks a partnership, an association, a joint
         venture, or other entity, either among themselves or with Borrower. The
         obligations of the Banks hereunder to make Advances and to fund
         participations in Letters of Credit and Swing Line Loans are several
         and not joint or joint and several. The failure of any Bank to make any
         Advance or to fund any such participation on any date required
         hereunder shall not relieve any other Bank of its corresponding
         obligation to do so on such date, and no Bank shall be responsible for
         the failure of any other Bank to so make its Advance or purchase its
         participation.

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<PAGE>

11.5     Survival of Representations and Warranties. All representations and
         warranties made hereunder and in any other Loan Document or other
         document delivered pursuant hereto or thereto or in connection herewith
         or therewith shall survive the execution and delivery hereof and
         thereof. Such representations and warranties have been or will be
         relied upon by the Administrative Agent and each Bank, regardless of
         any investigation made by the Administrative Agent or any Bank or on
         their behalf and notwithstanding that the Administrative Agent or any
         Bank may have had notice or knowledge of any Default at the time of the
         making of any Advance or the issuance of any Letter of Credit, and
         shall continue in full force and effect as long as any Loan or any
         other Obligation hereunder shall remain unpaid or unsatisfied or any
         Letter of Credit shall remain outstanding.

11.6     Notices and Other Communications; Facsimile Copies.

         (a)      General. Unless otherwise expressly provided herein, all
                  notices and other communications provided for hereunder shall
                  be in writing (including by facsimile transmission). All such
                  written notices shall be mailed, faxed or delivered to the
                  applicable address, facsimile number or (subject to subsection
                  (c) below) electronic mail address, and all notices and other
                  communications expressly permitted hereunder to be given by
                  telephone shall be made to the applicable telephone number, as
                  follows:

                  (i)      if to the Borrower, the Administrative Agent, the
                           Issuing Bank or the Swing Line Bank, to the address,
                           facsimile number, electronic mail address or
                           telephone number specified for such Person on
                           Schedule 11.6 or to such other address, facsimile
                           number, electronic mail address or telephone number
                           as shall be designated by such party in a notice to
                           the other parties; and

                  (ii)     if to any other Bank, to the address, facsimile
                           number, electronic mail address or telephone number
                           specified in its Administrative Questionnaire or to
                           such other address, facsimile number, electronic mail
                           address or telephone number as shall be designated by
                           such party in a notice to the Borrower, the
                           Administrative Agent, the Issuing Bank and the Swing
                           Line Bank.

                  All such notices and other communications shall be deemed to
                  be given or made upon the earlier to occur of (i) actual
                  receipt by the relevant party hereto and (ii) (A) if delivered
                  by hand or by courier, when signed for by or on behalf of the
                  relevant party hereto; (B) if delivered by mail, 4 Business
                  Days after deposit in the mails, postage prepaid; (C) if
                  delivered by facsimile, when sent and receipt has been
                  confirmed by telephone; and (D) if delivered by electronic
                  mail (which form of delivery is subject to the provisions of
                  subsection (c) below), when delivered; provided, however, that
                  notices and other communications to the Administrative Agent,
                  the Issuing Bank and the Swing Line Bank pursuant to Article
                  II shall not be effective until actually received by such
                  Person. In no event shall a voicemail message be effective as
                  a notice, communication or confirmation hereunder.

         (b)      Effectiveness of Facsimile Documents and Signatures. Loan
                  Documents may be transmitted or signed by facsimile. The
                  effectiveness of any such documents and signatures shall,
                  subject to applicable Law, have the same force and effect as
                  manually-signed originals and shall be binding on all Loan
                  Parties, the Administrative Agent and the Banks. The
                  Administrative Agent may also require that any such documents
                  and signatures be confirmed by a manually-signed original
                  thereof; provided, however, that

                                      -79-
<PAGE>

                  the failure to request or deliver the same shall not limit the
                  effectiveness of any facsimile document or signature.

         (c)      Limited Use of Electronic Mail. Electronic mail and Internet
                  and intranet websites may be used only to distribute routine
                  communications, such as financial statements and other
                  information as provided in Section 7.1, and to distribute Loan
                  Documents for execution by the parties thereto, and may not be
                  used for any other purpose.

         (d)      Reliance by Administrative Agent and Banks. The Administrative
                  Agent and the Banks shall be entitled to rely and act upon any
                  notices (including telephonic requests for Loans and Swing
                  Line Loans) that, in the reasonable judgment of the
                  Administrative Agent and the Banks, are purportedly given by
                  or on behalf of the Borrower even if (i) such notices were not
                  made in a manner specified herein, were incomplete or were not
                  preceded or followed by any other form of notice specified
                  herein, or (ii) the terms thereof, as understood by the
                  recipient, varied from any confirmation thereof. The Borrower
                  shall indemnify each Agent-Related Person and each Bank from
                  all losses, costs, expenses and liabilities resulting from the
                  reliance by such Person on each notice that, in the reasonable
                  judgment of such Agent-Related Person, is purportedly given by
                  or on behalf of the Borrower. All telephonic notices to and
                  other communications with the Administrative Agent may be
                  recorded by the Administrative Agent, and each of the parties
                  hereto hereby consents to such recording.

11.7     Execution in Counterparts. This Agreement and any other Loan Document
         to which Borrower is a Party may be executed in any number of
         counterparts and any party hereto or thereto may execute any
         counterpart, each of which when executed and delivered will be deemed
         to be an original and all of which counterparts of this Agreement or
         any other Loan Document, as the case may be, taken together will be
         deemed to be but one and the same instrument. Such counterparts may be
         sent by telecopy, with the original counterparts to follow by mail or
         courier. The execution of this Agreement or any other Loan Document by
         any party hereto or thereto will not become effective until executed
         counterparts hereof or thereof (or other evidence of execution
         satisfactory to the Administrative Agent and Borrower) have been
         delivered to the Administrative Agent and Borrower.

11.8     Successors and Assigns.

         (a)      The provisions of this Agreement shall be binding upon and
                  inure to the benefit of the parties hereto and their
                  respective successors and assigns permitted hereby, except
                  that the Borrower may not assign or otherwise transfer any of
                  its rights or obligations hereunder without the prior written
                  consent of each Bank and no Bank may assign or otherwise
                  transfer any of its rights or obligations hereunder except (i)
                  to an Eligible Assignee in accordance with the provisions of
                  subsection (b) of this Section, (ii) by way of participation
                  in accordance with the provisions of subsection (d) of this
                  Section, or (iii) by way of pledge or assignment of a security
                  interest subject to the restrictions of subsection (f) of this
                  Section (and any other attempted assignment or transfer by any
                  party hereto shall be null and void). Nothing in this
                  Agreement, expressed or implied, shall be construed to confer
                  upon any Person (other than the parties hereto, their
                  respective successors and assigns permitted hereby,
                  Participants to the extent provided in subsection (d) of this
                  Section and, to the extent expressly contemplated hereby, the
                  Indemnitees) any legal or equitable right, remedy or claim
                  under or by reason of this Agreement.

                                      -80-
<PAGE>

         (b)      Any Bank may at any time assign to one or more Eligible
                  Assignees all or a portion of its rights and obligations under
                  this Agreement (including all or a portion of its Commitment
                  and the Loans (including for purposes of this subsection (b),
                  participations in Letters of Credit and in Swing Line Loans)
                  at the time owing to it); provided that (i) except in the case
                  of an assignment of the entire remaining amount of the
                  assigning Bank's Commitment and the Loans at the time owing to
                  it or in the case of an assignment to a Bank or an Affiliate
                  of a Bank the aggregate amount of the Commitment (which for
                  this purpose includes Loans outstanding thereunder) subject to
                  each such assignment, determined as of the date the Assignment
                  and Assumption with respect to such assignment is delivered to
                  the Administrative Agent or, if "Trade Date" is specified in
                  the Assignment and Assumption, as of the Trade Date, shall not
                  be less than $10,000,000 and shall be an integral multiple of
                  $5,000,000 unless each of the Administrative Agent and, so
                  long as no Event of Default has occurred and is continuing,
                  the Borrower otherwise consents (each such consent not to be
                  unreasonably withheld or delayed); (ii) each partial
                  assignment shall be made as an assignment of a proportionate
                  part of all the assigning Bank's rights and obligations under
                  this Agreement with respect to the Loans or the Commitment
                  assigned, except that this clause (ii) shall not apply to
                  rights in respect of Swing Line Loans; (iii) any assignment to
                  an Eligible Assignee other than a Bank or an Affiliate of a
                  Bank shall be subject to the prior written consent of the
                  Administrative Agent and the Swing Line Bank, not to be
                  unreasonably withheld or delayed; (iv) the parties to each
                  assignment shall execute and deliver to the Administrative
                  Agent an Assignment and Assumption, together with a processing
                  and recordation fee of $3,500; and (v) any assignment to an
                  Eligible Assignee other than a Bank or an Affiliate of a Bank
                  shall be subject to the prior written consent of the Borrower,
                  not to be unreasonably withheld or delayed, but such consent
                  of Borrower shall not be required if a Default or an Event of
                  Default has then occurred and is continuing. Subject to
                  acceptance and recording thereof by the Administrative Agent
                  pursuant to subsection (c) of this Section, from and after the
                  effective date specified in each Assignment and Assumption,
                  the Eligible Assignee thereunder shall be a party to this
                  Agreement and, to the extent of the interest assigned by such
                  Assignment and Assumption, have the rights and obligations of
                  a Bank under this Agreement, and the assigning Bank thereunder
                  shall, to the extent of the interest assigned by such
                  Assignment and Assumption, be released from its obligations
                  under this Agreement (and, in the case of an Assignment and
                  Assumption covering all of the assigning Bank's rights and
                  obligations under this Agreement, such Bank shall cease to be
                  a party hereto but shall continue to be entitled to the
                  benefits of Sections 3.5, 3.6, 3.10, 11.3 and 11.10 with
                  respect to facts and circumstances occurring prior to the
                  effective date of such assignment). Upon request, the Borrower
                  (at the assignor Bank's or the assignee Bank's expense) shall
                  execute and deliver a Note to the assignee Bank. Any
                  assignment or transfer by a Bank of rights or obligations
                  under this Agreement that does not comply with this subsection
                  shall be treated for purposes of this Agreement as a sale by
                  such Bank of a participation in such rights and obligations in
                  accordance with subsection (d) of this Section.

         (c)      The Administrative Agent, acting solely for this purpose as an
                  agent of the Borrower, shall maintain at the Administrative
                  Agent's Office a copy of each Assignment and Assumption
                  delivered to it and a register for the recordation of the
                  names and addresses of the Banks, and the Commitments of, and
                  principal amounts of the Loans and other Obligations owing to,
                  each Bank pursuant to the terms hereof from time to time (the
                  "Register"). The entries in the Register shall be conclusive,
                  and the Borrower, the Administrative Agent and the Banks may
                  treat each Person whose name is recorded in the Register
                  pursuant to the terms hereof as a Bank hereunder for all
                  purposes of this

                                      -81-
<PAGE>

                  Agreement, notwithstanding notice to the contrary. The
                  Register shall be available for inspection by the Borrower and
                  any Bank, at any reasonable time and from time to time upon
                  reasonable prior notice.

         (d)      Any Bank may at any time, without the consent of, or notice
                  to, the Borrower or the Administrative Agent, sell
                  participations to any Person (other than a natural person or
                  the Borrower or any of the Borrower's Affiliates or
                  Subsidiaries) (each, a "Participant") in all or a portion of
                  such Bank's rights or obligations under this Agreement
                  (including all or a portion of its Commitment or the Loans
                  (including such Bank's participations in Letters of Credit or
                  Swing Line Loans) owing to it); provided that (i) such Bank's
                  obligations under this Agreement shall remain unchanged, (ii)
                  such Bank shall remain solely responsible to the other parties
                  hereto for the performance of such obligations and (iii) the
                  Borrower, the Administrative Agent and the other Banks shall
                  continue to deal solely and directly with such Bank in
                  connection with such Bank's rights and obligations under this
                  Agreement. Any agreement or instrument pursuant to which a
                  Bank sells such a participation shall provide that such Bank
                  shall retain the sole right to enforce this Agreement and to
                  approve any amendment, modification or waiver of any provision
                  of this Agreement; provided further, that such agreement or
                  instrument may provide that such Bank will not, without the
                  consent of the Participant, agree to any amendment, waiver or
                  other modification described in Sections 11.2(a), 11.2(b) or
                  11.2(d) that directly affects such Participant; provided
                  further, that any Bank selling a participation shall endeavor
                  promptly to give Borrower notice following any such sale, but
                  the failure to give such notice will not give rise to any
                  liability on the part of such Bank or otherwise affect the
                  validity of any such sale. Subject to clause (e) of this
                  Section, the Borrower agrees that each Participant shall be
                  entitled to the benefits of Sections 3.5, 3.6 and 3.10 to the
                  same extent as if it were a Bank and had acquired its interest
                  by assignment pursuant to subsection (b) of this Section. To
                  the extent permitted by law, each Participant also shall be
                  entitled to the benefits of Section 11.15 as though it were a
                  Bank, provided such Participant agrees to be subject to
                  Section 11.9 as though it were a Bank.

         (e)      A Participant shall not be entitled to receive any greater
                  payment under Sections 3.5, 3.6 and 3.10 than the applicable
                  Bank would have been entitled to receive with respect to the
                  participation sold to such Participant.

         (f)      Any Bank may at any time pledge or assign a security interest
                  in all or any portion of its rights under this Agreement
                  (including under its Note, if any) to secure obligations of
                  such Bank, including any pledge or assignment to secure
                  obligations to a Federal Reserve Bank; provided that no such
                  pledge or assignment shall release such Bank from any of its
                  obligations hereunder or substitute any such pledgee or
                  assignee for such Bank as a party hereto.

         (g)      [Intentionally Omitted]

         (h)      Notwithstanding anything to the contrary contained herein, if
                  at any time Bank of America assigns all of its Commitment and
                  Loans pursuant to subsection (b) above, Bank of America may,
                  (i) upon 60 days' notice to the Borrower and the Banks, resign
                  as Issuing Bank or (ii) upon 60 days' notice to the Borrower,
                  resign as Swing Line Bank. Notwithstanding anything to the
                  contrary contained herein, if at any time Bank of America is
                  removed as Administrative Agent by the Required Banks pursuant
                  to Section 10.9 herein, then Bank of America shall resign as
                  Swing Line Bank on the effective date of such removal. In the
                  event of any such resignation as Issuing Bank or Swing Line

                                      -82-
<PAGE>

                  Bank, the Borrower shall be entitled to appoint from among the
                  Banks a successor Issuing Bank or Swing Line Bank hereunder;
                  provided, however, that no failure by the Borrower to appoint
                  any such successor shall affect the resignation of Bank of
                  America as Issuing Bank or Swing Line Bank, as the case may
                  be. If Bank of America resigns as Issuing Bank, it shall
                  retain all the rights and obligations of the Issuing Bank
                  hereunder with respect to all Letters of Credit outstanding as
                  of the effective date of its resignation as Issuing Bank and
                  all Obligations with respect thereto (including the right to
                  require the Banks to make Base Rate Loans or fund risk
                  participations in Unreimbursed Amounts pursuant to Section
                  2.5). If Bank of America resigns as Swing Line Bank, it shall
                  retain all the rights of the Swing Line Bank provided for
                  hereunder with respect to Swing Line Loans made by it and
                  outstanding as of the effective date of such resignation,
                  including the right to require the Banks to make Base Rate
                  Loans or fund risk participations in outstanding Swing Line
                  Loans pursuant to Section 2.4.

11.9     Sharing of Setoffs. Each Bank severally agrees that if it, through the
         exercise of the right of setoff, banker's lien, or counterclaim against
         Borrower or otherwise, receives payment of the Obligations due it
         hereunder and under the Notes that is ratably more than that to which
         it is entitled hereunder pursuant to Section 3.13 or 9.2(e), then: (a)
         the Bank exercising the right of setoff, banker's lien, or counterclaim
         or otherwise receiving such payment shall purchase, and shall be deemed
         to have simultaneously purchased, from the other Bank a participation
         in the Obligations held by the other Bank and shall pay to the other
         Bank a purchase price in an amount so that the share of the Obligations
         held by each Bank after the exercise of the right of setoff, banker's
         lien, or counterclaim or receipt of payment shall be in the same
         proportion that existed prior to the exercise of the right of setoff,
         banker's lien, or counterclaim or receipt of payment, and (b) such
         other adjustments and purchases of participations shall be made from
         time to time as shall be equitable to ensure that all of the Banks
         share any payment obtained in respect of the Obligations ratably in
         accordance with the provisions of Section 3.13 and 9.2(e), provided
         that, if all or any portion of a disproportionate payment obtained as a
         result of the exercise of the right of setoff, banker's lien,
         counterclaim or otherwise is thereafter recovered from the purchasing
         Bank by Borrower or any Person claiming through or succeeding to the
         rights of Borrower, the purchase of a participation shall be rescinded
         and the purchase price thereof shall be restored to the extent of the
         recovery, but without interest. Each Bank that purchases a
         participation in the Obligations pursuant to this Section shall from
         and after the purchase have the right to give all notices, requests,
         demands, directions and other communications under this Agreement with
         respect to the portion of the Obligations purchased to the same extent
         as though the purchasing Bank were the original owner of the
         Obligations purchased. Borrower expressly consents to the foregoing
         arrangements and agrees that, to the extent permitted by Law, any Bank
         holding a participation in an Obligation so purchased may exercise any
         and all rights of setoff, banker's lien or counterclaim with respect to
         the participation as fully as if the Bank were the original owner of
         the Obligation purchased.

11.10    Indemnification by the Borrower. The Borrower shall indemnify and hold
         harmless each Agent-Related Person, each Bank and their respective
         Affiliates, directors, officers, employees, counsel, agents and
         attorneys-in-fact (collectively the "Indemnitees") from and against any
         and all liabilities, obligations, losses, damages, penalties, claims,
         demands, actions, judgments, suits, costs, expenses and disbursements
         (including Attorney Costs) of any kind or nature whatsoever which may
         at any time be imposed on, incurred by or asserted against any such
         Indemnitee in any way relating to or arising out of or in connection
         with (a) the execution, delivery, enforcement, performance or
         administration of any Loan Document or any other agreement, letter or
         instrument delivered in connection with the transactions contemplated
         thereby or the consummation of the transactions contemplated thereby,
         (b) any Commitment, Loan or Letter of

                                      -83-

<PAGE>

         Credit or the use or proposed use of the proceeds therefrom (including
         any refusal by the Issuing Bank to honor a demand for payment under a
         Letter of Credit if the documents presented in connection with such
         demand do not strictly comply with the terms of such Letter of Credit)
         or (c) any actual or prospective claim, litigation, investigation or
         proceeding relating to any of the foregoing, whether based on contract,
         tort or any other theory (including any investigation of, preparation
         for, or defense of any pending or threatened claim, investigation,
         litigation or proceeding) and regardless of whether any Indemnitee is a
         party thereto (all the foregoing, collectively, the "Indemnified
         Liabilities"); provided that such indemnity shall not, as to any
         Indemnitee, be available to the extent that such liabilities,
         obligations, losses, damages, penalties, claims, demands, actions,
         judgments, suits, costs, expenses or disbursements are determined by a
         court of competent jurisdiction by final and nonappealable judgment to
         have resulted from the (x) gross negligence or willful misconduct of
         such Indemnitee, (y) payment with respect to a Letter of Credit by such
         Indemnitee (or any other applicable "issuer" within the meaning of
         ISP98) when such payment violated the terms of ISP98 or (z) for any
         failure to comply with Section 11.12 by such Indemnitee. No Indemnitee
         shall be liable for any damages arising from the use by others of any
         information or other materials obtained through IntraLinks or other
         similar information transmission systems in connection with this
         Agreement, nor shall any Indemnitee have any liability for any indirect
         or consequential damages relating to this Agreement or any other Loan
         Document or arising out of its activities in connection herewith or
         therewith (whether before or after the Closing Date). All amounts due
         under this Section 11.10 shall be payable within 10 Business Days after
         demand therefor. The agreements in this Section shall survive the
         resignation of the Administrative Agent, the replacement of any Bank,
         the termination of the Commitments and the repayment, satisfaction or
         discharge of all the other Obligations.

11.11    Nonliability of Banks. The relationship between Borrower and the Banks
         is, and shall at all times remain, solely that of borrower and lenders,
         and the Banks and the Administrative Agent neither undertake nor assume
         any responsibility or duty to Borrower to review, inspect, supervise,
         pass judgment upon, or inform Borrower of any matter in connection with
         any phase of Borrower's business, operations, or condition, financial
         or otherwise. Borrower shall rely entirely upon its own judgment with
         respect to such matters, and any review, inspection, supervision,
         exercise of judgment, or information supplied to Borrower by any Bank
         or the Agents in connection with any such matter is for the protection
         of the Banks and the Agents, and neither Borrower nor any third party
         is entitled to rely thereon.

11.12    Confidentiality. Each Bank agrees that it and its employees shall use
         any confidential information that such Bank may receive, directly or
         indirectly, from Borrower or any of its Subsidiaries pursuant to this
         Agreement or the Subsidiary Guaranty only for the purposes of this
         Agreement and shall hold such confidential information in confidence,
         except for disclosure: to Affiliates of the Bank (provided that any
         such Affiliate who is a "person" described in Rule 100(b)(1) of
         Regulation FD of the Commission expressly agrees to maintain the
         disclosed information in confidence or otherwise falls within the
         exceptions to Rule 100(a) of Regulation FD set forth in Rule 100(b)(2)
         of Regulation FD); to other Banks; to legal counsel, accountants and
         other professional advisors to that Bank; to regulatory officials
         having jurisdiction over that Bank; as required by Law or legal process
         (provided that the Bank shall, to the extent possible give sufficient
         notice to Borrower of such legal process to enable Borrower to oppose
         such legal process, and in any event, give written notice to Borrower
         of such legal process as soon as practicable) or in connection with any
         legal proceeding to which that Bank and Borrower are adverse parties;
         and to another financial institution in connection with a disposition
         or proposed disposition to that financial institution of all or part of
         that Bank's interests hereunder or a participation interest in its
         Notes (provided that such disclosure is made subject to an

                                      -84-
<PAGE>

         appropriate confidentiality agreement by such institution on terms
         substantially similar to this Section). For purposes of the foregoing,
         "confidential information" shall mean any information respecting
         Borrower or its Subsidiaries reasonably considered by Borrower to be
         confidential, other than (a) information previously filed with any
         Governmental Agency and available to the public, (b) information
         previously published in any public medium from a source other than,
         directly or indirectly, the Agents or any Bank, and (c) information
         previously disclosed by Borrower to any Person not associated with
         Borrower without any reasonable expectation of confidentiality.
         Notwithstanding anything herein to the contrary, "confidential
         information" shall not include, and the Administrative Agent and each
         Bank, together with their employees, representatives and other agents,
         may disclose without limitation of any kind, any information with
         respect to the "tax treatment" and "tax structure" (in each case,
         within the meaning of Treasury Regulation Section 1.6011-4) of the
         transactions contemplated hereby and all materials of any kind
         (including opinions or other tax analyses) that are provided to the
         Administrative Agent or such Bank relating to such tax treatment and
         tax structure; provided that with respect to any document or similar
         item that in either case contains information concerning the tax
         treatment or tax structure of the transaction as well as other
         information, this sentence shall only apply to such portions of the
         document or similar item that relate to the tax treatment or tax
         structure of the Loans, Letters of Credit and transactions contemplated
         hereby. Nothing in this Section shall be construed to create or give
         rise to any fiduciary duty on the part of any parties hereto to each
         other.

11.13    No Third Parties Benefited. This Agreement is made for the purpose of
         defining and setting forth certain obligations, rights and duties of
         Borrower, the Agents and the Banks in connection with the Commitment,
         and is made for the sole benefit of Borrower, the Administrative Agent
         and the Banks, and the Administrative Agent's and the Banks' successors
         and assigns. Except as provided in Sections 11.8 and 11.10, no other
         Person shall have any rights of any nature hereunder or by reason
         hereof.

11.14    Other Dealings. Any Bank may, without liability to account to the other
         Banks, accept deposits from, lend money or provide credit facilities to
         and generally engage in any kind of banking or other business with
         Borrower and its Subsidiaries.

11.15    Right of Setoff - Deposit Accounts. Upon the occurrence of an Event of
         Default and the acceleration of maturity of the principal indebtedness
         under any of the Notes pursuant to Section 9.2, Borrower hereby
         specifically authorizes each Bank in which Borrower maintains a deposit
         account (whether a general or special deposit account, other than trust
         accounts) or a certificate of deposit to setoff any Obligations owed to
         the Banks against such deposit account or certificate of deposit
         without prior notice to Borrower (which notice is hereby waived)
         whether or not such deposit account or certificate of deposit has then
         matured. Nothing in this Section shall limit or restrict the exercise
         by a Bank of any right to setoff or banker's lien under applicable Law,
         subject to the approval of the Required Banks.

11.16    Further Assurances. Borrower shall, at its expense and without expense
         to the Banks or the Administrative Agent, do, execute, and deliver such
         further acts and documents as any Bank or the Administrative Agent from
         time to time reasonably requires for the assuring and confirming unto
         the Banks or the Administrative Agent the rights hereby created or
         intended now or hereafter so to be, or for carrying out the intention
         or facilitating the performance of the terms of any Loan Document;
         provided that this Section 11.16 is not intended to create any
         affirmative obligation on the part of Borrower to provide collateral
         security, additional guarantors or other credit enhancement with
         respect to the Obligations.

                                      -85-
<PAGE>

11.17    Integration. This Agreement, together with the other Loan Documents,
         comprises the complete and integrated agreement of the parties on the
         subject matter hereof and supersedes all prior agreements, written or
         oral (including the mandate letter and the summary of terms relating to
         this Agreement), on the subject matter hereof except as provided in
         Section 3.3 hereof or otherwise expressly provided herein to the
         contrary. The Loan Documents were drafted with the joint participation
         of Borrower and the Banks and shall be construed neither against nor in
         favor of either, but rather in accordance with the fair meaning
         thereof.

11.18    Governing Law

         (a)      This Agreement shall be governed by, and construed in
                  accordance with, the law of the state of California applicable
                  to agreements made and to be performed entirely within such
                  state; provided that the parties hereto shall retain all
                  rights arising under federal law.

         (b)      Any legal action or proceeding with respect to this Agreement
                  or any other Loan Document may be brought in the Superior
                  Court of the State of California for the County of Los Angeles
                  or the United States District Court for the Central District
                  of California, and by execution and delivery of this
                  agreement, the Borrower, the Administrative Agent and each
                  Bank consents, for itself and in respect of its property, to
                  the non-exclusive jurisdiction of those courts. The Borrower,
                  the Administrative Agent and each Bank irrevocably waives any
                  objection, including any objection to the laying of venue or
                  based on the grounds of forum non conveniens, which it may now
                  or hereafter have to the bringing of any action or proceeding
                  in such jurisdiction in respect of any Loan Document or other
                  document related thereto. The Borrower, the Administrative
                  Agent and each Bank waives personal service of any summons,
                  complaint or other process, which may be made by any other
                  means permitted by California law.

11.19    Severability of Provisions. Any provision in any Loan Document that is
         held to be inoperative, unenforceable, or invalid in any jurisdiction
         shall, as to that jurisdiction, be inoperative, unenforceable, or
         invalid without affecting the remaining provisions in that jurisdiction
         or the operation, enforceability, or validity of that provision in any
         other jurisdiction, and to this end the provisions of all Loan
         Documents are declared to be severable.

11.20    Headings. Article and section headings in this Agreement and the other
         Loan Documents are included for convenience of reference only and are
         not part of this Agreement or the other Loan Documents for any other
         purpose.

11.21    Conflict in Loan Documents. To the extent there is any actual
         irreconcilable conflict between the provisions of this Agreement and
         any other Loan Document, the provisions of this Agreement shall
         prevail.

11.22    Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY
         EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
         ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY
         CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
         HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE
         TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR
         HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR
         OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
         CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
         TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT

                                      -86-
<PAGE>

         MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY
         COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO
         THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

11.23    Purported Oral Amendments. BORROWER EXPRESSLY ACKNOWLEDGES THAT THIS
         AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED,
         OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN
         INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. BORROWER AGREES
         THAT IT WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE,
         OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF ANY AGENT OR ANY
         BANK THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT,
         MODIFICATION, WAIVER OR SUPPLEMENT TO THE AGREEMENT OR THE OTHER LOAN
         DOCUMENTS.

11.24    Payments Set Aside. To the extent that any payment by or on behalf of
         the Borrower is made to the Administrative Agent or any Bank, or the
         Administrative Agent or any Bank exercises its right of set-off, and
         such payment or the proceeds of such set-off or any part thereof is
         subsequently invalidated, declared to be fraudulent or preferential,
         set aside or required (including pursuant to any settlement entered
         into by the Administrative Agent or such Bank in its discretion) to be
         repaid to a trustee, receiver or any other party, in connection with
         any proceeding under any Debtor Relief Law or otherwise, then (a) to
         the extent of such recovery, the obligation or part thereof originally
         intended to be satisfied shall be revived and continued in full force
         and effect as if such payment had not been made or such set-off had not
         occurred, and (b) each Bank severally agrees to pay to the
         Administrative Agent upon demand its applicable share of any amount so
         recovered from or repaid by the Administrative Agent, plus interest
         thereon from the date of such demand to the date such payment is made
         at a rate per annum equal to the Federal Funds Rate from time to time
         in effect.

11.25    Hazardous Materials Indemnity. Without limiting any other indemnity
         provided for in the Loan Documents, Borrower agrees to indemnify the
         Indemnitees from any claim, liability, loss, cost or expense (including
         Attorney Costs) directly or indirectly arising out of the use,
         generation, manufacture, production, storage, release, threatened
         release, discharge, disposal or presence of any Hazardous Materials if
         such Hazardous Materials are on, under, about or relate to Borrower's
         Property or operations, so long as such claim, liability, loss, cost or
         expense arises out of or relates to a Commitment, the use of proceeds
         of any Loans, any transaction contemplated pursuant to this Agreement,
         or any relationship or alleged relationship of any Indemnitee to
         Borrower related to this Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -87-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.

                                      KB HOME, a Delaware Corporation

                                      By /s/ Kelly M. Allred
                                         --------------------------------------
                                                  Kelly M. Allred
                                              Vice President, Treasury

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<PAGE>

                                      BANK OF AMERICA, N.A., as Administrative
                                      Agent and a Bank

                                      By: /s/ Mark V. Gregor-Pearse
                                          --------------------------------------
                                      Name:  MARK V. GREGOR-PEARSE
                                      Title: MANAGING DIRECTOR

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<PAGE>

                                      BANK ONE, NA, as Syndication Agent and a
                                      Bank

                                      By: /s/ James P. Krcmarik
                                          --------------------------------------
                                      Name:  JAMES P. KRCMARIK
                                      Title: ASSOCIATE DIRECTOR

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<PAGE>

                                      FLEET NATIONAL BANK, as a Documentation
                                      Agent and a Bank

                                      By: /s/ Bill Lamb
                                          --------------------------------------
                                      Name:  BILL LAMB
                                      Title: VICE PRESIDENT

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                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      CREDIT LYONNAIS NEW YORK BRANCH, as a
                                      Documentation Agent and a Bank

                                      By: /s/ Attila Koc
                                          --------------------------------------
                                      Name:  ATTILA KOC
                                      Title: SENIOR VICE PRESIDENT

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<PAGE>

                                      WACHOVIA BANK, NATIONAL ASSOCIATION, as a
                                      Documentation Agent and a Bank

                                      By: /s/ Joel L. Majors
                                          --------------------------------------
                                      Name: Joel L. Majors
                                      Title: Senior Vice President

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      KEYBANK NATIONAL ASSOCIATION, a national
                                      banking association, as a Documentation
                                      Agent and a Bank

                                      By: /s/ Cheryl F. Van Klompenberg
                                          --------------------------------------
                                      Name: Cheryl F. Van Klompenberg
                                      Title: Assistant Vice President

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<PAGE>

                                      SUNTRUST BANK, as a Documentation Agent
                                      and a Bank

                                      By: /s/ W. John Wendler
                                          --------------------------------------
                                      Name:  W. John Wendler
                                      Title: Director

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                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      THE ROYAL BANK OF SCOTLAND PLC, as a
                                      Senior Managing Agent and a Bank

                                      By: /s/ David Apps
                                          --------------------------------------
                                      Name:  David Apps
                                      Title: Senior Vice President

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      BNP PARIBAS, as a Senior Managing Agent
                                      and a Bank

                                      By: /s/ Sean T. Conlon
                                          --------------------------------------
                                      Name:  Sean T. Conlon
                                      Title: Managing Director

                                          /s/ Tjalling Terpstra
                                          --------------------------------------
                                              Tjalling Terpstra
                                              Director

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      GUARANTY BANK, as a Senior Managing Agent
                                      and a Bank

                                      By: /s/ Clay M. Carter
                                          --------------------------------------
                                      Name:  Clay M. Carter
                                      Title: Vice President

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      WASHINGTON MUTUAL BANK, FA, as a Senior
                                      Managing Agent and a Bank

                                      By: /s/ Mary Bowman
                                          --------------------------------------
                                      Name:
                                      Title:

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      JPMORGAN CHASE BANK, as a Senior Managing
                                      Agent and a Bank

                                      By: /s/ Susan M. Tate
                                          --------------------------------------
                                      Name:  SUSAN M. TATE
                                      Title: VICE PRESIDENT

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      COMERICA BANK, as a Managing Agent and a
                                      Bank

                                      By: /s/ Leslie A. Vogel
                                          --------------------------------------
                                      Name:  LESLIE A. VOGEL
                                      Title: VICE PRESIDENT

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      U.S. BANK NATIONAL ASSOCIATION, as a
                                      Managing Agent and a Bank

                                      By: /s/ Wayne H. Choi
                                          --------------------------------------
                                      Name:  Wayne H. Choi
                                      Title: Vice President

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      PNC BANK, NATIONAL ASSOCIATION, as a Bank

                                      By: /s/ Douglas G. Paul
                                          --------------------------------------
                                      Name:  Douglas G. Paul
                                      Title: Senior Vice President

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      AMSOUTH BANK, as a Bank

                                      By: /s/ Ronny Hudspeth
                                          --------------------------------------
                                      Name:  Ronny Hudspeth
                                      Title: SR VP

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<PAGE>

                                      CALIFORNIA BANK & TRUST, a California
                                      banking corporation, as a Bank

                                      By: /s/ Marisa Drury
                                          --------------------------------------
                                      Name: Marisa Drury
                                      Title: Vice President

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                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      CITICORP NORTH AMERICA, INC., as a Bank

                                      By: /s/ Michael Chiopak
                                          --------------------------------------
                                      Name: Michael Chiopak
                                      Title: Vice President

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                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      HSBC BANK USA, as a Bank

                                      By:     /s/ Mee Mee Kiong
                                         --------------------------------------
                                      Name:    Mee Mee Kiong
                                      Title:   Vice President

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<PAGE>

                                      KBC BANK N.V., as a Bank

                                      By:     /s/ Robert Snauffer
                                          --------------------------------------
                                      Name:   Robert Snauffer
                                      Title:  First Vice President

                                      By:     /s/ Joseph R. Wenk
                                          --------------------------------------
                                      Name:   Joseph R. Wenk
                                      Title:  Assistant Vice President
                                              Real Estate Finance Group

                                                          KB HOME REVOLVING LOAN
                                                      AGREEMENT - SIGNATURE PAGE

<PAGE>

                                      COMPASS BANK, as a Bank

                                      By:     /s/ Johanna Duke Paley
                                          --------------------------------------
                                      Name:   Johanna Duke Paley
                                      Title:  Senior Vice President

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<PAGE>

                                      FIFTH THIRD BANK, as a Bank

                                      By:     /s/ Kevin Jones
                                          --------------------------------------
                                      Name:   Kevin Jones
                                      Title:  Vice President

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                                                      AGREEMENT - SIGNATURE PAGE

                               Exhibits omitted.<PAGE>

                                                                 EXHIBIT 4.1
                            STOCK PURCHASE AGREEMENT

         THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into as of November 10, 2003, by and among B & H Education, Inc., a Delaware
corporation ("BUYER"), Scope Beauty Enterprises, Inc., d/b/a Marinello Schools
of Beauty, a California corporation (the "COMPANY"), and Scope Industries, a
California corporation ("SELLER").

                                    RECITALS

         A.       The Company owns and operates beauty schools located at
thirteen (13) campuses in the following locations: Los Angeles, California
(South Broadway); Los Angeles, California (Wilshire West); North Hollywood,
California; Reseda, California; West Covina, California; Inglewood, California;
San Diego, California; Eagle Rock, California; San Bernardino, California;
Ontario, California; Whittier, California; Las Vegas, Nevada; and Henderson,
Nevada (each such school individually a "SCHOOL," and collectively, the
"SCHOOLS").

         B.       Seller is the owner of all the issued and outstanding shares
of capital stock of the Company.

         C.       Seller desires to sell and Buyer desires to purchase all of
the issued and outstanding shares of capital stock of the Company, on the terms
and subject to the conditions set forth in this Agreement.

         NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, the parties hereto, intending to be legally bound
hereby, agree as follows:

                                   ARTICLE I

                                THE TRANSACTION

         1.1      SALE AND PURCHASE OF SHARES. At the Closing referred to in
Section 1.4, upon the terms and subject to the conditions of this Agreement,
Seller shall sell to Buyer, free and clear of any and all Encumbrances (as
defined in Section 2.19), and Buyer shall purchase from Seller 1,000 shares of
the common stock of the Company, representing all of the issued and outstanding
shares of capital stock of the Company (the "SHARES"), for an aggregate purchase
price of Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000), subject
to the Purchase Price Adjustment set forth in Section 1.3 (the "PURCHASE
PRICE"). The Purchase Price is consideration for the purchase of the Shares and
the covenants of Seller contained in Article VI of this Agreement.

         1.2      PAYMENT OF PURCHASE PRICE; DELIVERY OF THE SHARES. The
Purchase Price shall be paid by Buyer at the Closing as follows:

<PAGE>

                  (a)      Two Million Eight Hundred Eighty Seven Thousand Five
Hundred Dollars ($2,887,500) of the Purchase Price shall be paid in the form of
a note delivered by Buyer to Seller in the form attached hereto as Exhibit A
(the "CLOSING NOTE").

                  (b)      One Million Two Hundred Thirty Seven Thousand Five
Hundred Dollars ($1,237,500) of the Purchase Price in the form of immediately
available funds shall be deposited by Buyer by wire transfer into an escrow
account (the "ESCROW ACCOUNT") with the Escrow Agent (as defined in Section
1.5(a)) (the "ESCROW FUNDS").

                  (c)      The balance of the Purchase Price, Four Million One
Hundred Twenty-Five Thousand Dollars ($4,125,000), shall be paid in immediately
available funds by Buyer by a wire transfer to an account designated in writing
by Seller (the "CLOSING PAYMENT").

At the Closing, Seller shall deliver to Buyer the certificate(s) for the Shares,
together with duly executed stock powers in blank, in a form reasonably
acceptable to Buyer and its counsel.

         1.3      PURCHASE PRICE ADJUSTMENT.

                  (a)      The Purchase Price will be subject to adjustment
(hereinafter referred to as the "PURCHASE PRICE ADJUSTMENT") in accordance with
the foregoing provisions of this Section 1.3. The Purchase Price shall be
increased by the amount that the Adjusted Assets as of the Closing Date exceeds
the Total Liabilities as of the Closing Date. The Purchase Price shall be
reduced by the amount that the Total Liabilities exceeds the Adjusted Assets as
of the Closing Date. For purposes of this Section 1.3, Adjusted Assets shall be
determined in accordance with generally accepted accounting principles ("GAAP")
and shall include cash, cash equivalents, treasury bills, inventories, prepaid
expenses, prepaid supplies, current and non-current accounts receivable (without
regard to allowances for doubtful accounts) and current and non-current notes
receivable (without regard to allowances for doubtful accounts). For purposes of
this Section 1.3, Total Liabilities shall include all current liabilities and
long term liabilities determined in accordance with GAAP. The balance sheet for
the Company as of the close of business on the Closing Date ("CLOSING BALANCE
SHEET") shall be prepared by Seller's auditors, at Seller's expense, as soon as
practicable. The parties shall use all commercially reasonable efforts to have
the Closing Balance Sheet finalized within sixty (60) days of the Closing Date.
The Closing Balance Sheet and the resulting Purchase Price Adjustment shall be
subject to the review and approval of Buyer and its auditors, at Buyer's
expense, and notwithstanding any provision herein to the contrary, Seller shall
permit Buyer and its auditors to have access to the books and records necessary
for such parties to conduct their review and approval. In the event of any
dispute regarding the Closing Balance Sheet, the disputed items shall be finally
determined by a mutually acceptable independent, big four accounting firm, which
final determination shall be binding on Buyer and Seller. Buyer and Seller shall
share equally the costs and expenses of such independent accounting firm.

                  (b)      If, as of the result of the final determination of
the Purchase Price Adjustment:

                           (i)      Seller is determined to owe an amount to
Buyer because the Total Liabilities exceed the Adjusted Assets (the amount of
such excess, "NOTE REDUCTION AMOUNT"),

                                       2

<PAGE>

Seller shall (A) cancel the principal amount of the Closing Note then
outstanding in an amount equal to the Note Reduction Amount (and all accrued and
unpaid interest thereon) and (B) reduce any amortization related to such Closing
Note on a pro rata basis.

                           (ii)     Buyer is determined to owe an amount to
Seller because the Adjusted Assets exceed the Total Liabilities (the amount of
such excess, "EXCESS AMOUNT"), Buyer shall deliver to Seller a note, in the form
of the Closing Note, in an amount equivalent to the Excess Amount and with
amortization payments on a pro rata basis with the Closing Note (the "EXCESS
AMOUNT NOTE") . The Excess Amount Note and the Closing Note shall have
crossdefault provisions with one another.

         1.4      CLOSING. The closing of the sale and purchase of the Shares
(the "CLOSING") shall take place upon the earlier of the date that is within
ninety (90) days of the date hereof, or within seven (7) business days after the
date upon which the last of the conditions precedent to Closing set forth in
Article V are met (the "CLOSING DATE") at the offices of Dow, Lohnes &
Albertson, PLLC, 1200 New Hampshire Avenue, NW, Suite 800, Washington, DC 20036,
or at such other place and time as the parties may agree upon in writing.
Notwithstanding the foregoing, in the event the conditions to Buyer's obligation
to close as set forth in Section 5.1(c)(i) as it relates to any of the leases
under which the Company is the lessee with respect to any Leased Real Property
or Section 5.1(c)(iv) as it relates to the Bureau for Private Postsecondary and
Vocational Education ("Bureau") and the California State Board of Cosmetology
("CSBC") have not been satisfied or waived in writing by Buyer by a date that is
within ninety (90) days of the date hereof, the Closing shall be delayed until
such time as such conditions have been satisfied or waived in writing by Buyer,
but in no event shall the Closing be delayed for more than forty-five (45) days
after the date that is ninety (90) days from the date hereof with respect to
obtaining consents under the leases or for more than ten (10) days after the
date that is ninety (90) days from the date hereof with respect to the Bureau
and the CSBC.

         1.5      ESCROW ACCOUNT; DEPARTMENT OF EDUCATION APPROVAL.

                  (a)      Escrow. The parties shall appoint a mutually approved
party to act as escrow agent (the "ESCROW AGENT") pursuant to an escrow
agreement in the form attached hereto as Exhibit B with such changes thereto as
may be required by the Escrow Agent and are reasonably satisfactory to the
parties hereto (the "ESCROW AGREEMENT"). The Escrow Funds shall be deposited
with the Escrow Agent to be held in the Escrow Account subject to the terms and
conditions set forth in subparagraphs (b) and (c) of this Section 1.5.

                  (b)      Approvals. Promptly following the Closing, Buyer will
file an Application for Approval to Participate in the Federal Student Financial
Aid Programs in order to obtain, on behalf of the Company, the following:

                           (i)      A temporary provisional program
participation agreement ("TPPPA") from the United States Department of
Education;

                           (ii)     A final (not temporary) provisional program
participation agreement ("PPPA") from the Department of Education; and

                                       3
<PAGE>

                           (iii)    An Eligibility and Certification Approval
Report ("ECAR") from the Department of Education.

Seller agrees to cooperate fully with Buyer in promptly seeking the aforesaid
approvals and agreements and to supply promptly, to the extent available, such
information that may be requested by the Department of Education in connection
therewith. In the event that the Company obtains a fully executed PPPA which
does not contain any unusual and materially burdensome conditions or
restrictions from the United States Department of Education (the "DEPARTMENT OF
EDUCATION") for all of the Schools at any time after the Closing Date or the
Buyer's right to rescind the transactions consummated under this Agreement is
terminated in accordance with the provisions of subparagraph (c) of this Section
1.5, all of the Escrow Funds (plus any accrued interest thereon) shall be
immediately released from the Escrow Account and paid to Seller. In the event
Buyer exercises its right to rescind the transactions consummated under this
Agreement in accordance with the provisions of subparagraph (c) of this Section
1.5, the Escrow Funds (and all accrued interest thereon) shall be released to
Buyer.

                  (c)      Rescission of the Purchase of the Shares.

                           (i)      Rescission Right. In addition to Buyer's
rights not to consummate the Closing, as provided for in subsection (b) of
Section 5.1, Buyer shall have the right and option, in its sole discretion, to
rescind the transactions consummated under this Agreement (the "Rescission
Right") if, on or before ninety (90) days after the Closing Date, (a) the
Department of Education has not issued to Buyer both a TPPPA and a PPPA for each
of the Schools, or (b) if issued, the TPPPA or PPPA contains unusual and
materially burdensome conditions or restrictions, including any requirement to
post a letter of credit or other financial security with the Department of
Education or any other governmental or regulatory entity; provided, however,
Buyer shall not be permitted to exercise the Rescission Right unless the
Rescission Event (as defined below) is based in substantial part upon any
violation of any law or regulation or any financial aid irregularities relating
to operation of any of the Schools prior to the Closing, including, without
limitation, any audit or program review findings, improperly disbursed student
financial assistance program funds or similar determinations or actions that
occurred or relate to activities or actions or omissions, during such period or
the financial condition of any of the Schools or Seller. For purposes of this
Agreement, (a) and (b) shall be referred to as "Rescission Events". In order to
exercise the Rescission Right, Buyer must do so by written notice to Seller no
later than ninety five (95) days after the Closing Date. Failure of Buyer to
give such written notice to Seller in a timely manner shall immediately
terminate the Rescission Right without any notice from Seller. Buyer
acknowledges, solely for the purpose of this Section 1.5, that any failure of
the Department of Education to allow any of the Schools to participate in the
Federal Family Education Loan or Direct Loan programs, standing alone, does not
constitute an unusual and materially burdensome condition or restriction such
that Buyer could exercise its Rescission Right pursuant to this Section 1.5;
provided, however, that Buyer will have and retain all other available rights
and remedies at law, in equity or pursuant to this Agreement to address such
failure.

                           (ii)     Operation of Company During Rescission
Period. From and after the Closing until the date that the Rescission Right
terminates or, if exercised, when the rescission is consummated, whichever
occurs sooner ("RESCISSION PERIOD"), the Company shall,

                                       4
<PAGE>

and Buyer shall cause the Company to, allow a representative of Seller (the
"OBSERVER"), which may be Duane Turney, to have full and free access, during
normal business hours, to the Company's books, records, personnel, suppliers and
accountants (including, but not limited to, independent public accountants),
except to the extent necessary to protect attorney-client privileges or trade
secrets. The intent of this section is to afford the Observer the ability to
view the operations and affairs of the Company to insure that the Company
complies with the covenants contained in this subsection (ii); provided,
however, the Observer shall have no authority to enter into any agreement or
contract on behalf of the Company or otherwise represent that he/she is an
employee or agent of the Company. The Observer shall be paid by Seller during
the Rescission Period.

                           (iii)    CONDUCT OF BUSINESS FOLLOWING CLOSING. From
and after the Closing Date hereof through and including the termination date of
the Rescission Period, unless Seller shall otherwise consent in writing, the
Company shall, and Buyer shall cause the Company to, conduct its affairs as
follows:

                                    (a)      Ordinary Course; Compliance. The
Company shall, and Buyer shall cause the Company to, conduct the Company's
operations and business, and administer the Company's affairs, only in the
ordinary course, consistent with past practice and in accordance with the
Schools' current business plan (as applicable). The Company shall, and Buyer
shall cause the Company to, take reasonable actions to maintain the property,
equipment and other assets of the Company in substantially the same condition as
such assets existed on the Closing Date and consistent with past practice. The
Company shall, and Buyer shall cause the Company to, subject to available
resources, comply in a timely fashion with the provisions of all the Company's
agreements and commitments. The Company shall, and Buyer shall cause the Company
to, keep the Company's business organization intact, keep available the services
of substantially all of the Company's present employees and preserve the
goodwill of the Company's employees, students, suppliers and others having
relations with the Company. The Company shall, and Buyer shall cause the Company
to, maintain in full force and effect the policies of insurance listed on
Schedule 1.5, subject only to variations required by the ordinary operations of
the Company, or else shall obtain or cause to be obtained, prior to the lapse of
any such policy, substantially similar coverage with insurers of recognized
standing. Without limiting the generality of the foregoing, the Company shall,
and Buyer shall cause the Company to, maintain current levels of advertising and
other student recruitment efforts and student enrollment standards, to maintain
the Schools' curricula and academic programs, and to comply with regulatory and
accreditation requirements.

                                    (b)      Transactions. The Company shall not
(and Buyer shall not permit the Company to): (i) amend the Company's charter
documents or bylaws; (ii) enter into any contract or commitment the performance
of which may extend beyond the Rescission Period, except those made in the
ordinary course of business, the terms of which are reasonable and consistent
with past practice; (iii) enter into any employment or consulting contract or
arrangement that is not terminable at will and without penalty or continuing
obligation; (iv) voluntarily recognize any union or other labor organization as
the collective bargaining representative for any of the employees of the
Company; (v) materially increase the number of employees; (vi) increase the
compensation or fringe benefits payable or to become payable to the Company's
directors, officers, independent contractors or employees (except as required by
law

                                       5
<PAGE>

or existing contract); (vii) pay any benefit not required by any Company Plan
(including the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units); (viii) grant any severance or
termination pay to (except pursuant to existing Company Plans), or enter into,
renew, terminate, amend or waive any material provision of, any employment or
severance agreement (other than oral contracts of employment terminable at will
without penalty or continuing obligation) with, any director, officer or other
employee or independent contractor of the Company; (ix) establish, adopt, enter
into, or amend any collective bargaining agreement, employment agreement,
termination agreement, independent contractor agreement, government contract
giving rise to affirmative action obligations or Company Plan; (x) fail to pay
any Taxes or any other liability or charge of the Company when due (other than
charges contested in good faith by appropriate proceedings); or (xi) take any
action or omit to take any action that will cause the termination or a material
breach of any material contract that the Company is party to (other than
termination by fulfillment of the terms thereunder).

                                    (c)      Certain Specific Commitments. Buyer
shall not permit the Company to (i) make any material changes to the existing
space of any of the Schools or make any capital expenditures, in the aggregate,
in excess of Twenty Five Thousand Dollars ($25,000) without the prior written
consent of Seller, or (ii) cause the Schools or the Company to incur or
guarantee additional debt for borrowed money through the Rescission Period
without the prior written consent of Seller.

                                    (d)      Debts. During the Rescission
Period, the Company shall not incur, without the prior written approval of
Seller, (i) indebtedness for borrowed money or (ii) capitalized obligations
under leases which shall have been or should have been, in accordance with GAAP,
recorded as capital leases. At or prior to the transfer and conveyance of the
Shares by Buyer to Seller pursuant to the exercise of the Rescission Right (if
exercised), Buyer shall cause Company debt for borrowed money to be repaid and
all guarantees of the Company to be released.

Buyer and Seller agree that the covenants set forth in this Section 1.5(c)(iii)
shall cease and be of no further effect from and after the termination of the
Rescission Period or in the event Buyer waives its Rescission Right by written
notice to Seller.

                           (iv)     Consummation of Rescission. In the event
that, as a result of a Rescission Event, Buyer timely exercises the Rescission
Right, each of the parties hereto shall take such actions and cease to make
payments as may reasonably be required to restore the other parties to their
respective positions as they existed prior to Closing, including but not limited
to the following: Buyer shall not be obligated to pay to Seller any further
payments under the Closing Note, which shall be immediately surrendered by
Seller to Buyer for cancellation.

Buyer shall be obligated to re-convey to Seller all of the Shares, free and
clear of all liens, charges, security interests and Encumbrances of any nature
whatsoever that are attributable to Buyer's operation of the Company during the
period from the Closing through the date that the rescission is consummated
("Rescission Closing") (other than claims of Buyer against Seller). To the
extent reasonably requested by Seller, Buyer shall be obligated to terminate all
agreements, contracts and other obligations of the Company entered into after
the Closing and to use commercially reasonably efforts to cooperate with Seller
to revive any agreements, contracts and

                                       6
<PAGE>

other obligations of the Company existing at the Closing to terms substantially
similar to the terms existing at the Closing, unless they have been terminated
or modified pursuant to provisions in existence at the Closing. All actions
required to be taken by Buyer and/or Seller to return the parties to the
position they would have been in prior to the Closing or as otherwise required
by this Section 1.5 shall be completed within ninety (90) days of Buyer's
exercise of the Rescission Right. If Buyer exercises the Rescission Right, it
shall be obligated to use commercially reasonable efforts to cooperate with
Seller in good faith, and Buyer and Seller shall each take such commercially
reasonable actions as may be necessary (including without limitation
commercially reasonable efforts to obtain any required consents or approvals
from governmental authorities, accrediting agencies or other third parties), in
order to restore to Seller the full ownership of the Shares, and full
responsibility for operation of the Schools and to restore any impairment to the
business and operations of the Company attributable to acts of Buyer during the
period from the Closing through the date of the Rescission Closing. At the
Rescission Closing, Seller shall pay to Buyer an amount equal to the Closing
Payment plus all payments paid by Buyer to Seller under the Closing Note. As
soon as practicable, but in no event more than sixty (60) days after the
Rescission Closing, Seller's auditors shall prepare a balance sheet as of the
close of business on the date of the Rescission Closing ("Rescission Balance
Sheet"). The Rescission Balance Sheet shall be prepared in the same manner and
under the same conditions as the Closing Balance Sheet. Buyer and its
representatives shall cooperate with Seller and its auditors in connection with
the preparation of the Rescission Balance Sheet. If the Net Asset Determination
(as defined below) under the Rescission Balance Sheet is less than the Net Asset
Determination under the Closing Balance Sheet, the amount of such difference
shall be paid to Seller from the Escrow Funds and the balance of the Escrow
Funds shall be released to Buyer. If, on the other hand, the Net Asset
Determination under the Rescission Balance Sheet is more than the Net Asset
Determination under the Closing Balance Sheet, then the amount of such
difference shall be paid by Seller to Buyer and, in addition, the balance of the
Escrow Funds shall be released to Buyer. For purposes of this subsection (iii)
the term "Net Asset Determination" shall mean the difference between the
Adjusted Assets and the Total Liabilities.

         1.6      CERTAIN CONSENTS. Nothing in this Agreement shall be construed
as an attempt to assign any contract, agreement, permit or claim that is by its
terms or in law non-assignable without the consent of the other party or parties
thereto, unless such consent shall have been given, or as to which all the
remedies for the enforcement thereof enjoyed by the Company or Seller would not,
as a matter of law, pass to Buyer as an incident of the assignments provided for
by this Agreement. In order, however, to provide Buyer the full realization and
value of every contract, agreement, permit, franchise and claim of the character
described in the immediately preceding sentence, on and after the Closing,
Seller shall take all reasonable action (including without limitation the
appointment of Buyer as attorney-in-fact for Seller) and do or cause to be done
all such things as shall in the reasonable opinion of Buyer or its counsel be
necessary or proper (a) to assure that the rights of Seller and the Company
under such contracts, agreements, permits, and claims shall be preserved for the
benefit of Buyer and (b) to facilitate receipt of the consideration to be
received by the Company or Seller in and under every such contract, agreement,
permit and claim, which consideration shall be held for the benefit of, and
shall be delivered to, Buyer. Nothing in this Section 1.6 shall in any way
diminish Seller's obligations hereunder to obtain all consents and approvals and
to take all such other actions prior to or at Closing as are necessary to enable
Seller to convey valid title of the Shares to Buyer.

                                       7
<PAGE>

         1.7      ACCOUNTS RECEIVABLE. Seller hereby guarantees the
collectability of the amount of the notes receivable and the accounts receivable
each as set forth on the Closing Balance Sheet (the "NOTES RECEIVABLE" and
ACCOUNTS RECEIVABLE" respectively, and together with the Notes Receivable, the
"RECEIVABLES"). After the Closing, Buyer shall collect the Receivables in the
ordinary and normal course of Buyer's business, which shall not be required to
extend to the institution of litigation, employment of counsel or collection
agencies or any other extraordinary means of collection; provided, however, that
neither the Company nor Buyer shall, without the written consent of Seller,
compromise or settle for less than full value any of the Receivables; provided,
further, that the difference between the full value and the compromised or
settled amount made with Seller's consent shall not be considered a Collected
Amount (as defined below). Notwithstanding the foregoing, Buyer shall be under
no obligation to collect the Receivables that are more than 120 days in arrears.
From time to time after the Closing, Buyer shall cause the Company to deliver to
Seller a written list setting forth the aggregate amount of the Receivables that
are more than 120 days in arrears (the "UNCOLLECTED AMOUNT"). Within ten (10)
days of delivery of such list, Seller shall remit to the Company the aggregate
amount of the Uncollected Amount. Buyer shall thereafter cause the Company to
transfer to Seller any and all of the Company's right, title and interest in and
to the collection of amounts that are part of the Uncollected Amount. Except
with respect to payments that are specifically identifiable as related to
accounts receivable or notes receivable arising after the Closing Date, any
monies received by the Company from Persons with respect to accounts receivable
or notes receivable arising on or prior to the Closing Date shall be applied
first against the Accounts Receivable and the Notes Receivable, as the case may
be, unless such Person disputes its obligation therefor (in which case Buyer
shall promptly return all records relating to the disputed account to Seller,
and Buyer shall thereafter have no further responsibility with respect to the
collection thereof). The Company shall promptly remit to Seller any monies
actually received on any Receivables that were part of the Uncollected Amount in
the event that such monies are received following the Closing, other than monies
received from Seller pursuant to this Section 1.7.

                                   ARTICLE II

            REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY

         As an inducement to Buyer to enter into this Agreement and consummate
the transactions contemplated hereby, Seller and the Company jointly and
severally represent and warrant to Buyer as follows:

         2.1      ORGANIZATION; QUALIFICATION. Each of Seller and the Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California. The Company has the corporate power and
authority to operate, own and lease its properties, and carry on its business as
now conducted. Each of Seller and the Company has the corporate power and
authority to enter into this Agreement and the related agreements to which it is
or is to become a party and perform its obligations under this Agreement and
such related agreements. The Company is duly qualified and in good standing as a
foreign corporation and is duly authorized to transact business in the State of
Nevada and in each jurisdiction where the character of the properties owned or
leased by it or the nature of the activities conducted by it make such
qualification and good standing necessary.

                                       8
<PAGE>

         2.2      AUTHORIZATION AND ENFORCEABILITY. Seller and the Company each
have full power and authority to enter into and perform this Agreement in
accordance with its terms, and the execution, delivery and performance of this
Agreement by Seller and the Company have been duly authorized by all necessary
corporate action of each of Seller and the Company, respectively. This Agreement
constitutes the legal, valid and binding obligation of Seller and the Company,
enforceable against each of them in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.

         2.3      NO VIOLATION OF LAWS OR AGREEMENTS. None of the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby or the compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof by Seller or the Company will (a) contravene any
provision of the articles of incorporation or bylaws of the respective
companies, (b) conflict with, result in a breach of or constitute a default or
an event of default (or an event that might, with the passage of time or the
giving of notice or both, constitute a default) under any of the terms of or
result in the termination or loss of any right (or give others the right to
cause such a termination or loss) under, any license, indenture, mortgage or any
other contract, agreement or instrument to which Seller, the Company or any
School is a party or by which the Company or any of its assets may be bound or
affected, subject to receipt of the consents set forth on Schedule 2.3, (c)
violate any law or violate any judgment or order of any governmental body to
which Seller, the Company or any School is subject, (d) result in the creation
or imposition of any Encumbrances upon any of the assets of the Company or give
to others any interests or rights therein or (e) result in the maturation or
acceleration of any liability or obligation of Seller or the Company (or give
others the right to cause such a maturation or acceleration).

         2.4      OWNERSHIP OF SCHOOLS. The Schools are owned and operated by
the Company directly, and no other individual, corporation, partnership, joint
venture, trust, unincorporated association or government or any agency or
political subdivision (each of the foregoing being sometimes referred to as a
"PERSON") has any ownership interest in the Schools.

         2.5      SHARES; CAPITALIZATION. The authorized capital stock of the
Company consists solely of 7,500 shares of common stock, $10.00 par value per
share, of which 1,000 shares of common stock are issued and outstanding. The
Shares constitute all of the issued and outstanding shares of capital stock of
the Company. All of the Shares are owned of record, legally, beneficially and
exclusively by Seller. Seller holds the exclusive right and power to vote the
Shares. The Shares are free and clear of any and all Encumbrances. Upon delivery
of the Shares under this Agreement, Buyer will acquire good and valid legal and
exclusive title to the Shares, free and clear of any Encumbrances. There are no
outstanding subscriptions, options, warrants, preemptive rights, exercise
rights, exchange rights, appreciation, phantom stock or other rights to acquire
from Seller or the Company any of the Shares. The Shares are validly issued,
fully paid and nonassessable. The Shares were issued in compliance with all
applicable federal and state securities laws and regulations and agreements.

         2.6      SUBSIDIARIES AND INVESTMENTS. The Company does not own and has
never owned, any equity interest in any corporation, partnership, limited
liability company, joint venture or other entity.

                                       9
<PAGE>

         2.7      FINANCIAL STATEMENTS. The books of account and related records
of the Company are complete and correct and have been maintained in accordance
with sound business practices and reflect in detail the assets, liabilities,
revenues, expenses, cash flows and other transactions of the Company. Attached
hereto as Schedule 2.7 are (i) the audited balance sheets for the Company at
June 30, 2003, June 30, 2002, June 30, 2001 and June 30, 2000 and income
statements and statements of cash flows for the Company for the fiscal years
then ended as such were submitted to the Department of Education; and (ii) an
interim unaudited balance sheet for the Company at September 30, 2003 and income
statements and statements of cash flows for the Company for the three-month
period then ended (collectively, together with all financial statements for the
Company at the Closing, the "FINANCIAL STATEMENTS"). The Financial Statements
are (i) accurate, correct and complete in accordance with the books of account
and records of the Company, (ii) have been prepared in accordance with GAAP on a
consistent basis throughout the indicated periods and (iii) fairly present, in
all material respects, the financial position of the Company and the results of
operations and cash flows of the Company at the dates and for the relevant
periods indicated. "BALANCE SHEET" shall mean the Company's balance sheet dated
September 30, 2003, attached hereto as Schedule 2.7, and "BALANCE SHEET DATE"
shall mean September 30, 2003. At the Closing, all books and records described
in this Section 2.7, will be in the possession of the Company.

         2.8      LIABILITIES IN CONNECTION WITH SHARE REPURCHASES. Neither
Seller nor the Company has any liability or obligation of any nature whatsoever
with respect to the repurchase of the shares of capital stock held by any
shareholder or former shareholder of the Company.

         2.9      UNDISCLOSED LIABILITIES. The Company does not have any debts,
obligations or liabilities, absolute, fixed, contingent or otherwise, of any
nature whatsoever, whether due or to become due (including unasserted claims),
whether incurred directly or by any predecessor thereto, and whether arising out
of any act, omission, transaction, circumstance, sale of goods or services,
state of facts or other condition that occurred or existed on or before the
Balance Sheet Date, whether or not then known, due or payable, except: (a) those
reflected or reserved against on the Balance Sheet in the amounts shown thereon,
(b) those reflected on Schedule 2.9 or (c) those of the same nature as those set
forth on the Balance Sheet that have arisen in the ordinary course of business
of the Company after the Balance Sheet Date through the date hereof, all of
which have been consistent in amount and character with past practice and
experience, and none of which, individually or in the aggregate, has or will
have a material adverse effect on the business, financial condition or prospects
of the Company, and none of which is a liability for breach of contract or
warranty or has arisen out of tort, infringement, violation of law or a lawsuit
or threat hereof. Without limiting the generality of the foregoing, as of the
Closing, the Company shall have no (x) indebtedness for borrowed money or (y)
obligations under leases which have been or should have been, in accordance with
GAAP, recorded as capital leases.

         2.10     ACCOUNTS RECEIVABLE. All accounts receivable of the Company as
reflected on the Balance Sheet or acquired after the Balance Sheet Date,
including accounts receivable arising prior to the Closing, have arisen in the
ordinary course of business and have been reflected on the Balance Sheet in
accordance with GAAP, and the reserves reflected on the Balance Sheet are
adequate to fully reserve against uncollectible accounts. All such accounts
receivable are bona fide, valid and binding receivables representing obligations
for the face dollar amount thereof and are subject to no defenses, counterclaims
or set-offs of any nature whatsoever.

                                       10
<PAGE>

         2.11     CONDITION OF ASSETS; TITLE; BUSINESS. The Company is engaged
in the operation of the Schools and no other business. The buildings,
classrooms, other educational sites, furniture and fixtures, machinery,
equipment, tools, improvements and other tangible personal property owned or
used by the Company, including those items reflected on the Balance Sheet, are
accepted by Buyer in an AS IS condition. The Company has good, marketable and
exclusive title to all of the assets reflected on the Balance Sheet or used in
connection with the operation of the Schools. The Company does not have any
assets that are subject to any Encumbrance.

         2.12     LEASED PROPERTY.

                  (a)      Schedule 2.12(a) sets forth the real property leased
by the Company (the "LEASED REAL PROPERTY"). The Company has a valid leasehold
interest in the Leased Real Property, free and clear of all Encumbrances. The
Leased Real Property has been and is operated by Seller and the Company, and to
the knowledge of Seller and the Company, by all other Persons at all times, in
compliance with all environmental, health, occupation and safety laws and other
laws, rules, regulations and ordinances, and there is no other condition of such
Leased Real Property that would adversely affect the Company or Buyer or the
Company's or Buyer's interests therein. Neither Seller nor the Company has
received written notice that the use or occupancy of the Leased Real Property
violates any covenants, conditions or restrictions that encumber such Leased
Real Property or that such Leased Real Property is subject to any restriction
for which any permit or authorization is necessary to the current use thereof.
There are no leases, licenses, concessions or other agreements granting to any
person other than Buyer the right of use or occupancy of any portion of the
Leased Real Property. The Company neither owns, nor in the last fifteen (15)
years has owned, any real property.

                  (b)      All leases for Leased Real Property (i) are valid and
in full force and effect, (ii) are enforceable in accordance with their terms
and (iii) subject to obtaining the necessary consents of landlords, as set forth
on Schedule 2.12(b), are capable of being assigned, and will in fact be assigned
to Buyer, upon the execution and delivery by Buyer and the Company of the
applicable assignment documentation. The Company is not in default under any
such lease, and no event, act or omission has occurred which would result in a
default.

                  (c)      To the Company's and Seller's knowledge, (i) all
buildings, improvements and other property on the Leased Real Property have
received all approvals of governmental authorities (including certificates of
occupancy, permits and licenses) required in connection with the operation
thereof and have been operated and maintained in accordance with all applicable
legal requirements and are not in violation of any applicable zoning, building
code or subdivision ordinance, regulations, order or law or restrictions or
covenants of record; (ii) all buildings, improvements and other property thereon
are supplied with utilities and other services necessary for the operation
thereof (including gas, electricity, water, telephone, sanitary and storm sewers
and access to public roads); (iii) the land of the Leased Real Property does not
serve any adjoining property for any purpose inconsistent with the use of the
land, and the Leased Real Property is not located within any flood plain or
subject to any similar type restriction for which any permits or licenses
necessary to the use thereof have not been obtained and (iv) no Person (other
than the Company) is in possession of such the Leased Real Property.

                                       11
<PAGE>

                  (d)      Other than is set forth in the leases relating to the
Leased Real Property, the Company is not under any contractual or other legal
obligation, and has not entered into any commitment, to make capital
improvements or alterations to the Leased Real Property or the facilities
located thereon.

                  (e)      To the Company's and Seller's knowledge, the Leased
Real Property is in material compliance with, includes all rights necessary to
assure compliance with, and all buildings, structures, other improvements and
fixtures on such Leased Real Property and the operations of the Company in or
about any Leased Real Property therein conducted conform in all respects to, all
applicable health, fire, safety, zoning and building rules, and the Company has
all easements and rights necessary or appropriate to conduct its operations as
they are currently being conducted.

         2.13     NO PENDING LITIGATION OR PROCEEDINGS.

                  (a)      Except as disclosed on Schedule 2.13, there are no
actions, suits, investigations, audits, reviews, claims or proceedings of any
nature or kind whatsoever ("LITIGATION") pending or, to the best knowledge of
Seller or the Company, threatened against or affecting Seller, the Company, the
Schools, any of the Company's assets, the Shares or the transactions
contemplated by this Agreement, at law or in equity, including any Litigation by
or before the Department of Education, or any other applicable agency, guarantee
agency or any federal, state or local governmental body and, to the best
knowledge of Seller or the Company, there is no basis for any such Litigation.

                  (b)      There are presently no outstanding judgments, decrees
or orders of any accrediting agency, guarantee agency or federal, state or local
governmental body against or affecting Seller, the Company, the Schools, any of
the Company's assets, the Shares or the transactions contemplated by this
Agreement.

                  (c)      Neither Seller nor the Company has commenced or has
any pending Litigation against any third party.

         2.14     CONTRACTS; COMPLIANCE. Each of the contracts to which the
Company is a party is presently in effect and there has been no breach by the
Company and, to the knowledge of Seller and the Company, no breach by any other
party to any of those agreements or any of the provisions of any of those
agreements. Schedule 2.14 sets forth a complete list of: (a) all agreements and
other commitments for the purchase of any materials or supplies that involve an
expenditure by the Company of more than Five Thousand Dollars ($5,000) for any
one commitment or two or more related commitments; (b) all notes and agreements
relating to any indebtedness of the Company for borrowed money; (c) all leases
or other rental agreements relating to the Company under which the Company is
either lessor or lessee; (d) all employment agreements for employees of the
Company; and (e) all other agreements, commitments and understandings (written
or oral) to which the Company is a party or by which it is bound relating to the
Schools which (i) require payment by the Company of more than Five Thousand
Dollars ($5,000), (ii) cannot be terminated on less than thirty (30) days notice
without liability, or (iii) require the consent of a third party for assignment
to Buyer (noting specifically those agreements, commitments and understandings
that require consent to transfer to Buyer

                                       12
<PAGE>

hereunder). True and complete copies of all of the Company's agreements,
commitments and understandings with respect to the operations of the Company
have been made available to Buyer.

         2.15     LABOR. The Company is not bound by or subject to (and none of
its assets or properties is bound by or subject to) any written or oral, express
or implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the Company's knowledge, has sought to
represent any of the employees, representatives or agents of the Company now or
within the past five (5) years. The Company does not have any collective
bargaining agreements covering any of its employees. The Company is not engaged
in any unfair labor practice. The Company is not (and has not been within the
past five (5) years) a party to, involved in, or threatened by, any labor
dispute or unfair labor practice charge and no strike, labor dispute, slow down
or stoppage is pending or, to the knowledge of the Company, threatened against
the Company. Except as set forth in Schedule 2.14, the Company is not a party to
or subject to any written or oral employment agreement with any employee other
than oral agreements terminable at will without penalty or continuing
obligations. The Company has complied in all material respects with all legal
requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar Taxes, and occupational safety and
health, or any other applicable employment legislation, and it has not received
any notice alleging that it has failed to comply with any such laws, rules or
regulations. There are no pending or, to the knowledge of the Company or Seller,
threatened challenges, investigations or disputes regarding any alleged
misclassification of employees as independent contractors. There have not been
proceedings, complaints, claims or charges outstanding or threatened, and there
are not any orders, decisions, directions or convictions currently registered or
outstanding, against or affecting the Company relating to the alleged violation
of any legal requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable governmental authority, or any organizational activity, or other
labor or employment dispute against or affecting the Company. The Company has
not prepared and is not required to prepare an affirmative action plan
applicable to any of the employees of the Company. Schedule 2.15 sets forth a
complete list of the individuals who provide services primarily to the Company
("COMPANY EMPLOYEES") and any independent contractors of the Company, with their
titles, dates of hire and rates of pay, accrued sick and vacation pay, leave
status, and any wage, bonus, severance or other compensation accrued as of
October 31, 2003.

         2.16     TRANSACTIONS WITH RELATED PARTIES. Schedule 2.16 sets forth a
complete list of all transactions between the Company and Seller, or any other
entity in which any officer or director of either the Company or Seller, or any
immediate family member thereof or affiliate thereof, is a shareholder, partner,
member, owner, principal, officer or director (the "RELATED PARTIES").

         2.17     CURRICULUM.

                  (a)      The term "CURRICULUM," as used in this Agreement,
means the curriculum used in the educational programs of the Schools in any form
or media, including, without limitation, the following items: (1) course
objectives, (2) lesson plans, (3) exams, (4) class materials (including
interactive or computer-aided materials), (5) faculty notes, (6) course

                                       13
<PAGE>

handouts, (7) diagrams, (8) syllabi, (9) sample externship and placement
materials, (10) clinical checklists, (11) course and faculty evaluation
materials, (12) policy and procedure manuals, and (13) other related materials.
The Curriculum shall also include, without limitation, (i) all copyrights,
copyright applications, copyright registrations and trade secrets relating to
the abovelisted items, and (ii) all periodic updates or revisions to the
Curriculum as developed.

                  (b)      The Company owns outright, and has good and
marketable title to, the Curriculum used in the Schools clear of all
Encumbrances. No employee or affiliate or any other Person owns or has any
interest, directly or indirectly, in any part of the Curriculum. The Company
does not use any part of the Curriculum by consent of any other Person and is
not required to and does not make any payments to others with respect thereto.
No component of the Curriculum infringes or violates any copyright, patent,
trade secret, trademark, service mark, registration or other proprietary right
of any other Person, and the Company's past and current use of any part of the
Curriculum does not infringe upon or violate any such right.

         2.18     INTELLECTUAL PROPERTY. Schedule 2.18 sets forth a complete
list of all of the trademarks, trademark registrations, applications for
trademark registration, trade names, logos, slogans, patents, know-how and
copyrights owned by the Company, all of which are owned by the Company free and
clear of any Encumbrances. The Company is not infringing any patent, copyright
or trademark of any third party or otherwise violating the intellectual property
rights of any third party, and no claim has been made or, to the knowledge of
Seller, threatened against the Company alleging any such violation. To the
knowledge of Seller, there has been no violation by others of any right of the
Company in any trademark or copyright. The Company is not a party to or bound by
any license or other agreement requiring the payment by it of any royalty or
similar payment in connection with its operations.

         2.19     NO CHANGES. Since the Balance Sheet Date, Seller and the
Company have conducted the business of the Company and operated the Schools only
in the ordinary course. Without limiting the generality of the foregoing
sentence, since the Balance Sheet Date, except as disclosed in Schedule 2.19,
there has not been any: (a) material adverse change in the condition (fiscal or
otherwise), assets, liabilities, net worth, earning power, business or prospects
of any of the Schools or the Company; (b) damage or destruction to any of the
properties of the Schools or the Company in excess of Five Thousand Dollars
($5,000); (c) strike or other labor or employment trouble at the Schools or the
Company; (d) creation of any mortgages, claims, pledges, liens, charges,
security interests, limitations, restrictions or other encumbrances of any
nature (collectively, "ENCUMBRANCES") on any of the properties of the Schools or
the Company; (e) declaration or payment of any dividend or other payment or
distribution or redemption of any shares of capital stock of the Company; (f)
increases in the salaries, wages or bonuses of any employee of the Company,
except as required by law or existing contract; (g) capital expenditures or
other asset acquisition or expenditure in excess of Ten Thousand Dollars
($10,000) in the aggregate; (h) change in any Company Plan (as defined in
Section 2.20); (i) payment to or transaction with any Related Party; (j)
disposition of any assets which, in the aggregate, exceed Ten Thousand Dollars
($10,000); (k) payment, prepayment or discharge of any liability other than in
the ordinary course of business; (1) material adverse change or threat thereof
to any relations or contracts with, or any loss of, the suppliers of the Schools
or the Company; (m) write-offs or write-downs of any assets of the Schools or
the Company in excess of Ten Thousand Dollars ($10,000) in the aggregate; (n)
change in the board of directors or

                                       14
<PAGE>

management of the Company or the Schools; (o) creation or termination of any
agreement, right or liability of the Company not in the ordinary course of
business; or (p) agreement or commitment to do any of the foregoing.

         2.20     EMPLOYEE BENEFITS.

                  (a)      Benefit Plans. Schedule 2.20 sets forth and
identifies a complete and correct list of all Benefit Plans (as hereinafter
defined) maintained or sponsored by the Company or Seller that provides benefits
for employees or former employees of the Company, or with respect to which the
Company may have liability or may be obligated to contribute, for or with
respect to any of the current or former employees of the Company or their
beneficiaries, whether or not funded and whether or not terminated (hereinafter
individually referred to as a "COMPANY PLAN" and collectively referred to as the
"COMPANY PLANS"). As used in this Agreement, the term "BENEFIT PLANS" shall mean
all written and unwritten "employee benefit plans" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and any other written and unwritten profit sharing, pension, savings,
deferred compensation, fringe benefit, insurance, medical, medical
reimbursement, life, disability, accident, post-retirement health or welfare
benefit, stock option, stock purchase, sick pay, vacation, employment,
severance, termination or other plan, agreement, contract, policy, trust fund or
arrangement.

                  (b)      Company Group Matters; Funding. Neither the Company
nor any corporation that may be aggregated with the Company under Sections
414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the
"Code") (the "COMPANY GROUP") has any obligation to contribute to or any direct
or indirect liability under or with respect to any Benefit Plan of the type
described in Sections 4063 or 4064 of ERISA or Section 413(c) of the Code. The
Company does not have any liability, and after the Closing the Company will not
have any liability, with respect to any Benefit Plan of any other member of the
Company Group, whether as a result of delinquent contributions, distress
terminations, fraudulent transfers, failure to pay premiums to the Pension
Benefit Guaranty Corporation (the "PBGC"), withdrawal liability or otherwise. No
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code) exists and no funding waiver from the Internal Revenue Service
(the "IRS") been received or requested with respect to any Company Plan or any
Benefit Plan of any member of the Company Group. No excise or other Tax (as
defined in Section 2.22(a)) is due or owing because of any failure to comply
with the minimum funding standards of the Code or ERISA with respect to any
Benefit Plan of any member of the Company Group. Except as disclosed on Schedule
2.20, all workers compensation benefits for the Company Employees are fully
insured.

                  (c)      Compliance. Each of the Company Plans and all related
trusts, insurance contracts and funds have been created, maintained, funded and
administered in all respects in material compliance with all applicable laws,
including but not limited to ERISA, the Code and the Age Discrimination in
Employment Act and in compliance with the plan document, trust agreement,
insurance policy or other writing creating the same or applicable thereto. Other
than routine claims for benefits submitted by participants or beneficiaries,
there is no litigation, legal action, investigation, claim, or proceeding
pending or threatened against any Company Plan or against or affecting any
fiduciary thereof or the assets of any trust or insurance contract thereunder,
at law or in equity, by or before any court or governmental department, agency
or

                                       15
<PAGE>

instrumentality, and there is no basis for any such, action, suit, investigation
or proceeding. There are presently no outstanding judgments, decrees or orders
of any court or any governmental or administrative agency against or affecting
the Company Plans, any fiduciaries thereof or the assets of any trust or
insurance contract thereunder. Any Company Plan which is a "group health plan,"
as defined under Section 601 et seq of ERISA and 4980B of the Code ("COBRA"),
has provided "continuation coverage" to each "covered employee" and "qualified
beneficiary" entitled thereto (with each term as defined under COBRA). All
contributions, premiums, payments or liabilities accrued, in whole or in part,
under each Company Plan or with respect thereto as of the Closing will be paid
by the Company or Seller, on or prior to Closing or shall be reflected on the
financial statements of the Company or Seller as of Closing and shall be paid
within the time period permitted by ERISA and the Code.

                  (d)      Qualified Plans. Schedule 2.20 discloses each Company
Plan that purports to be a qualified plan under Section 401 (a) of the Code and
exempt from United States federal income tax under Section 501(a) of the Code (a
"QUALIFIED PLAN"). With respect to each Qualified Plan, a determination letter
(or opinion or notification letter, if applicable) has been received from the
IRS that such plan is qualified under Section 401 (a) of the Code and exempt
from federal income tax under Section 501 (a) of the Code. No Qualified Plan has
been amended since the date of the most recent such letter. No member of the
Company Group, nor any fiduciary of any Qualified Plan, nor any agent of any of
the foregoing, has done anything that would adversely affect the tax-exempt
status of a Qualified Plan or the qualified status of any related trust. No
partial termination (as defined under Section 411 (d)(3) of the Code) of any
Qualified Plan has occurred.

                  (e)      No Defined Benefit Plans. No Company Plan is a
defined benefit plan within the meaning of Section 3(35) of ERISA (a "DEFINED
BENEFIT PLAN"). No Defined Benefit Plan sponsored or maintained by any member of
the Company Group has been terminated or partially terminated during the past
ten (10) years, except as set forth on Schedule 2.20. Each Defined Benefit Plan
identified as terminated on Schedule 2.20 has met the requirement for standard
termination of single-employer plans contained in Section 4.41(b) of ERISA.
During the five (5) year period ending on the Closing Date, no member of the
Company Group has transferred a Defined Benefit Plan to a corporation that was
not, at the time of transfer, related to the transferor as described in Section
414(b), (c) or (m) of the Code.

                  (f)      No Multiemploloyer Plans. No Company Plan is a
multiemployer plan within the meaning of Section 3(37) or Section 4001(a)(3) of
ERISA (a "MULTIEMPLOYER PLAN"). No member of the Company Group has withdrawn
from any Multiemployer Plan or incurred any withdrawal liability to or under any
Multiemployer Plan. No Company Plan covers any employees of any member of the
Company Group in any foreign country or territory.

                  (g)      No Acceleration of Liabilities. Neither the execution
of this Agreement nor the consummation of the transactions contemplated
hereunder will (i) result in an increase in the amount of compensation or
benefits or the acceleration of the vesting or timing of payment of any
compensation or benefits payable to or in respect of any Company Employee
(whether as a result of the execution of this Agreement, approval of the
transaction contemplated by this Agreement, closing and/or any other event or
events in conjunction with such execution, approval and/or closing); (ii) result
in or satisfy a condition to the payment of compensation that

                                       16
<PAGE>

would, in combination with any other payment, result in an "excess parachute
payment" within the meaning of Section 280G(b) of the Code; (iii) constitute or
involve a prohibited transaction as defined under ERISA or the Code, or a breach
of fiduciary duty under Title I of ERISA; or (iv) affect any existing rights
that the Company may have with respect to amending or terminating any Company
Plan without penalty.

                  (h)      Prohibited Transactions; Fiduciary Duties;
Post-Retirement Benefits. No prohibited transaction (within the meaning of
Section 406 of ERISA and Section 4975 of the Code) with respect to any Company
Plan exists or has occurred that could subject the Company to any liability or
Tax under Part 5 of Title I of ERISA or Section 4975 of the Code. No member of
the Company Group, no administrator or fiduciary of any Company Plan, and no
agent of any of the foregoing, has engaged in any transaction or acted or failed
to act in a manner that will subject the Company to any liability for breach of
fiduciary or other duty under ERISA or any other applicable law. With the
exception of the requirements of Section 4980B of the Code or a Qualified Plan,
no post-retirement benefits are provided under any Company Plan.

                  (i)      Copies of Certain Documents. For each Company Plan,
to the extent applicable to each such Company Plan, true and complete copies of
the following have been delivered to Buyer: (A) the documents embodying the
Company Plans, including, but not limited to, the plan documents, all amendments
thereto and the related trust or funding agreements, and, in the case of any
unwritten Company Plans, written descriptions thereof; (B) annual reports
including without limitation Forms 5500 and all schedules thereto for the last
three years; (C) financial statements for the last three years; (D) actuarial
reports, if applicable, for the last three years; and (E) each communication to
employees regarding changes or amendments to the Company Plans not yet made to
such Company Plan. The Company has also furnished to Buyer a copy of the current
summary plan description and each summary of material modification prepared in
the last three years for each Company Plan, and all employee manuals, handbooks,
policy statements and other written materials given to employees relating to any
Company Plans. No oral or written representations or commitments inconsistent
with such written materials have been made to any employee of the Company by any
employee or agent of the Company.

                  (j)      Accrued Liabilities. Except for accruals disclosed on
the Closing Balance Sheet, the Company has no liabilities (i) for any bonus
payments to any Company Employee or independent contractor (or any former
Company Employee or independent contractor) under the 1998 Bonus Pool Plan or
any other bonus plan or arrangement, (ii) for any workers' compensation benefits
which have or may become payable as a result of events prior to Closing, (iii)
for any matching or other employer contributions to any 401(k) plan, (iv) to any
Company Employee or independent contractor (or any former Company Employee or
independent contractor) related to compensation or for benefits accrued prior to
Closing under any Benefit Plans, or (v) to any Company Employee or independent
contractor arising out of any acts or omissions by the Seller or the Company
prior to Closing.

         2.21     INVENTORIES. The only inventories maintained by the Company in
connection with the operation of the Schools consist of supplies used in the
ordinary course of business of the Schools and are reflected on the Financial
Statements as "inventories."

         2.22     TAX MATTERS.

                                       17
<PAGE>

                  (a)      Seller has filed or caused to be filed in a timely
manner all Tax Returns required to be filed by or with respect to the Company,
and has paid in full all Taxes (whether or not shown on any Tax Return) owed by
the Company for all taxable periods (or portions thereof) ending on or prior to
the Closing Date. All such Tax Returns are correct and complete in all respects.
Except for the extension for the Tax Return for the year ended June 30, 2003,
the Company is not currently the beneficiary of any extension of time within
which to file any Tax Return. No claim, or notice of a claim, has ever been made
by an authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction. There
are no liens for Taxes (other than Taxes not yet due and payable) upon any of
the assets of the Company. For purposes of this Agreement, the term "Tax" or
"Taxes" means any and all federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs, duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated or other taxes of any kind, whatever, including any interest,
penalty, or addition thereto, whether disputed or not and including any
obligations to indemnify or otherwise assume or succeed to the Tax liability of
any other Person. For purposes of this Agreement, the term "TAX RETURN" means
any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof; filed or required to be filed with any
governmental authority.

                  (b)      The Company is not a party to any claim, dispute,
audit, pending action or proceeding, nor is any such claim, dispute, action or
proceeding threatened by any governmental authority, for the assessment or
collection of any Taxes, and no claim for the assessment or collection of any
Taxes has been asserted against the Company that has not been settled with all
amounts due having been paid. Neither Seller nor any officer, director or
employer responsible for Tax matters of the Company has reason to believe or
personal knowledge that any authority will propose or assess any additional
Taxes with respect to the Company.

                  (c)      The Company has withheld and paid, and will withhold
and pay prior to the Closing Date, proper and accurate amounts of Taxes from its
employees, independent contractors, creditors, stockholders and other third
parties in compliance in all material respects with all withholding and similar
provisions of any Tax laws.

                  (d)      Schedule 2.22 lists all federal, state, local and
foreign income Tax Returns filed by or with respect to the Company for taxable
periods ended on or after December 31, 1999 and indicates those Tax Returns that
have been audited. Seller has delivered to Buyer correct and complete copies of
all federal, state, local and foreign income Tax Returns of the Company,
examination reports relating to the Company and statements of deficiencies
assessed against or agreed to by the Company, all since December 31, 1999.

                  (e)      The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.

                  (f)      The Company does not have any income or gain
reportable for a taxable period ending after the Closing Date but attributable
to a transaction (e.g., an installment sale)

                                       18
<PAGE>

occurring in, or a change in accounting method made for, a taxable period
beginning prior to the Closing Date which resulted in a deferred reporting of
income or gain from such transactions or from such change in accounting method.

                  (g)      The Company has not filed a consent under Code
Section 341(f) concerning collapsible corporations. The Company is not a party
to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Code Section 280G (or any corresponding provision
of state, local or foreign Tax law). The Company has not been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(l)(A)(ii). The
Company is not a party to or bound by any Tax allocation or sharing agreement.

                  (h)      The Company is and has been throughout its entire
existence a member of the affiliated group of corporations filing a consolidated
federal income Tax Return of which Seller is the common parent.

         2.23     INSURANCE. Schedule 2.23 sets forth all of the current
insurance policies with respect to which the Company is the owner, insured or
beneficiary, including a list of all policies or binders of property and
casualty, general and vehicular liability, fidelity and fiduciary liability,
umbrella, workers' compensation, key man life and other similar insurance, and
all binders for insurance to be purchased on or before the Closing Date in order
to replace policies expiring prior to the Closing Date. The Company will not
have any liability after the Closing Date for retrospective or retroactive
premium adjustments or insurance deductibles arising from the operation of the
Schools or otherwise in connection with the operation of the business of the
Company prior to the Closing Date. All insurance policies covering general
liability maintained by or for the benefit of the Company are "occurrence"
policies and not "claims made" policies. Except as set forth in Schedule 2.23,
neither the execution, delivery and performance of this Agreement, nor the
consummation of the transactions contemplated hereby, will result in the loss to
the Company of any of the insurance policies listed on Schedule 2.23, or impair
the rights of the Company with respect to liabilities arising in connection with
the operations of the Company prior to the Closing Date. Within five (5) years
prior to the date hereof, the Company has not been denied insurance or been
offered insurance only at a commercially prohibitive premium. All potential
claims and/or potential losses have been reported to the appropriate insurance
carrier.

         2.24     ENVIRONMENTAL MATTERS. Seller and the Company have operated
the Company, the Schools and the Leased Real Property in full compliance with
all applicable environmental laws. The Company is not currently subject to any
liability, penalty or expense (including attorneys' fees), and will not
hereafter suffer or incur any loss, liability, penalty or expense (including
attorneys' fees), under environmental laws in effect on or prior to the Closing
Date by virtue of any violation of any environmental laws occurring on or prior
to the Closing Date, any activity conducted on or with respect to any property
on or prior to the Closing Date or any environmental condition existing on or
with respect to any property prior to the Closing Date, but only in each case
where the Company permitted or participated in such act or omission. To the
Company's and Seller's knowledge, there are no violations of any environmental
laws pending or threatened relating to the Leased Real Property or any other
property formerly owned or operated

                                       19
<PAGE>

by the Company. Neither the Company nor any of the Schools has generated,
transported, stored, treated or disposed of, or allowed or arranged for any
third persons to generate, transport, store, treat or dispose of, any hazardous
substance or any other material regulated by any applicable environmental law to
or at: (a) any location other than a site lawfully permitted to receive such
hazardous substance for such purposes or (b) any location designated for
remedial action pursuant to federal, state or local statute and relating to the
environment or waste disposal; nor, to the best of Seller's knowledge, has the
Company or any of the Schools performed, arranged for or allowed by any method
or procedure such transportation or disposal in contravention of any legal
requirements; except where such violation would not have an adverse affect on
the business or operations of the Company or the Schools. Neither the Company
nor any of the Schools has received any request for information, notice of
claim, demand or other notification that it is or may be potentially responsible
with respect to any investigation, abatement or cleanup of any threatened or
actual release of any hazardous substance or any other material regulated by any
applicable environmental law. Neither the Company nor any of the Schools is
required to place any notice or restriction relating to the presence of any
hazardous substance or any other material regulated by any applicable
environmental law at the Leased Real Property or in any deed to the Leased Real
Property. The Company has provided to Buyer a list of all sites to which the
Company has transported any hazardous substance or any other material regulated
by any applicable environmental law for recycling, treatment, disposal, other
handling or otherwise. There has been no past, and there is no pending or
contemplated, claim by the Company under any environmental law or laws based on
actions of others that may have impacted on the Leased Real Property, and the
Company has not entered into any agreement with any person regarding any
environmental law, remedial action or other environmental liability or expense.

         2.25     DISCLOSURE. None of the representations or warranties of
Seller or the Company contained herein, none of the information contained in the
Schedules referred to herein and none of the other information or documents
furnished or to be furnished to Buyer or any of its representatives by Seller,
the Company or their representatives pursuant to the terms of this Agreement, is
false or misleading in any respect or omits to state a fact herein or therein
necessary to make the statements herein or therein not misleading in any
respect.

         2.26     FINDER'S FEES. None of Seller, the Company or any of their
officers, directors or employees has employed any broker, finder or investment
banker or incurred any liability for any brokerage fees, commissions or finder's
fees in connection with the transactions contemplated herein.

         2.27     COMPLIANCE WITH LAW; EDUCATION DEPARTMENT COMPLIANCE.

                  (a)      Seller, the Company and the Schools currently
maintain and, since July 1, 1998, have maintained without interruption, all
licenses, permits, approvals, clearances, consents, certificates and other
evidences of approval or authority of Seller, the Company or the Schools that
are necessary or appropriate to the conduct of the business of the Company or
any of the Schools to the full extent as now conducted ("EDUCATIONAL APPROVALS")
issued by any person, entity or organization, whether governmental, government
chartered, private, or quasiprivate, that engages in granting or withholding
Educational Approvals for and regulates postsecondary schools, their agents, or
employees in accordance with standards relating to the performance, operation,
financial condition, or academic standards of such schools, and the

                                       20
<PAGE>

provision of financial assistance by and to such schools ("EDUCATION
DEPARTMENTS"). Schedule 2.27(a) contains a complete listing and summary
description of all Educational Approvals and the periods in which each is or was
in full force and effect and the period, if any, when each was subject to any
conditions, limitations or restrictions. Seller, the Company and the Schools are
and, since July 1, 1998, have been in compliance with the terms and conditions
of all such Educational Approvals, and have timely notified, and obtained all
required approvals from, all applicable Education Departments for each
substantive change in Seller, the Company or the Schools since July 1, 1998,
including without limitation any changes in ownership or control. There are no
proceedings pending to revoke, suspend, limit, condition, restrict or withdraw
any Educational Approval, and, except as reflected on Schedule 2.27(a), there
are no facts, circumstances or omissions concerning Seller, the Company or the
Schools that could result in a such a proceeding. Except as disclosed on
Schedule 2.27(a), since July 1, 1998, none of Seller, the Company or any of the
Schools has received notice that Seller, the Company or any of the Schools is in
violation of any of the terms or conditions of any Educational Approval or
alleging the failure to hold or obtain any Educational Approval. None of Seller,
the Company or any of the Schools has received written or oral notice that any
of the Educational Approvals will not be renewed, and there is no basis for
nonrenewal. In addition, and without limiting the foregoing:

                           (1)      Seller, the Company and the Schools possess,
and since July 1, 1998, have possessed, all requisite Educational Approvals for
each educational program the Schools have offered and for each campus, location,
or facility where the Schools have offered all or any portion of an educational
program.

                           (2)      Seller, the Company and the Schools possess,
and since July 1, 1998, have possessed, all requisite Educational Approvals to
operate the Schools in each jurisdiction in which the Schools are located or in
which they conduct any operations, including without limitation, providing
educational services, student marketing or recruiting and all requisite
approvals from such jurisdictions for the educational programs currently
offered.

                           (3)      The Schools are fully certified by the
Department of Education to participate in the Title IV Programs and are party
to, and in compliance with, a valid and effective Program Participation
Agreement with the Department of Education that is in full force and effect.
None of Seller, the Company or any of the Schools is subject to, or has been
threatened with, any fine, limitation, suspension or termination proceeding, or
subject to any other action or proceeding by the Department of Education that
could result in the suspension, limitation, conditioning, or termination of
certification or eligibility, or a liability or fine. There are no facts,
circumstances, or omissions concerning Seller, the Company or the Schools that
could result in such an action by the Department of Education.

                           (4)      Seller, the Company and the Schools are, and
since July 1, 1998, have been, in compliance with all applicable rules,
regulations and requirements pertaining to the Schools' participation in the
Title IV Programs. Except as disclosed on Schedule 2.27(a)(4), there are no
facts, circumstances, or omissions concerning Seller, the Company or the Schools
that could result in a finding of non-compliance with regard to such rules,
regulations and requirements. Without limiting the foregoing:

                                       21
<PAGE>

                                    (i)      Except for the Company's 400 clock
hour Manicuring program, since July 1, 1998, each education program offered by
the Schools was and is an eligible program in accordance with all applicable
rules, regulations and requirements, including without limitation the
requirements of 34 C.F.R. Section 668.8. Neither the Company nor the Schools
provide or, since July 1, 1998, have provided any Title IV Program funds to any
student enrolled in the 400 clock hour Manicuring program.

                                    (ii)     Since July 1, 1998, the Schools
possessed the Department of Education approvals and other Educational Approvals
necessary for each main campus, branch campus, additional location and other
facility or site at which the Schools offered or students received all or part
of an educational program and at which students received funds under the Title
IV Programs.

                                    (iii)    Since July 1, 1998, the Schools are
and have been duly qualified as, and are and have been in full compliance with,
the Department of Education definition of "proprietary institution of higher
education."

                                    (iv)     The Schools have complied with the
limitation on the receipt of Title IV Program funding under the "85/15 Rule"
codified at 34 C.F.R. Section 600.5(a)(8),(d) for each of the two (2) fiscal
years ended June 30, 1998 and 1997, and under the "90/10 Rule" codified at 34
C.F.R. Section 600.5(a)(8), (d) for each of the five (5) fiscal years ended June
30, 2003, 2002, 2001, 2000 and 1999.

                                    (v)      For each fiscal year ending on or
after July 1, 1997, each of the Schools and the Company has satisfied the
standards of financial responsibility in accordance with 34 C.F.R. Section
668.15 and 34 C.F.R. Section 668.171-175, as applicable. Since July 1, 1998,
neither the Company nor the Schools have lacked financial responsibility for any
fiscal year period or has been required by notice or law to post a letter of
credit or other form of surety for any reason.

                                    (vi)     The Schools have not, and have
never been, subject to the reimbursement or cash monitoring payment method as
described at 34 C.F.R. Section 668.162 or any predecessor regulation.

                                    (vii)    Since July 1, 1998, the Schools
have timely filed with the Department of Education all required compliance
audits and audited financial statements, including without limitation those
required by 34 C.F.R. Section 668.23 or any predecessor regulation.

                                    (viii)   Since July 1, 1998, the Schools
have calculated and paid refunds and calculated dates of withdrawal and leaves
of absence in accordance with all applicable rules, regulations and
requirements, including without limitation the requirements of 34 C.F.R. 668.22,
34 C.F.R. Section 682.605 and any predecessor regulations.

                                    (ix)     Since July 1, 1998, the Schools
have disbursed and processed Title IV Program funds in accordance with all
applicable rules, regulations and requirements, including without limitation the
requirements of 34 C.F.R. Section 668.164, 34 C.F.R. Section 682.604 and any
predecessor regulations.

                                       22
<PAGE>

                                    (x)      Since July 1, 1998, the Schools
have properly determined students' eligibility to obtain Title IV Program funds
for which they are eligible prior to disbursing, and has disbursed, all Title IV
Program funds in accordance with all applicable rules, regulations and
requirements, including without limitation the requirements of 34 C.F.R. Section
682.201, 34 C.F.R. Section 668, Subpart C, and any predecessor regulation.

                                    (xi)     Since July 1, 1998, the Schools
have at all times complied with the limitations in 34 C.F.R. Section 600.7 on
the number of courses that each School may offer by correspondence to
telecommunications, the number of students who may enroll in such courses, the
number of students that were incarcerated, and the number of students that had
neither a high school diploma nor the recognized equivalent of a high school
diploma.

                           (5)      Schedule 2.27(a)(5) contains a list of all
Department of Education program reviews, Department of Education Office of
Inspector General audits, compliance audits and guaranty agency reviews
conducted at or by the Company or the Schools since July 1, 1998. Neither such
program review, audit, compliance audit, or review, individually or in the
aggregate, has adversely affected the Schools, nor has any such program review,
audit, compliance audit, or review resulted in the imposition of any liability,
financial or otherwise, affecting Seller, Company or the Schools. The Schools
have complied with, and fully resolved and satisfied, all of the findings and
conditions arising from any program reviews, audits, compliance audits or
reviews. No program review, audit, compliance audit or review remains pending or
unresolved except as disclosed on Schedule 2.27(a)(5).

                           (6)      None of the Schools are on probation,
monitoring or warning status with any Education Department, including without
limitation any accrediting body or any state regulatory agency or guaranty
agency, and none of the Schools has been subject to any adverse action by any
Education Department (including without limitation, being directed to show cause
why accreditation or other Educational Approval should not be revoked,
withdrawn, conditioned, suspended or limited) to revoke, withdraw, deny,
suspend, condition or limit accreditation. There are no facts, circumstances or
omissions concerning Seller, the Company or the Schools that could lead to any
such actions by an Educational Agency.

                           (7)      Seller, the Company and the Schools have
complied with all stipulations, conditions and other requirements imposed by any
accrediting body, state regulatory agency or other Education Department at the
time of, or since, the last issuance of any Educational Approval, including but
not limited to the timely filing of all required reports and responses.

                           (8)      Seller, the Company and the Schools do not,
and since July 1, 1998, have not, provided, or contracted with any entity that
provides, any commission, bonus or other incentive payment based directly or
indirectly on success in securing enrollments or awarding financial aid to any
persons or entities engaged in any student recruiting or admissions activities
or in making decisions regarding the awarding of student financial aid.

                           (9)      All student financial aid grants and loans,
disbursements and record keeping relating thereto have been completed in
compliance with all federal and state requirements, and there are no material
deficiencies in respect thereto. Except as previously

                                       23
<PAGE>

disclosed in prior audits or compliance reviews by the Department of Education,
no student has been funded prior to the date for which such student was eligible
for funding or any amount other than the amount such student was eligible to
receive, and such student's records conform in form and substance to all
relevant regulatory requirements. All appropriate reports and surveys have been
accurately prepared, taken and filed prior to delinquency.

                           (10)     None of Seller, the Company, any of the
Schools or any Person that exercises substantial control over any of the Schools
(as the term "substantial control" is defined in 34 C.F.R. 668.174(c)(3)), or
member of such person's family (as the term "family" is defined in 34 C.F.R.
668.174(c)(4)), alone or together, (i) exercises or exercised substantial
control over another school or third-party servicer (as that term is defined in
34 C.F.R. 668.2) that owes a liability for a violation of a Title IV Program
requirement or (ii) owes a liability for a Title IV Program violation.

                           (11)     None of Seller, the Company, any of the
Schools or any Person or entity that exercises substantial control over any of
the Schools, or member of such person's family, has filed for relief in
bankruptcy or had entered against it an order for relief in bankruptcy.

                           (12)     None of Seller, the Company, any of the
Schools or any of their employees have pled guilty to, pled nolo contendere to,
or been found guilty of, a crime involving the acquisition, use or expenditure
of funds under the Title IV Programs or been judicially determined to have
committed fraud involving funds under the Title IV Programs.

                           (13)     None of Seller, the Company or any of the
Schools has employed in a capacity involving administration of funds under the
Title IV Programs or the receipt of funds under those programs, any individual
who has been convicted of, or has pled nolo contendere or guilty to, a crime
involving the acquisition, use or expenditure of federal, state or local
government funds, or has been administratively or judicially determined to have
committed fraud or any other material violation of law involving federal, state
or local government funds.

                           (14)     Except for a financial aid servicing
agreement entered into between the Company and FAME (Financial Aid for
Education, Inc.), none of Seller, the Company or any of the Schools contracts
with a third-party servicer (as such term is defined in 34 C.F.R. 668.2) to
provide any services in connection with the processing or administration of the
Schools' administration of the Title IV Programs.

                           (15)     Except as set forth in Schedule 2.27(a)(15),
none of Seller, the Company or any of the Schools provides, or since July 1,
1998, has provided, any educational instruction on behalf of any other
institution or organization of any sort. No other institution or organization of
any sort provides, or since July 1, 1998, has provided, any educational
instruction on behalf of any of the Schools.

                  (b)      RECRUITMENT; ADMISSIONS PROCEDURES; ATTENDANCE;
REPORTS.

                           (1)      Identified on Schedule 2.27(b)(1) are all
policy manuals and other statements of procedures or instruction relating to
recruitment of students, including procedures for assisting in the application
by prospective students for direct or indirect state or federal

                                       24
<PAGE>

financial assistance; admissions procedures, including any descriptions of
procedures for ensuring compliance with state or federal or other appropriate
standards or tests of eligibility; procedures for encouraging and verifying
attendance, minimum required attendance policies, and other relevant criteria
relating to course completion and certification (collectively referred to as the
"POLICY GUIDELINES"). True and complete copies of the Policy Guidelines have
been delivered to Buyer. The operations of Seller, the Company and the Schools
have been conducted in all material respects in accordance with the Policy
Guidelines which comply with all applicable rules, regulations and requirements.

                           (2)      Seller, the Company and the Schools have
submitted all reports, audits, and other information, whether periodic in nature
or pursuant to specific requests ("COMPLIANCE REPORTS"), to all agencies or
other entities with which such filings are required relating to its compliance
with (i) applicable accreditation standards governing its activities or (ii)
laws or regulations governing programs pursuant to which Seller, the Company or
students attending the Schools receive funding.

                           (3)      Complete and accurate books and records for
all present and past students attending the Schools have been maintained
consistent with the operations of a school business. All forms and records have
been prepared, completed, maintained and filed in accordance with all applicable
federal and state laws and regulations, and are true and correct in all material
respects. All financial aid grants and loans, disbursements and record keeping
relating to them have been completed in compliance in all material respects with
all federal and state requirements, and there are no material deficiencies in
respect thereto.

                                  ARTICLE III

                     REPRESENTATIONS AND WARRANTIES OF BUYER

         As an inducement to Seller to enter into this Agreement and consummate
the transactions contemplated hereby, Buyer represents and warrants to Seller as
follows:

         3.1      ORGANIZATION; CORPORATE POWER AND AUTHORITY; AUTHORIZATION.
Buyer is a corporation duly organized, validly existing and subsisting under the
laws of the State of Delaware. Buyer has full corporate right, power and
authority to make, execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement by Buyer have been duly authorized by
all necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered and constitutes, and each other agreement to which
Buyer is a party and which is executed at the Closing pursuant to this Agreement
when executed and delivered by Buyer shall constitute, the legal, valid and
binding obligations of Buyer, enforceable against Buyer in accordance with its
terms.

         3.2      NO VIOLATION OF LAWS OR AGREEMENTS. None of the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby or the compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof by Buyer will: (a) contravene any provision of the
certificate of incorporation or bylaws of Buyer, (b) conflict with, or result in
a breach of, or constitute a default or an event of default (or an event that
might, with

                                       25
<PAGE>

the passage of time or the giving of notice or both, constitute a default) under
any of the terms, conditions or provisions of any license, franchise, indenture,
mortgage, loan or credit agreement or any other agreement or instrument to which
Buyer is a party or by which its assets may be bound or affected, or (c) violate
any law or violate any judgment or order of any governmental body to which Buyer
is subject.

         3.3      ABSENCE OF PROCEEDINGS; FINDER'S FEE. No action or proceeding
has been instituted against Buyer before any court or other governmental body by
any person seeking to restrain or prohibit the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby. Buyer has
not made any arrangement or taken any other action that might cause Seller to
become liable for a broker's fee, commission or finder's fee as a result of the
transactions contemplated hereunder.

                                   ARTICLE IV

                                CERTAIN COVENANTS

         4.1      CONDUCT OF BUSINESS PENDING CLOSING. From and after the date
hereof through and including the Closing Date, unless Buyer shall otherwise
consent in writing, the Company shall, and Seller shall cause the Company to,
conduct its affairs as follows:

                  (a)      Ordinary Course; Compliance. The Company shall, and
Seller shall cause the Company to, conduct the Company's operations and
business, and administer the Company's affairs, only in the ordinary course,
consistent with past practice and in accordance with the Schools' current
business plan (as applicable). The Company shall, and Seller shall cause the
Company to, take reasonable actions to maintain the property, equipment and
other assets of the Company in substantially the same condition as such assets
existed on the date of this Agreement and consistent with past practice. The
Company shall, and Seller shall cause the Company to, subject to available
resources, comply in a timely fashion with the provisions of all the Company's
agreements and commitments. The Company shall, and Seller shall cause the
Company to, keep the Company's business organization intact, maintain all
licenses and accreditation, keep available the services of the Company's present
employees and preserve the goodwill of the Company's employees, students,
suppliers and others having relations with the Company. The Company shall, and
Seller shall cause the Company to, maintain in full force and effect the
policies of insurance listed on Schedule 2.23, subject only to variations
required by the ordinary operations of the Company, or else shall obtain or
cause to be obtained, prior to the lapse of any such policy, substantially
similar coverage with insurers of recognized standing. Without limiting the
generality of the foregoing, the Company shall, and Seller shall cause the
Company to, maintain current levels of advertising and other student recruitment
efforts and student enrollment standards, to maintain the Schools' curricula and
academic programs, and to comply with regulatory and accreditation requirements.

                  (b)      Transactions. The Company shall not (and Seller shall
not permit the Company to): (i) amend the Company's charter documents or bylaws;
(ii) enter into any contract or commitment the performance of which may extend
beyond the Closing Date, except those made in the ordinary course of business,
the terms of which are reasonable and consistent with

                                       26
<PAGE>

past practice; (iii) enter into any employment or consulting contract or
arrangement that is not terminable at will and without penalty or continuing
obligation; (iv) voluntarily recognize any union or other labor organization as
the collective bargaining representative for any of the employees of the
Company; (v) materially increase the number of employees; (vi) increase the
compensation or fringe benefits payable or to become payable to the Company's
directors, officers, independent contractors or employees (except increases in
the ordinary course and consistent with past practices or as required by law or
existing contract); (vii) pay any benefit not required by any Company Plan
(including the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units); (viii) grant any severance or
termination pay to (except pursuant to existing Company Plans), or enter into,
renew, terminate, amend or waive any material provision of, any employment or
severance agreement (other than oral contracts of employment terminable at will
without penalty or continuing obligation) with, any director, officer or other
employee or independent contractor of the Company; (ix) establish, adopt, enter
into, or amend any collective bargaining agreement, employment agreement,
termination agreement, independent contractor agreement, government contract
giving rise to affirmative action obligations or Company Plan; (x) fail to pay
any Taxes or any other liability or charge of the Company when due (other than
charges contested in good faith by appropriate proceedings); (xi) make, change
or revoke any Tax election or make any agreement or settlement with any taxing
authority; or (xii) take any action or omit to take any action that will cause
the termination or a material breach of any material contract that the Company
is party to (other than termination by fulfillment of the terms thereunder). In
the event that any increases are made under item vi above, Seller shall notify
Buyer prior to the initiation of any material increases.

                  (c)      Certain Specific Commitments. Prior to Closing, the
Company shall not, and Seller shall not permit the Company to, (i) make any
changes to the existing space of any of the Schools or make any capital
expenditures, in the aggregate, in excess of Twenty Five Thousand Dollars
($25,000) without the prior written consent of Buyer, or (ii) cause the Schools
or the Company to incur or guarantee additional debt for borrowed money through
the Closing Date without the prior written consent of Buyer.

                  (d)      Debts. At or prior to the Closing, Seller and the
Company shall cause all intercompany indebtedness between Seller and the Company
to be repaid and all guarantees of the Company to be released, and the Company
shall have no (i) indebtedness for borrowed money or (ii) obligations under
leases which have been or should have been, in accordance with GAAP, recorded as
capital leases.

                  (e)      Access, Information and Documents. Seller shall give
to Buyer and to Buyer's employees and representatives (including, but not
limited to, accountants, actuaries, attorneys, environmental consultants and
engineers) reasonable access during normal business hours to all of the
properties, books, Tax Returns, contracts, commitments, records (including, but
not limited to, personnel, financial aid, accreditation, regulatory compliance
and Educational Approval records), officers, personnel and accountants
(including, but not limited to, independent public accountants) of the Company
and the Schools and shall furnish to Buyer all such documents and copies of
documents and all information with respect to the properties, liabilities and
affairs of the Company and the Schools as Buyer may reasonably request;
provided, however, the foregoing shall be subject to the provisions of Section
6.4, below as well as the following:

                                       27
<PAGE>

                           (i)      In each instance, Buyer shall first request
permission from Seller, which shall not be unreasonably withheld; and

                           (ii)     At no time, may Buyer interfere with or
disrupt the normal operations of the Company and the Schools.

                  (f)      Seller shall provide to Buyer a copy of the
compliance audit to be filed with the Department of Education pursuant to 34
C.F.R. Section 668.23(b) for the period ended June 30, 2003, no later than
December 22, 2003.

         4.2      REGULATORY AND OTHER APPROVALS.

                  (a)      Buyer shall (and the Company and Seller shall
cooperate with Buyer to) take all commercially reasonable steps necessary or
desirable, and proceed diligently and in good faith and use all commercially
reasonable efforts, as promptly as practicable to (i) solicit input from
governmental authorities and accrediting agencies regarding the process of
obtaining regulatory, accrediting agency and Department of Education approvals,
obtain all state education regulatory body, accrediting agency and Department of
Education approvals, make all filings with and give all notices to governmental
authorities and accrediting agencies, and obtain all licenses required of the
Company to consummate the transactions contemplated hereby, (ii) provide such
other information and communications to such governmental authorities and
accrediting agencies or other persons as a party hereto or such governmental
authorities and accrediting agencies may request and (iii) obtain all state
education regulatory body, accrediting agency and Department of Education
approvals, making all filings with and giving all notices to governmental
authorities and accrediting agencies and obtaining all licenses required of
Buyer to consummate the transactions contemplated hereby. Each of Buyer, Seller
and the Company shall provide prompt notification to the other parties when any
such state education regulatory body, accrediting agency or Department of
Education approval or license referred to in clause (i) above is obtained,
taken, made or given, as applicable, and promptly advise the other party of any
communications (and promptly provide copies of any such communications that are
in writing or filings) with any governmental authority or accrediting agency
regarding the transactions contemplated by this Agreement. Seller shall cause
the Company to comply with its obligations under this Section 4.2. In addition:

                           (i)      Buyer use all commercially reasonable
efforts to cause the parties, within ten (10) days from the date hereof, to file
a pre-acquisition application with the Department of Education in order to
obtain a written statement from the Department of Education, to the satisfaction
of Buyer in its sole discretion, that the Department of Education does not see
any impediment to issuing the PPPA to each School following the Closing, which
agreement will prevent any interruption of Title IV Program funds from the
Department of Education to the Schools and will not include (A) unusual or
burdensome conditions, including, but not limited to, any requirement to
administer Title IV Program funds on a reimbursement or cash monitoring basis or
to post a letter of credit or other financial security with the Department of
Education, or (B) any requirement that would impose restrictions or limitations
on the activities of Buyer or its affiliates unrelated to the Company or the
Schools; provided, however, that the filing deadline contained in this Section
5.1(b)(i) shall be contingent on Seller and the

                                       28
<PAGE>

Company cooperating fully with Buyer to provide all information and materials
necessary for Buyer timely to file such pre-acquisition application.

                           (ii)     The parties will cause their representatives
to promptly and regularly advise each other and the Company concerning the
occurrence and status of any discussions or other communications, whether oral
or written, with any state education regulating body, accrediting agency or
governmental authority or other third party with respect to any consent or the
PPPA for each School, including any difficulties or delays experienced in
obtaining any consent, and of any conditions proposed, considered, or requested
by any consent or the PPPA for each School.

                           (iii)    Seller and the Company will cooperate fully
with Buyer in its efforts to obtain any consents and the PPPA for each School,
but neither Seller nor the Company will be required to (i) make any expenditure
or payment of funds (other than fees and expenses of their counsel, if any) or
(ii) permit any adverse changes in, or the imposition of any adverse condition
to, any approval, license, or contract as a condition to obtaining any consent
or the PPPA for each School. Such cooperation shall include Seller's and the
Company's full cooperation in timely filing applications and other documents
(including applications and other documents filed prior to the Closing)
necessary to obtain any consent or the PPPA for each School.

                           (iv)     Buyer will allow Seller's and the Company's
agents and representatives to participate in any meetings or telephone calls
with any state education regulatory body, accrediting agency or governmental
authority to discuss the status of any consent or the PPPA for each School;
provided, however, that Seller and its agents will confer in advance with Buyer
to agree on the issues to be discussed in such meeting or telephone call and
will not introduce any issues that are not agreed to in advance and will not
respond to any compliance issues first introduced in such meeting or telephone
call by the state education regulatory body, accrediting agency or governmental
authority.

                           (v)      Seller will use all commercially reasonable
efforts to cause the Company to ensure that its appropriate officers and
employees shall be available to attend, as any governmental authority may
reasonably request, any scheduled hearings or meetings in connection with
obtaining any consent or the PPPA for each School.

                  (b)      Promptly after the execution of this Agreement, each
of Buyer and Seller shall cooperate to seek any and all required approvals of
all state and regional educational regulatory authorities and accrediting
agencies, including, but not limited to, those of the State of California and
the State of Nevada, which are necessary for the consummation of the
transactions contemplated hereby.

         4.3      COSTS AND EXPENSES.

                  (a)      Except as provided in Section 4.3(b) below, Buyer and
Seller shall each pay all its own costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby, including all
accounting, legal and appraisal fees and settlement charges. Notwithstanding the
foregoing, Seller shall pay (i) all sales and other transfer

                                       29
<PAGE>

taxes on the sale of the Shares and timely pay such amounts to the appropriate
authorities and (ii) except for Buyer's financial statements (which shall be at
Buyer's sole cost and expense), all costs and expenses related to the conduct
and completion of: (A) the compliance audit to be filed with the Department of
Education pursuant to 34 C.F.R. Section 668.23(b) for the period ended June 30,
2003 and for the period July 1, 2003 through the Closing and (B) the audited
financial statements to be filed with the Department of Education pursuant to 34
C.F.R. Section 668.23(d) for the period ended June 30, 2003 and for the period
July 1, 2003 through the Closing.

                  (b)      If this Agreement is terminated prior to Closing by
Seller as a result of a material breach of this Agreement by Buyer, Buyer shall
promptly reimburse Seller and the Company, as appropriate, for all reasonable
out of pocket expenses incurred by Seller and the Company in connection with
this Agreement and the transactions contemplated hereby (including without
limitation all reasonable costs and expenses of accountants, attorneys and
financial advisors). Such expense reimbursement obligation of Buyer shall be in
addition to, and shall in no way limit, any other rights, remedies or recourse
available to Seller or the Company at law or equity. If this Agreement is
terminated prior to Closing by Buyer as a result of a material breach of this
Agreement by Seller or the Company, including, without limitation, Seller or the
Company entering into negotiations in violation of Section 4.12, Seller shall
cause the Company to promptly reimburse Buyer for all reasonable out of pocket
expenses incurred by Buyer in connection with this Agreement and the
transactions contemplated hereby (including without limitation all reasonable
costs and expenses of accountants, attorneys and financial advisors). Such
expense reimbursement obligation of Seller and the Company shall be in addition
to, and shall in no way limit, any other rights, remedies or recourse available
to Buyer at law or equity.

         4.4      FULFILLMENT OF AGREEMENTS. Each party to this Agreement shall
use commercially reasonable efforts to cause all of the conditions to the
obligations of the others under Article V to be satisfied on or prior to the
Closing and shall use commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement. Each party shall promptly notify the others of any action, suit,
claim, proceeding or investigation that may be threatened, brought, asserted or
commenced after the date hereof against such party or any facts or circumstances
as to which it obtains knowledge that cause any of the representations and
warranties made by it hereunder to be untrue. Each party shall promptly provide
the other with a copy of any letter or notice or application filed with or
received from any governmental or accrediting agency, and each party shall
promptly inform the other of any discussions with such governmental or
accrediting agency with respect to transactions contemplated under this
Agreement. To the extent reasonably requested by the other party, each party
shall use commercially reasonable efforts to provide the other with a draft copy
of any such letter or notice of application that is being prepared for filing,
so that the second party has reasonable opportunity to review and comment before
such document is filed.

         4.5      PUBLICITY; DISCLOSURE. Buyer shall consult with the Company
before issuing any j press release or otherwise making any public announcements,
including any announcement to employees and current or prospective students,
with respect to this Agreement or the transactions contemplated hereby (except
to the respective directors and officers of Seller, the Company and Buyer), and
shall not issue any such press release or make any such public announcement
prior to such consultation and written consent of the Company, except as
required by law or

                                       30
<PAGE>

regulation. Notice or announcement to current employees as part of providing
Buyer access to information to complete its due diligence shall not be deemed to
be a "public announcement" under this Section 4.5. Seller and the Company shall
not make any press release or public announcement regarding this Agreement or
the transactions contemplated hereby without the prior written consent of Buyer,
except as required by law or regulation. Notwithstanding the foregoing, Buyer
and the Company may make any necessary and appropriate disclosure of the terms
of this Agreement to such government authorities and any other accrediting
agencies or other third parties whose consent or approval may be required prior
to the Closing.

         4.6      FURTHER ASSURANCES. Seller shall, at any time and from time to
time on and after the Closing, upon request by Buyer and without further
consideration, take or cause to be taken such actions and execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
transfers, conveyances and assurances as may be reasonably requested by Buyer
for the better conveying, transferring, assigning, delivering, assuring and
confirming the rights of Buyer.

         4.7      PERMITS. Seller shall provide such additional assistance and
cooperation to Buyer as Buyer shall reasonably request in connection with the
transfer of any permit, Educational Approval, accreditation, authorization or
approval to Buyer hereunder.

         4.8      REMIT FUNDS. After the Closing Date, Seller shall promptly
transfer and deliver to Buyer any cash or other property, if any, that Seller
may hold or receive to which Buyer or the Company is entitled hereunder.

         4.9      NO CONTROL. Between the date of this Agreement and the Closing
Date, Buyer shall not, directly or indirectly, control, supervise or direct, or
attempt to control, supervise or direct, the operations of the Company, but such
operations shall be the sole responsibility and, subject to Section 4.1, in the
complete discretion of Seller and the Company.

         4.10     CONSENT; ASSIGNMENT OF AGREEMENTS. Seller shall use its best
efforts prior to, and if necessary after, the Closing Date, to obtain at the
earliest practicable date the consent to the assignment to Buyer of any
agreement which requires consent to assignment, without any conditions adverse
to Buyer, but if the consent is not obtained (and, accordingly, the agreement is
excluded from the sale to Buyer), Seller shall keep the agreement in effect and
shall give Buyer the benefit of the agreement to the same extent as if it had
been assigned and Buyer shall perform the obligations under the agreement
relating to the benefit obtained by Buyer.

         4.11     OTHER ACTION. Neither Seller nor the Company shall take any
action that would result in any of representations and warranties given by
Seller or the Company not being true and correct as of the Closing Date.

         4.12     EXCLUSIVITY. Until the earlier of the Closing Date or such
date as this Agreement is terminated, neither the Company nor Seller will,
directly or indirectly, negotiate with any party other than Buyer concerning the
sale or other disposition of the Shares or any material portion of the assets of
the Company by merger, consolidation, operation of law or otherwise; provided,
however, that it shall not be a violation of this Section 4.12 if the Company or
Seller merely

                                       31
<PAGE>

discusses this transaction with parties other than Buyer (for the avoidance of
doubt, such discussions shall not include active negotiations).

         4.13     TAX MATTERS.

                  (a)      Seller shall indemnify the Company, Buyer and any
affiliate of Buyer and hold them harmless from and against (i) all Taxes of the
Company for all taxable periods ending on or before the Closing Date (each, a
"PRE-CLOSING TAX PERIOD"), (ii) with respect to any taxable period that includes
(but does not end on) the Closing Date (a "STRADDLE PERIOD"), all Taxes of the
Company attributable to the portion of such Straddle Period that ends on and
includes the Closing Date, (iii) all Taxes of any member of an affiliated,
consolidated, combined or unitary group of which the Company (or any predecessor
of the Company) is or was a member on or prior to the Closing Date, including
pursuant to Treasury Regulations Section 1.1502-6 or any similar state, local,
or foreign law, (iv) all Taxes of any person (other than the Company) imposed on
the Company as a transferee or successor, by contract or pursuant to any law,
rule, or regulation, which Taxes relate to an event or transaction occurring
before the Closing, and (v) any Buyer Damages (as defined in Section 7.2)
attributable to the Taxes described in clauses (i) through (iv) above; provided,
however, that Seller shall be liable only to the extent that such Taxes exceed
the amount, if any, reserved for such Taxes (excluding any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) on
the face of the Closing Balance Sheet (rather than in any notes thereto) and
taken into account in determining the Purchase Price Adjustment. Seller shall
reimburse Buyer for any Taxes of the Company which are the responsibility of
Seller pursuant to this Section 4.13(a) within fifteen (15) business days after
payment of such Taxes by Buyer or the Company.

                  (b)      The amount of any Tax that is attributable to the
portion of a Straddle Period that ends on and includes the Closing Date shall:
(i) in the case of a Tax based on or measured by income or receipts, be
determined based on an interim closing of the books as of the close of business
on the Closing Date, and (ii) in the case of other Taxes, be deemed to be the
amount of such Tax for the entire Straddle Period multiplied by a fraction the
numerator of which is the number of days in the Straddle Period ending on and
including the Closing Date and the denominator of which is the total number of
days in the Straddle Period.

                  (c)      Seller shall be responsible for the preparation and
timely filing of all Tax Returns of the Company for all Pre-Closing Tax Periods
that are filed on a consolidated, combined or unitary basis including the
Company and Seller (or other members of the Seller consolidated, combined or
unitary Tax filing group), including but not limited to the federal income Tax
Return of the Company for the taxable period from July 1, 2003 through the
Closing Date, and Seller shall be responsible for the contents of all such Tax
Returns and for the payment of all Taxes due with respect thereto. Seller shall
have the sole authority to deal with any taxing authority with respect to any
matter or proceeding relating to the Taxes or Tax Returns of the Company that
are the responsibility of Seller pursuant to this Section 4.13(c).

                  (d)      Buyer shall be responsible for the preparation and
timely filing of all Tax Returns of the Company required to be filed after the
Closing Date that are not referred to in Section 4.13(c). Buyer shall be
responsible for the contents of such Tax Returns and for the payment of all
Taxes due with respect thereto, subject to Seller's obligation for Taxes of the

                                       32
<PAGE>

Company for Pre-Closing Tax Periods and Taxes relating to the pre-Closing
portion of any Straddle Period. Buyer shall have the sole authority to deal with
any taxing authority with respect to any matter or proceeding relating to the
Taxes or Tax Returns of the Company that are the responsibility of Buyer
pursuant to this Section 4.13(d).

                  (e)      Buyer, the Company and Seller shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Section 4.13 and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Buyer and Seller agree (i) to retain all books and
records with respect to Tax matters pertinent to the Company relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Buyer or Seller, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
Buyer or Seller, as the case may be, shall allow the other party to take
possession of such books and records. Buyer and Seller further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including with
respect to the transactions contemplated hereby).

                  (f)      All transfer, documentary, sales, use, stamp,
registration and other such Taxes, and all conveyance fees, recording charges
and other fees and charges (including any penalties and interest) incurred in
connection with consummation of the transactions contemplated by this Agreement
shall be paid by Seller when due, and Seller will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such Taxes,
fees and charges.

                  (g)      At Buyer's sole option, Seller and/or the Company (as
the case may be) shall join with Buyer in making an election under Section
338(h)(10) of the Code (and any corresponding election under state, local and
foreign tax law) with respect to the purchase and sale of the Shares hereunder
(collectively, a "SECTION 338(h)(10) ELECTION") and shall cooperate fully with
Buyer in securing the Section 338(h)(10) Election. In connection with the making
of the Section 338(h)(10) Election: (i) Seller and Buyer shall report the
transactions contemplated by this Agreement consistent with such election and
shall take no position contrary thereto, and (ii) Seller shall cooperate with
Buyer in promptly preparing, executing and timely filing all forms, returns,
reports and other documents required to be filed. Seller shall include any
income, gain, loss, deduction or other Tax items resulting from the Section
338(h)(10) Election on its (or the Company's) Tax Return to the extent required
by applicable law. Seller also shall pay any Tax imposed on the Company
attributable to the making of the Section 338(h)(10) Election, and Seller shall
indemnify Buyer and the Company against any Taxes, costs or other adverse
consequences arising out of any failure to pay any such Taxes.

                                       33
<PAGE>

                  (h)      Allocation of Purchase Price. In the event that Buyer
elects to make a Section 338(h)(10) Election as provided herein, then as soon as
practicable following the Closing, Seller and Buyer shall negotiate in good
faith to reach agreement as to the allocation of the Purchase Price and any
liabilities assumed hereunder among the assets of the Company in accordance with
the requirements of Section 338 of the Code and the applicable Treasury
Regulations promulgated thereunder; provided, however, that if Seller and Buyer
have not reached agreement on such allocation by the 60th day after the Closing
Date, then such allocation shall be made in accordance with the appraisal of a
recognized appraisal firm chosen and retained by mutual agreement of Buyer and
Seller, the fees and expenses of which shall be paid one-half by Seller and
one-half by Buyer. Seller and Buyer shall reflect such allocation in all
applicable Tax Returns filed by any of them, and neither Seller nor Buyer shall
take a position before any taxing authority or otherwise (including in any Tax
Return) inconsistent with such allocation.

         4.14     DUE DILIGENCE. Subject to the provisions of Section 4.1 (e),
immediately following the date of this Agreement, Seller shall provide Buyer
with full access to the Schools and the Company for on-site inspections and
meetings with management and personnel of the Schools and the Company.

         4.15     EMPLOYEE MATTERS.

                  (a)      To the extent Company Plans are sponsored by the
Seller, at Buyer's request, Seller will use its commercially reasonable efforts
to assist Buyer, provided there is no cost to Seller, in obtaining from Seller's
current insurance carriers and/or its third party administrators insurance and
other arrangements appropriate to providing medical, death, disability, workers
compensation and similar benefits to the Company Employees immediately following
the Closing that are substantially identical to the benefits such carriers and
administrators currently provide to the Company Employees.

                  (b)      On or prior to Closing, the Company shall terminate
the employment of Mr. Turney, and the Seller shall assume any and all
liabilities of the Company and will indemnify and hold Company and Buyer
harmless from and against any claims, liabilities, losses, damages and expenses
(including but not limited to any incentive payments or bonuses Mr. Turney may
earn or may have earned or accrued in connection with his services to the
Company) arising in connection with or related to Mr. Turney's employment with,
and the termination of his employment from, the Company.

                  (c)      On or prior to Closing, Seller will enter into an
agreement with Mr. Turney, in a form reasonably satisfactory to the parties
hereto, which will assure the Company that it can receive the full-time
exclusive consulting services of Mr. Turney at no cost to the Company for a
period of three (3) months immediately following Closing (the "Consulting
Agreement").

                  (d)      Prior to Closing, Seller shall establish a 401(k)
plan solely for the benefit of Company Employees, to be effective as of Closing,
in a form substantially similar to the Seller's 401(k) Plan (the "Cloned Plan").
Such Cloned Plan shall be sponsored by the Company and shall have the same third
party administrator as the Seller 401(k) Plan. Seller agrees to

                                       34
<PAGE>

transfer the assets and liabilities associated with the Company Employees'
accounts in Seller's 401(k) Plan into the Cloned Plan effective as of Closing
and shall, simultaneous with such asset transfer, cause the Company to cease
being a participating employer in the Seller's 401(k)Plan.

                  (e)      On or prior to Closing, Seller and/or Company shall,
in accordance with the 1998 Bonus Pool Plan and any other bonus plan or
arrangement, declare and pay bonuses for the fiscal year ended June 30, 2003, in
amount and terms that are consistent with past practice. Seller and Company
agree to discharge the liabilities for such bonuses prior to Closing. Prior to
Closing, Seller shall cause the 1998 Bonus Pool Plan to be terminated, and shall
indemnify Buyer for any costs related to such termination.

This Section 4.15 will operate exclusively for the benefit of the parties to
this Agreement and not for the benefit of any other person or entity, including
any employee or former employee of the Company or of Sellers who performs or
performed services in connection with the Company.

         4.16     SCHEDULES. The parties acknowledge that the schedules attached
to this Agreement may not be complete. Seller shall complete the schedules
within fifteen (15) days from the date of this Agreement (provided that such
update shall not be effective unless and until Buyer has received such update),
and that any and all such updated schedules shall be dated as of the date of
this Agreement and shall be deemed to be schedules for all purposes of this
Agreement (including for purposes of Seller's and Company's representations and
warranties and covenants of this Agreement). Upon receipt of the updated
Schedules, Buyer shall promptly review such schedules. In the event that Buyer
is not satisfied with such schedules for any reason whatsoever, Buyer may, in
its sole and absolute discretion, elect to terminate this Agreement forthwith
and shall give such notice to Seller, in which case this Agreement will be null
and void and be of no further force and effect and Buyer and its affiliates will
have no liability for any termination whatsoever under this Agreement.

                                   ARTICLE V

                         CONDITIONS PRECEDENT TO CLOSING

         5.1      CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The
obligations of Buyer under this Agreement are subject to the fulfillment, prior
to the Closing, of each of the following conditions (any one or more of which
may be waived in writing in whole or in part by Buyer at Buyer's sole option and
which conditions are set out herein for the exclusive benefit of Buyer):

                  (a)      Representations and Warranties; Covenants. Each of
the representations and warranties of Seller and the Company under this
Agreement shall be true and correct as of the date of this Agreement and shall
be true and correct at and as of the Closing Date, with the same force and
effect as though such representations and warranties had been made on, as of and
with reference to the Closing Date. Seller and the Company shall have performed
and complied in all respects with all obligations, covenants and conditions
required by this Agreement to be performed or complied with by them prior to or
on the Closing Date.

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<PAGE>

                  (b)      Education Department Approvals. All permits,
Educational Approvals, permissions and other approvals that are required to be
obtained prior to the Closing shall have been issued. The Department of
Education pre-acquisition review process shall have been successfully completed,
and the Department of Education pre-acquisition review letter shall have been
received by Buyer, in a form satisfactory to Buyer, stating (x) that the
Department of Education will permit the Schools to participate in the Federal
Family Education Loan Program or Direct Loan Program, and (y) that the
Department of Education intends to issue a Temporary Provisional Program
Participation Agreement promptly after Closing extending each School's
certification to participate fully in Title IV Programs, pending completion of
its review of such School's application for a PPPA and ECAR under Buyer's
ownership.

                  (c)      Consents and Other Approvals. Seller and the Company
shall have duly received, without any condition adverse to Buyer, all material
consents and other approvals (i) under the agreements specified in Schedule
2.14, (ii) under any other agreement to which the Company is a party, (iii)
under any statute, rule or regulation to which Seller or the Company is subject,
necessary for (x) the consummation of the sale of the Shares to Buyer at the
Closing and (y) Buyer to acquire control of the Company as of the Closing Date,
and (iv) subject to Section 5.1(b), otherwise required to be obtained prior to
Closing from any governmental authorities or accrediting agencies (including
customary pre-Closing approvals of all programmatic accreditations).

                  (d)      Litigation; Settlement. No statute, regulation or
order of any governmental body shall be in effect that prohibits this Agreement
or any of the transactions contemplated hereby or that would limit or adversely
affect Buyer's ownership of the Shares or control of the Company. There shall
not have been threatened, nor shall there be pending, any Litigation by or
before any governmental body challenging the lawfulness of or seeking to prevent
or delay any aspect of these transactions or seeking monetary or other relief by
reason of the consummation of any of such transactions.

                  (e)      No Changes or Destruction of Assets. Between the date
hereof and the Closing Date, there shall have been no material adverse change
(regardless of insurance coverage therefor) (i) in the assets of the Company or
(ii) to the Leased Real Property.

                  (f)      Employees. Buyer shall be satisfied that Company
Employees shall be available to continue with the Company should the Company
desire to retain them after the Closing Date.

                  (g)      Financial Aid Benefits. Buyer shall be satisfied that
the transactions contemplated hereby will not materially adversely affect the
financial aid benefits of students and prospective students of the Schools
(including, without limitation, the timing of such financial aid benefits).

                  (h)      No Material Adverse Change. There shall be no
material adverse change in the condition (financial or otherwise), liabilities,
net worth, earning power, business or prospects of any of the Schools or the
Company from and after the date hereof through the Closing Date.

                                       36
<PAGE>

                  (i)      Taxes. Seller shall provide Buyer with evidence
satisfactory to Buyer that the Company has paid and satisfied its tax
liabilities related to periods prior to the Closing Date, including obligations
with respect to payroll taxes and federal income tax withholding.

                  (j)      Financial Status. As of the Closing Date, and except
for deferred rent and deferred tuition income, the Company shall be free of any
non current liabilities and indebtedness, contingent or otherwise. Without
limiting the generality of the foregoing, all outstanding intercompany
indebtedness of the Company shall be paid and satisfied, the Company shall have
received releases of all guarantees, all loans, advances or other intercompany
amounts between the Company and any affiliate of the Company shall be repaid or
settled along with all accrued interest, if any, and the Company shall have no
(i) indebtedness for borrowed money or (ii) obligations under leases which have
been or should have been, in accordance with GAAP, recorded as capital leases.

                  (k)      Resignations. Seller shall have caused to be
delivered to Buyer by each of the directors and officers of the Company the
resignation of such Persons in a form reasonably satisfactory to Buyer.

                  (l)      Good Standing Certificate. Seller shall cause to be
delivered a certificate of good standing of Seller and the Company from the
Secretary of State of the State of California, dated as of a date not more than
ten (10) days prior to the Closing Date.

                  (m)      Minute Book. Buyer shall have received the complete
minute book of the Company, including, without limitation, the stock transfer
legend.

                  (n)      Opinion. Buyer shall have received an opinion of
counsel to Seller and the Company in form and substance reasonably satisfactory
to Buyer and its counsel.

                  (o)      Officer's Certificates. Buyer shall have received an
executed Officer's Certificate of Seller and an executed Officer's Certificate
of the Company, each dated as of the Closing Date and each certifying to the
fulfillment of the conditions set forth in this Section 5.1.

                  (p)      Secretary's Certificates. Buyer shall have received
an executed Secretary's Certificate of Seller and an executed Secretary's
Certificate of the Company, each dated as of the Closing Date and each
certifying that the respective resolutions authorizing and approving the
execution of this Agreement and the consummation of the transactions
contemplated hereby, as attached to the respective certificate, were duly
authorize by the Board of Directors of the respective entities and that such
resolutions remain in full force and effect. The Secretary's Certificate for the
Company shall also certify as to the current bylaws of the Company, as attached
to the Company's Secretary's Certificate.

                  (q)      Certificate of Incorporation. Seller shall have
delivered to Buyer a copy the Company's Certificate of Incorporation, as
certified by the Secretary of State of the State of California.

                  (r)      Escrow Agreement. Seller shall have delivered to
Buyer the Escrow Agreement executed by Seller and the Escrow Agent.

                                       37
<PAGE>

                  (s)      Consulting Agreement. Buyer, Seller and Mr. Turney
will have entered into the Consulting Agreement.

                  (t)      Due Diligence. Buyer shall be satisfied, in its sole
and absolute discretion, with the results of its due diligence investigation of
the Company and the Schools.

                  (u)      Assurances. With respect to any permit, Educational
Approval, permission or other approval from any Education Department that will
be obtained following Closing, written assurances confirming that no impediment
exists with respect to Buyer's receipt of such permit, Educational Approval,
permission or other approval following Closing will be obtained.

                  (v)      Company Plans. Buyer shall have received copies of
all of the Company Plans and related documents.

         5.2      CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The
obligations of Seller to proceed with the Closing hereunder are subject to the
fulfillment prior to or at the Closing of the following conditions (any one or
more of which may be waived in writing in whole or in part by Seller at its sole
option and which conditions are set out herein for the exclusive benefit of
Seller).

                  (a)      Updating of Representations and Warranties. Each of
the representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects, as of and with reference to the
Closing Date, with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date, and with reference to
such date. Buyer shall have performed and complied with all obligations,
covenants and conditions required by this Agreement to be performed or complied
with by it prior to or on the Closing Date.

                  (b)      Litigation. No order of any governmental body shall
be in effect that restrains or prohibits the transactions contemplated hereby,
and there shall not have been threatened, nor shall there be pending, any
Litigation challenging any of the transactions contemplated by this Agreement
seeking monetary relief by reason of the consummation of such transactions.

                  (c)      Good Standing Certificate. Buyer shall cause to be
delivered a certificate of good standing of Buyer from the Secretary of State of
the State of Delaware, dated as of a date not more than ten (10) days prior to
the Closing Date.

                  (d)      Officer's Certificate. Seller shall have received an
executed Officer's Certificate of Buyer, dated as of the Closing Date and
certifying to the fulfillment of the conditions set forth in subsections (a) and
(b) of this Section 5.1.

                  (e)      Secretary's Certificate. Seller shall have received
an executed Secretary's Certificate of Buyer, dated as of the Closing Date and
certifying that the resolutions authorizing and approving the execution of this
Agreement and the consummation of the transactions contemplated hereby, as
attached to the certificate, were duly authorize by the Board of Directors of
Buyer and that such resolutions remain in full force and effect.

                                       38
<PAGE>
                  (f)      Escrow Agreement. Buyer shall have delivered to
Seller the Escrow Agreement executed by Buyer.

                  (g)      Consulting Agreement. Buyer, Seller and Mr. Turney
will have entered into the Consulting Agreement.

                                   ARTICLE VI

                   COVENANT AGAINST COMPETITION AND DISCLOSURE

         In consideration of the Purchase Price, Seller covenants with Buyer,
and Buyer covenants with Seller, as applicable, as follows:

         6.1      RESTRICTIONS. Seller acknowledges that Buyer has paid valuable
consideration for its purchase. The use by Seller of relationships and
confidential information relating to the Company or the Schools in a business or
activity that competes with Buyer would provide the competing business with an
unfair advantage over Buyer. Accordingly, Buyer wishes to restrict Seller's use
of such information and its ability to compete with Buyer. Seller agrees to
comply with the terms of this Article VI, all of which are reasonable and
necessary to protect the confidential business information and trade secrets
being acquired by Buyer and to prevent any unfair advantage from being conferred
upon a competing business of Buyer, as set forth below.

         6.2      NON-COMPETITION. For a five (5) year period following the
Closing (the "RESTRICTIVE PERIOD"), Seller shall not, directly or indirectly,
own or operate in the Prohibited Area, a post-secondary proprietary school or
institution which provides any educational courses similar to those provided by
the Schools on the Closing Date (each a "PROHIBITED BUSINESS"). The term
"PROHIBITED AREA" shall mean the following counties in the State of California:
Los Angeles, Orange, Riverside, San Bernardino, San Diego, Ventura, Santa
Barbara, Kern and Imperial; and the following counties in the State of Nevada:
Clark, Washoe and Carson City.

         6.3      SOLICITATION OF EMPLOYEES. During the Restrictive Period,
Seller shall not, directly or indirectly, either alone or as a director,
officer, stockholder, partner, member, consultant, adviser, owner, agent,
creditor or coventurer of any other Person, solicit, hire, attempt to solicit or
hire, or participate in any attempt to solicit or hire any person who is an
employee of the Company on the Closing Date, except for Duane Turney; provided,
however that this Section 6.3 shall not apply to any employee who shall not have
worked for the Company for at least a one-year period. In the event this
Agreement is terminated, then for a period of two (2) years following the date
of this Agreement, Buyer shall not, directly or indirectly, either alone or as a
director, officer, stockholder, partner, member, consultant, adviser, owner,
agent, creditor or covertures of any other Person, solicit, hire, or attempt to
solicit or hire, or participate in any attempt to solicit or hire any person who
is an employee of the Company as of the date of this Agreement.

         6.4      CONFIDENTIAL INFORMATION. The parties to this Agreement
recognize that the other party's business interests require the fullest
practical protection and confidential treatment of all information not generally
known within the relevant trade group or by the public, including all documents,
writings, memoranda, business plans, illustrations, designs, plans, processes,

                                       39
<PAGE>

programs, inventions, computer software, reports, sources of supply, student and
customer lists, supplier lists, trade secrets and all other valuable or unique
information and techniques acquired, developed or used by the other party
(hereinafter collectively termed "PROTECTED INFORMATION"). The parties expressly
acknowledge and agree that Protected Information constitutes trade secrets and
confidential and proprietary business information. Protected Information shall
not include information that is or becomes part of the public domain through no
breach of this Agreement by the applicable party. The parties acknowledge that
Protected Information is essential to the success of business, and it is the
policy of each of the parties to maintain as secret and confidential their
Protected Information, which gives such party a competitive advantage over those
who do not know the Protected Information and is expressly and implicitly
protected by the applicable party from unauthorized disclosure. Accordingly, the
parties agree to hold such Protected Information in a fiduciary capacity, to
keep secret and to treat confidentially and not to, and not to permit any other
Person to, directly or indirectly, appropriate, divulge, disclose or otherwise
disseminate to any other Person nor use in any manner for the other party's or
any other Person's purposes or benefit any Protected Information, and not to use
or aid others in using any such Protected Information in competition with the
other party or any affiliate of such party except to the extent that disclosure
is required by law; provided, however, that the party which must disclose such
Protected Information shall provide the other party with notice as far in
advance of any required disclosure as is practicable in order for the other
party to obtain an order or other assurance that any information required to be
disclosed will be treated as Protected Information and the party which must
disclose such Protected Information shall use all reasonable efforts to
cooperate with the other party in connection therewith and in furtherance
thereof. This obligation of non disclosure of information shall continue to
exist for so long as such information remains Protected Information. For
purposes of this Agreement, trade secrets are subject to the protection of the
Uniform Trade Secret Act.

         6.5      ENFORCEMENT. Buyer and Seller intend that the covenants of
this Article VI shall be deemed to be a series of separate covenants, one for
each county of each and every state or jurisdiction included within the
Prohibited Area and one for each month of the Restrictive Period. If, in any
judicial proceeding, a court shall refuse to enforce any of such covenants, then
such unenforceable covenants shall be deemed eliminated from the provisions
hereof for the purpose of such proceeding to the extent necessary to permit the
remaining separate covenants to be enforced in such proceeding. If, in any
judicial proceeding, a court shall refuse to enforce any one or more of such
separate covenants because the total time thereof is deemed to be excessive or
unreasonable, then it is the intent of the parties hereto that such covenants,
which would otherwise be unenforceable due to such excessive or unreasonable
period of time, be in force for such lesser period of time as shall be deemed
reasonable and not excessive by such court.

         6.6      REMEDIES. Each party agrees that if it shall commit or
threaten to commit a breach of any of the covenants and agreements contained in
this Article VI ("Defaulting Party"), then the other party ("Non-Defaulting
Party") shall have the right to seek and obtain, without posting any bond or
security, all appropriate injunctive and other equitable remedies therefor, in
addition to any other rights and remedies that may be available at law, it being
acknowledged and agreed that any such breach would cause irreparable injury to
the Non-Defaulting Party and that money damages would not provide an adequate
remedy therefor. In the event of a breach or violation by the Defaulting Party
of any of the provisions of Sections 6.2 and 6.3, the Restrictive

                                       40
<PAGE>

Period shall be extended by a period equal to (i) the length of the breach or
violation of Sections 6.2 or 6.3 plus (ii) the length of any court proceedings
necessary to stop such breach or violation.

                                  ARTICLE VII

                  SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION

         7.1      SURVIVAL OF REPRESENTATIONS. All representations, warranties
and agreements made by any party in this Agreement or pursuant hereto shall
survive the Closing and last until the expiration of the applicable statute of
limitations. The representations and warranties set forth in Articles II and III
are considered to be cumulative, and any limitation or qualification set forth
on any one representation and warranty therein shall not limit or qualify any
other representation and warranty therein.

         7.2      INDEMNIFICATION BY SELLER. Subject to the limitations in
Section 7.8, Seller, and prior to the Closing, the Company, shall, jointly and
severally, indemnify, defend, save and hold Buyer and its officers, directors,
employees, agents and affiliates (collectively, the "BUYER INDEMNITEES")
harmless from and against all demands, claims, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses,
including reasonable attorneys' fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing
(collectively the "BUYER DAMAGES") asserted against, imposed upon, resulting to
or incurred by any Buyer Indemnitees, directly or indirectly, in connection
with, or arising out of, or resulting from (i) a breach of any of the
representations and warranties made by Seller or the Company in this Agreement,
or in any certificate or document furnished pursuant hereto by Seller or the
Company, (ii) any claim or other cause of action asserted or brought by an
unaffiliated third party which alleges any state of facts or other circumstances
which (whether or not meritorious) could result in or constitute a breach or
violation of any of the representations and warranties made by Seller or the
Company in this Agreement, or in any certificate or document furnished pursuant
hereto by Seller or the Company, (iii) a breach or non-fulfillment of any of the
covenants or agreements made by Seller or the Company in or pursuant to this
Agreement and (iv) any liability or obligation of Seller or the Company arising
from the operation of the Company prior to the Closing (independent of when the
actual claim is made).

         7.3      INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend, save
and hold Seller and, prior to the Closing, the Company, and each of their
respective officers, directors, employees, affiliates and agents (collectively,
the "SELLER INDEMNITEES") harmless from and against any and all demands, claims,
actions or causes of action, assessments, losses, damages, deficiencies,
liabilities, costs and expenses, including reasonable attorneys' fees, interest,
penalties, and all reasonable amounts paid in investigation, defense or
settlement of any of the foregoing (collectively the "SELLER DAMAGES") asserted
against, imposed upon or resulting to or incurred by any Seller Indemnitees,
directly or indirectly, in connection with, or arising out of, or resulting
from, (i) a breach of any of the representations and warranties made by Buyer in
this Agreement or in any certificate or document furnished pursuant hereto by
Buyer, or (ii) a breach of any of the covenants or agreements made by Buyer in
or pursuant to this Agreement.

                                       41
<PAGE>

         7.4      NOTICE OF CLAIMS. If any Buyer Indemnitee or Seller Indemnitee
(an "INDEMNIFIED PARTY") believes that it has suffered or incurred any Buyer
Damages or Seller Damages, as the case may be ("DAMAGES") for which it is
entitled to indemnification under this Article VII, such Indemnified Party shall
so notify the party or parties from whom indemnification is being claimed (the
"INDEMNIFYING PARTIES") with reasonable promptness and reasonable particularity
in light of the circumstances then existing. If any action at law or suit in
equity is instituted by or against a third party with respect to which any
Indemnified Party intends to claim any Damages, such Indemnified Party shall
promptly notify the Indemnifying Parties of such action or suit. The failure of
an Indemnified Party to give any notice required by this Section 7.4 shall not
affect any of such party's rights under this Article VII except and to the
extent that such failure is actually prejudicial to the rights or obligations of
the Indemnified Party.

         7.5      THIRD PARTY CLAIMS. The Indemnifying Party shall have the
right to conduct and control, through counsel of its choosing and reasonably
acceptable to the Indemnified Party, any third party claim, action or suit, and
the Indemnifying Party may compromise or settle the same, provided that the
Indemnifying Party shall not compromise or settle any such claim without the
prior written consent of the Indemnified Party as described below. The
Indemnifying Party shall permit the Indemnified Parties to participate in the
defense of any such action or suit through counsel chosen by them, provided that
the fees and expenses of such counsel shall be borne by the Indemnified Parties.
If the Indemnifying Parties undertake, conduct and control the conduct and
settlement of such action or suit, (i) the Indemnifying Parties shall not
thereby permit to exist any lien, Encumbrance or other adverse charge upon any
asset of the Indemnified Party; (ii) the Indemnifying Parties shall not consent
to any settlement that does not include as an unconditional term thereof the
giving of a complete release from liability with respect to such action or suit
to the Indemnified Party; (iii) the Indemnifying Parties shall permit the
Indemnified Party to participate in (but not control) such conduct or
settlement, at the Indemnified Party's sole expense, through counsel chosen by
the Indemnified Party; (iv) and the Indemnifying Parties shall agree promptly to
reimburse the Indemnified Party for the full amount of any Damages including
fees and expenses of counsel for the Indemnified Party incurred after giving the
foregoing notice to the Indemnifying Parties and prior to the assumption of the
conduct and control of such action or suit by the Indemnifying Parties.
Notwithstanding the foregoing sentence, the Indemnified Party, at its own
expense, shall be entitled to retain one separate counsel of its choice;
provided, however that the Indemnifying Parties shall promptly reimburse the
Indemnified Party for the full amount of any Damages including fees and expenses
of such counsel for the Indemnified Party, if: (i) the counsel that has been
provided by the Indemnifying Parties reasonably determines that its
representation of such Indemnified Party would present it with a conflict of
interest; or (ii) the representation of the Indemnifying Parties and the
Indemnified Party by the same counsel otherwise would be inappropriate due to
actual or potential differing interests between them.

         7.6      PREVAILING PARTY TO BE AWARDED LEGAL FEES. In the event of any
litigation between Seller and Buyer, whether at law or in equity, arising out of
this Agreement or the transactions contemplated hereby, the party prevailing in
such litigation shall be entitled to receive, upon application to the
appropriate court, its reasonable legal fees and expenses incurred in connection
therewith.

                                       42
<PAGE>

         7.7      ACCESS TO INFORMATION. From and after the Closing Date, Seller
and Buyer shall cooperate fully with each other so that (subject to any
limitations that are reasonably required to preserve any applicable
attorney-client privilege) each party has access to the business records,
contracts and other information existing at the Closing Date and relating in any
manner to the Shares, the operation of the Schools or the Company (whether in
the possession of Seller or Buyer). No files, books or records existing at the
Closing Date and relating in any manner to the Shares, the operation of the
Schools or the Company shall be destroyed by any party for a period of six (6)
years after the Closing Date (which period shall be extended upon the reasonable
request of either party) without giving the other party at least thirty (30)
days prior written notice, during which time such other party shall have the
right to examine and to remove any such files, books and records prior to their
destruction. The access to files, books and records contemplated by this Section
7.7 shall be during normal business hours and upon not less than two (2) days
prior written request, shall be subject to such reasonable limitations as the
party having custody or control thereof may impose to preserve the
confidentiality of information contained therein, and shall not extend to
material subject to a claim of privilege unless expressly waived by the party
entitled to claim the same.

         7.8      BASKET. Notwithstanding anything to the contrary contained in
this Agreement, the Seller and Company will not be liable to, or required to
indemnify, Buyer, its officers, directors, employees, agents and/or affiliates
until a non-recoupable One Hundred Thousand Dollars ($100,000) for all claims in
the aggregate (the "Basket") has been exceeded and, then, only to the extent
that the Basket has been exceeded; provided, however, that there shall be no
limitation of any nature whatsoever with respect to Seller's obligation to
indemnify for any student complaints and breach of Sections 2.5 (Shares;
Capitalization), 2.20 (Employee Benefits), 2.22 (Tax Matters), 2.24
(Environmental Matters), 2.27 (Compliance with Law; Education Department
Compliance) or any claims for damages based on fraud.

                                  ARTICLE VIII

                                  MISCELLANEOUS

         8.1      TERMINATION.

                  (a)      The parties may terminate this Agreement by mutual
written consent at any time prior to the Closing.

                  (b)      Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing if the Closing has not
occurred in accordance with Section 1.4 hereof, unless the failure for the
Closing to occur results primarily from Buyer itself breaching any
representation, warranty or covenant contained in this Agreement, or an
extension is mutually agreeable to Seller and Buyer.

                  (c)      Seller may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing if the Closing has not occurred
in accordance with Section 1.4 hereof, unless the failure for the Closing to
occur results primarily from Seller or the Company breaching any representation,
warranty or covenant contained in this Agreement, or unless an extension is
mutually agreeable to Seller and Buyer. The failure of Buyer or the Company to

                                       43
<PAGE>

obtain any permits, permissions, approvals or consents from any regulatory
authority, landlord, lessor or other party shall not be deemed to be a breach of
Seller or the Company; provided, however that each of Seller and the Company
shall have used its respective best efforts to obtain such permits, permissions,
approvals or consents from any regulatory authority, landlord, lessor or other
party.

                  (d)      Procedure and Effect of Termination for Failure to
Close. In the event of termination of this Agreement and abandonment of the
transactions contemplated hereby by a party pursuant to Section 7.1(a), (b) or
(c), prompt written notice thereof shall be given to the other parties and this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as permitted herein:

                           (i)      None of the parties hereto, or any of their
directors, officers, shareholders, employees, agents or affiliates, shall have
any liability or further obligation to the other parties pursuant to this
Agreement with respect to which termination has occurred, except as stated in
Sections 4.1(e), 4.3, 6.2 and this Section 7.1(d); and

                           (ii)     All filings, applications and other
submissions relating to the transactions contemplated hereby shall, to the
extent practicable, be withdrawn from the Educational Agency, governmental body
or other third person to which made.

                  No such termination of this Agreement shall relieve any party
of any liability or damages resulting from any breach by such party of any
representation, warranty, covenant or agreement set forth in this Agreement.

         8.2      CONSTRUCTION. As used herein, unless the context otherwise
requires: references to "Article" or "Section" are to an article or section
hereof; "include," "includes" and "including" are deemed to be followed by
"without limitation" whether or not they are in fact followed by such words or
words of like import; "hereof," "herein," "hereunder" and comparable terms refer
to the entirety of this Agreement and not to any particular article, section or
other subdivision hereof or attachment hereto; references to an agreement or
other instrument or law, statute or regulation are referred to as amended and
supplemented from time to time (and, in the case of a statute or regulation, to
any successor provision) and all regulations, rulings and interpretations
promulgated pursuant thereto; and the headings of the various articles, sections
and other subdivisions hereof are for convenience of reference only and shall
not modify, define or limit any of the terms or provisions hereof. The parties
acknowledge and agree that this Agreement is the result of extensive
negotiations between the parties and their respective counsel, and that this
Agreement shall not be construed against either party by virtue of its role or
its counsel's role in the drafting hereof.

         8.3      NOTICES. All notices, and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made the second day after mailing, if sent by registered or
certified mail, return receipt requested, upon delivery, if sent by hand
delivery, when received, if sent by prepaid overnight carrier, with a record of
receipt, or the first day after dispatch, if sent by cable, telegram, facsimile
or telecopy (with o

                                       44
<PAGE>

copy simultaneously sent by registered or certified mail, return receipt
requested), to the parties at the following addresses:

              (a) if to Buyer and, following the Closing, if to the Company, to:

                           Daniel Neuwirth
                           c/o Quad Ventures
                           650 Fifth Avenue
                           31st Floor
                           New York, NY 10019
                           Facsimile: (212) 724-4310

                           and

                           Dow, Lohnes & Albertson, PLLC
                           1200 New Hampshire Avenue, NW
                           Suite 800
                           Washington, DC 20036
                           Attention: Lisa Bureau Facsimile: (202) 776-2222

              (b) if to Seller and, prior to the Closing, if to the Company, to:

                           Scope Industries
                           233 Wilshire Boulevard
                           Suite 310
                           Santa Monaco, CA 90401
                           Attention: Meyer Luskan Focsamale:(310) 451-5371

                      and

                           Richman, Mann, Chizever, Phillips & Duboff
                           9601 Wilshire Blvd
                           Penthouse
                           Beverly Hills, CA 90210
                           Attention: Gerald M. Chizever, Esq.
                           Facsimile:(310) 274-2831

Any party hereto may change the address to which notice to it, or copies
thereof, shall be addressed, by giving notice thereof to the other parties
hereto in conformity with the foregoing.

         8.4      ASSIGNMENT. This Agreement and all the rights and powers
granted hereby shall bind and inure to the benefit of the parties hereto and
their respective permitted heirs, successors and assigns. This Agreement and the
rights, interests and obligations hereunder may not be assigned by any party
hereto, without the prior written consent of the other parties hereto; provided,
however, that Buyer may assign, in whole or in part, its rights and obligations
pursuant to this Agreement to one or more of its affiliates.

                                       45
<PAGE>

         8.5      GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to its conflict of law doctrines.

         8.6      AMENDMENT AND WAIVER; CUMULATIVE EFFECT. Upon the agreement of
all of the parties hereto, this Agreement may be amended in any respect, and any
party, as to such party, may (i) extend the time for the performance of any of
the obligations of any other party, (ii) waive any inaccuracies in
representations by any other party, (iii) waive compliance by any other party
with any of the agreements contained herein and performance of any obligations
by such other party, and (iv) waive the fulfillment of any condition that is
precedent to the performance by such party of any of its obligations under this
Agreement. To be effective, any such amendment or waiver must be in writing and
be signed by the party against whom enforcement of the same is sought. Neither
the failure of any party hereto to exercise any right, power or remedy provided
under this Agreement where otherwise available in respect hereof at law or in
equity, or to insist upon compliance by any other party with its obligations
hereunder, nor any custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver by such party of its right to exercise any
such right, power or remedy or to demand such compliance. The rights and
remedies of the parties hereto are cumulative and not exclusive of the rights
and remedies that they otherwise might have now or hereafter, at law, in equity,
by statute or otherwise.

         8.7      SET-OFF. If any Buyer Indemnitee shall have made one or more
claims for indemnification from Seller under Section 7.2 hereof (collectively, a
"Buyer Indemnity Claim") which Buyer Indemnity Claim is being disputed by Seller
or otherwise remains unresolved as of any time when a payment of principal or
interest is due under the Closing Note, then Buyer shall have a right, at its
option and without limiting its right to pursue other recourse as provided
hereunder, to pay any such payment of principal or interest under the Closing
Note (up to an amount of Buyer Damages that is the subject of such Buyer
Indemnity Claim (the "CLAIM AMOUNT")) into escrow in accordance with the
procedures set forth below.

                  (a)      During the pendency of such disputed or otherwise
unresolved Buyer Indemnity Claim, Buyer shall have the right to deposit payments
of principal and interest under the Closing Note (in an aggregate amount not to
exceed the total Claim Amount) in an escrow account to be maintained with the
Escrow Agent, upon substantially the same terms and conditions as the Escrow
Agreement attached hereto as Exhibit B, until the final resolution of such Buyer
Indemnity Claim in accordance with the Dispute Resolution procedures described
below. Buyer shall give Seller prompt written notice of any such deposited
payments.

                  (b)      The deposited payments of principal and interest
under the Closing Note shall continue to be held in escrow until the Buyer
Indemnity Claim has been resolved by (i) a written agreement between the Buyer
and Seller, (ii) a final judgment or decree of any court of competent
jurisdiction, or (iii) by any other means to which the Buyer and Seller shall
agree to in writing (collectively, the "DISPUTE RESOLUTION"). The judgment or
decree of a court shall be deemed final when the time for appeal, if any, shall
have expired and no appeal shall have been taken or when all appeals taken shall
have been finally determined.

                  (c)      Until the parties have reached a Dispute Resolution,
Buyer and Seller agree that the payment by Buyer of any such amounts of
principal or interest otherwise due

                                       46
<PAGE>

under the Closing Note into escrow in accordance with the procedures set forth
above, rather than directly to the Seller, shall not constitute a default or an
event of default under the Closing Note or the Excess Amount Note.

                  (d)      Notwithstanding any provision to the contrary, with
respect to any Buyer Indemnity Claim which is not disputed by Seller, Buyer
shall be entitled, at its option, to offset or recoup from any amounts due to
Seller from Buyer pursuant to the Closing Note and the Excess Amount Note.

         8.8      ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the recitals hereto) and the Exhibits and Schedules attached hereto
set forth all of the promises, covenants, agreements, conditions and
undertakings of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings,
negotiations, inducements or conditions, express or implied, oral or written.
This Agreement is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder, except the provisions of Sections 7.2
and 7.3 relating to Buyer Indemnitees and Seller Indemnitees who are intended to
benefit from such indemnities.

         8.9      SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.

         8.10     COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall be deemed to be one and the same instrument.

                                       47
<PAGE>

                      [Signatures appear on following page]

                                       48
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed or have caused
this Agreement to be executed by their duly authorized officers as of the date
first written above.

                                    BUYER

                                    B & H EDUCATION, INC.

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

                                    COMPANY

                                    SCOPE BEAUTY ENTERPRISES, INC.

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

                                    SELLER

                                    SCOPE INDUSTRIES.

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

                                       49
<PAGE>

                            STOCK PURCHASE AGREEMENT

                                  BY AND AMONG

                             B & H EDUCATION, INC.,

                         SCOPE BEAUTY ENTERPRISES, INC.

                                       AND

                                SCOPE INDUSTRIES

<PAGE>

                                LIST OF EXHIBITS

Exhibit A         Form of Closing Note
Exhibit B         Form of Escrow Agreement

                                LIST OF SCHEDULES

Schedule 1.5               Ordinary Course
Schedule 2.3               Consents
Schedule 2.7               Financial Statements
Schedule 2.9               Undisclosed Liabilities
Schedule 2.12(a)           Leased Real Property
Schedule 2.12(b)           Leased Real Property -necessary Consents
Schedule 2.13              Litigation
Schedule 2.14              Contracts
Schedule 2.15              Company Employees
Schedule 2.16              Related Party Transactions
Schedule 2.18              Intellectual Property
Schedule 2.19              Changes
Schedule 2.20              Benefit Plans
Schedule 2.22              Tax Filings
Schedule 2.23              Insurance
Schedule 2.27(a)           Educational Approvals
Schedule 2.27(a)(4)        Title IV Compliance
Schedule 2.27(a)(5)        Department of Education Reviews
Schedule 2.27(a)(15)       Educational Instruction
Schedule 2.27(b)(1)        Policy Guidelines
f

                                       51
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                          PAGE
                                                                                                          ----
<S>              <C>                                                                                      <C>
ARTICLE I        THE TRANSACTION......................................................................      1
       1.1       Sale and Purchase of Shares..........................................................      1
       1.2       Payment of Purchase Price; Delivery of the Shares....................................      1
       1.3       Purchase Price Adjustment............................................................      2
       1.4       Closing.  ...........................................................................      3
       1.5       Escrow Account; Department of Education Approval.....................................      3
       1.6       Certain Consents.....................................................................      7
       1.7       Accounts Receivable..................................................................      8

ARTICLE II       REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY.............................      8
       2.1       Organization; Qualification..........................................................      8
       2.2       Authorization and Enforceability.....................................................      9
       2.3       No Violation of Laws or Agreements...................................................      9
       2.4       Ownership of Schools.................................................................      9
       2.5       Shares; Capitalization...............................................................      9
       2.6       Subsidiaries and Investments.........................................................      9
       2.7       Financial Statements.................................................................     10
       2.8       Liabilities in Connection with Share Repurchases.....................................     10
       2.9       Undisclosed Liabilities..............................................................     10
       2.10      Accounts Receivable..................................................................     10
       2.11      Condition of Assets; Title; Business.................................................     11
       2.12      Leased Property......................................................................     11
       2.13      No Pending Litigation or Proceedings.................................................     12
       2.14      Contracts; Compliance................................................................     12
       2.15      Labor................................................................................     13
       2.16      Transactions with Related Parties....................................................     13
       2.17      Curriculum...........................................................................     13
       2.18      Intellectual Property................................................................     14
       2.19      No Changes...........................................................................     14
       2.20      Employee Benefits....................................................................     15
       2.21      Inventories..........................................................................     17
       2.22      Tax Matters..........................................................................     17
       2.23      Insurance............................................................................     19
       2.24      Environmental Matters................................................................     19
       2.25      Disclosure...........................................................................     20
       2.26      Finder's Fees........................................................................     20
       2.27      Compliance with Law; Education Department Compliance.................................     20

ARTICLE III      REPRESENTATIONS AND WARRANTIES OF BUYER..............................................     25
       3.1       Organization; Corporate Power and Authority; Authorization...........................     25
       3.2       No Violation of Laws or Agreements...................................................     25
       3.3       Absence of Proceedings; Finder's Fee.................................................     26
</TABLE>

                                        i
<PAGE>

<TABLE>
<CAPTION>
                                                                                                          PAGE(s)
                                                                                                          ----
<S>              <C>                                                                                      <C>
ARTICLE IV       CERTAIN COVENANTS....................................................................     26
       4.1       Conduct of Business Pending Closing..................................................     26
       4.2       Regulatory and Other Approvals.......................................................     28
       4.3       Costs and Expenses...................................................................     29
       4.4       Fulfillment of Agreements............................................................     30
       4.5       Publicity; Disclosure................................................................     30
       4.6       Further Assurances...................................................................     31
       4.7       Permits..............................................................................     31
       4.8       Remit Funds..........................................................................     31
       4.9       No Control...........................................................................     31
       4.10      Consent; Assignment of Agreements....................................................     31
       4.11      Other Action.........................................................................     31
       4.12      Exclusivity..........................................................................     31
       4.13      Tax Matters..........................................................................     32
       4.14      Due Diligence........................................................................     34
       4.15      Employee Matters.....................................................................     34
       4.16      Schedules............................................................................     35

ARTICLE V        CONDITIONS PRECEDENT TO CLOSING......................................................     35
       5.1       Conditions Precedent to the Obligations of Buyer.....................................     35
       5.2       Conditions Precedent to the Obligations of Seller....................................     38

ARTICLE VI       COVENANT AGAINST COMPETITION AND DISCLOSURE..........................................     39
       6.1       Restrictions.........................................................................     39
       6.2       Non-competition......................................................................     39
       6.3       Solicitation of Employees............................................................     39
       6.4       Confidential Information.............................................................     39
       6.5       Enforcement..........................................................................     40
       6.6       Remedies.............................................................................     40

ARTICLE VII      SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.........................................     41
       7.1       Survival of Representations..........................................................     41
       7.2       Indemnification by Seller............................................................     41
       7.3       Indemnification by Buyer.............................................................     41
       7.4       Notice of Claims.....................................................................     42
       7.5       Third Party Claims...................................................................     42
       7.6       Prevailing Party To Be Awarded Legal Fees............................................     42
       7.7       Access to Information................................................................     43
       7.8       Basket...............................................................................     43
</TABLE>

                                       ii
<PAGE>

<TABLE>
<CAPTION>
                                                                                                          PAGE(s)
                                                                                                          ----
<S>              <C>                                                                                      <C>
ARTICLE VIII     MISCELLANEOUS.........................................................................    43
       8.1       Termination...........................................................................    43
       8.2       Construction..........................................................................    44
       8.3       Notices...............................................................................    44
       8.4       Assignment............................................................................    45
       8.5       Governing Law.........................................................................    46
       8.6       Amendment and Waiver; Cumulative Effect...............................................    46
       8.7       Set-off...............................................................................    46
       8.8       Entire Agreement; No Third Party Beneficiaries........................................    47
       8.9       Severability..........................................................................    47
                 Counterparts..........................................................................    47
</TABLE>

                                      iii

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