Document:

<PAGE>

                                                                    EXHIBIT 10.1

                                 $450,000,000

                          NINTH AMENDED AND RESTATED
                          REVOLVING CREDIT AGREEMENT

                        Dated as of September 26, 2000

                                     among

                            STANDARD PACIFIC CORP.,
                                as the Company,

                     BANK OF AMERICA, NATIONAL ASSOCIATION
                                 BANK ONE, NA
                         GUARANTY FEDERAL BANK, F.S.B.
                                  BANK UNITED
                              FLEET NATIONAL BANK
                        PNC BANK, NATIONAL ASSOCIATION
                                 COMERICA BANK
                             SANWA BANK CALIFORNIA
                           UNION BANK OF CALIFORNIA
                                 SUNTRUST BANK
                                 AMSOUTH BANK
            (and any additional commercial institutions which from
                 time to time are a party to this Agreement),
                                 as the Banks,

                                      and

                    BANK OF AMERICA, NATIONAL ASSOCIATION,
                         as the Administrative Agent,

                         BANC AMERICA SECURITIES LLC,
                 as sole Lead Arranger and sole Book Manager,

                                 BANK ONE, NA,
                           as the Syndication Agent,

                            GUARANTY FEDERAL BANK,
                          as the Documentation Agent,

                                      and

                         BANK UNITED, as the Co-Agent
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

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<CAPTION>
                                                                            Page
                                                                            ----
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I.  RECITALS.................................................................  1

II. AGREEMENT................................................................  4

ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS..................................  4
     1.1   Defined Terms.....................................................  4
     1.2   Use of Defined Terms.............................................. 22
     1.3   Accounting Terms.................................................. 22
     1.4   Exhibits.......................................................... 22

ARTICLE 2: RECITALS.......................................................... 23

ARTICLE 3: BORROWING PROCEDURES, BORROWING BASE, LETTER OF
           CREDIT SUBLIMIT, AND POSSIBLE INCREASE IN TOTAL
           AGGREGATE COMMITMENT.............................................. 23
     3.1   Disbursement of Loan Proceeds..................................... 23
     3.2   Reference Rate Borrowings......................................... 26
     3.3   LIBOR Borrowing................................................... 27
     3.4   Redesignation of Borrowings....................................... 28
     3.5   Calculation of Borrowing Base..................................... 29
     3.6   Borrowing Base.................................................... 31
     3.7   Payments by the Banks to the Agent................................ 32
     3.8   Sharing of Payments, Etc.......................................... 32
     3.9   Letter of Credit Sublimit......................................... 33
           3.9.1  Amount and Terms of the Credit............................. 33
           3.9.2  Standby Letters of Credit.................................. 33
           3.9.3  Request for Credit......................................... 34
           3.9.4  Issuance Fees.............................................. 34
           3.9.5  Conditions Precedent to Issuance of Letters of Credit...... 35
           3.9.6  Subsidiary Letters of Credit............................... 36
     3.10  Possible Increase in Total Aggregate Commitment................... 36

ARTICLE 4: PAYMENTS AND FEES; EXTENSION OPTION............................... 37
     4.1   Principal and Interest............................................ 37
     4.2   Unused Fee........................................................ 40
     4.3   Commitment Fee.................................................... 41
     4.4   Late Payments..................................................... 41
     4.5   Taxes............................................................. 41
     4.6   Illegality........................................................ 42
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     4.7   Increased Costs and Reduction of Return.......................... 42
     4.8   Funding Losses................................................... 43
     4.9   Inability to Determine Rates..................................... 44
     4.10  Reserves on LIBOR Borrowings..................................... 44
     4.11  Certificates of Banks............................................ 45
     4.12  Substitution of Banks............................................ 45
     4.13  Survival......................................................... 45
     4.14  Manner and Treatment of Payments................................. 45
     4.15  Additional Costs................................................. 46
     4.16  Mandatory Prepayment............................................. 46
     4.17  Agency Fee And Other Consideration Payable To Agent.............. 46
     4.18  Maturity Date Extension Option................................... 47
     4.19  Voluntary Prepayment and Termination of Credit Facility Upon
           Change of Control................................................ 48

ARTICLE 5: SECURITY......................................................... 48
     5.1   Unsecured Credit................................................. 48

ARTICLE 6: CONDITIONS....................................................... 49
     6.1   Conditions to Disbursement of First Borrowings................... 49
     6.2   Conditions for Subsequent Borrowings or for a Redesignation of
           Borrowings....................................................... 49

ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 49
     7.1   Incorporation, Qualification, Powers and Capital Stock........... 49
     7.2   Execution, Delivery and Performance of Loan Documents............ 50
     7.3   Compliance with Laws and Other Requirements...................... 51
     7.4   Subsidiaries..................................................... 51
     7.5   [Intentionally Deleted.]......................................... 52
     7.6   Financial Statements of the Company and its Consolidated
           Subsidiaries..................................................... 52
     7.7   No Material Adverse Change....................................... 52
     7.8   Tax Liability.................................................... 53
     7.9   Litigation....................................................... 53
     7.10  Pension Plan..................................................... 53
     7.11  Regulations U and X; Investment Company Act...................... 53
     7.12  No Default....................................................... 54
     7.13  Borrowing Base................................................... 54
     7.14  Borrowing Base Components........................................ 54

ARTICLE 8: COVENANTS OF THE COMPANY......................................... 54
     8.1   Consolidated Tangible Net Worth.................................. 54
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                                      -ii-
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     8.2   Leverage Covenants............................................... 54
     8.3   Minimum Interest Coverage........................................ 55
     8.4   Payment of Taxes and Other Potential Liens....................... 56
     8.5   Preservation of Existence........................................ 56
     8.6   Maintenance of Properties........................................ 57
     8.7   Maintenance of Insurance......................................... 57
     8.8   Mergers.......................................................... 57
     8.9   Books and Records................................................ 57
     8.10  Inspection Rights................................................ 57
     8.11  Reporting Requirements........................................... 58
     8.12  Liens............................................................ 60
     8.13  Prepayment of Indebtedness....................................... 61
     8.14  Homebuilding Joint Ventures...................................... 61
     8.15  Compliance with Laws and Other Requirements...................... 62
     8.16  Change in Nature of Business..................................... 62
     8.17  Pension Plan..................................................... 63
     8.18  Dividends and Subordinated Debt.................................. 63
     8.19  Disposition of Properties........................................ 64
     8.20  Limitation on New Operating Subsidiaries......................... 64
     8.21  [Intentionally Deleted.]......................................... 64
     8.22  [Intentionally Deleted.]......................................... 65
     8.23  [Intentionally Deleted.]......................................... 65
     8.24  Change of Control................................................ 65
     8.25  [Intentionally Deleted.]......................................... 65
     8.26  Total Borrowing Base Home Building Indebtedness
           Not to Exceed Borrowing Base..................................... 65
     8.27  Subsidiary Guaranties............................................ 65
     8.28  FLS Leverage Covenant............................................ 66
     8.29  Investments in Persons Other Than Subsidiaries and Home Building
           Joint Ventures................................................... 66

ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT...................... 66
     9.1   Events of Default................................................ 66
     9.2   Remedies......................................................... 69
     9.3   Rights Not Exclusive............................................. 70
     9.4   Notice of Default................................................ 70

ARTICLE 10:  THE AGENT...................................................... 70
     10.1  Appointment and Authorization.................................... 70
     10.2  Delegation of Duties............................................. 70
     10.3  Liability of Agent............................................... 71
     10.4  Reliance by Agent................................................ 71
     10.5  Notice of Default................................................ 72
</TABLE>

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     10.6   Credit Decision................................................. 72
     10.7   Indemnification................................................. 73
     10.8   Agent in Individual Capacity.................................... 73
     10.9   Successor Agent................................................. 73
     10.10  Withholding Tax................................................. 74
     10.11  Defaulting Banks................................................ 75
     10.12  Performance by the Agent........................................ 76
     10.13  Actions......................................................... 76
     10.14  Syndication Agent, Documentation Agent and Co-Agent............. 77

ARTICLE 11: MISCELLANEOUS................................................... 77
     11.1   Amendments and Waivers.......................................... 77
     11.2   Costs, Expenses and Taxes....................................... 78
     11.3   No Waiver; Cumulative Remedies.................................. 78
     11.4   Payments Set Aside.............................................. 79
     11.5   Successors and Assigns.......................................... 79
     11.6   Assignments, Participations, etc................................ 79
     11.7   Set-off......................................................... 82
     11.8   Automatic Debits................................................ 82
     11.9   Notification of Addresses, Lending Offices, Etc................. 83
     11.10  Survival of Representations and Warranties...................... 83
     11.11  Notices......................................................... 83
     11.12  Indemnity by the Company........................................ 84
     11.13  Integration and Severability.................................... 84
     11.14  Counterparts.................................................... 84
     11.15  No Third Parties Benefitted..................................... 84
     11.16  Section Headings................................................ 84
     11.17  Further Acts by the Company..................................... 84
     11.18  Time of the Essence............................................. 84
     11.19  Governing Law................................................... 85
     11.20  Reference and Arbitration....................................... 85
     11.21  Effectiveness of this Agreement................................. 86
</TABLE>

                                      -iv-
<PAGE>

                               LIST OF EXHIBITS
                               ----------------

Exhibit "A" - Note
Exhibit "B" - Borrowing Base Certificate
Exhibit "C" - Request for Borrowing/Redesignation/Letter of Credit
Exhibit "D" - [Intentionally Deleted]
Exhibit "E" - Continuing Guaranty (several subsidiaries)
Exhibit "F" - Subsidiaries and Homebuilding Joint Ventures
Exhibit "G" - Form of Legal Opinion
Exhibit "H" - Form of Assignment and Acceptance Agreement
Exhibit "I" - [Intentionally Deleted]
Exhibit "J" - Continuing Guaranty (Standard Pacific Corp.)

                               LIST OF SCHEDULES
                               -----------------

Schedule 1.1     - Bank Group Commitment Schedule
Schedule 4.2     - Example of Unused Fee Calculation
Schedule 8.3     - Interest Coverage Ratio Calculation
Schedule 8.11(d) - Designated Subsidiaries

                                      -v-
<PAGE>

                          NINTH AMENDED AND RESTATED
                          --------------------------
                          REVOLVING CREDIT AGREEMENT
                          --------------------------

          This Ninth Amended and Restated Revolving Credit Agreement
("Agreement") is dated as of September 26, 2000, by and among STANDARD PACIFIC
CORP., a Delaware corporation (the "Company"), the several financial
institutions from time to time party to this Agreement (collectively, the
"Banks" and individually, a "Bank"), and BANK OF AMERICA, NATIONAL ASSOCIATION
(formerly Bank of America National Trust and Savings Association), a national
banking association, as agent for the Banks ("BofA" and the "Agent"), and is
made with reference to the facts set forth below.

                                  I. RECITALS
                                     --------

          1.   On or about July 8, 1986, Standard-Pacific Corp., a Delaware
corporation ("SP Corp."), and Security Pacific National Bank, a national banking
association ("Security Pacific"), entered into that certain Revolving Credit
Agreement dated as of July 8, 1986, and the other "Loan Documents" described
therein (collectively, the "Original Loan Documents"). In December, 1986, SP
Corp. was converted from a corporation to a limited partnership under the laws
of the State of Delaware, known as Standard Pacific, L.P. ("Predecessor"). At
such time, substantially all of the assets and liabilities of SP Corp., and
certain of its subsidiaries, were transferred to Predecessor. On or about March
13, 1987, Security Pacific and Predecessor entered into that certain Amended and
Restated Revolving Credit Agreement dated as of March 13, 1987 (the "First
Amended Credit Agreement"), and the other "Loan Documents" described therein
(the "First Amended Revolving Loan Documents"), in order to revise the Original
Loan Documents in light of the change in the nature of the borrowing entity. The
First Amended Credit Agreement and the First Amended Revolving Loan Documents
were subsequently modified by amendments and letter agreements.

          2.   On or about December 31, 1991, Security Pacific and the Company
(which succeeded to the assets and liabilities of Predecessor) entered into that
certain Second Amended and Restated Revolving Credit Agreement dated as of
December 31, 1991 (the "Second Amended Credit Agreement"), and the other "Loan
Documents" described therein (the "Second Amended Revolving Loan Documents"), in
order to revise the First Amended Revolving Loan Documents in light of the
change in the nature of the borrowing entity. The Second Amended Credit
Agreement and the Second Amended Revolving Loan Documents have previously been
modified by that certain First Amendment to Second Amended and Restated
Revolving Credit Documents dated January 20, 1992, by and between Security
Pacific and the Company,

                                      -1-
<PAGE>

and that certain Amendment to Loan Documents dated as of June 22, 1992, by and
between the Company and Security Pacific.

          3.   BofA merged with Security Pacific and thereby succeeded to all of
Security Pacific's right, title and interest in, under and to the Second Amended
Credit Agreement and the Second Amended Revolving Loan Documents.

          4.   The Second Amended Credit Agreement and the Second Amended
Revolving Loan Documents have previously been modified by (i) that certain
Second Amendment to Second Amended and Restated Revolving Credit Agreement dated
as of October 1, 1992, by and between the Company and BofA, (ii) that certain
Third Amendment to Second Amended and Restated Revolving Credit Agreement dated
as of March 17, 1993, by and between the Company and BofA, (iii) that certain
Fourth Amendment to Second Amended and Restated Revolving Credit Agreement dated
as of October 12, 1993, by and between the Company and BofA, and (iv) that
certain Fifth Amendment to Second Amended and Restated Revolving Credit
Agreement dated as of December 29, 1993, by and between the Company and BofA.

          5.   On or about February 28, 1995, BofA and the other "Banks" which
were a party thereto and the Company entered into that certain Third Amended and
Restated Revolving Credit Agreement dated as of February 28, 1995 (the "Third
Amended Credit Agreement"), and the other "Loan Documents" described therein
(the "Third Amended Revolving Loan Documents") in order to amend and restate the
Second Amended Credit Agreement and Second Amended Revolving Loan Documents in
light of certain changes and modifications to the terms thereof.

          6.   On or about December 31, 1992, the Company and BofA entered into
that certain Amended and Restated Line of Credit Agreement pursuant to which
BofA agreed, subject to the terms and conditions thereof, to provide the Company
a $2,000,000 letter of credit facility (such agreement, as subsequently amended
and modified to date, being referred to herein as the "Prior L/C Line
Agreement").

          7.   On or about March 15, 1996, the Company, BofA and NBD BANK, a
Michigan banking corporation ("NBD"), entered into that certain Fourth Amended
and Restated Revolving Credit Agreement dated as of March 15, 1996 (the "Fourth
Amended Credit Agreement") and the other "Loan Documents" described therein (the
"Fourth Amended Revolving Loan Documents") in order to amend and restate the
Third Amended Credit Agreement and the Third Amended Revolving Loan Documents
and incorporate the Prior L/C Line Agreement therein.  NBD subsequently assigned
all their rights and obligations under the Loan Documents to First National Bank
of Chicago ("First Chicago").

                                      -2-
<PAGE>

          8.   On or about December 27, 1996, the Company and BofA entered into
that certain Fifth Amended and Restated Revolving Credit Agreement dated as of
December 27, 1996 (the "Fifth Amended Credit Agreement") and the other "Loan
Documents" described therein (the "Fifth Amended Revolving Loan Documents") in
order to amend and restate the Fourth Amended Credit Agreement and the Fourth
Amended Revolving Loan Documents. First Chicago's interest under the Fourth
Amended Credit Agreement was paid off with the first disbursement under the
Fifth Amended Credit Agreement; and initially, as of the effective date of the
Fifth Amended Credit Agreement, BofA was the only "Bank" that was a party to the
Fifth Amended Credit Agreement. On or about January 17, 1997, Assignment and
Acceptance Agreements were executed by BofA in favor of Sanwa Bank California, a
California corporation ("Sanwa"), The First National Bank of Chicago, now known
as Bank One, NA ("Bank One"), Credit Lyonnais Los Angeles Branch ("Credit
Lyonnais"), and Fleet National Bank, a national banking association ("Fleet"),
pursuant to which each of these financial institutions became "Banks" under the
Fifth Amended Credit Agreement, and subject to the terms thereof.

          9.   On or about August 8, 1997, BofA and the other "Banks" which were
a party thereto and the Company entered into that certain Sixth Amended and
Restated Revolving Credit Agreement dated as of August 8, 1997 (the "Sixth
Amended Credit Agreement") and the other "loan documents" described therein (the
"Sixth Amended Revolving Loan Documents") in order to amend and restate the
Fifth Amended Credit Agreement and the Fifth Amended Revolving Loan Documents in
light of certain changes and modifications to the terms thereof.  In addition to
the Banks described in paragraph 8 immediately above, Comerica Bank ("Comerica")
and PNC Bank, National Association ("PNC") became parties to and "Banks" under
the Sixth Amended Credit Agreement.

          10.  On or about July 28, 1998, BofA and the other "Banks" which were
a party thereto and the Company entered into that certain Seventh Amended and
Restated Revolving Credit Agreement dated as of July 28, 1998 (as modified by
the modification agreement dated February 19, 1999 between the Company, the
Banks and the Agent, the "Seventh Amended Credit Agreement") and the other "loan
documents" described therein (the "Seventh Amended Revolving Loan Documents") in
order to amend and restate the Sixth Amended Credit Agreement and the Sixth
Amended Revolving Loan Documents in light of certain changes and modifications
to the terms thereof. In addition to the Banks described in paragraph 9
immediately above, Bank United, a federal savings bank ("Bank United"), First
American Bank Texas, SSB, a Texas state savings bank ("First American"), Union
Bank of California, N.A., a national banking association ("Union Bank"), and
Guaranty Federal Bank, F.S.B., a federal savings bank ("Guaranty Federal")
became parties to and "Banks" under the Seventh Amended Credit Agreement.

                                      -3-
<PAGE>

          11.  On or about August 11, 1999, BofA and the other "Banks" which
were a party thereto and the Company entered into that certain Eighth Amended
and Restated Revolving Credit Agreement dated as of August 11, 1999 (the "Eighth
Amended Credit Agreement") and the other "loan documents" described therein (the
"Eighth Amended Revolving Loan Documents") in order to amend and restate the
Seventh Amended Credit Agreement and the Seventh Amended Revolving Loan
Documents in light of certain changes and modifications to the terms thereof.
In addition to the Banks described above, SunTrust Bank, Atlanta became a party
to and a "Bank" under the Eighth Amended Credit Agreement.

          12.  The Company, BofA, Bank One, Fleet, Sanwa, Comerica, PNC, Bank
United, Union Bank, Guaranty Federal, SunTrust and Amsouth Bank desire to amend
and restate the Eighth Amended Credit Agreement and the Eighth Amended Revolving
Loan Documents in order to make certain amendments thereto.  Credit Lyonnais and
First American will not be parties to or "Banks" under this Ninth Amended and
Restated Revolving Credit Agreement.

                                 II. AGREEMENT
                                     ---------

          NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and among
the Company, the Banks and the Agent that the Eighth Amended Credit Agreement is
hereby amended and restated in its entirety so as to provide as follows:

ARTICLE 1:  DEFINITIONS AND ACCOUNTING TERMS.
            --------------------------------

          1.1  Defined Terms.  As used in this Agreement, the following terms
               -------------
shall have the meanings set forth respectively after each:

               "Account" means the Company's general account maintained with
                -------
     BofA, and any future similar account with BofA.

               "Affiliate" means any Person (1) which directly, or indirectly
                ---------
     through one or more intermediaries, controls, or is controlled by, or is
     under common control with, the Company or any Subsidiary, as the context
     may require, or (2) which owns beneficially or of record 25% or more of the
     Voting Stock of the Company. The term "control" means the possession,
     directly or indirectly, of the power to cause the direction of the
     management and policies of a Person, whether through the ownership of
     voting securities or partnership interests, by contract, family
     relationship or otherwise.

               "Agent" means BofA when acting in its capacity as the Agent under
                -----
     any of the Loan Documents, and any successor agent.

                                      -4-
<PAGE>

               "Agent-Related Persons" means the Agent and any successor agent
                ---------------------
     (pursuant to the terms of Section 10.9) together with their respective
                               ------------
     Affiliates and the directors, officers, agents, employees and attorneys-in-
     fact of such Persons and Affiliates.

               "Agreement" means this Ninth Amended and Restated Revolving
                ---------
     Credit Agreement, either as originally executed or as it may from time to
     time be supplemented, modified or amended.

               "Assignee" shall have the meaning set forth in Section 11.6.
                --------                                      ------------

               "Assignment and Acceptance" shall have the meaning set forth in
                -------------------------
     Section 11.6.
     ------------

               "Attorney Costs" means and includes all reasonable fees and
                --------------
     disbursements of any law firm or other external counsel, the allocated cost
     of internal legal services and all disbursements of internal legal counsel.

               "Banking Day" means any Monday, Tuesday, Wednesday, Thursday or
                -----------
     Friday on which banks (including the Banks) are open for business in
     California.

               "Banks" means Bank of America, National Association, a national
                -----
     banking association, Bank One, NA, Fleet National Bank, a national banking
     association, Sanwa Bank California, a California corporation, Comerica
     Bank, PNC Bank, National Association, Bank United, a federal savings bank,
     Union Bank of California, N.A., a national banking association, Guaranty
     Federal Bank, F.S.B., a federal savings bank, SunTrust Bank, and Amsouth
     Bank, and the additional financial institutions (if any) from time to time
     party to this Agreement, any of their successors and assigns (including any
     Assignee), or any one or more of them.

               "Borrowing" means each of the Loans to be made by the Banks to
                ---------
     the Company as provided in Article 3.

               "Borrowing Base" has the meaning set forth in Section 3.5(b).
                --------------                               --------------

               "Borrowing Base Certificate" means a written calculation of the
                --------------------------
     Borrowing Base, substantially in the form of Exhibit "B" attached hereto
                                                  -----------
     and made a part hereof, signed by a Responsible Official of the Company and
     properly completed to provide all information required to be included
     thereon.

                                      -5-
<PAGE>

               "Capital Adequacy Regulation" means any guideline, request or
                ---------------------------
     directive of any central bank or other Governmental Authority, or any other
     law, rule or regulation, whether or not having the force of law, in each
     case, regarding capital adequacy of any bank or of any corporation
     controlling a bank.

               "Capitalized Lease Obligations" means any obligations under a
                -----------------------------
     lease that is required to be capitalized for financial reporting purposes
     in accordance with GAAP.

               "Closing Date" means the time and Banking Day on which the
                ------------
     conditions precedent specified in Section 11.21 are satisfied or waived as
                                       -------------
     provided therein, or shall be as otherwise specified in Section 11.21.
                                                             -------------

               "Co-Agent" means one or more of the Banks which are designated in
                --------
     writing by the Agent to serve as Co-Agent hereunder (subject to Section
                                                                     -------
     10.14 hereof).
     -----

               "Commitment" means, with respect to the Loans and each of the
                ----------
     Banks, the dollar amount and percentage obligation set forth on Schedule
                                                                     --------
     1.1 hereto.  As Banks are added to this Agreement, or withdraw from this
     ---
     Agreement, and assignments are made by the Banks, in accordance with
     Section 11.6 hereof, the amount of each Bank's Commitment shall change in
     ------------
     accordance with that Bank's Pro Rata Share of the Total Aggregate
     Commitments. The Assignment and Acceptances executed by the added Banks,
     and the records maintained by the Agent, shall be presumptive evidence of
     each Bank's Commitment, as each such Bank's Commitment may change from time
     to time in accordance with the terms of this Agreement. Each Bank's
     Commitment may also change in accordance with Section 3.10 hereof.
                                                   ------------

               "Company" means Standard Pacific Corp., a Delaware corporation,
                -------
     and its successors and assigns.

               "Completed Unit" means a Unit as to which either (or both) of the
                --------------
     following has occurred: (a) a notice of completion has been filed or
     recorded in the appropriate real estate records, or (b) all necessary
     construction has been completed in order to obtain a certificate of
     occupancy (whether or not such certificate of occupancy has actually been
     obtained).

               "Consolidated Home Building Interest Expense" means for any
                -------------------------------------------
     period, without duplication, the aggregate amount of interest which, in
     accordance with GAAP, would be included on an income statement for the
     Company and consolidated subsidiaries (excluding the Excluded Subsidiaries)
     on a consolidated basis, whether expensed directly, or included as a
     component

                                      -6-
<PAGE>

     of cost of goods sold, or allocated to joint ventures, or otherwise
     (including, without limitation, imputed interest included on Capitalized
     Lease Obligations, all commissions, discounts, and other fees and charges
     owed with respect to letters of credit and bankers' acceptance financing,
     the net costs associated with Rate Hedging Obligations, amortization of
     other financing fees and expenses, the interest portion of any deferred
     payment obligation, amortization of discount or premium, if any, and all
     non-cash interest expense), excluding interest expense related to mortgage
     banking operations or any other financial services related subsidiary, plus
     the product of (i) cash dividends paid on any preferred stock of the
     Company, times (ii) a fraction, the numerator of which is one (1) and the
     denominator of which is one (1) minus the then current effective aggregate
     federal, state and local tax rate of the Company, expressed as a decimal.

               "Consolidated Home Building Interest Incurred" means for any
                --------------------------------------------
     period, without duplication, the aggregate amount of interest which, in
     conformity with GAAP, would be opposite the caption "interest expense" or
     any like caption on an income statement for the Company and consolidated
     Subsidiaries (excluding the Excluded Subsidiaries) or allocated to joint
     ventures, or otherwise (including without limitation imputed interest on
     Capitalized Lease Obligations, all commissions, discounts and other fees
     and charges owed with respect to letters of credit and bankers' acceptance
     financing, the net costs associated with Rate Hedging Obligations,
     amortization of other financing fees and expenses, the interest portion of
     any deferred payment obligation, amortization of discount or premiums, if
     any, and all other noncash interest expense) and, without duplication, all
     capitalized interest for such period, all interest attributable to
     discontinued operations for such period (excluding the Excluded
     Subsidiaries) to the extent not set forth on the income statement under the
     caption "interest expense" or any like caption, and all interest actually
     paid by the Company or any consolidated Subsidiary (excluding the Excluded
     Subsidiaries), excluding interest expense related to mortgage banking
     operations or any other financial services related subsidiary, plus the
     product of (i) cash dividends paid on any preferred stock of the Company,
     times (ii) a fraction, the numerator of which is one (1) and the
     denominator of which is one (1) minus the then current effective aggregate
     federal, state and local tax rate of the Company, expressed as a decimal.

               "Consolidated Home Building Net Income" means, for any period,
                -------------------------------------
     the net income (or loss) of the Company and its consolidated Subsidiaries
     (excluding the Excluded Subsidiaries), determined in accordance with GAAP.

               "Consolidated Tangible Net Worth" means, as of any time of
                -------------------------------
     determination, the sum of the following with respect to the Company and the

                                      -7-
<PAGE>

     consolidated Subsidiaries determined and consolidated in conformity with
     generally accepted accounting principles applied on a consistent basis:

                    (a)  the amount of stated capital (excluding the cost of
          treasury shares), additional paid-in capital and retained earnings
          (or, in the case of a deficit in additional paid-in capital or
          retained earnings, minus the amount of the deficit), minus
                             -----                             -----

                    (b)  the carrying value of intangible assets, such as
          deferred costs associated with goodwill, patents, franchises,
          organizational expenses and the like (but excluding receivables, pre-
                                                    ---------
          paid expenses, the capitalized value of leases and all costs that are
          specifically identifiable or are identifiable on a rational and
          consistent basis with the unexpired service value of tangible assets),
          and minus
          --- -----

                    (c)  any amounts which would otherwise be included in the
          calculation of Consolidated Tangible Net Worth under subparagraph (a)
          immediately above of this definition which pertain to or are
          attributable to the Company's or any consolidated Subsidiary's equity
          interest in any Home Building Joint Venture which is in default with
          respect to the payment of any monetary obligations owing under any
          land loan, acquisition and development loan, construction loan,
          secured or unsecured credit facility, or any other loan or
          indebtedness for borrowed money.

               "Designated Market" means with respect to any LIBOR Borrowing,
                -----------------
     the London interbank LIBOR market or such other interbank LIBOR market as
     may be designated in writing from time to time by the Agent.

               "Documentation Agent" means one of the Banks which is designated
                -------------------
     in writing by Agent to serve as Documentation Agent hereunder (subject to
     Section 10.14 hereof).
     -------------

               "Dollars" or "$" means United States dollars.
                -------      -

               "Eligible Assignee" means (i) a commercial bank organized under
                -----------------
     the laws of the United States, or any state thereof, and having a combined
     capital and surplus of at least $100,000,000, (ii) a commercial bank
     organized under the laws of any other country which is a member of the
     Organization for Economic Cooperation and Development (the "OECD"), or a
     political subdivision of any such country, and having a combined capital
     and surplus of at least $100,000,000, provided that such bank is acting
     through a branch or agency located in the United States, and (iii) a Person
     that is primarily engaged

                                      -8-
<PAGE>

     in the business of commercial banking and that is (A) a Subsidiary of a
     Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C)
     a Person of which a Bank is a Subsidiary.

               "Entitled Land" means (a) land where all requisite zoning
                -------------
     requirements and land use requirements have been satisfied, and all
     requisite approvals have been obtained from all applicable Governmental
     Authorities (other than approvals which are simply ministerial and non-
     discretionary in nature), in order to develop the land as a residential
     housing project and construct Units thereon, and (b) as to land located in
     California, land which satisfies the requirements of subparagraph (a)
     immediately above, and which is subject to a currently effective vesting
                        ---
     tentative map (unless a county or city where the land is located does not
     grant vesting tentative maps) which has received all necessary approvals by
     all applicable Governmental Authorities.

               "ERISA" means the Employee Retirement Income Security Act of
                -----
     1974, and any regulations issued pursuant thereto, as now or from time to
     time hereafter in effect.

               "Escrow Proceeds Receivable" means funds due to the Company held
                --------------------------
     at an escrow company following the sale and conveyance of title of a Unit
     to a buyer.

               "Events of Default" has the meaning set forth for that term in
                -----------------
     Section 9.1.
     -----------

               "Excluded Subsidiaries" means, collectively, Standard Pacific
                ---------------------
     Financing, Inc., Family Lending Services, Inc. (including any Subsidiaries
     thereof) and Standard Pacific Financing, L.P.

               "Extension Request" means a written request from the Company to
                -----------------
     extend the Maturity Date pursuant to Section 4.18.
                                          ------------

               "Family Lending Services, Inc." or "FLS" means Family Lending
                -----------------------------      ---
     Services, Inc., a Delaware corporation.

               "FDIC" means the Federal Deposit Insurance Corporation, and any
                ----
     Governmental Authority succeeding to any of its principal functions.

               "Federal Funds Rate" means, for any day, the rate set forth in
                ------------------
     the weekly statistical release designated as H.15(519), or any successor
     publication, published by the Federal Reserve Bank of New York (including
     any such successor, "H.15(519)") on the preceding Banking Day opposite the
     caption

                                      -9-
<PAGE>

     "Federal Funds (Effective)"; or, if for any relevant day such rate is not
     so published on any such preceding Banking Day, the rate for such day will
     be the arithmetic mean as determined by the Agent of the rates for the last
     transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
     York City time) on that day by each of three leading brokers of Federal
     funds transactions in New York City selected by the Agent.

               "Finished Lots" means lots of Entitled Land as to which offsite
                -------------
     construction has been substantially completed, utilities and all major
     infrastructure have been stubbed to the site, and building permits may be
     promptly pulled by the Company without the satisfaction of any further
     material conditions.

               "Fixed Rate Option Requests" means the combined number of LIBOR
                --------------------------
     Borrowings made in any specified period of time.

               "FRB" means the Board of Governors of the Federal Reserve System,
                ---
     and any Governmental Authority succeeding to any of its principal
     functions.

               "GAAP" means generally accepted accounting principals.
                ----

               "GAAP Value" means, with respect each property constituting part
                ----------
     of the Company's Real Estate Inventory, the GAAP basis asset value for such
     property or asset.

               "Government Securities" means readily marketable direct
                ---------------------
     obligations of the United States of America or obligations fully guaranteed
     by the United States of America.

               "Governmental Authority" means any nation or government, any
                ----------------------
     state or other political subdivision thereof, any central bank (or similar
     monetary or regulatory authority) thereof, any entity exercising executive,
     legislative, judicial, regulatory or administrative functions of or
     pertaining to government, and any corporation or other entity owned or
     controlled, through stock or capital ownership or otherwise, by any of the
     foregoing.

               "Guarantor" means, collectively, Standard Pacific of Texas, Inc.,
                ---------
     a Delaware corporation, Standard Pacific of Orange County, Inc., a Nevada
     corporation, Standard Pacific of Fullerton, Inc., a Nevada corporation,
     Standard Pacific of Arizona, Inc., a Delaware corporation, Standard Pacific
     Construction, Inc., a Delaware corporation, and The Writer Corporation, a
     Delaware corporation, and each other Person that from time to time executes
     a Guaranty

                                      -10-
<PAGE>

     in favor of the Banks with respect to the Loans, and their successors and
     assigns.

               "Guaranty" means a continuing guaranty, substantially in the form
                --------
     of Exhibit "E" attached hereto, either as originally executed or as it may
        -----------
     from time to time be supplemented, modified, amended, restated or extended,
     to be executed and delivered by a Guarantor to the Agent for the benefit of
     the
     Banks.

               "Guaranty of the Subsidiary Letters of Credit" means a guaranty
                --------------------------------------------
     of the Company guaranteeing all indebtedness and obligations arising under
     or relating to the Subsidiary Letters of Credit, substantially in the form
     of Exhibit "J" hereto.
        -----------

               "Home Building Debt" means, as of any time of determination, the
                ------------------
     sum of the following amounts without duplication: (a) all indebtedness,
     liabilities and other obligations of the Company and its consolidated
     Subsidiaries (excluding accounts payable and other non-interest bearing
     accruals of the Company and its consolidated Subsidiaries, and excluding
     all indebtedness, liabilities and other obligations of the Excluded
     Subsidiaries) that, in conformity with generally accepted accounting
     principles applied on a consistent basis, should be included in determining
     total liabilities shown on the liability side of a consolidated balance
     sheet of the Company and the consolidated Subsidiaries, (b) all recourse
     indebtedness for borrowed money of any partnership in which the Company or
     a consolidated Subsidiary is a general partner, (c) all letter of credit
     reimbursement obligations of the Company and any consolidated Subsidiary
     with respect to letters of credit which guaranty or act as credit support
     for the payment of monetary obligations, and (d) all guaranties by the
     Company or a consolidated Subsidiary of indebtedness for borrowed money of
     another Person; provided, however, that in the case of any loan to value
     maintenance agreement (or similar agreement) by which the Company or a
     consolidated Subsidiary agrees to maintain for a joint venture a minimum
     ratio of indebtedness outstanding to value of collateral property, only
     amounts owing by the Company or a consolidated Subsidiary at the time of
     determination (or which would be owing upon the demand of the lender) will
     be included in Home Building Debt.

               "Home Building EBITDA" means, for any period, without
                --------------------
     duplication, (a) the sum of the following amounts attributable to such
     period: (i) Consolidated Home Building Net Income, (ii) Consolidated Home
     Building Interest Expense, (iii) charges against income for all federal,
     state and local taxes, (iv) depreciation expense, (v) amortization expense,
     (vi) other non-cash charges and expenses (including non-cash charges
     resulting from accounting

                                      -11-
<PAGE>

     changes), and (vii) any losses arising outside of the ordinary course of
     business which have been included in the determination of Consolidated Home
     Building Net Income, less (b) any gains arising outside the ordinary course
     of business which have been included in the determination of Consolidated
     Home Building Net Income, all as determined on a consolidated basis for the
     Company and consolidated Subsidiaries (excluding the Excluded Subsidiaries)
     less (c) net income (determined in accordance with GAAP) of any Person
     (other than a consolidated Subsidiary) in which the Company or one of its
     consolidated Subsidiary's has a joint interest with a third party (to the
     extent of their interest in such net income), plus (d) net losses
     (determined in accordance with GAAP) of and dividends, distributions or
     other cash returns of previously recognized income from any Person (other
     than a consolidated Subsidiary) in which the Company or one of its
     consolidated Subsidiary's has a joint interest with a third party.

               "Home Building Joint Venture" means any Person in which the
                ---------------------------
     Company or any of its Subsidiaries has an ownership interest, but not more
     than a 50% ownership interest (or if more than a 50% ownership interest in
     such Person is held by the Company or any of its Subsidiaries, the results
     of such Person's operations are not consolidated, in accordance with GAAP,
     with the results of the Company's operations for financial reporting
     purposes), that was formed for and is engaged in homebuilding operations.

               "Interest Coverage Ratio" has the meaning set forth in Section
                -----------------------                               -------
     8.3.
     ---

               "Interest Differential" means, with respect to any prepayment or
                ---------------------
     redesignation of a LIBOR Rate Loan on a day other than the last day of the
     applicable LIBOR Period and with respect to any failure to borrow a LIBOR
     Rate Loan on the date or in the amount specified in any Request for
     Borrowing or any Request for Redesignation of Borrowing, (a) the LIBOR Rate
     applicable to (or, with respect to a failure to borrow, the LIBOR Rate
     which would have been applicable to) the LIBOR Rate Loan minus (b) the
                                                              -----
     LIBOR Rate on, or as near as practicable to the date of, the prepayment or
     failure to borrow for a LIBOR Rate Loan with a LIBOR Period commencing on
     such date and ending on the last day of the LIBOR Period of the LIBOR
     Borrowing so prepaid or which would have been borrowed on such date.  The
     determination of the Interest Differential by the Agent shall be conclusive
     in the absence of manifest error.

               "Interest Payment Date" means the first day of any month.
                ---------------------

               "Investment" means any net investment by the Company or any
                ----------
     Subsidiary in any joint venture, partnership, corporation, limited
     liability

                                      -12-
<PAGE>

     company or other entity, whether by acquisition of stock or debt, or by
     loan (or other extension of credit), advance, transfer of property out of
     the ordinary course of business, capital contribution, payment pursuant to
     a guaranty or any other contingent liability of the Company in respect of
     liabilities of such entity, or otherwise.

               "Issuing Bank" means BofA in its individual capacity as a bank
                ------------
     issuing Letters of Credit under this Agreement.

               "Judgment Liens" means any judgment liens, attachment liens, or
                --------------
     any other liens which secure a judgment or any other obligations imposed by
     court order or other directive of a court.

               "Laws" means, collectively, all international, foreign, federal,
                ----
     state and local statutes, treaties, rules, regulations, ordinances, codes
     and administrative or judicial precedents.

               "L/C Application" has the meaning set forth in Section 3.9.3.
                ---------------                               -------------

               "L/C Commitment" has the meaning set forth in Section 3.9.1.
                --------------                               -------------

               "L/C Commitment Termination Date" has the meaning set forth in
                -------------------------------
     Section 3.9.1.
     -------------

               "L/C Obligations" has the meaning set forth in Section 3.9.1.
                ---------------                               -------------

               "Lending Office" means, as to each Bank, the office located at
                --------------
     the address for notices specified for such Bank on the signature pages
     hereof.

               "Letters of Credit" has the meaning set forth in Section
                -----------------                               -------
     3.9.2(a).

               "Letter of Credit Subsidiaries" has the meaning set forth in
                -----------------------------
     Section 3.9.6.
     -------------

               "LIBOR Banking Day" means any Banking Day on which banks are open
                -----------------
     for business (including with respect to dealings between banks in United
     States Dollar deposits) in the Designated Market.

               "LIBOR Base Rate" means the offered rate (determined solely by
                ---------------
     the Agent) for a period of time comparable to the number of days in the
     applicable LIBOR Period for deposits in United States Dollars, as shown on
     Telerate Page 3750 as of approximately 11:00 a.m., London time, on the
     first LIBOR Banking Day after the Agent receives the Company's Request for

                                      -13-
<PAGE>

     Borrowing; or if Telerate Page 3750 is unavailable, the rate for such
     deposits determined by the Agent at such time based on such other published
     service of general application as shall be selected by the Agent for such
     purpose. The determination of the LIBOR Base Rate by the Agent shall be
     conclusive in the absence of manifest error. "Telerate Page 3750" means the
     display designated as such on Teleratesystem Incorporated (or such other
     page as may replace page 3750 on that service for the purpose of displaying
     London interbank offered rates of major banks for United States Dollar
     deposits).

               "LIBOR Borrowing" means any Loan or portion thereof designated or
                ---------------
     redesignated by the Company as a LIBOR Borrowing pursuant to Article 3.

               "LIBOR Lending Office" means the office or branch of each Bank so
                --------------------
     designated on the signature pages of this Agreement, or such other office
     or branch of each Bank as it may hereafter designate, by written notice to
     the Company and the Agent, as its LIBOR Lending Office.

               "LIBOR Period" means, as to each LIBOR Borrowing, the period
                ------------
     commencing on the date specified in the applicable Request for Borrowing or
     Request for Redesignation of Borrowing by the Company pursuant to Sections
                                                                       --------
     3.3 or 3.4 and ending 7 days, one month, two months, three months, six
     ---    ---
     months, nine months or twelve months thereafter, as designated by the
     Company in the applicable Request for Borrowing or Request for
     Redesignation of Borrowing, provided that:
                                 --------

                    (a)  the first day in any LIBOR Period shall be a LIBOR
          Banking Day;

                    (b)  any LIBOR Period that would otherwise end on a day that
          is not a LIBOR Banking Day shall be extended to the next succeeding
          LIBOR Banking Day unless such LIBOR Banking Day falls in another
                            ------
          calendar month, in which case such LIBOR Period shall end on the next
          preceding LIBOR Banking Day; and

                    (c)  No LIBOR Period shall extend beyond the Maturity Date.

               "LIBOR Rate" means, for any LIBOR Period for any LIBOR Borrowing,
                ----------
     the rate (rounded upward, if necessary, to the next 1/100 of 1%) obtained
     by dividing (i) the LIBOR Base Rate for such LIBOR Period, by (ii) a
     percentage equal to 100% minus the LIBOR Reserve Percentage for such LIBOR
     Period.

                                      -14-
<PAGE>

               "LIBOR Rate Spread" means the additional component of interest,
                -----------------
     expressed as a percentage per annum, to be added to the LIBOR Rate in
     determining the applicable rate of interest for LIBOR Borrowings. The
     applicable LIBOR Rate Spread shall be based on the Company's current senior
     long term debt ratings as published by Standard & Poors and Moody's
     Investor Services as determined by the following pricing grid:

          S&P/Moody's Rating                      Applicable LIBOR Rate Spread
          ------------------                      ----------------------------
               (less than) BB+/Ba1                          1.275%
               -----------
               = BB/Ba2                                     1.400%
               = BB-/Ba3                                    1.525%
               (greater than) BB-/Ba3 (or unrated)          1.950%

     In the event of a difference in rating between Standard & Poors and Moody's
     Investor Services, the lower rating shall prevail for purposes of
     determining the applicable LIBOR Rate Spread.  As of the date of this
     Agreement, the Company is currently rated BB/Ba2 by Standard & Poors and
     Moody's Investor Services, respectively, and the applicable LIBOR Rate
     Spread for the Loans as of the date of this Agreement is therefore 1.4%.

               "LIBOR Reserve Percentage" means the total of the maximum reserve
                ------------------------
     percentages for determining the reserves to be maintained by member banks
     of the Federal Reserve System for Eurocurrency Liabilities, as defined in
     Regulation D.  The Reserve Percentage shall be expressed as a decimal and
     rounded upward, if necessary, to the nearest 1/100th of one percent, and
     shall include marginal, emergency, supplemental, special and other reserve
     percentages.

               "Loan" or "Loans" means each of the loans and Borrowings under
                ----      -----
     this Agreement.

               "Loan Documents" means, collectively, this Agreement, each Note,
                --------------
     the Guaranty and the Guaranty of the Subsidiary Letters of Credit.

               "Lots Under Development" means (a) Entitled Land where physical
                ----------------------
     site improvement has commenced and is continuing, and (b)Finished Lots.

               "Majority Banks" means, at any time, if BofA is the only Bank,
                --------------
     BofA, and, if there is more than one Bank, at least two Banks then holding
     in excess of 66-2/3% of the then aggregate unpaid principal amount of the
     Loans,

                                      -15-
<PAGE>

     or, if no such principal amount is then outstanding, at least two Banks
     then having in excess of 66-2/3% of the Total Aggregate Commitment.

               "Mandatory Joint Venture Lot Purchase Obligations" means, at any
                ------------------------------------------------
     time, the aggregate dollar amount of all obligations (based on the purchase
     prices of the lots) of the Company and its Subsidiaries to purchase lots
     (whether finished lots or lots under development) from any partnership,
     joint venture, limited liability company or similar entity in which the
     Company or any Subsidiary is a partner, venturer or member, but in the case
     of each such entity, only to the extent of indebtedness for borrowed money
     of such entity.

               "Material" means, in connection with the Company, its
                --------
     Subsidiaries, and the Loans and the Loan Documents, such circumstances or
     facts which the Banks in the exercise of their discretion could reasonably
     be expected to rely upon in determining whether to enter into or to
     continue lending under this Agreement or which could reasonably be expected
     to have a bearing on any actions undertaken by the Banks. Such Material
     circumstances or facts shall include, without limitation, such
     circumstances or facts as would materially alter, enlarge, restrict or
     otherwise affect the rights and liabilities otherwise existing between the
     parties to the Agreement or any other Loan Document.

               "Maturity Date" means July 31, 2004, subject to possible
                -------------
     extension pursuant to Section 4.18 (other than with respect to a Note held
                           ------------
     by a Bank which does not extend the maturity date of such Note pursuant to
     Section 4.18, in which case the applicable Maturity Date for such Note held
     ------------
     by such non-renewing Bank shall be the Non-Renewing Bank Loan Maturity
     Date).

               "Maximum Eligible Subordinated Debt" means Subordinated Debt in
                ----------------------------------
     an amount not to exceed the lesser of (a) 50% of all Subordinated Debt, or
     (b) the lesser of (i) 25% of Consolidated Tangible Net Worth (without any
     credit for any Subordinated Debt), or (ii) $100,000,000.00; provided, that
                                                                 --------
     in no event may any Subordinated Debt which becomes payable within 12
     months (of the then current date) be part of the Maximum Eligible
     Subordinated Debt.

               "Measurement Period" has the meaning set forth in Section 8.3.
                ------------------                               -----------

               "Model Unit" means a Completed Unit to be used as a model home in
                ----------
     connection with the sale of Units in a residential housing project.

               "Non-Renewing Bank Loan Maturity Date" means the maturity date of
                ------------------------------------
     the Note held by a Bank which does not extend such maturity date in

                                      -16-
<PAGE>

     response to a request for such extension by the Company pursuant to Section
                                                                         -------
     4.18.
     ----

               "Non-Wholly Owned Subsidiary" means a Subsidiary, less than 100%
                ---------------------------
     of the capital stock of which (including voting and non-voting shares, but
     exclusive of directors' qualifying shares) is owned by the Company and its
     Subsidiaries (other than Non-Wholly Owned Subsidiaries).

               "Note" means each of the promissory notes, substantially in the
                ----
     form of Exhibit "A" attached hereto and made a part hereof, executed by the
             -----------
     Company in favor of the Banks, each to the order of the applicable Bank as
     payee to evidence such Bank's share of the Loans, and each in the original
     principal amount of the applicable Bank's Commitment such that the
     aggregate original principal amount of all Notes is initially $450,000,000
     (subject to possible increase as specified in Section 3.10); as originally
                                                   ------------
     executed or as the same may from time to time be supplemented, modified,
     amended, renewed, extended or refinanced (and any promissory note that may
     be issued in substitution or exchange therefor).

               "Obligations" means all obligations of every nature of the
                -----------
     Company from time to time owed to the Banks under the Loan Documents.

               "Opinion of Counsel" means the favorable written legal opinion of
                ------------------
     Clay A. Halvorsen, as counsel to the Company and the Subsidiaries, to this
     Agreement, substantially in the form of Exhibit "G" attached hereto,
                                             -----------
     together with copies of all factual certificates and legal opinions upon
     which such counsel has relied.

               "Other Taxes" means any present or future stamp or documentary
                -----------
     taxes or any other excise or property taxes, charges or similar levies
     which arise from any payment made hereunder or from the execution, delivery
     or registration of, or otherwise with respect to, this Agreement or any
     other Loan Documents.

               "Participant" shall have the meaning set forth in Section 11.6.
                -----------                                      ------------

               "Person" means any entity, whether an individual, trustee,
                ------
     corporation, general partnership, limited partnership, limited liability
     company, joint stock company, trust, unincorporated organization, bank,
     business association, firm, joint venture, Governmental Authority or
     otherwise.

                                      -17-
<PAGE>

               "Plan" means any employee benefit plan subject to ERISA and
                ----
     maintained by the Company and/or any Subsidiary or to which the Company
     and/or any Subsidiary is required to contribute on behalf of its employees.

               "Prime Rate" means on any day, the rate of interest per annum
                ----------
     then most recently established by BofA as its "prime rate." Any such rate
     is a general reference rate of interest, may not be related to any other
     rate, and may not be the lowest or best rate actually charged by BofA to
     any customer or a favored rate and may not correspond with future increases
     or decreases in interest rates charged by other lenders or market rates in
     general, and BofA may make various business or other loans at rates of
     interest having no relationship to such rate. If BofA ceases to exist or to
     establish or publish a prime rate from which the Prime Rate is then
     determined, the applicable variable rate from which the Prime Rate is
     determined thereafter shall be instead the prime rate reported in The Wall
                                                                       --------
     Street Journal (or the average prime rate if a high and a low prime rate
     --------------
     are therein reported), and the Prime Rate shall change without notice with
     each change in such prime rate as of the date such change is reported. If
     The Wall Street Journal does not then or ceases to report such a prime
     -----------------------
     rate, the Prime Rate shall thereafter be determined by such alternate
     method as may be reasonably selected by Agent.

               "Pro Rata Share" means, as to any Bank at any time, the
                --------------
     percentage equivalent (expressed as a decimal, rounded to the ninth decimal
     place as determined by the Agent) at such time of such Bank's Commitment
     divided by the Total Aggregate Commitment.

               "Project Financing Liens" means any deeds of trust, mortgages, or
                -----------------------
     any other liens which secure any real property acquisition loans,
     development loans, construction loans, or any other loans pertaining to the
     acquisition and/or development of, or construction of improvements upon,
     real property, but excluding any lien referenced in Sections 8.12(d), (e)
                                                         ----------------  ---
     or (g).
        ---

               "Rate Hedging Obligations" means, for any Person, the net
                ------------------------
     obligations of such Person pursuant to any interest rate hedging agreement
     or any foreign exchange contract, currency swap agreement or other similar
     agreement to which such Person is a party or a beneficiary.

               "Real Estate Inventory" means Unentitled Land, Entitled Land,
                ---------------------
     Lots Under Development, Units Under Construction, and Completed Units
     (including Model Units) owned by the Company.

                                      -18-
<PAGE>

               "Reference Rate" means the higher of:
                --------------

                    (a)  the Prime Rate; and

                    (b)  0.50% per annum above the latest Federal Funds Rate.

     Any change in the Reference Rate shall take effect on the day specified in
     the public announcement of such change.

               "Reference Rate Borrowing" means any Loan or portion thereof
                ------------------------
     which is not designated or redesignated by the Company as a LIBOR Borrowing
     pursuant to Sections 3.3 or 3.4.
                 ------------    ---

               "Reference Rate Spread" means the additional component of
                ---------------------
     interest, expressed as a percentage per annum, to be added to the Reference
     Rate in determining the applicable rate of interest for Reference Rate
     Borrowings. For the period beginning on the Closing Date and continuing
     through the entire term of the Loans, the Reference Rate Spread shall be
     equal to 0.00%.

               "Regulation D" means Regulation D of the Board of Governors of
                ------------
     the Federal Reserve System as now or from time to time hereafter in effect
     and any other regulation issued in substitution therefor.

               "Request for Borrowing" means a written request for a Borrowing
                ---------------------
     substantially in the form of Exhibit "C" attached hereto, signed by a
                                  -----------
     Responsible Official of the Company and properly completed to provide all
     information required to be included thereon.

               "Request for Letter of Credit" means a written request for a
                ----------------------------
     Letter of Credit substantially in the form of Exhibit "C" attached hereto,
                                                   -----------
     signed by a Responsible Official of the Company and properly completed to
     provide all information required to be included thereon.

               "Request for Redesignation of Borrowing" means a written request
                --------------------------------------
     for redesignation of Borrowing substantially in the form of Exhibit "C"
                                                                 -----------
     attached hereto, signed by a Responsible Official of the Company and
     properly completed to provide all information required to be included
     thereon.

               "Requirement of Law" means, as to any Person, any law (statutory
                ------------------
     or common), treaty, rule or regulation or determination of an arbitrator or
     of a

                                      -19-
<PAGE>

     Governmental Authority, in each case applicable to or binding upon the
     Person or any of its property or to which the 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 another Person shall be conclusively presumed to
     have been authorized by all necessary corporate, partnership and/or other
     action on the part of such other Person.

               "Seller Nonrecourse Debt" means indebtedness which satisfies all
                -----------------------
     of the following criteria:  (a) such indebtedness is incurred by the
     Company or a Subsidiary in connection with its purchase of one or more
     parcels of Real Estate Inventory (the "Purchased Property"), and such
     indebtedness constitutes the unpaid portion of the purchase price of the
     Purchased Property, (b) such indebtedness is evidenced by a promissory note
     or other repayment agreement which is secured by a deed of trust, mortgage
     or similar lien on the Purchased Property, and (c) such indebtedness is by
     its terms, or by operation of law, nonrecourse to the Company and its
     Affiliates.

               "Senior Debt" means, at any time of determination thereof, all
                -----------
     indebtedness with respect to (i) the Loans and L/C Obligations, (ii) the
     8.5% senior promissory notes, due June 15, 2007, the 8.0% senior promissory
     notes, due February 15, 2008, and the 8.5% senior promissory notes due
     April 1, 2009, except to the extent (in any case) that they would not be
     included in the Company's balance sheet in accordance with GAAP, (iii) any
     other senior indebtedness of the Company to any Banks, and (iv) such other
     indebtedness for borrowed money senior to or ranking in equal priority to
     the Obligations.

               "Special Circumstance" means the adoption of any Law or
                --------------------
     interpretation, or any change therein or thereof, or any change in the
     interpretation, administration or application thereof by any Governmental
     Authority, central bank or comparable authority, or compliance by the Banks
     or their LIBOR Lending Offices with any request or directive (whether or
     not having the force of Law) of any Governmental Authority, central bank or
     comparable authority, or the occurrence of circumstances affecting the
     applicable certificate of deposit market or London interbank eurodollar
     market generally which are beyond the reasonable control of the Banks.

                                      -20-
<PAGE>

               "Subordinated Debt" means such indebtedness of the Company as is
                -----------------
     fully subordinated to the Obligations pursuant to a subordination agreement
     approved in writing by the Majority Banks, and as to which the Agent has
     received a legal opinion, in form and substance satisfactory to the Agent,
     confirming the subordinate status of such indebtedness in relation to the
     Obligations.

               "Subsidiary" means (i) any corporation of which at least a
                ----------
     majority of the outstanding securities of any class or classes (however
     designated) having ordinary voting power to elect directors of the
     corporation is owned by the Company and/or by one or more than one other
     Subsidiary, and (ii) any partnership, joint venture or limited liability
     company in which the Company and/or any Subsidiary owns at least a majority
     interest and over which the Company and/or any Subsidiary exercises a
     degree of control sufficient to require the consolidation under GAAP of the
     results of operations of such Person with the results of operations of the
     Company for financial reporting purposes.

               "Subsidiary Letters of Credit" has the meaning set forth in
                ----------------------------
     Section 3.9.6.
     -------------

               "Swing Line Advances" means Borrowings initially funded by BofA
                -------------------
     in the manner provided in Section 3.1(h).
                               --------------

               "Syndication Agent" means one of the Banks which is designated in
                -----------------
     writing by the Agent to serve as Syndication Agent hereunder (subject to
     Section 10.14 hereof).
     -------------

               "Taxes" means any and all present or future taxes, levies,
                -----
     imposts, deductions, charges or withholdings, and all liabilities with
     respect thereto, excluding, in the case of each Bank and the Agent, such
     taxes (including income taxes or franchise taxes) as are imposed on or
     measured by each Bank's net income.

               "Total Aggregate Commitment" means the total aggregate combined
                --------------------------
     Commitments of the Banks. The Total Aggregate Commitment currently equals
     $450,000,000, and may increase as provided in Section 3.10 or decrease as
                                                   ------------
     provided in Section 4.18.
                 ------------

               "Total Borrowing Base Home Building Indebtedness" means the
                -----------------------------------------------
     aggregate of all Senior Debt, plus all reimbursement obligations and other
                                   ----
     obligations under any and all letters of credit related to the Company's
     home building operations, plus all unsecured obligations (excluding any
                               ----
     trade

                                      -21-
<PAGE>

     payables incurred in the ordinary course of business) of partnerships or
     joint ventures in which the Company is a general partner, or otherwise
     liable, plus the amount of all guaranties, suretyship agreements, or
             ----
     similar agreements in which the Company agrees to answer for the
     indebtedness or other financial obligations of another person or entity,
     plus all unsecured indebtedness of the Company which is subordinate to the
     ----
     Obligations. "Total Borrowing Base Home Building Indebtedness" shall not
                                                                          ---
     include indebtedness which is fully secured by real property or
     indebtedness which by its terms is non-recourse to the Company.

               "Unencumbered Real Estate Inventory" means Real Estate Inventory
                ----------------------------------
     which is not subject to or encumbered by any deed of trust, mortgage,
     judgment lien, attachment lien or any other lien (other than liens which
     have been bonded around so as to remove such liens as encumbrances against
     the Real Estate Inventory in a manner satisfactory to the Agent and its
     legal counsel, or liens which are permitted under Section 8.12(b) or
                                                       ---------------
     Section 8.12(c)).
     ---------------

               "Unentitled Land" means all land which is not Entitled Land.
                ---------------

               "Unit" means single family residential housing units.
                ----

               "Units Under Construction" means Units where on-site construction
                ------------------------
     has commenced as evidenced by the trenching of foundations for such Units.

               "Voting Stock" means any class or classes of securities having
                ------------
     voting power to elect the directors of a corporation.

          1.2  Use of Defined Terms.  Any defined term used in the plural shall
               --------------------
refer to all members of the relevant class, and any defined term used in the
singular shall refer to any of the members of the relevant class.

          1.3  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 applied on a consistent basis.

          1.4  Exhibits.  All exhibits to this Agreement, either as now existing
               --------
or as the same may from time to time be supplemented, modified or amended, are
incorporated herein by this reference.

                                      -22-
<PAGE>

ARTICLE 2: RECITALS.
           --------

          This Agreement is made with reference to the following facts:

               (a)  The Company is primarily engaged in the business of
     developing residential single-family housing projects.

               (b)  The Company has applied to the Banks for the Loans (i) to
     finance or refinance the acquisition of land and the development and
     construction of various residential single-family housing projects in
     California, Texas, Arizona and Colorado, (ii) to finance the expansion and
     growth of the business of the Company, and (iii) for general corporate
     purposes.

               (c)  The Banks are willing to make the Loans to the Company on
     the terms and conditions set forth in this Agreement and in the other Loan
     Documents.

ARTICLE 3: BORROWING PROCEDURES, BORROWING BASE, LETTER OF CREDIT SUBLIMIT, AND
           --------------------------------------------------------------------
           POSSIBLE INCREASE IN TOTAL AGGREGATE COMMITMENT.
           -----------------------------------------------

          3.1  Disbursement of Loan Proceeds.
               -----------------------------

               (a)  Subject to the terms and conditions set forth in this
     Agreement, at any time and from time to time from the Closing Date through
     the Banking Day immediately preceding the Maturity Date (or, in the case of
     a non-renewing Bank under Section 4.18, the Non-Renewing Bank Loan Maturity
                               ------------
     Date), each Bank shall, according to its Pro Rata Share, make Loans to the
     Company in such amounts as the Company may request that do not exceed in
     the aggregate at any one time outstanding, the Commitment of such Bank
     (less the Pro Rata Share of such Bank's L/C Obligations, if any). Subject
      ----
     to the limitations set forth herein, the Company may borrow, repay and
     reborrow under each Bank's Commitment without premium or penalty. In no
     event shall the Banks be obligated to make Loans to the Company at any time
     if, after giving effect to such Loans, the provisions of Section 3.6 would
                                                              -----------
     be violated.

               (b)  Unless the Agent otherwise consents, the aggregate amount of
     each LIBOR Borrowing shall be in an integral multiple of $100,000, but not
     less than $1,500,000, and the aggregate amount of each Reference Rate
     Borrowing shall be in an integral multiple of $10,000, but not less than
     $100,000.

                                      -23-
<PAGE>

               (c)  The Loans made by the Banks pursuant to this Agreement shall
     be evidenced by each Note.

               (d)  A Request for Borrowing shall be irrevocable upon receipt by
     the Agent. The Agent shall not be bound by any preliminary information that
     it may give the Company concerning a particular LIBOR Rate before it
     delivers the binding LIBOR Rate notice in accordance with Section 3.3(b)
                                                               --------------
     below.

               (e)  Unless the Agent otherwise consents, no more than ten (10)
     LIBOR Borrowings in the aggregate shall be outstanding at any one time;
     provided, however, up to twelve (12) LIBOR Borrowings in the aggregate may
     --------  -------
     be outstanding if the Company pays to the Agent an additional fee of $250
     per LIBOR Borrowing with each Request for Borrowing after the tenth (10th)
     such request.

               (f)  The Agent will notify each Bank of its receipt of a Request
     for Borrowing and of the amount of such Bank's Pro Rata Share of that
     Borrowing by 11:00 a.m. (California time) on the date of timely receipt of
     a Request for Borrowing by the Company.

               (g)  Each Bank will make the amount of its Pro Rata Share of each
     Borrowing available to the Agent for the account of the Company at the
     Agent's payment office (described on the signature page hereof) by 11:00
     a.m. (California time) on the date of such Borrowing requested by the
     Company in funds immediately available to the Agent. Subject to the
     provisions of Section 3.7, the proceeds of all such Loans will then be made
                   -----------
     available to the Company by the Agent by wire transfer in accordance with
     written instructions provided to the Agent by the Company of like funds as
     received by the Agent.

               (h)  The following procedures shall apply to Swing Line Advances:

                    (i)   Not later than 2:00 p.m., California time, on the
          Banking Day on which a proposed Swing Line Advance is to be made, BofA
          must have received in writing a request that a Swing Line Advance be
          made on that Banking Day, stating that such Advance shall be a Swing
          Line Advance, and stating the amount of the requested Swing Line
          Advance.

                    (ii)  Upon fulfillment of each of the applicable conditions
          in Article 6 and the condition that the aggregate amount of
          outstanding Swing Line Advances at no time exceeds $30,000,000, BofA

                                      -24-
<PAGE>

          shall credit to the Account, from BofA's funds, the amount of the
          requested Swing Line Advance.

                    (iii)  Prior to 9:00 a.m., California time, on the Banking
          Day following the Banking Day on which a Swing Line Advance is made,
          BofA shall inform each Bank by telephone, telecopier or telex stating
          (x) the date of the Swing Line Advance, (y) the amount of the Swing
          Line Advance, and (z) that BofA assumes that no Event of Default has
          occurred.  BofA may assume that no Event of Default has occurred
          unless it has actual notice of the Event of Default, has received
          notice from the Company stating the nature of the Event of Default, or
          has received notice from a Bank stating the nature of the Event of
          Default and that such Bank considers the Event of Default to have
          occurred.

                    (iv)   Each Bank shall deliver to the Agent (for the benefit
          of BofA) before 12:00 noon, California time, on the Banking Day on
          which notice has been sent to such Bank under Section 3.1(h)(iii)
                                                        -------------------
          immediately above informing such Bank of a Swing Line Advance,
          immediately available funds in an amount equal to such Bank's Pro Rata
          Share of such Swing Line Advance. The Agent shall pay all such amounts
          received to BofA, which shall immediately apply such amounts to such
          Swing Line Advance. The obligation of each Bank to make any
          disbursement to the Agent shall be subject to the condition that such
          Bank shall have been informed by BofA as described in Section
                                                                -------
          3.1(h)(iii) above, and BofA has not elected to make a Swing Line
          -----------
          Advance with actual knowledge of an Event of Default. Except to the
          extent expressly set forth herein, the obligation of each Bank to make
          disbursements to the Agent pursuant to this Section 3.1(h)(iv) shall
                                                      ------------------
          be absolute and unconditional.

                    (v)    Upon the occurrence of any Event of Default, BofA
          shall have the option, which shall be exercisable by BofA in its sole
          discretion, to sell and transfer to each Bank, pursuant to the terms
          and conditions set forth herein, an undivided interest and
          participation, to the extent of such Bank's Pro Rata Share, in all
          outstanding Swing Line Advances. Forthwith upon notice from BofA to
          the Banks that BofA has elected to exercise the option set forth in
          the immediately preceding sentence, BofA shall be deemed irrevocably
          and unconditionally to have sold and transferred to each Bank without
          recourse and, each Bank shall have deemed to have irrevocably and
          unconditionally purchased and received, an undivided interest and
          participation, to the extent of such Bank's Pro Rata Share, in all
          outstanding Swing Line Advances. Each Bank shall promptly (and in any
          event within two Banking Days) pay to

                                      -25-
<PAGE>

          the Agent (for the benefit of BofA) in immediately available funds an
          amount equal to such Bank's Pro Rata Share of the outstanding
          principal amount of such Swing Line Advances. The Agent shall pay all
          amounts received to BofA, which shall apply such amounts to such Swing
          Line Advances. Any amount payable to the Agent (for the benefit of
          BofA) pursuant to this Section 3.1(h)(v) and not paid within two
                                 -----------------
          Banking Days of the day on which notice of such payment received from
          the Agent shall bear interest until paid at the Reference Rate. If the
          Banks make any payment in respect of Swing Line Advances as
          contemplated by this Section 3.1(h)(v) and thereafter the Agent or
                               -----------------
          BofA receives a payment on account of any such Advance, the Agent or
          BofA, as appropriate, shall promptly pay to each Bank which funded its
          participation therein an amount equal to such Bank's Pro Rata Share
          thereof. The obligation of each Bank to make payments under this
          Section 3.1(h)(v) shall be unconditional and irrevocable and shall be
          -----------------
          made under all circumstances. If any payment received on account of
          any Swing Line Advance and distributed to a Bank as a participant
          under this Section 3.1(h)(v) is thereafter recovered from the Agent or
                     -----------------
          BofA in connection with any bankruptcy or insolvency proceeding
          relating to the Company or otherwise, each Bank which received such
          distribution shall, upon demand by the Agent, repay to the Agent or
          BofA, as applicable, such Bank's Pro Rata Share of the amount so
          recovered together with an amount equal to such Bank's Pro Rata Share
          (according to the proportion of (A) the total of such Bank's required
          repayment to (B) the total amount so recovered) of any interest or
          other amount paid or payable by the Agent or BofA in respect of the
          total amount so recovered.

                    (vi)   BofA shall not be obligated to make any Swing Line
          Advance pursuant to this Section 3.1(h) if the making of such Swing
                                   --------------
          Line Advance would result in an aggregate amount of Swing Line
          Advances which are outstanding and not reimbursed by the Banks
          pursuant to Section 3.1(h)(iv) in excess of $30,000,000.  Swing Line
                      ------------------
          Advances shall be considered Borrowings for all purposes hereunder
          (including conditions to disbursement but excluding the notice
          requirement of Section 3.2), subject only to the special reimbursement
                         -----------
          obligations of the Banks pursuant to this Section 3.1(h).  If BofA is
                                                    --------------
          excused from its obligation to make a requested Swing Line Advance by
          this Section 3.1(h)(vi), the Company shall still be entitled to obtain
               ------------------
          the requested Borrowing pursuant to the other provisions of Article 3,
          subject to the conditions applicable to such Borrowings.

          3.2  Reference Rate Borrowings.  All Loans shall at all times
               -------------------------
constitute Reference Rate Borrowings unless properly designated or redesignated
as

                                      -26-
<PAGE>

LIBOR Borrowings pursuant to Sections 3.3 or 3.4. Each request by the Company
                             ------------    ---
for a new Reference Rate Borrowing (except for Swing Line Advances) shall be
made pursuant to a Request for Borrowing received by the Agent, at the Agent's
office, not later than 9:00 a.m. California time, at least one Banking Day prior
to the date the Reference Rate Borrowing is to be funded to the Company. The
Agent will notify each Bank of its receipt of a Request for Borrowing in
accordance with Section 3.1(f).
                --------------

          3.3  LIBOR Borrowing.
               ---------------

               (a)  Each request by the Company for a LIBOR Borrowing shall be
     made pursuant to a Request for Borrowing received by the Agent, at the
     Agent's office, not later than 9:00 a.m., California time, at least two (2)
     LIBOR Banking Days (or three (3) if the LIBOR Borrowing is to be more than
     $15,000,000) before the first day of the applicable LIBOR Period. The Agent
     will notify each Bank of its receipt of a Request for Borrowing in
     accordance with Section 3.1(f).
                     --------------

               (b)  At or about 9:00 a.m., California time, one (1) LIBOR
     Banking Day after the LIBOR Banking Day on which Agent receives Borrower's
     Request for Borrowing, the Agent shall determine the applicable LIBOR Rate
     (which determination shall be conclusive in the absence of manifest error)
     and shall promptly give notice of the same to the Company and the Banks by
     telephone, telecopier or telex.

               (c)  Upon fulfillment of the applicable conditions set forth in
     Article 6, a LIBOR Borrowing shall become effective on the first day of the
     applicable LIBOR Period.

               (d)  The Agent in its sole discretion may require the Company to
     request any LIBOR Borrowing of $100,000,000 or more, or any redesignation
     of a Reference Rate Borrowing of $100,000,000 or more as a LIBOR Borrowing,
     at a time or on a day which is one (1) LIBOR Banking Day earlier than the
     deadline stated above (or for redesignations of Reference Rate Borrowings,
     stated Section 3.4 below) for making such a request.
            -----------

               (e)  Nothing contained herein shall require the Banks to fund any
     LIBOR Borrowing in the London interbank eurodollar market or other
     Designated Martet.

                                      -27-
<PAGE>

          3.4  Redesignation of Borrowings.
               ---------------------------

               (a)  If any LIBOR Borrowing is not repaid on the last day of the
     applicable LIBOR Period, such Borrowing automatically shall be redesignated
     as a Reference Rate Borrowing on such date.

               (b)  Subject to the terms and conditions set forth in this
     Agreement, at any time and from time to time from the Closing Date until
     one month preceding the Maturity Date, the Company may request that all or
     a portion of outstanding Reference Rate Borrowings be redesignated as a
     LIBOR Borrowing; provided that the LIBOR Period for such LIBOR Borrowing
     shall end on or before the Maturity Date.

               (c)  Each redesignation of all or a portion of outstanding
     Reference Rate Borrowings as a LIBOR Borrowing shall be made pursuant to a
     written Request for Redesignation of Borrowing.  Not later than 9:00 a.m.,
     California time, at least two (2) LIBOR Banking Days (or three (3) if the
     LIBOR Borrowing is to be more than $15,000,000) prior to the first day of
     the applicable LIBOR Period, the Agent shall have received, at the Agent's
     office, a properly completed Request for Redesignation of Borrowing
     specifying (1) the requested date of redesignation, (2) the requested
     amount of Reference Rate Borrowings to be redesignated as a LIBOR
     Borrowing, and (3) the requested LIBOR Period.  The Agent may, in its sole
     and absolute discretion, permit a Request for Redesignation of Borrowing to
     be made by telecopier or by telephone (with confirmation sent promptly by
     telecopier) by the Company, in which case the Company shall confirm same by
     mailing a written Request for Redesignation of Borrowing to the Agent
     within 24 hours following the date of redesignation.

               (d)  The Agent will notify each Bank of its receipt of a Request
     for Redesignation by 11:00 a.m. (California time) on the date of timely
     receipt of a Request for Redesignation from the Company.  All
     redesignations shall be made ratably according to the respective
     outstanding principal amount of the Loans with respect to which the Request
     for Redesignation was given is then held by each Bank.

               (e)  Unless all of the Banks otherwise agree, during the
     existence of an Event of Default, the Company may not elect to have a Loan
     converted into a LIBOR Borrowing.

               (f)  Unless the Banks otherwise consent, the amount of Reference
     Rate Borrowings to be redesignated as a LIBOR Borrowing shall be an
     integral multiple of $100,000, but not less than $1,500,000.

                                      -28-
<PAGE>

               (g)  With respect to any redesignation of Reference Rate
     Borrowing as a LIBOR Borrowing, at or about 9:00 a.m., California time, one
     (1) LIBOR Banking Day after the LIBOR Banking Day on which Agent receives
     Borrower's Request for Redesignation, the Agent shall determine the
     applicable LIBOR Rate (which determination shall be conclusive in the
     absence of manifest error) and shall promptly give notice of the same to
     the Company and the Banks by telephone, telecopier or telex.

               (h)  Upon fulfillment of the applicable conditions set forth in
     this Agreement, the redesignation of all or a portion of outstanding
     Reference Rate Borrowings as a LIBOR Borrowing shall become effective on
     the first day of the applicable LIBOR Period.

               (i)  A Request for Redesignation of Borrowing shall be
     irrevocable upon receipt by the Agent.

               (j)  Nothing contained herein shall require the Banks to fund any
     LIBOR Borrowing resulting from redesignation of all or a portion of any of
     the Reference Rate Borrowings in the London interbank eurodollar market or
     other Designated Market.

          3.5  Calculation of Borrowing Base.
               -----------------------------

               (a)  The Borrowing Base shall be calculated at the times and in
     the manner set forth in this Section 3.5(a):
                                  --------------

                    (i)   Within forty-five (45) days after the end of each
          calendar quarter, and at such other times as the Majority Banks may
          reasonably require, the Company shall provide the Agent with a
          Borrowing Base Certificate showing the Company's calculations of the
          components of the Borrowing Base and such data supporting such
          calculations as the Majority Banks may require. The Majority Banks
          shall have a period of thirty (30) days following receipt of a
          Borrowing Base Certificate to notify the Company of the Majority
          Banks' approval or disapproval thereof. Failure of the Majority Banks
          to so notify the Company within such thirty (30) day period shall be
          deemed approval and such Borrowing Base as set forth in such Borrowing
          Base Certificate shall be effective as of the date approved (or deemed
          approved) by the Majority Banks.

                    (ii)  In the event that the Agent (as requested by the
          Majority Banks) timely notifies the Company of disapproval of a
          Borrowing Base Certificate, then the Agent shall, at the same time,
          notify

                                      -29-
<PAGE>

          the Company in writing of the amount of the Borrowing Base as
          reasonably determined by the Majority Banks and the basis of such
          determination, and the effective date thereof (which shall be the date
          of the giving of such notice by the Agent), and such amount shall
          thereupon and thereafter constitute the Borrowing Base which shall
          remain in effect until such time as the Borrowing Base is redetermined
          in accordance with this Section 3.5(a). The Majority Banks and the
                                  --------------
          Company shall each cooperate in good faith with the other in the
          calculation of the Borrowing Base in circumstances where the Majority
          Banks disapproves a Borrowing Base Certificate prepared by the
          Company.

                    (iii)  Each determination of the Borrowing Base in
          accordance with this Section 3.5(a) shall be binding and conclusive
                               --------------
          upon the parties hereto, and provided that the Majority Banks are not
          bound to rely on information and figures provided by the Company if
          the Majority Banks determine in good faith that it would be
          inappropriate to do so. Nothing contained herein shall be deemed to
          restrict the Company from submitting additional Borrowing Base
          Certificates to the Agent for the Majority Banks' approval at times
          other than those required hereunder.

               (b)  Amount of Borrowing Base.  As used herein in the Agreement,
                    ------------------------
     the term "Borrowing Base" shall have the meaning set forth in this Section
                                                                        -------
     3.5(b):
     ------

                    (i)  Except as set forth in Sections 3.5(b)(ii), (iii) and
                                                -------------------  -----
          (iv) below, the Borrowing Base shall consist of the dollar amount
          ----
          equal to the sum of the following Unencumbered Real Estate Inventory
          owned by the Company or any wholly owned Subsidiary that is a
          Guarantor:

                         (A)  Entitled Land. 50% of the GAAP Value of the
                              -------------
               Entitled Land (subject to the 25% limitation specified in Section
                                                                         -------
               3.5(b)(iii) below); plus
               -----------         ----

                         (B)  Lots Under Development.  65% of the GAAP Value of
                              ----------------------
               the Lots Under Development; plus
                                           ----

                         (C)  Units Under Construction and Completed Units. 90%
                              --------------------------------------------
               of the GAAP Value of the Units Under Construction and Completed
               Units (subject to adjustment for Completed Units as set forth in
               Section 3.5(b)(ii) below); plus
               ------------------         ----

                         (D)  Escrow Proceeds Receivable.  100% of the amount of
                              --------------------------
               Escrow Proceeds Receivable.

                                      -30-
<PAGE>

                    (ii)   Advance rates for Units Under Construction shall
          decrease as follows with the passage of time following the dates such
          Units become Completed Units: (A) 180 days following the date such
          Units become Completed Units (other than with respect to Model Units,
          as to which clause (C) below shall apply) the applicable advance rate
          shall decrease from 90% (as specified in Section 3.5(b)(i) (C) above)
                                                   ---------------------
          to 50%; (B) 360 days following the date that such Units become
          Completed Units (other than with respect to Model Units, as to which
          clause (C) below shall apply) the applicable advance rate shall
          decrease from 50% to 0% (i.e., no value shall be attributed to the
          Borrowing Base); and (C) with respect to Model Units, 180 days
          following the sale of the last production Unit in the applicable
          project relating to such Model Unit, the applicable advance rate for
          such Model Units shall decrease from 90% (as specified in Section
                                                                    -------
          3.5(b)(i)(C) above) to 0% (i.e., no value shall be attributed to the
          ------------
          Borrowing Base).

                    (iii)  Anything in this Agreement to the contrary
          notwithstanding, in no event may more than 25% of the GAAP Value of
          Real Estate Inventory constituting part of the Borrowing Base be
          attributable to Entitled Land; and any Entitled Land in excess of such
          25% shall have a 0% advance rate (i.e., shall add no value to the
          Borrowing Base).

                    (iv)   Only Real Estate Inventory which is Unencumbered Real
          Estate Inventory may be added to the Borrowing Base. Any Real Estate
          Inventory that is not Unencumbered Real Estate Inventory shall have no
          value for purposes of the Borrowing Base (i.e., a 0% advance rate).
          Furthermore, land in the Company's Real Estate Inventory which is not
          Entitled Land shall have no value for purposes of the Borrowing Base
          (i.e., a 0% advance rate). Once Units or any other Real Estate
          Inventory are sold and conveyed to a buyer, or otherwise cease to be
          owned by the Company (or any wholly owned Subsidiary that is a
          Guarantor), the applicable advance rate shall decrease to 0%, and the
          Company shall not be entitled to have any value for such assets
          attributed to the Borrowing Base.

          3.6  Borrowing Base.  The sum of the aggregate principal amount at any
               --------------
time outstanding under the Loans plus the L/C Obligations shall not at any time
                                 ----
exceed the lesser of (i) the Total Aggregate Commitment or (ii) the Borrowing
Base less Total Borrowing Base Home Building Indebtedness (exclusive of the
     ----
outstanding amount of the Loans and L/C Obligations).

                                      -31-
<PAGE>

          3.7  Payments by the Banks to the Agent.
               ----------------------------------

               (a)  Unless the Agent receives notice from a Bank on or prior to
     the Closing Date or, with respect to any Borrowing after the Closing Date,
     at least one Banking Day prior to the date of such Borrowing, that such
     Bank will not make available as and when required hereunder to the Agent
     for the account of the Company the amount of that Bank's Pro Rata Share of
     the Borrowing, the Agent may assume that each Bank has made such amount
     available to the Agent in immediately available funds on the date of
     Borrowing and the Agent may (but shall not be so required), in reliance
     upon such assumption, make available to the Company on such date a
     corresponding amount. If and to the extent any Bank shall not have made its
     full amount available to the Agent in immediately available funds and the
     Agent in such circumstances has made available to the Company such amount,
     that Bank shall on the Banking Day following such date of Borrowing make
     such amount available to the Agent, together with interest at the Reference
     Rate for each day during such period. A notice of the Agent submitted to
     any Bank with respect to amounts owing under this subsection (a) shall be
     conclusive, absent manifest error. If such amount is so made available,
     such payment to the Agent shall constitute such Bank's Loan on the date of
     Borrowing for all purposes of this Agreement. If such amount is not made
     available to the Agent on the Banking Day following the date of Borrowing,
     the Agent will notify the Company of such failure to fund and, upon demand
     by the Agent, the Company shall pay such amount to the Agent for the
     Agent's account, together with accrued interest thereon for each day
     elapsed since the date of such Borrowing, at a rate per annum equal to the
     interest rate applicable at the time to the Loans comprising such
     Borrowing.

               (b)  The failure of any Bank to make any Loan on any date of
     Borrowing shall not relieve any other Bank of any obligation hereunder to
     make a Loan on such date of Borrowing, but no Bank shall be responsible for
     the failure of any other Bank to make the Loan to be made by such other
     Bank on any date of Borrowing.

          3.8  Sharing of Payments, Etc.  If, other than as expressly provided
               -------------------------
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall
immediately (a) notify the Agent of such fact, and (b) purchase from the other
Banks such participations in the Loans made by them as shall be necessary to
cause such purchasing Bank to share the excess payment pro rata with each of
them; provided, however, that if all or any portion of such excess payment is
      --------  -------
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank the
purchase price paid therefor, together with an amount equal to

                                      -32-
<PAGE>

such paying Bank's ratable share (according to the proportion of (i) the amount
of such paying Bank's required repayment to (ii) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Company agrees
that any Bank so purchasing a participation from another Bank may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off, but subject to Section 11.7) with respect to such
                                     ------------
participation as fully as if such Bank were the direct creditor of the Company
in the amount of such participation. The Agent will keep records (which shall be
conclusive and binding in the absence of manifest error) of participations
purchased under this Section and will in each case notify the Banks following
any such purchases or repayments.

          3.9  Letter of Credit Sublimit.
               -------------------------

               3.9.1  Amount and Terms of the Credit.  Subject to the terms and
                      ------------------------------
     upon the conditions of this Agreement, the Issuing Bank shall issue letters
     of credit for the account of the Company and the Letter of Credit
     Subsidiaries from time to time up to but not including July 31, 2004 (as
     extended by the Banks in writing from time to time in their sole
     discretion, the "L/C Commitment Termination Date"). The maximum aggregate
     principal amount which remains undrawn under all outstanding Letters of
     Credit (the "L/C Obligations") under this Agreement shall not exceed at any
     one time outstanding the aggregate principal sum of FORTY MILLION AND
     NO/100 DOLLARS ($40,000,000.00) (the "L/C Commitment").

               3.9.2  Standby Letters of Credit.
                      -------------------------

                      (a)   Amounts and Terms of Standby Letters of Credit.
                            ----------------------------------------------
          During the period from the date of this Agreement to but excluding the
          L/C Commitment Termination Date, and subject to the terms and
          conditions of this Agreement, upon Company's request pursuant to
          Section 3.9.3, the Issuing Bank shall issue one or more standby
          -------------
          letter(s) of credit or commercial letters of credit (including
          performance and financial letters of credit) (each, a "Letter of
          Credit," and collectively, the "Letters of Credit") for the account of
          Company or the account of a Letter of Credit Subsidiary; provided that
                                                                   --------
          the Issuing Bank shall not be obligated to issue any Letter of Credit
          if, after giving effect thereto, (i) the L/C Obligations would exceed
          the L/C Commitment, or (ii) the total aggregate outstanding Loans plus
                                                                            ----
          the L/C Obligations would exceed the Total Aggregate Commitment, or
          (iii) the Total Borrowing Base Home Building Indebtedness would exceed
          the Borrowing Base. All Letters of Credit shall be on Issuing Bank's
          standard forms of letters of credit at the time of issuance. No Letter
          of Credit shall have an

                                      -33-
<PAGE>

          expiration date (unless the Banks otherwise consent in writing) later
          than the Maturity Date.

                      (b)  [Intentionally Deleted.]

                      (c)  Letter of Credit Draws are Loans under this
                           -------------------------------------------
          Agreement. Company and each Bank agree that any draws under any Letter
          ---------
          of Credit shall constitute Loans under this Agreement for all
          purposes. Without limiting the foregoing, (i) all draws under any
          Letter of Credit shall bear interest and be repaid as Loans
          outstanding under this Agreement, and (ii) if, at the time any draw is
          made under any Letter of Credit, an Event of Default has occurred or
          the Maturity Date has passed or the Loans have been accelerated or are
          otherwise due and payable, such draw under such Letter of Credit shall
          be immediately due and payable in full. Promptly upon being notified
          by the Agent (after Agent has received notice from the Issuing Bank)
          that a draw has occurred under any Letter of Credit, each Bank shall
          reimburse the Agent, for the benefit of the Issuing Bank, for that
          Bank's Pro Rata Share of such draw.

               3.9.3  Request for Credit. The Company, on or after the date of
                      ------------------
     this Agreement, shall give the Issuing Bank notice of its request for
     the issuance of a Letter of Credit by delivering to the Issuing Bank (with
     a copy to the Agent) a duly executed and completed L/C Application on
     Issuing Bank's then current form (herein, an "L/C Application"). Such
     request shall specify: (i) the date on which the issuance of the Letter of
     Credit is requested to be made (which day shall be a Banking Day), and (ii)
     the amount of the Letter of Credit. Subject to the conditions herein, the
     Issuing Bank will issue the Letter of Credit as soon as reasonably
     practicable after receiving the above described notice.

               3.9.4  Issuance Fees.  For each Letter of Credit issued by the
                      -------------
     Issuing Bank (and upon any renewal thereof), the Company shall pay (a) to
     the Agent, for the account of each Bank in accordance with its Pro Rata
     Share, from the Company's own funds a fee equal to the applicable LIBOR
     Rate Spread less .25% per annum (based on a 360 day year) times the undrawn
                 ----                                          -----
     dollar amount of the Letter of Credit, and (b) to the Agent, for the
     account of the Issuing Bank, from the Company's own funds a fee equal to
     .25% per annum (based on a 360-day year) times the undrawn dollar amount of
                                              -----
     the Letter of Credit (collectively, the "Issuance Fee"). The Issuance Fee
     payable under clauses (a) and (b) above shall be payable quarterly in
     advance on the first day of each calendar quarter; provided that the
                                                        --------
     portion of the Issuance Fee payable for the period of time between the date
     of issuance of a Letter of Credit and the first day of the first calendar
     quarter following the date of issuance (the "Post

                                      -34-
<PAGE>

     Issuance Partial Quarter Period") shall be payable on the first day of the
     first calendar quarter following the date of issuance of such Letter of
     Credit (as opposed to paying such portion of such fee in advance on the
     date of issuance). If a Letter of Credit is canceled or otherwise
     terminates prior to the end of any calendar quarter, the Company shall not
     be entitled to any rebate of any portion of the Issuance Fee paid for such
     quarter (and shall continue to be obligated to pay that portion of any
     Issuance Fee owing for any Post Issuance Partial Quarter Period).

               3.9.5  Conditions Precedent to Issuance of Letters of Credit.
                      -----------------------------------------------------
     The obligation of the Issuing Bank to issue any Letter of Credit requested
     by the Company is subject to satisfaction of the following conditions
     precedent:

                      (a)  Conditions to Loans shall be Satisfied.  Each of the
                           --------------------------------------
          conditions specified in Sections 6.1 and 6.2 to Borrowings shall also
                                  ------------     ---
          be applicable as conditions precedent to the issuance of any Letter of
          Credit.

                      (b)  L/C Application. The Issuing Bank shall have received
                           ---------------
          from the Company, in form and substance satisfactory to the Issuing
          Bank, (i) a duly executed and completed L/C Application which L/C
          Application shall set forth, among other things, the beneficiary, the
          amount, and the term of the proposed Letter of Credit, and (ii) a duly
          executed and completed Request for Letter of Credit (in the form
          attached hereto as Exhibit "C").
                             -----------

                      (c)  Issuing Bank Approval.  The Issuing Bank shall have
                           ---------------------
          determined that the amount of any requested Letter of Credit, the
          beneficiary thereof and the other terms contained in the documents
          pertaining to such Letter of Credit are satisfactory to the Issuing
          Bank in the exercise of its reasonable discretion.

                      (d)  Payment of Fees. The Company shall pay the applicable
                           ---------------
          Issuance Fee. The applicable Issuance Fee shall be payable prior to
          the issuance (or renewal) of any Letter of Credit and shall be paid by
          the Company to the Agent. In addition, the Company shall pay all
          reasonable and customary fees and costs (other than issuance fees)
          described in the documents pertaining to such Letter of Credit.

                      (e)  Telephone Confirmation.  Prior to the issuance of any
                           ----------------------
          Letter of Credit, the Issuing Bank shall confirm by telephone with the
          Agent that, following the issuance of such Letter of Credit, none of
          the limitations set forth in Section 3.9 would be violated.
                                       -----------

                                      -35-
<PAGE>

                3.9.6  Subsidiary Letters of Credit.  The Company has requested
                       ----------------------------
     that Letters of Credit from time to time upon its request be issued by the
     Issuing Bank (the "Subsidiary Letters of Credit") with Standard Pacific of
     Texas, Inc., Standard Pacific of Arizona, Inc., Standard Pacific
     Construction, Inc., Standard Pacific of Orange County, Inc., Standard
     Pacific of Fullerton, Inc., The Writer Corporation and Standard Pacific
     Active Adult Communities, Inc. (together with any other Subsidiaries which
     the Issuing Bank and Majority Banks approve in writing, collectively, the
     "Letter of Credit Subsidiaries") as the "account party" (which would be
     liable under the reimbursement agreements pertaining to such Subsidiary
     Letters of Credit) thereunder. Subsidiary Letters of Credit shall
     constitute "Letters of Credit" hereunder, and all terms and conditions
     specified above in this Section 3.9 with respect to Letters of Credit shall
                             -----------
     be applicable to such Subsidiary Letters of Credit. Without limiting the
     foregoing, any draws under such Subsidiary Letters of Credit shall
     constitute Loans hereunder which the Company is obligated to repay (as more
     fully set forth in Section 3.9.2(c) above), all amounts remaining undrawn
                        ----------------
     on under all such Subsidiary Letters of Credit shall constitute part of the
     "L/C Obligations," and the fees and issuance procedures shall be as
     specified above. In addition to all terms and conditions specified in
     Section 3.9.5 above to the issuance of Letters of Credit, it shall be a
     -------------
     condition to the issuance of any Subsidiary Letter of Credit that the
     Company shall have executed the Guaranty of the Subsidiary Letters of
     Credit as well as such other documents as the Issuing Bank may reasonably
     request (and shall have reaffirmed such guaranty from time to time upon
     Issuing Bank's request). All waivers and releases made by the Company which
     are set forth in the Guaranty of the Subsidiary Letters of Credit are
     incorporated herein by this reference and shall also be applicable to any
     Loans (and the Company's obligation to repay such Loans) made or to be made
     under Section 3.9.2(c) hereof with respect to draws under the Subsidiary
           ----------------
     Letters of Credit.

          3.10  Possible Increase in Total Aggregate Commitment.
                ------------------------------------------------

                (a     The Banks on the Closing Date shall be the Banks set
     forth on Schedule 1.1(a) on the Closing Date.

                (b     At any time after the Closing Date, Agent may in its
     discretion (which discretion shall not be arbitrarily or unreasonably
     exercised contrary to the requests of the Company so long as the conditions
     set forth below are satisfied), without the consent of the Banks (except as
     specified in this Section 3.10), from time to time at the request of the
                       ------------
     Company, increase the Total Aggregate Commitment by (i) admitting
     additional Banks hereunder (each a "Subsequent Bank"), or (ii) increasing
     the Commitment of any Bank (each an "Increasing Bank"), subject to the
     following conditions:

                                      -36-
<PAGE>

                    (i     each Subsequent Bank is an Eligible Assignee;

                    (ii    the Company executes (A) a new Note payable to the
               order of a Subsequent Bank, or (B) a replacement Note payable to
               the order of an Increasing Bank;

                    (iii   each Subsequent Bank executes and delivers to Agent a
               signature page to this Agreement;

                    (iv    after giving effect to the admission of any
               Subsequent Bank or the increase in the Commitment of any
               Increasing Bank, the Total Aggregate Commitment does not exceed
               $475,000,000;

                    (v     each increase in the Total Aggregate Commitment shall
               be in the amount of $10,000,000 or a greater integral multiple of
               $1,000,000;

                    (vi    no admission of any Subsequent Bank shall increase
               the Commitment of any existing Bank without the written consent
               of such Bank;

                    (vii   no Event of Default exists; and

                    (viii  no Bank shall be an Increasing Bank without the
               written consent of such Bank.

     After the admission of any Subsequent Bank or increase in the Commitment of
     any Increasing Bank, Agent shall promptly provide to each Bank and to the
     Company a new Schedule 1.1(a) to this Agreement (and each Bank acknowledges
     that its percentage obligation under such Schedule will change in
     accordance with its Pro Rata Share of the increased Total Aggregate
     Commitment).

ARTICLE 4:  PAYMENTS AND FEES; EXTENSION OPTION.
            -----------------------------------

          4.1  Principal and Interest.
               ----------------------

               (a   Interest shall be payable on the outstanding daily unpaid
     principal amount of each Borrowing from the date thereof until payment in
     full is made and shall accrue and be payable at the rates set forth herein
     both before and after default and before and after maturity and judgment,
     with interest on overdue interest to bear interest at the rate specified in
     Section 4.4.  Upon any
     -----------

                                      -37-
<PAGE>

     partial prepayment or redesignation of outstanding Reference Rate
     Borrowings, interest accrued through the date of such prepayment or
     redesignation shall be payable on the next following Interest Payment Date
     and shall be deducted from the Account on such date. Insufficient funds in
     the Account shall not excuse the Company's obligation to pay accrued
     interest on the Interest Payment Date. Upon any partial prepayment or
     payment in full or redesignation or conversion of any LIBOR Borrowing, or
     upon any payment or redesignation in full of all outstanding Reference Rate
     Borrowings, interest accrued through the date of such prepayment, payment,
     redesignation or conversion shall be payable on the next following Interest
     Payment Date.

               (b   Interest on each Reference Rate Borrowing shall be computed
     on the basis of a year of 360 days and the actual number of days elapsed,
     at the Reference Rate times the total principal balance outstanding under
                           -----
     each Note. Interest accrued on each Reference Rate Borrowing shall be
     payable on each Interest Payment Date, commencing with the first such date
     to occur after the Closing Date, and shall be deducted from the Account on
     each such Interest Payment Date. Insufficient funds in the Account shall
     not excuse the Company's obligation to pay accrued interest on the Interest
     Payment Date. The Agent shall use its best efforts to notify the Company of
     the amount of interest so payable prior to each Interest Payment Date, but
     failure of the Agent to do so shall not excuse payment of such interest
     when payable. Except as otherwise provided in Section 4.4, the unpaid
                   ------                          -----------
     principal amount of any Reference Rate Borrowing shall bear interest at a
     fluctuating rate per annum equal to the Reference Rate. Each change in the
     interest rate shall take effect simultaneously with the corresponding
     change in the Reference Rate. Each change in the Reference Rate shall be
     effective as of 12:01 a.m. on the Banking Day on which the change in the
     Reference Rate is announced, unless otherwise specified in such
     announcement, in which case the change shall be effective as so specified.

               (c   Interest on each LIBOR Borrowing shall be computed on the
     basis of a year of 360 days and the actual number of days elapsed.
     Interest accrued on each LIBOR Borrowing shall be payable on each Interest
     Payment Date and shall be deducted from the Account on such date.
     Insufficient funds in the Account shall not excuse the Company's obligation
     to pay accrued interest on the Interest Payment Date. The Agent shall use
     its best efforts to notify the Company of the amount of interest so payable
     prior to each such date, but failure of the Agent to do so shall not excuse
     payment of such interest when payable. The unpaid principal amount of any
     LIBOR Borrowing shall bear interest at a rate per annum equal to the LIBOR
     Rate for that LIBOR Borrowing plus the applicable LIBOR Rate Spread.
                                   ----

                                      -38-
<PAGE>

               (d   If not sooner paid, the principal indebtedness evidenced by
     each Note shall be payable as follows:

                    (i)   subject to the applicable provisions of this Agreement
          providing for automatic redesignation of Borrowings upon compliance
          with Section 3.4, the principal amount of each Borrowing shall be
               -----------
          payable on the last day of the LIBOR Period for such Borrowing;

                    (ii)  the amount, if any, by which the principal
          indebtedness evidenced by each Note at any time exceeds the applicable
          Bank's Commitment shall be payable immediately;

                    (iii) the amount of each payment required pursuant to
          Section 4.16 shall be payable immediately;
          ------------

                    (iv)  all outstanding Loans (other than as specified in
          subparagraph (v) below) shall be payable on the Maturity Date; and

                    (v)   the principal of any Note held by a Bank which refuses
          to extend the Maturity Date pursuant to Section 4.18, if not sooner
                                                  ------------
          paid, shall be payable on such Bank's Non-Renewing Bank Loan Maturity
          Date.

               (e   Each Note may, at any time and from time to time, be paid or
     prepaid in whole or in part, provided that (i) any partial prepayment shall
                                  --------
     be an integral multiple of $10,000, (ii) any partial prepayment shall be in
     an amount not less than $100,000, (iii) except as required by subsection
                                             ------
     (d) above, no LIBOR Borrowing may be paid or prepaid in whole or in part
     prior to the last day of the applicable LIBOR Period without the prior
     consent of each Bank, and, notwithstanding such required prepayment or such
     consent, any payment or prepayment of all or any part of any LIBOR
     Borrowing on a day other than the last day of the applicable LIBOR Period
     shall be made on a LIBOR Banking Day, as applicable, and shall be preceded
     by at least five (5) LIBOR Banking Days, as applicable, written notice to
     the Agent of the date and amount of such payment or payments, and (iv) any
     prepayment of a LIBOR Borrowing prior to the last day of the applicable
     LIBOR Period shall be accompanied by a prepayment fee calculated in
     accordance with subsection (f) below and any other amounts required to be
     paid pursuant to Section 4.8.  In addition, if at any time the amount of
                      -----------
     any LIBOR Borrowing is reduced (by payment, prepayment or conversion of a
     part thereof) to an amount less than $1,500,000, such LIBOR Borrowing shall
     automatically convert into a Reference Rate Borrowing, and on

                                      -39-
<PAGE>

     and after such date the right of the Company to continue such Borrowing as
     a LIBOR Borrowing shall terminate.

               (f)  Prepayment fees shall be calculated as follows:

                    (i)   $100 (for each Bank and for each LIBOR contract); plus
                                    ----                                    ----

                    (ii)  any loss or expense arising from the liquidation or
          reemployment of funds obtained by it to maintain its LIBOR Borrowings
          or from fees payable to terminate the deposits from which such were
          obtained, which loss or expense shall be calculated in accordance with
          Section 4.8.
          -----------

          The Agent's determination of the amount of any prepayment fee shall be
          conclusive in the absence of manifest error.

          Nothing contained in this Section 4.1 shall relieve the Company from
                                    -----------
its obligation to make interest payments to the Banks on each Interest Payment
Date (in accordance with the terms and conditions contained herein) in the event
the funds held in the Account are insufficient to make such interest payments on
any such Interest Payment Date.

          4.2  Unused Fee.  For the period commencing on the date of this
               ----------
Agreement and ending on the Maturity Date, the Company shall pay an unused fee
each quarter to the Agent for the account of each Bank in accordance with its
Pro Rata Share, computed on the basis of a year of 360 days and the actual
number of days elapsed, as follows:  (a) if the average daily difference, during
the quarter for which the fee is payable, between (i) the Total Aggregate
Commitment and (ii) the total principal balance outstanding on the Notes plus
the L/C Obligations, is greater than 66-2/3% of the Total Aggregate Commitment,
then the amount of the unused fee payable by the Company for such quarter shall
equal .25% per annum times the average daily difference during such quarter
between (x) the Total Aggregate Commitment and (y) the total principal balance
outstanding under the Notes plus the L/C Obligations; (b) if the average daily
difference, during the quarter for which the fee is payable, between (i) the
Total Aggregate Commitment and (ii) the total principal balance outstanding on
the Notes plus the L/C Obligations, is equal to or greater than 33-1/3% but less
than or equal to 66-2/3% of the Total Aggregate Commitment, then the amount of
the unused fee payable by the Company for such quarter shall equal .20% per
annum times the average daily difference during such quarter between (x) the
Total Aggregate Commitment and (y) the total principal balance outstanding under
the Notes plus the L/C Obligations; and (c) if the average daily difference,
during the quarter for which the fee is payable, between (i) the Total Aggregate
Commitment and (ii) the total

                                      -40-
<PAGE>

principal balance outstanding on the Notes plus the L/C Obligations, is less
than 33-1/3% of the Total Aggregate Commitment, then the amount of the unused
fee payable by the Company for such quarter shall equal .15% per annum times the
average daily difference during such quarter between (x) the Total Aggregate
Commitment and (y) the total principal balance outstanding under the Notes plus
the L/C Obligations. (An example of the foregoing calculation of the unused fee
payable each quarter hereunder is set forth on Schedule 4.2 attached hereto.)
The unused fee accrued as of the last day of September, December, March and June
of each year shall be payable in arrears on the day on which the Agent notifies
the Company of the amount due, except that upon payment of each Note in full,
                               ------
the unused fee accrued to the date of payment shall be payable on the date of
payment.

          4.3  Commitment Fee.  For the period commencing on the date of this
               --------------
Agreement and ending on the Maturity Date, the Company shall pay to the Agent
for the account of each Bank a commitment fee, computed on the basis of a year
of 360 days and the actual number of days, payable at a rate of (a) for Banks
with Commitments of less than $40,000,000, .075% per annum times the amount of
                                                           -----
the Commitment of each such Bank, (b) for Banks with Commitments of $40,000,000
or more, but less than $60,000,000, .10% per annum times the amount of the
                                                   -----
Commitment of each such Bank, and (c) for Banks with Commitments of $60,000,000
or more, .15% per annum times the amount of the Commitment of each such Bank.
                        -----
The commitment fee owing to each Bank under this Section 4.3 shall be payable
                                                 -----------
quarterly in advance on the first day of each January, April, July, and October
of each year.

          4.4  Late Payments.  Should any installment of principal or interest
               -------------
or any fee or cost or other amount payable under any Loan Document to the Banks
not be paid within 15 days of when due, it shall thereafter bear interest at a
fluctuating interest rate per annum at all times equal to the sum of the
Reference Rate plus 2.00% per annum, to the fullest extent permitted by
               ----
applicable Law.  Accrued and unpaid interest on past due amounts (including,
                                                                  ---------
without limitation, interest on past due interest) shall be compounded monthly,
on the last day of each calendar month, to the fullest extent permitted by
applicable Law.

          4.5  Taxes.  All payments payable to the Banks hereunder or with
               -----
respect to the Loan Documents shall be made to the Banks without deductions for
any Taxes or Other Taxes except to the extent the Company is required by any Law
or Governmental Authority to withhold and except in accordance with Section
                                                                    -------
10.10 to the extent, if any, that such amounts are required to be withheld by
-----
the Agent under the laws of the United States of America or any other applicable
taxing authority.

                                      -41-
<PAGE>

          4.6  Illegality.
               ----------

               (a   If any Bank determines that the introduction of any
     Requirement of Law, or any change in any Requirement of Law or in the
     interpretation or administration of any Requirement of Law, has made it
     unlawful, or that any central bank or other Governmental Authority has
     asserted that it is unlawful, for any Bank or its applicable Lending Office
     to make LIBOR Borrowings, then, on notice thereof by the Bank to the
     Company through the Agent, any obligation of that Bank to make LIBOR
     Borrowings shall be suspended until the Bank notifies the Agent and the
     Company that the circumstances giving rise to such determination no longer
     exist.

               (b   If a Bank determines that it is unlawful to maintain any
     LIBOR Borrowing, the Company shall, upon its receipt of notice of such fact
     and demand from such Bank (with a copy to the Agent), prepay in full such
     LIBOR Borrowings of that Bank then outstanding, together with interest
     accrued thereon and amounts required under Section 4.8, either on the last
                                                -----------
     day of the LIBOR Period thereof, if the Bank may lawfully continue to
     maintain such LIBOR Borrowings to such day, or immediately, if the Bank may
     not lawfully continue to maintain such LIBOR Borrowing. If the Company is
     required to so prepay any LIBOR Borrowing, then concurrently with such
     prepayment, the Company may, at its option, borrow from the affected Bank,
     in the amount of such repayment, a Reference Rate Borrowing.

               (c   If the obligation of any Bank to make or maintain LIBOR
     Borrowings has been so terminated or suspended, the Company may elect, by
     giving notice to the Bank through the Agent that all Loans which would
     otherwise be made by the Bank as LIBOR Borrowings shall be instead
     Reference Rate Borrowings.

               (d   Before giving any notice to the Agent under this Section,
     the affected Bank shall designate a different Lending Office with respect
     to its Reference Rate Borrowings if such designation will avoid the need
     for giving such notice or making such demand and will not, in the judgment
     of the Bank, be illegal or otherwise disadvantageous to the Bank.

          4.7  Increased Costs and Reduction of Return.
               ----------------------------------------

               (a   If any Bank determines that, due to either (i) the
     introduction of or any change (other than any change by way of imposition
     of or increase in reserve requirements included in the calculation of the
     LIBOR Rate or in respect of the assessment rate payable by any Bank to the
     FDIC for insuring U.S. deposits) in or in the interpretation of any law or
     regulation or

                                      -42-
<PAGE>

     (ii) the compliance by that Bank with any guideline imposed or request made
     by any central bank or other Governmental Authority after the date hereof
     (whether or not having the force of law), there shall be any increase in
     the cost to such Bank of agreeing to make or making, funding or maintaining
     any LIBOR Borrowings, then the Company shall be liable for, and shall from
     time to time, upon demand (with a copy of such demand to be sent to the
     Agent), pay to the Agent for the account of such Bank, additional amounts
     as are sufficient to compensate such Bank for such increased costs.

               (b   If any Bank shall have determined that (i) the introduction
     of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
     Regulation, (iii) any change in the interpretation or administration of any
     Capital Adequacy Regulation by any central bank or other Governmental
     Authority charged with the interpretation or administration thereof, or
     (iv) compliance by the Bank (or its Lending Office) or any corporation
     controlling the Bank with any Capital Adequacy Regulation described in
     clauses (i) through (iii) above, affects or would affect the amount of
     capital required or expected to be maintained by the Bank or any
     corporation controlling the Bank and (taking into consideration such Bank's
     or such corporation's policies with respect to capital adequacy and such
     Bank's desired return on capital) determines that the amount of such
     capital is increased as a consequence of its Commitment, Loans, credits or
     obligations under this Agreement, then, upon demand of such Bank to the
     Company through the Agent, the Company shall pay to the Bank, from time to
     time as specified by the Bank, additional amounts sufficient to compensate
     the Bank for such increase.

          4.8  Funding Losses.  The Company shall reimburse each Bank and hold
               --------------
each Bank harmless from any loss or expense (to the extent not duplicative of a
charge imposed and paid under Section 4.1(f)) which the Bank may sustain or
                              --------------
incur as a consequence of:

               (a   the failure of the Company to borrow, continue or
     redesignate a Loan after the Company has given (or is deemed to have given)
     a Request for Borrowing or a Request for Redesignation of Borrowing; or

               (b   any payment (including after acceleration of a LIBOR
     Borrowing) of a LIBOR Borrowing on a day that is not the last day of the
     relevant LIBOR Period; or

               (c   the automatic conversion under Section 4.1(e) of any LIBOR
                                                   --------------
     Borrowing to a Reference Rate Borrowing on a day that is not the last day
     of the relevant LIBOR Period;

                                      -43-
<PAGE>

including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Borrowings or from fees payable to
terminate the deposits from which such funds were obtained. Such loss or expense
shall be calculated as follows:

                    (i)   principal amount of the LIBOR Borrowing, times [the
                                                                   -----
          number of days between the date of the event and the last day in the
          applicable LIBOR Period] divided by 360, times the applicable Interest
                                   ----------      -----
          Differential; plus
                        ----

                    (ii)  all out-of-pocket expenses (including Attorney Costs)
          incurred by the Banks and reasonably attributable to such event;
          provided that no prepayment fee shall be payable (and no credit or
          --------
          rebate shall be required) if the product of the foregoing formula is
          not positive.

For purposes of calculating amounts payable by the Company to the Banks under
this Section 4.8 (and Section 4.1(f) above), each LIBOR Borrowing (and each
     -----------      --------------
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the LIBOR Base Rate used in determining the LIBOR
Rate for such LIBOR Borrowing by a matching deposit or other borrowing in the
interbank eurodollar market for a comparable amount and for a comparable period,
regardless of whether such LIBOR Borrowing is so funded.

          4.9  Inability to Determine Rates. If any Bank determines that for any
               ----------------------------
reason adequate and reasonable means do not exist for determining the LIBOR Rate
for any requested LIBOR Period with respect to a proposed LIBOR Borrowing, or
that the LIBOR Rate applicable pursuant to Section 4.1(c) for any requested
                                           --------------
LIBOR Period with respect to a proposed LIBOR Borrowing does not adequately and
fairly reflect the cost to such Banks of funding such Borrowing, the Agent will
promptly so notify the Company and each Bank. Thereafter, the obligation of the
Banks to make or maintain LIBOR Borrowings, as the case may be, hereunder shall
be suspended until the Agent upon the instruction of such Bank revokes such
notice in writing. Upon receipt of such notice, the Company may revoke any
Request for Borrowing or Request for Redesignation of Borrowing then submitted
by it. If the Company does not revoke such Request, the Banks shall make,
convert or continue the Loans, as proposed by the Company, in the amount
specified in the applicable notice submitted by the Company, but such Loans
shall be made, converted or continued as Reference Rate Borrowings instead of
LIBOR Borrowings. As of the date of this Agreement, no Bank has made the
determination or is aware of the conditions referenced in the first sentence of
this Section 4.9.
     -----------

          4.10 Reserves on LIBOR Borrowings. The Company shall pay to each Bank,
               ----------------------------
as long as such Bank shall be required under regulations of the FRB to maintain

                                      -44-
<PAGE>

reserves with respect to liabilities or assets consisting of or including
Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"),
additional costs on the unpaid principal amount of each LIBOR Borrowing equal to
the actual costs of such reserves allocated to such Loan by the Bank (as
determined by the Bank in good faith, which determination shall be conclusive),
payable on each date on which interest is payable on such Loan, provided the
Company shall have received at least 15 days' prior written notice (with a copy
to the Agent) of such additional interest from the Bank. If a Bank fails to give
notice 15 days prior to the relevant Interest Payment Date, such additional
interest shall be payable 15 days from receipt of such notice. As of the date of
the Agreement, no Bank is aware of any FRB reserve requirement with respect to
Eurocurrency liabilities.

          4.11  Certificates of Banks.  Any Bank claiming reimbursement or
                ---------------------
compensation under this Article 4 shall deliver to the Company (with a copy to
the Agent) a certificate setting forth in reasonable detail the amount payable
to the Bank hereunder and such certificate shall be conclusive and binding on
the Company in the absence of manifest error.

          4.12  Substitution of Banks.  Upon the receipt by the Company from any
                ---------------------
Bank (an "Affected Bank") of a claim for compensation under Section 4.7 or
          -------------                                     -----------
Section 4.15 or, to the extent such problem affects less than the Majority
------------
Banks, notice of a Bank's inability to fund LIBOR Borrowings under Section 4.6
                                                                   -----------
or determine LIBOR rates under Section 4.9, the Company may: (i) request the
                               -----------
Affected Bank to use its best efforts to obtain a replacement bank or financial
institution (which qualifies as an "Eligible Assignee" hereunder) satisfactory
to the Company to acquire and assume all or a ratable part of all of such
Affected Bank's Loans and Commitment (a "Replacement Bank"); or (ii) request one
                                         ----------------
or more of the other Banks to acquire and assume all or part of such Affected
Bank's Loans and Commitment (which such other Banks may decline to do in their
sole discretion); or (iii) designate a Replacement Bank. Any such designation of
a Replacement Bank under clause (i) or (iii) shall be subject to the prior
written consent of the Agent (which consent shall not be unreasonably withheld).

          4.13  Survival.  The agreements and obligations of the Company in this
                --------
Article 4 shall survive for one year following the payment in full of all
Obligations.

          4.14  Manner and Treatment of Payments.  The amount of each payment
                --------------------------------
hereunder or on each Note shall be made to the Agent for the account of each
applicable Bank in immediately available funds on the day of payment (which must
be a Banking Day). Any payment received after 11:00 a.m., California time, on
any Banking Day, shall be deemed received on the next succeeding Banking Day.
The amount of all payments received by the Agent for the account of each Bank
shall be promptly paid by the Agent to the applicable Bank(s) in immediately
available funds

                                      -45-
<PAGE>

(and any such payment not remitted on the same Banking Day that it is deemed
received by the Agent shall thereafter be payable by the Agent to the applicable
Bank(s) together with interest at the overnight Federal Funds Rate, as such rate
is reasonably determined by the Agent). Whenever any payment to be made
hereunder or on each Note is due on a day that is not a Banking Day, payment
shall be made on the next succeeding Banking Day; provided that the extension
shall be included in the computation of interest owing on the next following
Interest Payment Date. Any payment of the principal of any LIBOR Borrowing shall
be made on a LIBOR Banking Day as applicable.

          4.15  Additional Costs.  If the occurrence of any Special Circumstance
                ----------------
or other regulatory development, or the imposition of any Tax or Other Tax, or
change in applicable Law (other than a change in applicable income tax rates of
any Bank or the manner of computing taxes on income of any Bank), shall result
in an increase in the cost to any Bank of making, funding, maintaining or
continuing the funding of any Borrowing, then Company shall pay to such Bank on
demand such additional amounts as such Bank determines to be necessary to
compensate the Bank for such increased cost.

          4.16  Mandatory Prepayment.  In the event that the aggregate principal
                --------------------
amount of the outstanding Loans plus the L/C Obligations at any time exceeds the
                                ----
limitations specified in Section 3.6 (whether because of the outstanding amount
                         -----------
of the Loans or L/C Obligations, or because of the other outstanding Total
Borrowing Base Home Building Indebtedness), the Company shall immediately make a
prepayment of the Loans in such amount as is necessary to cause the amount of
outstanding Loans plus L/C Obligations to comply with the limitations of Section
                  ----                                                   -------
3.6.  In the event that the L/C Obligations at any time exceed the Borrowing
---
Base, the Company shall immediately upon demand by the Agent deposit with the
Agent, for the benefit of the Banks, an amount in cash equal to the amount by
which the outstanding L/C Obligations exceed the Borrowing Base. Such cash shall
be deposited in an interest bearing account with the Agent as to which the
Company shall have no right of withdrawal except as provided below. At such time
as the Borrowing Base once again equals or exceeds the outstanding L/C
Obligations, and provided no other Event of Default is outstanding and the
Company is otherwise in compliance with this Agreement, the amount so deposited
by the Company in such restricted account with the Agent, together with any
interest accrued thereon, shall be remitted to the Company.

          4.17  Agency Fee And Other Consideration Payable To Agent.  The Banks
                ---------------------------------------------------
acknowledge that pursuant to a fee letter agreement of even date herewith
between the Agent, BofA and the Company (the "Fee Letter Agreement"), the
Company has agreed to pay BofA an agency fee, additional commitment fees, and
other fees and compensation as consideration for BofA's performance of its
duties as

                                      -46-
<PAGE>

Agent under this Agreement and for other valuable services, as more fully set
forth in the Fee Letter Agreement. The Borrower covenants and agrees to pay such
agency fee, additional commitment fees, and other fees and compensation to BofA
at the times and in the manner set forth in the Fee Letter Agreement. The agency
fee, additional commitment fees, and other fees and compensation payable to BofA
under the Fee Letter Agreement shall belong solely to BofA, and BofA shall not
be required to share any such agency fee, additional commitment fees, or other
fees or compensation specified in the Fee Letter Agreement with any of the other
Banks.

          4.18  Maturity Date Extension Option.
                ------------------------------

                (a   The Maturity Date may be extended to the first anniversary
     of the then applicable Maturity Date, at the sole discretion of each of the
     Banks, upon receipt from the Company of an Extension Request delivered to
     the Agent not earlier than ninety (90) days and not later than sixty (60)
     days prior to the date which is three (3) years prior to the then existing
     Maturity Date. No such extension shall be effective as to a particular Bank
     without the approval of such extension by such Bank. Approval or
     disapproval of each such extension shall be in the sole and absolute
     discretion of each Bank. Each Bank shall notify the Agent and the Company,
     in writing and within 30 days of receipt of an Extension Request, whether
     it will extend the Maturity Date. If all Banks approve such extension on or
     before the date for which the request is made, the Maturity Date shall be
     extended to the first anniversary of the then effective Maturity Date.

                (b   If any Bank elects not to extend the Maturity Date, or does
     not give notice of its election to extend the Maturity Date on or before
     the date which is thirty (30) days before the date which is three (3) years
     prior to the previously applicable Maturity Date, the Company may, at its
     option to be exercised in its sole discretion, by delivery of written
     notice to all of the Banks at any time prior to the previously applicable
     Maturity Date, either:

                     (i)   Repay all Loans from the non-renewing Bank(s), reduce
          the Total Aggregate Commitment by an amount equal to the Pro Rata
          Share of the Commitment of the non-renewing Bank(s) effective on the
          date of repayment of the non-renewing Bank(s) (which date must be on
          or before the Non-Renewing Bank Loan Maturity Date), amend the
          Commitments of the renewing Banks to reflect a ratable allocation of
          the Total Aggregate Commitment as thus reduced, effective as of the
          date of repayment of the non-renewing Bank(s), and extend the Maturity
          Date by one year as to the renewing Banks; or

                                      -47-
<PAGE>

                     (ii)   Reduce the Total Aggregate Commitment by an amount
          equal to the Pro Rata Share of the Loans of the non-renewing Bank(s)
          effective on a date specified by the Company (which date must be on or
          before the Non-Renewing Bank Loan Maturity Date), amend the
          Commitments of the renewing Banks to reflect a ratable allocation of
          the Total Aggregate Commitment as thus reduced, effective as of the
          date specified by the Company as provided above, extend the Maturity
          Date by one year as to the renewing Banks and retain the Non-Renewing
          Bank Loan Maturity Date as the date of maturity of principal of the
          Pro Rata Share of Loan proceeds disbursed by the non-renewing Bank(s);
          or

                    (iii)  Identify an Eligible Assignee to purchase, without
          recourse, at par, all or the remaining portion of the non-renewing
          Bank's Commitment on or before the Non-Renewing Bank Loan Maturity
          Date for such Bank. Such Eligible Assignee must agree to a Maturity
          Date which is coterminous with the Maturity Date for all of the
          renewing Banks and must be approved by the Agent, which approval shall
          not be unreasonably withheld or delayed.

          4.19  Voluntary Prepayment and Termination of Credit Facility Upon
                ------------------------------------------------------------
Change of Control.  Upon the occurrence of or simultaneously with an event which
-----------------
would otherwise constitute an Event of Default under Section 8.24 hereof, the
                                                     ------------
Company may terminate, upon written notice to Agent, this Agreement and the
credit facility hereunder, provided that at the time of such termination the
Company shall have (a) repaid the outstanding Loans in full, and otherwise paid
and performed all other outstanding Obligations, and (b) cash collateralized all
outstanding L/C Obligations and any payment or reimbursement obligations of the
Company and any Letter of Credit Subsidiaries in the manner specified in the
last full paragraph of Section 9.2 hereof (in the same manner as if an Event of
                       -----------
Default had occurred); and, notwithstanding any termination of this Agreement or
the credit facility hereunder, the Company and any Letter of Credit Subsidiaries
or any other Persons in any way liable or responsible for the repayment of the
L/C Obligations shall continue to be liable and responsible therefor, and the
Issuing Bank, Agent, the Banks and any other obligees with respect thereto shall
continue to retain all of their repayment rights and other rights with respect
thereto, including those specified in such last full paragraph of Section 9.2
                                                                  -----------
hereof.

ARTICLE 5: SECURITY.
           --------

          5.1   Unsecured Credit.  The Obligations shall be unsecured.
                ----------------

                                      -48-
<PAGE>

ARTICLE 6: CONDITIONS.
           ----------

          6.1  Conditions to Disbursement of First Borrowings.  The obligation
               ----------------------------------------------
of the Banks to make the first new disbursement of Loans (other than those Loans
already outstanding under the Eighth Amended Credit Agreement) is subject to the
conditions precedent specified in Section 11.21.
                                  -------------

          6.2  Conditions for Subsequent Borrowings or for a Redesignation of
               --------------------------------------------------------------
Borrowings.  The obligation of the Banks to make any Borrowing (including the
----------
first and any subsequent Borrowing) or redesignation of Borrowing is subject to
the following conditions precedent:

               (a   the representations and warranties contained in Sections 7.1
                                                                    ------------
     through 7.12, inclusive, and Sections 7.13 and 7.14, inclusive, as of the
             ----                 -------------     ----
     latest reporting required under this Agreement, shall be correct in all
     Material respects on and as of the date of the Borrowing, or redesignation
     thereof, as though made on and as of that date, and no Event of Default or
     event that would become an Event of Default upon the giving of notice
     and/or the passage of time shall have occurred and be continuing; and

               (b   the Company shall, at its sole expense, deliver or cause to
     be delivered to the Agent, in form and substance satisfactory to the Agent,
     a Request for Borrowing or a Request for Redesignation of Borrowing, as
     applicable.

ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
           ---------------------------------------------

          The Company represents and warrants to each Bank that:

          7.1  Incorporation, Qualification, Powers and Capital Stock.  The
               ------------------------------------------------------
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of Delaware, is duly qualified to do
business as, and is in good standing as, a foreign corporation in each
jurisdiction in which the conduct of its business or the ownership or leasing of
its properties makes such qualification necessary, and has all requisite power
and authority to conduct its business and to own and lease its properties. All
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid, nonassessable, and issued in compliance with all applicable
state and federal securities and other Laws.

                                      -49-
<PAGE>

          7.2  Execution, Delivery and Performance of Loan Documents.
               -----------------------------------------------------

               (a   The Company has all requisite power and authority to execute
     and deliver, and to perform all of its obligations under, the Loan
     Documents.

               (b   Each Guarantor has all requisite power and authority to
     execute and deliver, and to perform all of its obligations under the
     Guaranty.

               (c   The execution and delivery by the Company of, and the
     performance by the Company of each of its obligations under, each Loan
     Document to which it is a party, and the execution and delivery by each
     Guarantor of, and the performance by each Guarantor of each of its
     obligations under the Guaranty, have been duly authorized by all necessary
     action and do not and will not:

                    (i)    require any consent or approval not heretofore
          obtained of any stockholder, security holder or creditor of the
          Company, any Subsidiary or any Guarantor;

                    (ii)   violate any provision of the certificate of
          incorporation or bylaws of the Company or any Guarantor or any
          provision of the articles or certificate of incorporation, bylaws or
          partnership agreement of any Subsidiary;

                    (iii)  result in or require the creation or imposition of
          any lien, claim or encumbrance (except to the extent that any lien is
          created under this Agreement) upon or with respect to any property now
          owned or leased or hereafter acquired by the Company, any Subsidiary
          or any Guarantor;

                    (iv)   violate any provision of any Law, order, writ,
          judgment, injunction, decree, determination or award presently in
          effect having applicability to the Company, any Subsidiary or any
          Guarantor; or

                    (v)    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 Material agreement,
          lease or instrument to which the Company, any Subsidiary or any
          Guarantor is a party or by which the Company, any Subsidiary or any
          Guarantor or any property of the Company, any Subsidiary or any
          Guarantor is bound or affected.

                                      -50-
<PAGE>

               (d   The Company, each Subsidiary and each Guarantor is not in
     default under any Law, order, writ, judgment, injunction, decree,
     determination, award, indenture, agreement, lease or instrument described
     in Sections 7.2(c)(iv) or 7.2(c)(v) above, in any respect that is
        -------------------    ---------
     Materially adverse to the interests of any Bank, or that could Materially
     impair the ability of the Company, its Subsidiaries and each Guarantor
     taken as a whole to perform its obligations under the Loan Documents, as
     applicable, or that has a Material adverse effect on the business or
     financial condition of the Company and the Subsidiaries taken a whole.

               (e   No authorization, consent, approval, order, license, permit
     or exemption from, or filing, registration or qualification with, any
     Governmental Authority not heretofore obtained is or will be required under
     applicable Law to authorize or permit the execution, delivery and
     performance by the Company or any Guarantor of, all of its obligations
     under, the Loan Documents.

               (f   Each of the Loan Documents to which the Company is a party,
     when executed and delivered, will constitute the legal, valid and binding
     obligations of the Company, and the Guaranty, when executed and delivered,
     will constitute the legal, valid and binding obligations of each Guarantor,
     each enforceable against such Person in accordance with its terms, except
     as enforcement may be limited by bankruptcy, insolvency, reorganization,
     arrangement, moratorium or other similar laws relating to or affecting
     creditors' rights generally or equitable principles relating to the
     granting of specific performance or other equitable remedies as a matter of
     judicial discretion.

          7.3  Compliance with Laws and Other Requirements.  The Company is in
               -------------------------------------------
compliance in all Material respects with all Laws and other requirements
applicable to its business and has obtained all Material authorizations,
consents, approvals, orders, licenses, permits and exemptions from, and has
accomplished all Material filings, registrations or qualifications with, any
Governmental Authority that is necessary for the transaction of its business.

          7.4  Subsidiaries.
               ------------

               (a   Exhibit "F" hereto correctly sets forth the names and
                    -----------
     jurisdictions of incorporation or formation of all present Subsidiaries and
     Homebuilding Joint Ventures. Except as described in Exhibit "F", the
                                                         -----------
     Company does not own any capital stock or ownership interest in any Person
     other than the Subsidiaries and Homebuilding Joint Ventures. All
     outstanding shares of capital stock or ownership interests, as the case may
     be, of each Subsidiary and Homebuilding Joint Venture that are owned by the
     Company or any Subsidiary

                                      -51-
<PAGE>

     are (i) owned of record and beneficially by the Company and/or by one or
     more Subsidiaries, free and clear of all liens, claims, encumbrances and
     rights of others, and are (ii) duly authorized, validly issued, fully paid,
     nonassessable (except for capital calls or contribution requirements in
     connection with ownership interests in Homebuilding Joint Ventures), and
     issued in compliance with all applicable state and federal securities and
     other Laws. The Company may update Exhibit "F" from time to time by sending
                                        -----------

     written notice to the Agent.

               (b   Each Subsidiary is a corporation, partnership or limited
     liability company duly incorporated or formed, validly existing and in good
     standing under the laws of its respective jurisdiction of incorporation or
     formation, is duly qualified to do business as, and is in good standing as,
     a foreign corporation, partnership or limited liability company in each
     jurisdiction in which the conduct of its business or the ownership or
     leasing of its properties makes such qualification necessary, and has all
     requisite power and authority to conduct its business and to own and lease
     its properties.

               (c   Each Subsidiary is in compliance in all Material respects
     with all Laws and other requirements applicable to its business and has
     obtained all Material authorizations, consents, approvals, orders,
     licenses, permits and exemptions from, and has accomplished all Material
     filings, registrations or qualifications with, any Governmental Authority
     that is necessary for the transaction of its business.

          7.5  [Intentionally Deleted.]

          7.6  Financial Statements of the Company and its Consolidated
               --------------------------------------------------------
Subsidiaries.  The Company has furnished to the Banks a copy of the Form 10-K of
------------
the Company and its consolidated Subsidiaries as of December 31, 1999, a copy of
the Form 10-Q of the Company and its consolidated Subsidiaries dated as of June
30, 2000, and the related unaudited financial statements (and for the June 30,
2000 10-Q the other information required by Section 8.11(b) was also furnished
                                            ---------------
to the Banks). Such financial statements and the notes thereto fairly present in
all Material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as at the dates specified therein and the consolidated
results of operations and cash flows for the periods then ended, all in
conformity with generally accepted accounting principles.

          7.7  No Material Adverse Change.  There has been no Material adverse
               --------------------------
change in the condition, financial or otherwise, of the Company and the
Subsidiaries, taken as a whole, from the financial condition of the Company and
the Subsidiaries, taken as a whole, since June 30, 2000, and the Company and the

                                      -52-
<PAGE>

Subsidiaries, taken as a whole, since June 30, 2000, and the Company and the
Subsidiaries, taken as a whole, do not have any Material liability incurred
outside of the ordinary course of business or, to the best knowledge of the
Company, Material contingent liability, not reflected or disclosed in the
financial statements or notes thereto described in Section 7.6 (or, to the
                                                   -----------
extent that financial statements have been delivered pursuant to Section 8.11,
                                                                 ------------
in the most recently delivered financial statements), or otherwise disclosed to
the Agent in writing.

          7.8  Tax Liability.  The Company and each Subsidiary have filed all
               -------------
tax returns (federal, state and local) required to be filed by them and have
paid all Material taxes shown thereon to be due and all property taxes due,
including interest and penalties, if any. To the best knowledge of the Company,
there does not exist any substantial likelihood that any Governmental Authority
will successfully assert a tax deficiency against the Company or any Subsidiary
that is Material to the Company and the Subsidiaries, taken as a whole, that has
not been adequately reserved against in the financial statements described in
Section 7.6 (or, to the extent that financial statements have been delivered
-----------
pursuant to Section 8.11, in the most recently delivered financial statements).
            ------------
The Company and each Subsidiary has established and is maintaining adequate
reserves for tax liabilities, if any, sufficient to comply with generally
accepted accounting principles.

          7.9  Litigation.  There are no actions, suits or proceedings pending
               ----------
or, to the best knowledge of the Company, threatened against or affecting the
Company or any Subsidiary, or any property of the Company or any Subsidiary,
before any Governmental Authority which, if determined adversely to the Company
or the Subsidiary, could reasonably be expected to have a Material adverse
effect on the interests of any Bank, or could Materially impair the ability of
the Company to perform its obligations under the Loan Documents, or could have a
Material adverse effect on the business or financial condition of the Company
and the Subsidiaries, taken as a whole.

          7.10 Pension Plan.  Neither the Company nor any Subsidiary maintains
               ------------
or contributes to any employee pension Plan (other than (i) the 401K plans
presently sponsored by the Company as to which the Company has Materially
complied with all applicable Laws, and (ii) employee pension plans of any
Persons formed or acquired by the Company or any Subsidiary as permitted under
Section 8.14 or 8.20).
------------    ----

          7.11 Regulations U and X; Investment Company Act. Neither the Company
               -------------------------------------------
nor any Subsidiary 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 FRB.
No part of the Loans will be used to purchase or carry any margin stock, or to
extend credit to others for that purpose, or for any purpose that violates the
provisions of

                                      -53-
<PAGE>

Regulations U or X of the FRB. Neither the Company nor any Subsidiary is or is
required to be registered under the Investment Company Act of 1940.

           7.12  No Default.  No event has occurred and is continuing that is an
                 ----------
Event of Default or that could become an Event of Default upon the giving of
notice and/or the passage of time.

           7.13  Borrowing Base.  The Total Borrowing Base Home Building
                 --------------
Indebtedness does not exceed the Borrowing Base.

           7.14  Borrowing Base Components. At any time of determination
                 -------------------------
thereof, the value of any component of Real Estate Inventory used to calculate
the Borrowing Base does not exceed the GAAP Value of such component of Real
Estate Inventory.

ARTICLE 8: COVENANTS OF THE COMPANY.
           ------------------------

           As long as any Note remains unpaid or any other Obligation remains
outstanding or any Commitment remains in effect, unless the Majority Banks
otherwise consent in writing:

           8.1   Consolidated Tangible Net Worth.  The Company shall not permit
                 -------------------------------
Consolidated Tangible Net Worth at any time to be less than the sum of (a)
$306,000,000, plus (b) 50% of the cumulative consolidated net income (without
              ----
deduction for losses sustained during any fiscal quarter) of the Company and its
consolidated Subsidiaries for each fiscal quarter subsequent to the fiscal
quarter ended December 31, 1999, plus (c) 50% of the net proceeds from any
                                 ----
equity offerings of the Company from and after December 31, 1999.

           8.2   Leverage Covenants.  The Company shall not permit, at any time,
                 ------------------
the ratio of Home Building Debt to Consolidated Tangible Net Worth to exceed:

                    (i)    2.0 to 1, if the Interest Coverage Ratio for the
          immediately preceding Measurement Period was at least 2.5 to 1;

                    (ii)   1.75 to 1, if the Interest Coverage Ratio for the
          immediately preceding Measurement Period was at least 2.0 to 1 (but
          less than 2.5 to 1);

                    (iii)  1.5 to 1, if the Interest Coverage Ratio for the
          immediately preceding Measurement Period was at least 1.5 to 1 (but
          less than 2.0 to 1);

                                      -54-
<PAGE>

               Furthermore, during any Interest Coverage Failure Period (as
     defined in Section 8.3(a) below), the ratio of Home Building Debt to
                --------------
     Consolidated Tangible Net Worth shall at no time exceed 1.25 to 1. In
     calculating compliance with each of the ratios set forth above in this
     Section 8.2, the Company may add to Consolidated Tangible Net Worth an
     -----------
     amount equal to the Maximum Eligible Subordinated Debt.

               Furthermore, in the event that the Mandatory Joint Venture Lot
     Purchase Obligations at any time exceed $50,000,000, the amount of such
     Mandatory Joint Venture Lot Purchase Obligations in excess of $50,000,000
     shall be added to the Home Building Debt for purposes of calculating the
     foregoing leverage covenants set forth above in this Section 8.2.
                                                          -----------

          8.3  Minimum Interest Coverage.  The Company shall not permit, at any
               -------------------------
time, the ratio (the "Interest Coverage Ratio") of (a) Home Building EBITDA to
                      -----------------------
(b) Consolidated Home Building Interest Incurred, for any period consisting of
the preceding four (4) fiscal quarters (each, a "Measurement Period"), to be
                                                 ------------------
less than 1.5 to 1.0; provided, however, that the Company will not be in default
                      --------  -------
under this Section 8.3 if the Interest Coverage Ratio is less than 1.5 to 1.0
           -----------
(but in no event less than 1.25 to 1.0) for not more than two consecutive
     -----------
Measurement Periods (e.g., the 4-quarter period ending December 31, 1999 and the
                     ----
4-quarter period ending March 31, 2000) so long as all of the following
conditions are satisfied:

               (a)  The Company shall have delivered to the Agent written notice
     of its failure to satisfy the 1.5 to 1.0 Interest Coverage Ratio
     requirement (an "Interest Coverage Notice"), specifying the Measurement
                      ------------------------
     Period(s) covered thereby (the "Interest Coverage Failure Period"), within
                                     --------------------------------
     45 days after the end of the first such Measurement Period.

               (b)  The Company shall have provided Agent (concurrently with the
     delivery of the Interest Coverage Notice) with pro forma financial
     statements, in form and detail satisfactory to the Agent, reflecting that
     the Company shall be in compliance with the 1.5 to 1.0 Interest Coverage
     Ratio requirement for the four Measurement Periods immediately succeeding
     the Interest Coverage Failure Period (or, if the Interest Coverage Failure
     Period covers only one Measurement Period, reflecting that the Company
     shall be in compliance for the succeeding four Measurement Periods or for
     the four Measurement Periods immediately following the next succeeding
     Measurement Period).

               (c)  The Interest Coverage Failure Period covered by any Interest
     Coverage Notice shall have been immediately preceded by at least four

                                      -55-
<PAGE>

     consecutive Measurement Periods in which the Company was in compliance with
     the 1.5 to 1.0 Interest Coverage Ratio.

               (d)  During the Interest Coverage Failure Period, the ratio of
     Home Building Debt to Consolidated Tangible Net Worth shall at no time
     exceed 1.25 to 1.0.

An example of the calculation of the Interest Coverage Ratio is as set forth in
Schedule 8.3 hereto.
------------

          8.4  Payment of Taxes and Other Potential Liens.  The Company shall
               ------------------------------------------
pay and discharge promptly, and cause each Subsidiary to pay and discharge
promptly, all taxes, assessments and governmental charges or levies imposed upon
it, upon its property or any part thereof, upon its income or profits or any
part thereof, or upon any right or interest of any Bank under or in respect of
any Loan Document, except that neither the Company nor any Subsidiary shall be
                   ------
required to pay or cause to be paid (a) any income or gross receipts tax
generally applicable to banks and imposed on any Bank, or (b) any tax,
assessment, charge or levy that is not yet past due, or being actively contested
in good faith by appropriate proceedings, as long as the Company or Subsidiary,
as the case may be, has established and maintains adequate reserves for the
payment of the same and, by reason of nonpayment, no property of the Company or
any Subsidiary is in danger of being lost or forfeited.

          8.5  Preservation of Existence.  The Company shall preserve and
               -------------------------
maintain, and cause each Subsidiary to preserve and maintain, its corporate or
partnership existence, as the case may be, and all licenses, rights, franchises
and privileges in the jurisdiction of its incorporation or formation and all
authorizations, consents, approvals, orders, licenses, permits or exemptions
from, or registrations or qualifications with, any Governmental Authority that
are necessary for the transaction of its business, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified, to do
business as a foreign corporation or partnership in each jurisdiction in which
such qualification is necessary in view of its business or the ownership or
leasing of its properties, except that neither the complete liquidation or
                           ------
dissolution of any Subsidiary, nor the failure to preserve and maintain any
particular license, right, franchise, privilege, authorization, consent,
approval, order, permit, exemption, registration or qualification, or to qualify
or remain qualified in any jurisdiction, that is not Material to the business or
financial condition of the Company and its Subsidiaries taken as a whole will
constitute a violation of this covenant, and except that (i) the sale or
                                             ------
dissolution of Standard Pacific Financing, L.P. or Standard Pacific Financing,
Inc. will not constitute a violation of this covenant and (ii) the conversion of
Standard Pacific of Texas, Inc. from corporate to limited partnership form (or
the conversion of any limited partnership successor to corporate form) by

                                      -56-
<PAGE>

merger, conversion, transfer of assets or otherwise will not constitute a
violation of this covenant.

          8.6  Maintenance of Properties.  The Company shall maintain, preserve
               -------------------------
and protect, and cause each Subsidiary to maintain, preserve and protect, all of
its properties in good order and condition, subject to wear and tear in the
ordinary course of business and, in the case of unimproved properties, damage
caused by the natural elements, and not permit any Subsidiary to permit, any
waste of its properties, except that neither (i) the failure to maintain,
                         ------
preserve and protect a particular item of property that is not of Material
value, either intrinsically or to the operations of the Company or any
Subsidiary, nor (ii) the failure to maintain, preserve and protect a particular
item of property due to full compliance with a final written order from a
Governmental Agency, will constitute a violation of this covenant.

          8.7  Maintenance of Insurance.  The Company shall maintain, and cause
               ------------------------
each Subsidiary to maintain: (a) insurance with responsible companies in such
amounts and against such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general area in
which the Company or any Subsidiary operates, and (b) insurance required by any
Governmental Authority having jurisdiction over the Company or any Subsidiary.

          8.8  Mergers.  The Company shall not merge or consolidate, or permit
               -------
any Subsidiary to merge or consolidate, with or into any Person, except that (i)
no merger or consolidation in connection with the sale of Standard Pacific
Financing, L.P., or Standard Pacific Financing, Inc. will constitute a violation
of this covenant, (ii) any Subsidiary existing on the date hereof may merge into
the Company (provided that the surviving entity is the Company) or into any
other Subsidiary (provided that no Subsidiary who is a Guarantor shall merge
with or into a non-guarantying Subsidiary), and (iii) no merger or consolidation
in connection with an acquisition permitted under Section 8.20 will constitute a
                                                  ------------
violation of this covenant (provided that the corporate existence of the
Company, if a party to such merger or consolidation, is continued).

          8.9  Books and Records.  The Company shall maintain, and cause each
               -----------------
Subsidiary to maintain, full and complete books of account and other records
reflecting the results of its operations in conformity with generally accepted
accounting principles applied on a consistent basis and all applicable
requirements of any Governmental Authority having jurisdiction over the Company
or any Subsidiary or any business or properties of the Company or any
Subsidiary.

          8.10 Inspection Rights.  At any time during regular business hours and
               -----------------
at any other reasonable time, and as often as requested, the Company shall
permit, and cause each Subsidiary to permit, each Bank or any employee, agent or
representative thereof to inspect and make copies and abstracts from the records
and books of account

                                      -57-
<PAGE>

of, and to visit and inspect the properties of, the Company and any Subsidiary,
and to discuss any affairs, finances and accounts of the Company and any
Subsidiary with any of their respective officers or directors.

          8.11  Reporting Requirements.  The Company shall cause to be delivered
                ----------------------
to the Agent, in form and detail satisfactory to the Agent (for prompt
distribution by the Agent to the Banks):

                (a)  as soon as practicable and in any event within 15 days
     after the occurrence of an Event of Default becomes known to the Company, a
     written statement setting forth the nature of the Event of Default and the
     action that the Company proposes to take with respect thereto;

                (b)  as soon as available and in any event within 45 days after
     the end of each of the first three quarters of each calendar year, a Form
     10-Q of the Company and its consolidated Subsidiaries as of the end of the
     quarter most recently ended, and unaudited consolidated balance sheets,
     statements of income, retained earnings and cash flows of the Company and
     unaudited consolidating balance sheets and statements of income of its
     consolidated Subsidiaries in the form previously delivered to and approved
     by Agent, for such period, all in reasonable detail and duly certified
     (subject to year-end audit adjustments) by the chief financial officer or
     the treasurer of the Company; (additionally, a schedule shall accompany the
     unaudited consolidating and consolidated balance sheets which shall
     reconcile the amounts used to calculate the covenants pursuant to Sections
                                                                       --------
     8.1 and 8.2 above to such unaudited consolidated and consolidating balance
     ---     ---
     sheets);

                (c)  as soon as available and in any event within 90 days after
     the end of each calendar year, a Form 10-K and a consolidating and
     consolidated balance sheet of the Company and its consolidated Subsidiaries
     as of the end of the year most recently ended and consolidated statements
     of income, retained earnings and cash flows of the Company and its
     consolidated Subsidiaries for such year, setting forth in each case in
     comparative form the corresponding figures for the preceding fiscal year,
     audited by and with the opinion of Arthur Andersen LLP, any successor
     thereto or any other independent certified public accountants of recognized
     standing selected by the Company and acceptable to the Majority Banks,
     which opinion shall be unqualified except as to such matters as are
     acceptable to the Majority Banks ("Acceptable Audit Opinion");
                                        ------------------------

                (d)  as soon as available and in any event within 90 days after
     the end of each such Subsidiary's fiscal year, unaudited balance sheets and
     statements of income of the Subsidiaries described in Schedule 8.11(d), all
                                                           ----------------
     in

                                      -58-
<PAGE>

     reasonable detail and duly certified by the chief financial officer or the
     treasurer of the Company;

               (e)  at the time of the delivery of the financial statements
     described in (b), (c) and (d) above, a certificate of the chief financial
     officer or the treasurer of the Company stating that to the knowledge of
     such officer no event exists that is, or with the giving of notice and/or
     the passage of time would be, an Event of Default, or if such an event
     exists, stating the nature thereof and the action that the Company proposes
     to take with respect thereto;

               (f)  as soon as available and in any event within 45 days after
     the end of each calendar year, a projected operating budget of the Company
     for the succeeding twelve months (which for 2000 will be in the form
     previously delivered to Agent); and including for each of the Company's
     real estate development projects for each quarter (a) the number of
     projected closings of Units, and (b) projected revenue (including the
     aggregate of all amounts projected to be generated from any source in
     connection with the sale of Units to the public);

               (g)  promptly upon the Company learning thereof, notice in
     writing of any action, suit or proceeding before any Governmental Authority
     which, if determined adversely to the Company or any Subsidiary, might
     reasonably be expected to have a Material adverse effect on the business,
     assets, operation or condition, financial or otherwise, of the Company and
     its Subsidiaries, taken as a whole, or could impair the ability of the
     Company to perform its obligations under the Loan Documents;

               (h)  such other information about the business, assets, operation
     or condition, financial or otherwise, of the Company or any Subsidiary, as
     each Bank may reasonably request from time to time;

               (i)  as soon as available and in any event within 45 days after
     the end of each calendar quarter, a residential development summary
     substantially in the form previously submitted to each Bank;

               (j)  as soon as practicable, and in any event within forty-five
     (45) days after the end of each calendar quarter, monthly projections for
     the next succeeding twelve (12) month period of cash flow for the Company
     (except for the March 31 reporting which may be for the next succeeding 9
     months), in the form previously delivered to each Bank;

               (k)  as soon as practicable, and in any event within forty-five
     (45) days after the end of each calendar quarter, reports showing the

                                      -59-
<PAGE>

     actual operating results for the calendar quarter most recently ended, in
     the form of the projected operating budget required under Section 8.11(f)
                                                               ---------------
     above; and

                (l)  within forty-five (45) days after the end of each calendar
     quarter, a certificate of the Company's chief financial officer or
     treasurer, together with such backup information as each Bank may
     reasonably require, demonstrating in reasonable detail that the Company was
     in compliance during the applicable period with the covenants set forth in
     Sections 8.1, 8.2, 8.3, 8.14, 8.18, 8.20, 8.24, 8.26 and 8.28.
     ------------  ---  ---  ----  ----  ----  ----  ----     ----

          8.12  Liens.  The Company shall not create, incur, assume or allow to
                -----
exist, or permit any Subsidiary to create, incur, assume or allow to exist, any
lien of any nature upon or with respect to any property of the Company or any
Subsidiary, whether now owned or hereafter acquired, except the following
permissible liens:

                (a)  liens securing indebtedness existing on the date hereof and
     disclosed in the notes to the financial statements incorporated in the Form
     10-K described in Section 7.6, but only to the extent of the indebtedness
                       -----------
     secured thereby and the property subject thereto on the date hereof and
     renewals, extensions or refundings thereof that do not increase the
     principal amount of indebtedness secured thereby or the property subject
     thereto;

                (b)  liens for taxes, assessments or governmental charges or
     levies to the extent that neither the Company nor any Subsidiary is
     required to pay the amount secured thereby under Section 8.4;
                                                      -----------

                (c)  liens imposed by law, such as carrier's, warehouseman's,
     mechanic's, materialman's and other similar liens, arising in the ordinary
     course of business in respect of obligations that are not overdue or are
     being actively contested in good faith by appropriate proceedings, as long
     as the Company or Subsidiary, as the case may be, has established and
     maintains adequate reserves for the payment of the same and, by reason of
     nonpayment, no property of the Company or any Subsidiary is in danger of
     being lost or forfeited;

                (d)  purchase money liens upon or in any property acquired or
     held by the Company or any Subsidiary in the ordinary course of business,
     including, without limitation real property, to secure the purchase price
     of such property, or liens upon or in such property to secure indebtedness
     incurred solely for the purpose of financing the acquisition of such
     property;

                (e)  liens existing on purchase money property at the time of
     its acquisition;

                                      -60-
<PAGE>

                (f)  leases of model units;

                (g)  liens on property owned by joint ventures or limited
     liability companies with respect to which the Company or any Subsidiary is
     a partner or in which the Company or a Subsidiary has an equity or
     ownership interest;

                (h)  liens or assignments by the Company, Standard Pacific
     Financing, L.P. or Standard Pacific Financing, Inc. (or an operating
     limited partnership formed to perform the same functions as Standard
     Pacific Financing, Inc. in which the Company will have a 99% interest in
     allocations of profits, losses, distributions and credits) of mortgages
     made in connection with financing transactions entered into in the ordinary
     course of business;

                (i)  liens incurred in the ordinary course of business on
     property or assets owned by Family Lending Services, Inc.;

                (j)  liens securing performance bonds entered into in the
     ordinary course of business;

                (k)  liens on deposits (not including real property) securing
                                        ---
     appeal bonds obtained by the Company or a subsidiary in connection with the
     appeal of an adverse judgment; and

                (l)  any other liens not otherwise specified in Subsections
     8.12(a) through (k) above (except for Judgment Liens and Project Financing
     Liens, which shall in no event be permitted), so long as the aggregate
     amount secured by all such other liens does not at any time exceed
     $25,000,000.

          8.13  Prepayment of Indebtedness.  If an Event of Default has
                --------------------------
occurred and is continuing or an acceleration of the indebtedness evidenced by
each Note has occurred, the Company shall not prepay the principal amount, in
whole or in part, of any indebtedness other than (a) indebtedness owed to each
Bank hereunder or under some other agreement between the Company and such Bank
and (b) indebtedness which ranks pari passu with indebtedness evidenced by each
Note which is or becomes due and owing whether by reason of acceleration or
otherwise.

          8.14  Homebuilding Joint Ventures.  Without the prior written approval
                ---------------------------
of the Majority Banks, the Company shall not at any time permit (i) the
aggregate Investment of the Company and its Subsidiaries in a single
Homebuilding Joint Venture to exceed $20,000,000 or (ii) the aggregate
Investment of the Company and its Subsidiaries in all Homebuilding Joint
Ventures to exceed the lesser of (A) 25% of the Consolidated Tangible Net Worth
of the Company and (B) $150,000,000; provided,
                                     --------

                                      -61-
<PAGE>

however, that for purposes of this first sentence of this Section 8.14, should
-------                                                   ------------
the Company incur any non-cash write-down in assets under FAS 121 or other non-
                                                                           ----
cash loss resulting from a change in financial accounting standards, which
----
write-down or loss occurs after September 26, 2000, the amount of such write-
down or loss less any subsequent increase in Consolidated Tangible Net Worth
from the date of the write-down or loss, to the extent positive, will be added
back to the Consolidated Tangible Net Worth; provided further, however, in no
                                             ----------------  -------
event shall the aggregate Investment in all Homebuilding Joint Ventures exceed
30% of the Consolidated Tangible Net Worth of the Company without the foregoing
adjustments.

          In addition to the foregoing limitation, the Company and its
Subsidiaries shall not make any Investment in any new Homebuilding Joint Venture
                                                  ---
if the aggregate Investment in all Homebuilding Joint Ventures would exceed the
lesser of (A) 25% of the Consolidated Tangible Net Worth of the Company (without
the adjustments set forth in the preceding sentence) and (B) $150,000,000.

          8.15  Compliance with Laws and Other Requirements.
                -------------------------------------------

                (a)  The Company shall comply, and cause each Subsidiary to
     comply, with the requirements of all applicable Laws and orders of any
     Governmental Authority, noncompliance with which might Materially adversely
     affect the business or financial condition of the Company and its
     Subsidiaries, taken as a whole.

                (b)  The Company shall comply, and cause each Subsidiary (to the
     extent they are so engaged) to comply, with all Material applicable Laws
     and other requirements relating to the development of each of its projects
     and the sale of units therein, and shall obtain, and cause each Subsidiary
     (to the extent they are so engaged) to obtain, all necessary Material
     authorizations, consents, approvals, licenses and permits of any
     Governmental Authority with respect thereto.

          8.16  Change in Nature of Business.  The Company shall not make, or
                ----------------------------
permit any Subsidiary to make, any change in the nature of its or their
respective businesses as carried on at the date hereof that is Material to the
Company and Subsidiaries, taken as a whole, which has not been consented to by
the Majority Banks in writing. None of the following will constitute a violation
of this covenant: (i) the sale or dissolution of Standard Pacific Financing,
L.P. or Standard Pacific Financing, Inc., (ii) the engaging by the Company or a
Subsidiary in or withdrawal from the mortgage brokering or banking business,
(iii) the engaging by the Company or a Subsidiary in or withdrawal from any
business related to the homebuilding operations of the Company, such as security
or pest control, and including without limitation technology initiatives related
to the Company's homebuilding operations.

                                      -62-
<PAGE>

          8.17  Pension Plan.  The Company shall not enter into, maintain or
                ------------
make contributions to, or permit any Subsidiary to enter into, maintain or make
contributions to, directly or indirectly, any defined benefit pension Plan that
is subject to Title IV of ERISA, except for defined benefit pension Plans of any
Persons formed or acquired by the Company or any Subsidiary as permitted under
Section 8.14 or 8.20.
------------    ----

          8.18  Dividends and Subordinated Debt.  The Company shall not declare
                -------------------------------
or pay any dividend on, or purchase, redeem, retire or otherwise acquire for
value any of its capital stock now or hereafter outstanding, return any capital
to its stockholders or make any distribution of assets to its stockholders,
whether in cash, property or obligations, or pay or repurchase all or any part
of any Subordinated Debt, transfer any property in payment of or as security for
the payment of all or any part of any Subordinated Debt, or establish any
sinking fund, reserve or like set aside of funds or other property for the
redemption, retirement or repayment of all or any part of any Subordinated Debt,
except (so long as no Event of Default has occurred and is continuing):
------

                (a)  the Company may make payments in respect of any
     Subordinated Debt as and when required by the terms thereof, but in any
     event not more than 90 days in advance of the due date thereof; provided,
                                                                     --------
     however, that the Company may prepay or repurchase Subordinated Debt at any
     -------
     time from the proceeds of indebtedness issued by the Company following the
     Closing Date so long as the maturity date of all such indebtedness is at
     least one year beyond the Maturity Date;

                (b)  the Company may declare and pay dividends in any calendar
     quarter so long as (i) at the time each such dividend is declared the
     Consolidated Tangible Net Worth requirement of Section 8.1 remains
                                                    -----------
     satisfied and any such dividend would not cause Section 8.1 to be violated
                                                     -----------
     and (ii) all such dividends paid in such calendar quarter do not in the
     aggregate exceed the sum of (A) $1,600,000, plus (B) 50% of the amount by
                                                 ----
     which the cumulative net income (without deduction for net losses) of the
     Company for the preceding calendar quarter exceeds $1,600,000; and

                (c)  the Company may from time to time repurchase shares of its
     capital stock for an amount not to exceed the lesser of (i) $35,000,000 in
     the aggregate for all repurchases after January 1, 2000, or (ii) the amount
     approved by the Company's board of directors.

                                      -63-
<PAGE>

          8.19  Disposition of Properties.  The Company shall not, and shall not
                -------------------------
permit the Subsidiaries to, sell, assign, exchange, transfer, lease or otherwise
dispose of any of their respective properties (whether real or personal), other
than properties sold, assigned, exchanged, transferred, leased or otherwise
disposed of for fair value and in the ordinary course of business or properties
transferred to the Company or a Subsidiary pursuant to the dissolution,
conversion or merger of a Subsidiary permitted under Section 8.5, or properties
                                                     -----------
with an aggregate value which does not exceed $2,500,000 in any one year;
provided, however, any transfer of any or all of the assets, properties,
--------  -------
business or stock of Standard Pacific Financing, L.P. and Standard Pacific
Financing, Inc. shall be permitted and shall not be counted toward the
limitation in this covenant.

          8.20  Limitation on New Operating Subsidiaries.  Without the prior
                ----------------------------------------
written consent of the Majority Banks, the Company shall not form, acquire, or
permit to exist, or transfer any of the business of the Company or any
Subsidiary to, any new Subsidiaries (not in existence as of the date hereof),
except as contemplated by Section 8.12(h); provided, however, (a) the Company
                          ---------------
may form or acquire, or permit to exist, or transfer any of the business of the
Company or any Subsidiary to, new wholly owned Subsidiaries (i) without the
consent of any of the Banks, so long as the initial Investment in each such
Subsidiary does not exceed 25% of the Consolidated Tangible Net Worth of the
Company as measured at the time of the initial Investment in such Subsidiary,
(ii) with the consent of the Banks holding at least 51% of the Total Aggregate
Commitment, so long as the initial Investment in each Subsidiary does not exceed
35% of the Consolidated Tangible Net Worth of the Company as measured at the
time of the initial Investment in such Subsidiary, and (iii) with the consent of
the Majority Banks, if the initial Investment in any such Subsidiary exceeds 35%
of the Consolidated Tangible Net Worth of the Company as measured at the time of
the initial Investment in such Subsidiary, and (b) the Company may form or
acquire, or permit to exist, or transfer any of the business of the Company or
any Subsidiary to, new Non-Wholly Owned Subsidiaries (a) without the consent of
any of the Banks, so long as the aggregate Investment in each such Non-Wholly
Owned Subsidiary does not at any time exceed 25% of the Consolidated Tangible
Net Worth of the Company as measured at the time of formation or acquisition of
such Subsidiary, (b) with the consent of the Banks holding at least 51% of the
Total Aggregate Commitment, so long as the aggregate Investment in each such
Non-Wholly-Owned Subsidiary does not at any time exceed 35% of the Consolidated
Tangible Net Worth of the Company as measured at the time of formation or
acquisition of such Subsidiary, and (c) with the consent of the Majority Banks,
if the aggregate Investment in any such Non-Wholly Owned Subsidiary at any time
exceeds 35% of the Consolidated Tangible Net Worth of the Company as measured at
the time of formation or acquisition of such Subsidiary.

          8.21  [Intentionally Deleted.]

          8.22  [Intentionally Deleted.]

                                      -64-
<PAGE>

          8.23  [Intentionally Deleted.]

          8.24  Change of Control.  The Company shall not, without the prior
                -----------------
written consent of the Majority Banks, (a) permit any Person to become the
beneficial owner, directly or indirectly, of more than fifty percent (50%) of
the total voting power of the Voting Stock of the Company; or (b) during any
period of two consecutive years, allow individuals who at the beginning of such
period constituted the board of directors of the Company (together with any new
directors whose election by such board of directors, or whose nomination for
election by the shareholders of the Company, was approved by a majority vote of
the directors of the Company then still in office who are either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) to cease for any reason to constitute the majority of
the board of directors of the Company then in office.

          8.25  [Intentionally Deleted.]

          8.26  Total Borrowing Base Home Building Indebtedness Not to Exceed
                -------------------------------------------------------------
Borrowing Base.  The Company shall not permit the Total Borrowing Base Home
--------------
Building Indebtedness to at any time exceed the Borrowing Base. In calculating
compliance with the above covenant, the Company shall be permitted to exclude
from Total Borrowing Base Home Building Indebtedness an amount equal to the
Maximum Eligible Subordinated Debt.

          8.27  Subsidiary Guaranties.  In the event that the Company makes
                ---------------------
Investments in Standard Pacific Financing, L.P., Standard Pacific Financing,
Inc., Stanpac Corp. or any new Subsidiary which in the aggregate exceed $500,000
as to any such Subsidiary of the Company (the "Subsidiary Investment
Limitation"), then the Company shall cause the Subsidiary to provide a Guaranty
hereunder (and the Subsidiary Investment Limitation shall not be exceeded until
the Agent has confirmed, in writing, its receipt of such Guaranty). In addition,
should the aggregate amount of Investments by the Company in all Subsidiaries
listed above and any new Subsidiaries (other than existing and new Subsidiaries
that have provided a Guaranty) at any time exceed $5,000,000, the Company shall
see to it that each Subsidiary in which the Company makes any Investments from
and after the time such aggregate $5,000,000 in Investments is reached shall
provide a Guaranty with respect to the Loans and Notes in form and substance
satisfactory to the Agent (even if the amount of the Investments in each such
Subsidiary is less than $500,000); and the Company shall not make any further
Investments in any Subsidiaries which would cause the aggregate amount of
Investments in all such Subsidiaries to exceed $5,000,000 unless and until such
Guaranties are provided as aforesaid.

                                      -65-
<PAGE>

           8.28  FLS Leverage Covenant.  The Company shall not permit, at any
                 ---------------------
time, the "Liabilities to Qualifying Tangible Net Worth Ratio" covenant set
forth in Section 10(k) of that certain Mortgage Loan Warehousing Agreement, as
amended from time to time, by and among Family Lending Services, Inc. and BofA
(and such other "Lenders" thereunder as there may be) to be violated.

           8.29  Investments in Persons Other Than Subsidiaries and Home
                 -------------------------------------------------------
Building Joint Ventures.  Neither the Company nor any Subsidiary (other than an
-----------------------
Excluded Subsidiary) shall make any Investment, or otherwise acquire any
interest, in any Person that is not a Subsidiary or a Home Building Joint
Venture, other than (i) short-term, liquid, investments of cash reserves, (ii)
Investments in mortgage banking joint ventures not to exceed $5,000,000 in the
aggregate at any time, (iii) Investments in any other joint ventures engaged in
a business related to the homebuilding operations of the Company, such as
security or pest control, not to exceed $5,000,000 in the aggregate at any time,
(iv) Investments in any single Person not to exceed $1,000,000 at any time,
provided that the aggregate Investment in all such Persons pursuant to this
clause (iv) shall not exceed $2,500,000 at any time, and (v) Investments in
technology related businesses not to exceed $7,500,000 in the aggregate at any
time.

ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT.
           -------------------------------------------

           9.1   Events of Default. The occurrence of any one or more of the
                 -----------------
following events shall constitute an Event of Default hereunder:

                 (a)  failure to pay within 15 days after the date when due the
     principal of each Note or any portion thereof or any interest thereon; or

                 (b)  failure to pay any fee or any other amount payable by the
     Company or any Subsidiary under the Loan Documents within 15 days after the
     date when due; or

                 (c)  failure to perform or observe any covenant set forth in
     Sections 8.1, 8.2, 8.3, 8.8, 8.10, 8.11(a), 8.12, 8.13, 8.14, 8.18, 8.20,
     ------------  ---  ---  ---  ----  -------  ----  ----  ----  ----  ----
     8.24, 8.26, 8.27, or 8.28 of Article 8 of this Agreement, or failure to
     ----  ----  ----     ----
     perform or observe in any Material respect any other covenant set forth in
     Article 8 of this Agreement, or failure to perform or observe any other
     Material term, covenant or agreement contained in any Loan Document on the
     Company's or any Subsidiary's part to be performed or observed; or

                 (d)  any representation or warranty in any Loan Document or in
     any certificate, agreement, instrument or other document made or delivered
     pursuant to or in connection with any Loan Document proves to have been

                                      -66-
<PAGE>

     incorrect when made in any respect that is Materially adverse to the
     interests of any Bank under the Loan Documents; or

               (e)  the occurrence of any default under any other agreement
     between the Company and any Bank, including without limitation, the failure
     to pay when due (or within any stated grace period) the principal or any
     principal installment of, or any interest, on any present or future
     indebtedness for borrowed money owed by the Company to any Bank; or

               (f)  the Company, any Subsidiary or any Guarantor is dissolved or
     liquidated (except as permitted in Sections 8.5 or 8.19) or all or
                                        ------------    ----
     substantially all of the assets of the Company are sold or otherwise
     transferred or encumbered without the prior written consent of each Bank;
     or

               (g)  the Company, any Subsidiary or any Guarantor is the subject
     of an order for relief by any bankruptcy court, or is unable or admits in
     writing its inability to pay its debts as they mature or makes an
     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 the Company, Subsidiary, or Guarantor and the appointment
     continues undischarged or unstayed for 60 days; or institutes or consents
     to any bankruptcy, insolvency, reorganization, arrangement, readjustment of
     debt, dissolution, custodianship, conservatorship, liquidation,
     rehabilitation or similar proceeding relating to it or to all or any part
     of its property under the laws of any jurisdiction; or any similar
     proceeding is instituted without the consent of the Company, Subsidiary, or
     Guarantor, and continues undismissed or unstayed for 45 days; or any
     judgment, writ, warrant of attachment or execution or similar process is
     issued or levied against all or any part of the property of the Company,
     any Subsidiary, or any Guarantor and is not released, vacated or fully
     bonded within 45 days after its issue or levy; or

               (h)  the Majority Banks have reasonably determined that a
     Material adverse change has occurred since the date hereof in the
     operations, business or financial condition of the Company and its
     Subsidiaries and Homebuilding Joint Ventures taken as a whole, and 15
     calendar days have elapsed since the date that notice of such determination
     is given to the Company; or

               (i)  the Company, any Subsidiary or any Guarantor shall (A) fail
     to pay any indebtedness (other than Seller Nonrecourse Debt not to exceed
     $25,000,000 in the aggregate during any rolling 36-month period) to any

                                      -67-
<PAGE>

     other Person or any interest or premium thereon, when due (whether by
     scheduled maturity, required prepayment, acceleration, demand or otherwise)
     and such failure shall continue after the applicable grace period, if any,
     specified in the agreement or instrument relating to such indebtedness, or
     (B) fail to perform any term, covenant or condition on its part to be
     performed under any agreement or instrument relating to any such
     indebtedness (other than Seller Nonrecourse Debt not to exceed $25,000,000
     in the aggregate during any rolling 36-month period), when required to be
     performed, and such failure shall continue after the applicable grace
     period, if any, specified in such agreement or instrument, if the effect of
     such failure to perform is to accelerate, or to permit the acceleration of,
     the maturity of such indebtedness; provided, however, that any alleged
                                        --------  -------
     failure to pay or perform as specified in subparagraphs (A) or (B)
     immediately above ("Alleged Default") with respect to indebtedness in a
     total aggregate amount not to exceed $10,000,000 shall not constitute an
     event of default hereunder so long as such Alleged Default is being
     actively contested by the Company in good faith by appropriate proceedings
     and no final judgment has been rendered with respect thereto; or

               (j)  without the prior written consent of the Majority Banks, any
     Subsidiary that is a stockholder, partner or member of a Homebuilding Joint
     Venture shall withdraw as a stockholder, partner or member of any
     Homebuilding Joint Venture, unless the aggregate net investment of the
     Company and any Subsidiary in such Homebuilding Joint Venture does not
     exceed $20,000,000; or

               (k)  any Guarantor shall reject or disaffirm its Guaranty (other
     than as a result of a liquidation or dissolution permitted under Section
                                                                      -------
     8.5 or a merger or consolidation permitted under Section 8.8), or otherwise
     ---                                              -----------
     notify the Agent that it does not intend the Guaranty or its liability
     thereunder to apply to any one or more future Borrowings or other
     Obligations; or

               (l)  any Borrowing Base Certificate proves to have been incorrect
     in any Material respect when delivered to the Agent.

               (m)  except as otherwise permitted under Section 8.18(a) as to
                                                        ---------------
     the payment or repurchase of Subordinated Debt, any Subordinated Debt or
     other indebtedness which is expressly subordinated to the Obligations and
     is owing by the Company, any Subsidiary or any Guarantor to any other
     Person, or any interest or premium thereon, shall be declared to be due and
     payable, or shall otherwise be required to be prepaid or repurchased (other
     than as to a regularly scheduled principal amortization payment), prior to
     the stated maturity thereof, including without limitation any prepayment or
     repurchase of any Subordinated Debt or other indebtedness expressly
     subordinated to the

                                      -68-
<PAGE>

     Obligations held by or owing to any other Person which becomes due and
     payable, or is otherwise required by such Person to be paid or repurchased,
     in connection with any change in control or asset sale of the Company or
     any of its Subsidiaries.

          9.2  Remedies. If any Event of Default occurs, the Agent shall, at the
               --------
request of, or may, with the consent of, the Majority Banks,

               (a)  declare the obligation of each Bank to make Loans to be
     terminated, whereupon such obligation shall be terminated;

               (b)  declare the unpaid principal amount of all outstanding
     Loans, all interest accrued and unpaid thereon and its Pro Rata Share of
     all other amounts payable under the Loan Documents to be due and payable 10
     days after demand, whereupon the same shall be due and payable 10 days
     after demand without presentment, demand, protest or other notice of any
     kind, all of which are hereby expressly waived by the Company; and

               (c)  exercise on behalf of itself and the Banks all rights and
     remedies available to it and the Banks under the Loan Documents or
     applicable law;

     provided, however, that upon the occurrence of any event specified in
     --------  -------
     subsection (g) of Section 9.1, the obligation of each Bank to make Loans
                       -----------
     shall automatically terminate and the unpaid principal amount of all
     outstanding Loans and all interest and other amounts as aforesaid shall
     automatically become due and payable without further act of the Agent or
     any Bank.  Upon the occurrence of any Event of Default, the Company shall
     immediately pay to the Agent, for the benefit of the Banks, an amount (the
     "L/C Obligations Amount") equal to the aggregate outstanding L/C
      ----------------------
     Obligations; and upon receipt of the payment of the L/C Obligations Amount,
     the Agent shall deposit such funds in an interest-bearing cash account (the
     "Cash Account") in the name of the Company maintained with the Agent as to
      ------------
     which the Company shall have no right of withdrawal except as provided
                                  --
     below. The Company hereby irrevocably authorizes and directs the Agent to
     apply amounts on deposit in the Cash Account against draws on the
     outstanding Letters of Credit as such draws are made. Upon expiration of
     all Letters of Credit and payment in full of all draws thereunder and all
     outstanding Loans and other Obligations, the amounts then on deposit in the
     Cash Account and any interest accrued thereon shall then be returned to the
     Company (to the extent any funds remain in the Cash Account after
     application of such funds as provided above.)

                                      -69-
<PAGE>

          9.3   Rights Not Exclusive.  The rights and remedies of the Agent and
                --------------------
Banks provided for in this Agreement and the other Loan Documents are cumulative
and are not exclusive of any other rights, powers, privileges or remedies
provided by law or in equity, or under any other instrument, document or
agreement now existing or hereafter arising.

          9.4   Notice of Default.  The Banks will refrain from exercising their
                -----------------
default rights and remedies (whether hereunder or under any Loan Document)
arising as a result of the occurrence of an Event of Default under Sections 7.3,
                                                                   ------------
7.8, 8.4, 8.5, 8.6, 8.7, 8.9, 8.10, 8.11, 8.12, 8.14 and 8.15 of this Agreement
---  ---  ---  ---  ---  ---  ----  ----  ----  ----     ----
for a period of 30 days after notice of such Event of Default has been given by
the Agent to the Company during which the Company may cure such default.
Provided, however, any Bank may, during such period, immediately terminate
further Loans and all rights of the Company under the Loan Documents. Provided
further, that such rights and obligations, including, without limitation,
obligations to make Loans, shall be reinstated upon timely cure by the Company.
Provided further, that no Bank will be required to give such notice or delay in
exercising its default rights and remedies for any period of time if the Company
knowingly failed to immediately give the Agent the statement provided in Section
                                                                         -------
8.11(a).
-------

ARTICLE 10: THE AGENT.
            ---------

          10.1  Appointment and Authorization.  Each Bank hereby irrevocably
                -----------------------------
appoints, designates and authorizes the Agent to take such action in 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 in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Bank, 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 Agent.

          10.2  Delegation of Duties.  The 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 concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.

                                      -70-
<PAGE>

          10.3  Liability of Agent.  None of the Agent-Related Persons 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), or

                (b)  be responsible in any manner to any of the Banks for any
     recital, statement, representation or warranty made by the Company or any
     Subsidiary or Affiliate of the Company, or any officer thereof, contained
     in this Agreement 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 Agent under or in connection with, this Agreement or any
     other Loan Document, or for the value of or title to any collateral, or the
     validity, effectiveness, genuineness, enforceability or sufficiency of this
     Agreement or any other Loan Document, or for any failure of the Company 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 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 the Company or any of the Company's
Subsidiaries or Affiliates.

          10.4  Reliance by Agent.
                -----------------

                (a)  The Agent shall be entitled to rely, and shall be fully
     protected in relying, upon any writing, resolution, notice, consent,
     certificate, affidavit, letter, telegram, facsimile, telex or telephone
     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 the Company), independent accountants and other
     experts selected by the Agent. The Agent shall be fully justified in
     failing or refusing to take any action under this Agreement or any other
     Loan Document unless it shall first receive such advice or concurrence of
     each Bank 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 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 each Bank and such
     request and any action taken or failure to act pursuant thereto shall be
     binding upon all of the Banks.

                                      -71-
<PAGE>

                (b)  For purposes of determining compliance with the conditions
     specified in Article 6, each Bank that has executed this Agreement shall be
     deemed to have consented to, approved or accepted or to be satisfied with,
     each document or other matter either sent by the Agent to such Bank for
     consent, approval, acceptance or satisfaction, or required thereunder to be
     consented to or approved by or acceptable or satisfactory to the Bank.

          10.5  Notice of Default.  The 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 Agent for the account of the Banks, unless the Agent shall
have received written notice from a Bank or the Company referring to this
Agreement, describing such default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Banks of its receipt
of any such notice. The Agent shall take such action with respect to such
default or Event of Default as may be requested by the Majority Banks in
accordance with Article 9; provided, however, that unless and until the Agent
                           --------  -------
has received any such request, the 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.  Each Bank acknowledges that none of the Agent-
                ---------------
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to the
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
Company and its Subsidiaries, the value of and title to any collateral, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Company 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 Company. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the Agent,
the 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

                                      -72-
<PAGE>

creditworthiness of the Company which may come into the possession of any of the
Agent-Related Persons.

          10.7  Indemnification.  Whether or not the transactions contemplated
                ---------------
hereby are consummated, the Banks shall indemnify upon demand the Agent-Related
Persons (to the extent not reimbursed by or on behalf of the Company and without
limiting the obligations of the Company to do so), pro rata, from and against
any and all liabilities covered by any indemnification hereunder; provided,
                                                                  --------
however, that no Bank shall be liable for the payment to the Agent-Related
-------
Persons of any portion of such liabilities resulting solely from such Person's
gross negligence or willful misconduct.  Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including attorney costs) incurred by the 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 Agent is not
reimbursed for such expenses by or on behalf of the Company.  The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.

          10.8  Agent in Individual Capacity.  BofA 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 the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Banks. Each Bank acknowledges that, pursuant
to such activities, BofA or its Affiliates may receive information regarding the
Company or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Company or such Subsidiary) and
acknowledge that the Agent shall be under no obligation to provide such
information to it. With respect to its Loans, BofA shall have the same rights
and powers under this Agreement as any other bank and may exercise the same as
though it were not the Agent, and the terms "Bank" and "Banks" include BofA in
its individual capacity.

          10.9  Successor Agent.  The Agent may resign as Agent upon 30 days'
                ---------------
notice to the Banks. If the Agent resigns under this Agreement, the Majority
Banks shall appoint from among the Banks a successor agent for the Banks upon
the written consent of the Banks and, if no Event of Default is outstanding, the
written consent of the Company (which consents shall not be unreasonably
withheld). If no successor agent is appointed prior to the effective date of the
resignation of the Agent, the Agent may appoint a successor agent from among the
Banks upon the written consent of the Banks and, if no Event of Default is
outstanding, the written consent of the Company

                                      -73-
<PAGE>

(which consents shall not be unreasonably withheld). Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent and the retiring Agent's appointment, powers and
duties as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article 10 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement. If no successor agent has accepted appointment as Agent by the
date which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above.

          10.10  Withholding Tax.
                 ---------------

                 (a)  If any Bank is a "foreign corporation, partnership or
     trust" within the meaning of the Code and such Bank claims exemption from,
     or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the
     Code, such Bank agrees with and in favor of the Agent, to deliver to the
     Agent:

                      (i)   if such Bank claims an exemption from, or a
          reduction of, withholding tax under a United States tax treaty,
          properly completed IRS Forms 1001 and W-8 before the payment of any
          interest in the first calendar year and before the payment of any
          interest in each third succeeding calendar year during which interest
          may be paid under this Agreement;

                      (ii)  if such Bank claims that interest paid under this
          Agreement is exempt from United States withholding tax because it is
          effectively connected with a United States trade or business of such
          Bank, two properly completed and executed copies of IRS Form 4224
          before the payment of any interest is due in the first taxable year of
          such Bank and in each succeeding taxable year of such Bank during
          which interest may be paid under this Agreement, and IRS Form W-9; and

                      (iii) such other form or forms as may be required under
          the Code or other laws of the United States as a condition to
          exemption from, or reduction of, United States withholding tax.

               Such Bank agrees to promptly notify the Agent of any change in
     circumstances which would modify or render invalid any claimed exemption or
     reduction.

                                      -74-
<PAGE>

                 (b)  If any Bank claims exemption from, or reduction of,
     withholding tax under a United States tax treaty by providing IRS Form 1001
     and such Bank sells, assigns, grants a participation in, or otherwise
     transfers all or part of the Obligations of the Company to such Bank in
     accordance with Section 11.6, such Bank agrees to notify the Agent of the
                     ------------
     percentage amount in which it is no longer the beneficial owner of
     Obligations of the Company to such Bank.  To the extent of such percentage
     amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.

                 (c)  If any Bank claiming exemption from United States
     withholding tax by filing IRS Form 4224 with the Agent sells, assigns,
     grants a participation in, or otherwise transfers all or part of the
     Obligations of the Company to such Bank in accordance with Section 11.6,
                                                                ------------
     such Bank agrees to undertake sole responsibility for complying with the
     withholding tax requirements imposed by Sections 1441 and 1442 of the Code.

                 (d)  If any Bank is entitled to a reduction in the applicable
     withholding tax, the Agent may withhold from any interest payment to such
     Bank an amount equivalent to the applicable withholding tax after taking
     into account such reduction. If the forms or other documentation required
     by subsection (a) of this Section are not delivered to the Agent, then the
     Agent may withhold from any interest payment to such Bank not providing
     such forms or other documentation an amount equivalent to the applicable
     withholding tax.

                 (e)  If the IRS or any other Governmental Authority of the
     United States or other jurisdiction asserts a claim that the Agent did not
     properly withhold tax from amounts paid to or for the account of any Bank
     (because the appropriate form was not delivered, was not properly executed,
     or because such Bank failed to notify the Agent of a change in
     circumstances which rendered the exemption from, or reduction of,
     withholding tax ineffective, or for any other reason) such Bank shall
     indemnify the Agent fully for all amounts paid, directly or indirectly, by
     the Agent as tax or otherwise, including penalties and interest, and
     including any taxes imposed by any jurisdiction on the amounts payable to
     the Agent under this Section, together with all costs and expenses
     (including Attorney Costs). The obligation of the Banks under this
     subsection shall survive the payment of all Obligations and the resignation
     or replacement of the Agent.

          10.11  Defaulting Banks.  If for any reason any Bank wrongfully (in
                 ----------------
violation of this Agreement) fails or refuses to advance its Pro Rata Share of
any Loan or Loans, or otherwise defaults on any of its material obligations
under this Agreement, and fails to cure its default within five (5) Banking Days
of receiving notice of its failure to perform (such Bank being a "Defaulting
Bank"), then in addition to the rights

                                      -75-
<PAGE>

and remedies that may be available to Agent and the Banks at law or in equity,
the Defaulting Bank's right to participate in the Loan and the Credit Agreement
will be suspended during the pendency of the Defaulting Bank's uncured default,
and (without limiting the foregoing) the Agent may (or at the direction of the
Majority 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 Commitment to the aggregate amount of the Commitments of all of the non-
defaulting Banks that elect to acquire a share of the Defaulting Bank's
Commitment) of the Defaulting Bank's Commitment, including without limitation
its proportionate share in the outstanding principal balance of the Loans. The
Defaulting Bank will pay and protect, defend and indemnify Agent and each of the
other Banks against, and hold Agent, and each of the other Banks harmless from,
all claims, actions, proceedings, liabilities, damages, losses, and expenses
(including without limitation attorneys' fees and costs, and interest at the
Reference Rate plus two percent (2.0%) per annum for the funds advanced by 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. Agent may set off against
payments due to the Defaulting Bank for the claims of Agent and the other Banks
against the Defaulting Bank. The exercise of these remedies will not reduce,
diminish or liquidate the Defaulting Bank's Commitment (except to the extent
that part or all of such 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 Company's obligations and liabilities
to the Banks. The foregoing provisions of this Section 10.11 are solely for the
                                               -------------
benefit of the Agent and the Banks, and may not be enforced or relied upon by
the Company.

          10.12  Performance by the Agent.  In the event that the Company shall
                 ------------------------
default in or fail to perform any of its obligations under the Loan Documents,
which default is not cured within any applicable cure period, the Agent shall
have the right, but not the duty, without limitation upon any of the Agent's or
the Banks' rights pursuant thereto, to perform the same, and the Company agrees
to pay to the Agent within five (5) Banking Days after demand, all reasonable
costs and expenses incurred by the Agent in connection therewith, including
without limitation reasonable Attorney Costs, together with interest thereon
from the date which is 5 Banking Days after demand until paid at a rate per
annum equal to the Reference Rate plus 2%.
                                  ----

          10.13  Actions.  The Agent shall have the right to commence, appear
                 -------
in, and defend any action or proceeding purporting to affect the rights or
duties of the Banks hereunder or the payment of any funds, and in connection
therewith the Agent

                                      -76-
<PAGE>

may pay necessary expenses, employ counsel, and pay Attorney Costs. The Company
agrees to pay to the Agent, within 5 Banking Days after demand, all reasonable
costs and expenses incurred by the Agent in connection therewith, including
without limitation reasonable Attorney Costs, together with interest thereon
from the date which is 5 Banking Days after demand until paid at a rate per
annum equal to the Reference Rate plus 2%.
                                  ----

          10.14  Syndication Agent, Documentation Agent and Co-Agent.
                 ---------------------------------------------------
Notwithstanding anything contained herein which may be construed to the
contrary, neither the Syndication Agent, the Documentation Agent nor the Co-
Agent shall exercise any of the rights or have any of the responsibilities of
the Agent hereunder, or any other rights or responsibilities other than their
respective rights and responsibilities as Banks hereunder.

ARTICLE 11: MISCELLANEOUS.
            -------------

          11.1   Amendments and Waivers. No amendment or waiver of any provision
                 ----------------------
of this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks (or by the Agent at the written
request of the Majority Banks) and the Company and acknowledged by the Agent,
and then any such waiver of consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
                                                       --------  -------
no such waiver, amendment, or consent shall, unless in writing and signed by all
the Banks and the Company and acknowledged by the Agent, do any of the
following:

                 (a)  increase or extend the Commitment of any Bank, unless such
     Bank has consented thereto in writing;

                 (b)  postpone or delay any date fixed by this Agreement or any
     other Loan Document for any payment of principal, interest, fees or other
     amounts due to the Banks (or any of them) hereunder or under any other Loan
     Document;

                 (c)  reduce the principal of, or the rate of interest specified
     herein on any Loan, or any fees or other amounts payable hereunder or under
     any other Loan Document;

                 (d)  change the percentage of the Commitments or of the
     aggregate unpaid principal amount of the Loans which is required for the
     Banks or any of them to take any action hereunder;

                 (e)  amend the definition of Majority Banks;

                                      -77-
<PAGE>

                 (f)  amend this Section or any provision herein providing for
     consent or other action by all Banks;

                 (g)  discharge any Guarantor, or release any Material portion
     of any collateral except where the consent of the Majority Banks only is
     specifically provided for;

                 (h)  amend, or perform any act pursuant to, any provision
     herein expressly requiring the consent of each Bank; or

                 (i)  amend any of the Events of Default set forth in Section
                                                                      -------
     9.1;
     ---

and, provided further, that no amendment, waiver or consent shall, unless in
     -------- -------
writing and signed by the Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document.  Each Bank shall bear its Pro Rata Share
of all costs and expenses incurred in any amendment, waiver or consent pursuant
to this Agreement.

          11.2  Costs, Expenses and Taxes.  The Company shall pay on demand the
                -------------------------
reasonable costs and expenses of the Agent and the Banks in connection with the
negotiation, preparation, execution, delivery, administration, amendment, waiver
and enforcement of the Loan Documents and any matter related thereto and any
litigation or dispute with respect thereto (including any bankruptcy or similar
proceedings), including without limitation attorney's fees and disbursements;
provided, however, the Company shall not be liable for any expenses of any Bank
--------  -------
other than BofA (for itself and as Agent) in connection with the negotiation and
preparation of the Loan Documents (provided further, that the immediately
                                   ----------------
preceding proviso shall not be deemed to limit the right of each Bank to payment
from the Company of all reasonable costs and expenses incurred by each Bank as
aforesaid in connection with any and all future administration, amendments,
waivers, enforcement actions, litigation, negotiations and other actions or
matters [other than assignments or participations with respect to which the only
amounts payable shall be the processing fee owing pursuant to Section 11.6(a)]
                                                              ---------------
relating to the Loans and Loan Documents). Any amount payable to the Agent and
the Banks under this Section 11.2 shall, from the date of demand for payment,
                     ------------
and any other amount payable to the Agent under the Loan Documents which is not
paid when due or within any applicable grace period shall, thereafter, bear
interest at the rate in effect under each Note with respect to Reference Rate
Borrowings.

          11.3  No Waiver; Cumulative Remedies.  No failure to exercise and no
                ------------------------------
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial

                                      -78-
<PAGE>

exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.

          11.4  Payments Set Aside.  To the extent that the Company makes a
                ------------------
payment to the Agent or the Banks, or the Agent or the Banks exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar proceeding relating to or affecting
creditors' rights generally 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 Agent upon demand its Pro Rata Share of any amount so
recovered from or repaid by the Agent.

          11.5  Successors and Assigns.  The provisions of this Agreement shall
                ----------------------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Agent and each Bank, and no Bank may assign or transfer
any of its rights or obligations under this Agreement except in accordance with
Section 11.6.
------------

          11.6  Assignments, Participations, etc.
                ---------------------------------

                (a)  Any Bank may, with the written consent of (i) the Company
     at all times other than during the existence of an Event of Default (which
     consent shall not be unreasonably withheld) and (ii) the Agent (which
     consent shall not be unreasonably withheld), at any time assign and
     delegate to one or more Eligible Assignees (provided that no written
     consent of the Company or the Agent shall be required in connection with
     any assignment and delegation by a Bank to an Eligible Assignee that is an
     affiliate of such Bank) which have not been a party to any Material
     litigation with the Agent or the Company (each an "Assignee") all, or any
                                                        --------
     ratable part of all, of the Loans, the Commitments and the other rights and
     obligations of such Bank hereunder, in an initial minimum amount of
     $10,000,000 and in increments of $5,000,000 in excess thereof; provided,
                                                                    --------
     however, that (A) each Bank (including each Eligible Assignee) must retain
     -------
     a Commitment of not less than $10,000,000 after giving effect to such
     assignment, except for the Banks which act as the Agent, Syndication Agent,
     and Co-Agent, respectively, which each must retain a Commitment of not less
     than $20,000,000, except if such Banks resign as Agent, Syndication Agent,
     or Co-Agent, as applicable (provided further,
                                 ----------------

                                      -79-
<PAGE>

     however, that so long as any Event of Default has occurred and is
     -------
     continuing, any Bank may assign and delegate to one or more Eligible
     Assignees its entire Commitment, and all of its other rights and
                   ------
     obligations as a Bank hereunder), and (B) the Company and the Agent may
     continue to deal solely and directly with such Bank in connection with the
     interest so assigned to an Assignee until (1) written notice of such
     assignment, together with payment instructions, addresses and related
     information with respect to the Assignee, shall have been given to the
     Company and the Agent by such Bank and the Assignee; (2) such Bank and its
     Assignee shall have delivered to the Company and the Agent an Assignment
     and Acceptance in the form of Exhibit "H" ("Assignment and Acceptance")
                                   -----------
     together with any Note or Notes subject to such assignment and (3) the
     assignor Bank or Assignee has paid to the Agent a processing fee in the
     amount of $5,000. All costs and expenses incurred by an assigning Bank in
     such assignment shall be borne by such Bank.

               (b)  From and after the date that the Agent notifies the assignor
     Bank that it has received (and provided its consent with respect to and
     received the consent of the Company with respect to) an executed Assignment
     and Acceptance and payment of the above-referenced processing fee, (i) the
     Assignee thereunder shall be a party hereto and, to the extent that rights
     and obligations hereunder have been assigned to it pursuant to such
     Assignment and Acceptance, shall have the rights and obligations of a Bank
     under the Loan Documents, and (ii) the assignor Bank shall, to the extent
     that rights and obligations hereunder and under the other Loan Documents
     have been assigned by it pursuant to such Assignment and Acceptance,
     relinquish its rights and be released from its obligations under the Loan
     Documents.

               (c)  Within five Banking Days after its receipt of notice by the
     Agent that it has received an executed Assignment and Acceptance and
     payment of the processing fee (and provided that it consents to such
     assignment in accordance with Section 11.6(a)), the Company shall execute
                                   ---------------
     and deliver to the Agent, new Notes evidencing such Assignee's assigned
     Loans and Commitment and, if the assignor Bank has retained a portion of
     its Loans and its Commitment, replacement Notes in the principal amount of
     the Loans retained by the assignor Bank (such Notes to be in exchange for,
     but not in payment of, the Notes held by such Bank).  Immediately upon each
     Assignee's making its processing fee payment under the Assignment and
     Acceptance, this Agreement shall be deemed to be amended to the extent, but
     only to the extent, necessary to reflect the addition of the Assignee and
     the resulting adjustment of the Commitments arising therefrom.  The
     Commitment allocated to each Assignee shall reduce such Commitment of the
     assigning Bank pro tanto.
                    --- -----

                                      -80-
<PAGE>

               (d)  Any Bank may, with the written consent of (i) the Company at
     all times other than during the existence of an Event of Default (which
     consent shall be at the Company's sole and absolute discretion) and (ii)
     the Agent (which consent shall not be unreasonably withheld), at any time
     sell to one or more commercial banks or other Persons not Affiliates of the
     Company (a "Participant") participating interests in any Loans, the
     Commitment of that Bank and the other interests of that Bank (the
     "originating Bank") hereunder and under the other Loan Documents; provided,
                                                                       --------
     however, that (A) the originating Bank's obligations under this Agreement
     -------
     shall remain unchanged, (B) the originating Bank shall remain solely
     responsible for the performance of such obligations, (C) the Company and
     the Agent shall continue to deal solely and directly with the originating
     Bank in connection with the originating Bank's rights and obligations under
     this Agreement and the other Loan Documents, and (D) no Bank shall transfer
     or grant any participating interest under which the Participant has rights
     to approve any amendment to, or any consent or waiver with respect to, this
     Agreement or any other Loan Document, except to the extent such amendment,
     consent or waiver would require unanimous consent of the Banks as described
     in the first proviso to Section 11.1. In the case of any such
            ----- -------    ------------
     participation, the Participant shall be entitled to the benefit of Sections
                                                                        --------
     4.5, 4.7 and 11.12 as though it were also a Bank hereunder, and, if amounts
     ---  ---     -----
     outstanding under this Agreement are due and unpaid, or shall have been
     declared or shall have become due and payable upon the occurrence of an
     Event of Default, each Participant shall be deemed to have the right of
     set-off in respect of its participating interest in amounts owing under
     this Agreement to the same extent as if the amount of its participating
     interest were owing directly to it as a Bank under this Agreement. Each
     Bank understands and acknowledges that the Company does not presently
     intend to permit the sale of participations to Participants pursuant to
     this subparagraph (d), and will not likely consent to any such request of
     any Bank during the term of this Agreement.

               (e)  Each Bank agrees to take normal and reasonable precautions
     and exercise due care to maintain the confidentiality of all information
     identified as "confidential" or "secret" by the Company and provided to it
     by the Company or any Subsidiary, or by the Agent on such Company's or
     Subsidiary's behalf, under this Agreement or any other Loan Document, and
     neither it nor any of its Affiliates shall use any such information other
     than in connection with or in enforcement of this Agreement and the other
     Loan Documents; except to the extent such information (i) was or becomes
     generally available to the public other than as a result of disclosure by
     the Bank, or (ii) was or becomes available on a non-confidential basis from
     a source other than the Company, provided that such source is not bound by
     a confidentiality agreement with the Company known to the Bank; provided,
                                                                     --------
     however, that any
     -------

                                      -81-
<PAGE>

     Bank may disclose such information (A) at the request or pursuant to any
     requirement of any Governmental Authority to which the Bank is subject or
     in connection with an examination of such Bank by any such authority; (B)
     pursuant to subpoena or other court process; (C) when required to do so in
     accordance with the provisions of any applicable Requirement of Law; (D) to
     the extent reasonably required in connection with any litigation or
     proceeding to which the Agent, any Bank or their respective Affiliates may
     be party; (E) to the extent reasonably required in connection with the
     exercise of any remedy hereunder or under any other Loan Document; (F) to
     such Bank's independent auditors and other professional advisors; (G) to
     any Participant or Assignee, actual or potential, provided that such Person
     agrees in writing to keep such information confidential to the same extent
     required of the Banks hereunder, and (H) as to any Bank, as expressly
     permitted under the terms of any other document or agreement regarding
     confidentiality to which the Company is party or is deemed party with such
     Bank.

                (f)  Notwithstanding any other provision in this Agreement, any
     Bank may at any time create a security interest in, or pledge, all or any
     portion of its rights under and interest in this Agreement and the Note
     held by it in favor of any Federal Reserve Bank in accordance with
     Regulation A of the FRB or U.S. Treasury Regulation 31 CFR (S)203.14, and
     such Federal Reserve Bank may enforce such pledge or security interest in
     any manner permitted under applicable Law.

          11.7  Set-off.  In addition to any rights and remedies of the Banks
                -------
provided by Law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Company, any such notice being waived by the Company to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final excluding the
Company's customer trust accounts) at any time held by, and other indebtedness
at any time owing by, such Bank to or for the credit or the account of the
Company against any and all Obligations owing to the Banks, now or hereafter
existing, irrespective of whether or not the Agent or such Bank shall have made
demand under this Agreement or any Loan Document and although such Obligations
may be contingent or unmatured. Each Bank agrees promptly to notify the Company
and the Agent after any such set-off and application made by such Bank;
provided, however, that the failure to give such notice shall not affect the
--------  -------
validity of such set-off and application.

          11.8  Automatic Debits.  With respect to any principal or interest
                ----------------
payment, commitment fee or usage fee due and payable to the Agent or the Banks
under the Loan Documents, the Company hereby irrevocably authorizes the Agent to
debit any deposit account of the Company with BofA and hereby agrees to
irrevocably

                                      -82-
<PAGE>

direct in writing the holder of any deposit account to debit any deposit account
of the Company (excluding the Company's customer trust accounts), in amounts
specified by the Agent from time to time such that the aggregate amount debited
from all such deposit accounts does not exceed such payment, fee, other cost or
expense. The Agent shall use its best efforts to give the Company advance notice
of each debit, but failure of the Agent to give such notice shall not invalidate
its authorization hereunder. If there are insufficient funds in such deposit
accounts to cover the amount of the payment, fee, other cost or expense then
due, such debits will be reversed (in whole or in part, in the Agent's sole
discretion) and such amount not debited shall be deemed to be unpaid. No such
debit under this Section shall be deemed a set-off.

          11.9   Notification of Addresses, Lending Offices, Etc. Each Bank
                 ------------------------------------------------
shall notify the Agent in writing of any changes in the address to which notices
to the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.

          11.10  Survival of Representations and Warranties. All representations
                 ------------------------------------------
and warranties of the Company contained herein or in any certificate or other
writing delivered by or on behalf of the Company pursuant to any Loan Document
will survive the making and repayment of the Loan and the execution and delivery
of each Note, and have been or will be relied upon by each Bank, notwithstanding
any investigation made by such Bank or on its behalf.

          11.11  Notices.  Except as otherwise provided herein or in each Note:
                 -------

                 (a)  all notices, requests, demands, directions and other
     communications provided for hereunder and under each Note must be in
     writing and must be mailed, telecopied, delivered or sent by telex or cable
     to the appropriate party at the address set forth on the signature pages of
     this Agreement or, as to any party, at any other address as may be
     designated by it in a written notice sent to the other party in accordance
     with this Section 11.11, and
               -------------

                 (b)  if any notice, request, demand, direction or other
     communication is given by mail it will be effective on the earlier of
     receipt or the third calendar day after deposit in the United States mails
     with first class or airmail postage prepaid; if given by telecopier, when
     receipt is confirmed by the recipient; if given by cable, when delivered to
     the telegraph company with charges prepaid; if given by telex, when sent;
     or if given by personal delivery, when delivered.

                                      -83-
<PAGE>

          11.12  Indemnity by the Company.  The Company agrees to indemnify,
                 ------------------------
save and hold harmless each Bank, the Agent and their directors, officers,
agents, attorneys and employees (collectively the "indemnitees") from and
against (a) any and all claims, demands, actions or causes of action that are
asserted against any indemnitee by any Person if the claim, demand, action or
cause of action directly or indirectly relates to a claim, demand, action or
cause of action that the Person has or asserts against the Company or any
officer, director or shareholder of the Company, and (b) any and all
liabilities, losses, costs or expenses (including Attorney Costs) that any
indemnitee suffers or incurs as a result of the assertion of any such claim,
demand, action or cause of action.

          11.13  Integration and Severability. This Agreement and the other
                 ----------------------------
Loan Documents comprise the complete and integrated agreement of the parties on
the subject matter hereof and supersede all prior agreements, written or oral,
on the subject matter hereof. 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 or the operation, enforceability or validity of that
provision in any other jurisdiction, and to this end the provisions of the Loan
Documents are declared to be severable.

          11.14  Counterparts.  This Agreement may be executed in any number of
                 ------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.

          11.15  No Third Parties Benefitted. This Agreement is made and entered
                 ---------------------------
into for the sole protection and legal benefit of the Company, the Banks, the
Agent and the Agent-Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.

          11.16  Section Headings.  Section headings in this Agreement are
                 ----------------
included for convenience of reference only and are not part of this Agreement
for any other purpose.

          11.17  Further Acts by the Company.  The Company agrees, at its own
                 ---------------------------
expense, to do such acts and execute and deliver such documents as any Bank from
time to time reasonably requires for the purpose of carrying out the intention
or facilitating the performance of the terms hereof.

          11.18  Time of the Essence. Time is of the essence of the Loan
                 -------------------
Documents.

                                      -84-
<PAGE>

          11.19  Governing Law.  The Loan Documents shall be governed by, and
                 -------------
construed and enforced in accordance with, the internal laws of the State of
California without regard to the conflict of law provisions thereof.

          11.20  Reference and Arbitration.
                 -------------------------

                 (a)  In any judicial action between or among the parties,
     including any action or cause of action arising out of or relating to this
     Agreement or the Loan Documents or based on or arising from an alleged
     tort, all decisions of fact and law shall at the request of any party be
     referred to a referee in accordance with California Code of Civil Procedure
     Sections 638 et seq. The parties shall designate to the court a referee or
                  -- ---
     referees selected under the auspices of the American Arbitration
     Association ("AAA") in the same manner as arbitrators are selected in AAA-
     sponsored proceedings. The presiding referee of the panel, or the referee
     if there is a single referee, shall be an active attorney or retired judge.
     Judgment upon the award rendered by such referee or referees shall be
     entered in the court in which such proceeding was commenced in accordance
     with California Code of Civil Procedure Sections 644 and 645.

                 (b)  Any controversy or claim between or among the parties,
     including those arising out of or relating to this Agreement or the Loan
     Documents and any claim based on or arising from an alleged tort, shall at
     the request of any party be determined by arbitration. The arbitration
     shall be conducted in accordance with the United States Arbitration Act
     (Title 9, U.S. Code), notwithstanding any choice of law provision in this
     Agreement, and under the Commercial Rules of the AAA. The arbitrator(s)
     shall give effect to statutes of limitation in determining any claim. Any
     controversy concerning whether an issue is arbitrable shall be determined
     by the arbitrator(s). Judgment upon the arbitration award may be entered in
     any court having jurisdiction. The institution and maintenance of an action
     for judicial relief or pursuit of a provisional or ancillary remedy shall
     not constitute a waiver of the right of any party, including the plaintiff,
     to submit the controversy or claim to arbitration if any other party
     contests such action for judicial relief.

                 (c)  No provision of this Section 11.20 shall limit the right
                                           -------------
     of any party to this Agreement to exercise self-help remedies such as
     setoff, foreclosure against or sale of any real or personal property
     collateral or security, or to obtain provisional or ancillary remedies from
     a court of competent jurisdiction before, after, or during the pendency of
     any arbitration or other proceeding. The exercise of a remedy does not
     waive the right of either party to resort to arbitration or reference.

                                      -85-
<PAGE>

          11.21  Effectiveness of this Agreement.  Notwithstanding anything
                 -------------------------------
contained herein to the contrary, the effectiveness of this Agreement and the
Banks' and the Agent's obligations hereunder are expressly conditioned upon
satisfaction of all of the following conditions precedent (any one or more of
which the Banks may waive in their sole discretion):

                 (a)  The Agent shall have received the following original
     executed documents (in form and substance satisfactory to the Agent and
     legal counsel for the Agent in sufficient number for the Agent and each
     Bank):

                      (i)    this Agreement;

                      (ii)   each Note;

                      (iii)  the Guaranty and the Guaranty of the Subsidiary
          Letters of Credit;

                      (iv)   the Opinion of Counsel;

                      (v)    a certified copy of resolutions of the board of
          directors of the Company authorizing the execution of the Loan
          Documents, together with an incumbency certificate executed by the
          corporate secretary of the Company;

                      (vi)   a certified copy of resolutions of the board of
          directors of each Guarantor authorizing the execution of the Guaranty,
          together with an incumbency certificate executed by the corporate
          secretary of each Guarantor;

                      (vii)  a Borrowing Base Certificate calculated as of June
          30, 2000, showing the Company to be in compliance with Sections 3.6
                                                                 ------------
          and 8.26 hereof; and
              ----

                      (viii) such other agreements, instruments and documents as
          any Bank shall reasonably request.

                 (b)  The Agent shall have received evidence satisfactory to the
     Agent and legal counsel to the Agent that the Company has been duly
     incorporated, validly exists and is in good standing under the laws of the
     State of Delaware, is duly qualified to do business as, and is in good
     standing as, a foreign corporation in each jurisdiction in which the
     conduct of its business or the ownership or leasing of its properties makes
     such qualification necessary,

                                      -86-
<PAGE>

     and has all requisite power and authority to conduct its business and to
     own and lease its properties.

          On the date this Agreement becomes effective, and subject to the
satisfaction (or waiver by Agent in its sole discretion) of all applicable
conditions to advances hereunder, all sums owing under the Eighth Amended Credit
Agreement and Eighth Amended Loan Documents shall be deemed to be outstanding
and owing under, evidenced by, and governed by the terms of this Agreement, the
Notes, and the other Loan Documents.

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

                         The Company:
                         -----------

                         STANDARD PACIFIC CORP., a Delaware corporation

                         By:  ____________________________________________

                              ____________________________________________
                                        [Printed Name and Title]

                         By:  ____________________________________________

                              ____________________________________________
                                        [Printed Name and Title]

                         Address for Notices:
                         -------------------

                         Standard Pacific Corp.
                         15326 Alton Parkway
                         Irvine, California 92618
                         Attn: Mr. Andrew H. Parnes
                         Telephone:  (949) 789-1616
                         Telecopier: (949) 789-1609

                                      -87-
<PAGE>

                                   The Banks:
                                   ---------

                                   BANK OF AMERICA, NATIONAL ASSOCIATION,
                                   a national banking association

                                   By:  ____________________________________
                                        Charles H. Green, Managing Director

                                   Address for Notices:
                                   -------------------

                                   Bank of America, National Association
                                   5 Park Plaza, Suite 500
                                   Irvine, California 92614-8525
                                   Attn: Mr. Charles H. Green
                                   Telephone:  (949) 260-5690
                                   Telecopier: (949) 260-5639

                                   LIBOR Lending Office:
                                   --------------------

                                   Bank of America, National Association
                                   5 Park Plaza, Suite 500
                                   Irvine, California 92614-8525
                                   Attn: Ms. Phyllis Sakamoto
                                   Telephone:  (949) 260-5648
                                   Telecopier: (949) 260-5639

                                      -88-
<PAGE>

                                   BANK ONE, NA

                                   By  ______________________________________

                                       ______________________________________
                                               [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   Bank One
                                   One Bank One Plaza, Mail Suite IL1-0315
                                   Chicago, Illinois 60670-0151
                                   Attn: Mr. Patt Schiewitz
                                   Telephone:  (312) 732-3636
                                   Telecopier: (312) 732-1117

                                   LIBOR Lending Office:
                                   --------------------

                                   Bank One
                                   One Bank One Plaza, Mail Suite 0315
                                   Chicago, Illinois 60670-0315
                                   Attn: Ms. Maria Lozano
                                   Telephone:  (312) 336-2057
                                   Telecopier: (312) 732-1582/1158

                                      -89-
<PAGE>

                                   FLEET NATIONAL BANK, a national banking
                                   association

                                   By   _____________________________________

                                        _____________________________________
                                                [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   Fleet National Bank
                                   115 Perimeter Center Place, Suite 500
                                   Atlanta, Georgia 30346
                                   Attn: Mr. Andrew D. Stickney
                                   Telephone:  (770) 390-6529
                                   Telecopier: (770) 390-8434

                                   LIBOR Lending Office:
                                   --------------------

                                   Fleet National Bank
                                   111 Westminster Street, Suite 800
                                   Providence, Rhode Island 02903
                                   Attn: Ms. Carol Rooney
                                   Telephone:  (401) 278-3949
                                   Telecopier: (401) 278-3674

                                      -90-
<PAGE>

                                   SANWA BANK CALIFORNIA, a California
                                   corporation

                                   By  _____________________________________

                                       _____________________________________
                                             [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   Sanwa Bank California
                                   4041 MacArthur Boulevard, Suite 100
                                   Newport Beach, California 92660
                                   Attn: Ms. Joy Condon
                                   Telephone:  (949) 622-6004
                                   Telecopier: (949) 852-1510

                                   LIBOR Lending Office:
                                   --------------------

                                   Sanwa Bank California
                                   4041 MacArthur Boulevard, Suite 100
                                   Newport Beach, California 92660
                                   Attn: Ms. Betty Myers
                                   Telephone:  (949) 622-6020
                                   Telecopier: (949) 852-1510

                                      -91-
<PAGE>

                                   COMERICA BANK

                                   By  ____________________________________

                                       ____________________________________
                                             [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   Comerica Bank
                                   500 Woodward Avenue, 7th Floor
                                   Detroit, Michigan 48226
                                   Attn: Mr. David J. Campbell
                                   Telephone:  (313) 222-9306
                                   Telecopier: (313) 222-9295

                                   For U.S. Mail Only:
                                   ------------------

                                   Comerica Bank
                                   P.O. Box 75000
                                   Detroit, Michigan 48275-3256
                                   Attn: Mr. David J. Campbell

                                   LIBOR Lending Office:
                                   --------------------

                                   Comerica Bank
                                   500 Woodward Avenue, 7th Floor
                                   Detroit, Michigan 48226
                                   Attn: Ms. Betsy Branson
                                   Telephone:  (313) 222-5878
                                   Telecopier: (313) 222-3697

                                      -92-
<PAGE>

                                   PNC BANK, NATIONAL ASSOCIATION

                                   By  ______________________________________

                                       ______________________________________
                                               [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   PNC Bank
                                   2 Tower Center, 18th Floor
                                   East Brunswick, New Jersey 08816
                                   Attn: Mr. Douglas G. Paul
                                   Telephone:  (732) 220-3566
                                   Telecopier: (732) 220-3755

                                   LIBOR Lending Office:
                                   --------------------

                                   PNC Bank - Real Estate Finance
                                   1600 Market Street, 30th Floor
                                   Philadelphia, Pennsylvania 19103
                                   Attn: Ms. Tina Scott
                                   Telephone:  (215) 585-6122
                                   Telecopier: (215) 585-8532

                                      -93-
<PAGE>

                                   BANK UNITED, a federal savings bank

                                   By  ______________________________________

                                       ______________________________________
                                               [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   Bank United
                                   Residential Construction Lending
                                   3200 Southwest Freeway, Suite 2000
                                   Houston, Texas 77027
                                   Attn: Ms. Carolyn S. Alexander
                                   Telephone:  (713) 543-7955
                                   Telecopier: (713) 543-6928

                                   LIBOR Lending Office:
                                   --------------------

                                   Bank United
                                   Residential Construction Lending
                                   3200 Southwest Freeway, Suite 2000
                                   Houston, Texas 77027
                                   Attn: Ms. Melissa Hicks
                                   Telephone:  (713) 543-6843
                                   Telecopier: (713) 543-6928

                                      -94-
<PAGE>

                                   AMSOUTH BANK

                                   By  ______________________________________

                                       ______________________________________
                                               [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   Amsouth Bank
                                   1900 5th  Avenue North
                                   AST - 10th Floor - RCL
                                   Birmingham, Alabama 35203
                                   Attn: Mr. Ronny Hudspeth
                                   Telephone:  (205) 307-4227
                                   Telecopier: (205) 801-0138

                                   LIBOR Lending Office:
                                   --------------------

                                   Amsouth Bank
                                   1900 5th  Avenue North
                                   AST - 10th Floor - RCL
                                   Birmingham, Alabama 35203
                                   Attn: Ms. Wanda Pate
                                   Telephone:  (205) 326-4615
                                   Telecopier: (205) 801-0138

                                      -95-
<PAGE>

                                   UNION BANK OF CALIFORNIA, NA, a national
                                   banking association

                                   By  _______________________________________

                                       ______________________________________
                                               [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   Union Bank of California, NA
                                   18300 Von Karman Avenue, Suite 230
                                   Irvine, California 92612
                                   Attn: Mr. Peter Nielsen
                                   Telephone:  (949) 553-7121
                                   Telecopier: (949) 553-7010

                                   LIBOR Lending Office:
                                   --------------------

                                   Union Bank of California, NA
                                   18300 Von Karman Avenue, Suite 230
                                   Irvine, California 92612
                                   Attn: Ms. Monica Koprowski
                                   Telephone:  (949) 553-7181
                                   Telecopier: (949) 553-7010

                                      -96-
<PAGE>

                                   GUARANTY FEDERAL BANK, F.S.B., a federal
                                   savings bank

                                   By  ______________________________________

                                       ______________________________________
                                               [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   Guaranty Federal Bank, F.S.B.
                                   8333 Douglas Avenue
                                   Dallas, Texas 75225
                                   Attn: Ms. Jenny Ray
                                   Telephone:  (214) 360-2837
                                   Telecopier: (214) 360-1661

                                   LIBOR Lending Office:
                                   --------------------

                                   Guaranty Federal Bank, F.S.B.
                                   8333 Douglas Avenue
                                   Dallas, Texas 75225
                                   Attn: Ms. Donna Best
                                   Telephone:  (214) 360-1953
                                   Telecopier: (214) 360-4854

                                      -97-
<PAGE>

                                   SUNTRUST BANK, ATLANTA

                                   By  ______________________________________

                                       ______________________________________
                                                [Printed Name and Title]

                                   Address for Notices:
                                   -------------------

                                   SunTrust Bank
                                   303 Peachtree Street, N.E., 3rd Floor
                                   Atlanta, Georgia 30308
                                   Attn: Mr. Donald L. Gaudette, Jr.
                                   Telephone:  (404) 658-4925
                                   Telecopier: (404) 588-8505

                                   LIBOR Lending Office:
                                   --------------------

                                   SunTrust Bank
                                   25 Park Place, N.E., 21st Floor
                                   Atlanta, Georgia 30303-2900
                                   Attn: Ms. Lawanda Griffeth
                                   Telephone:  (404) 588-8375
                                   Telecopier: (404) 575-2730

                                      -98-
<PAGE>

                                   The Agent:
                                   ---------

                                   BANK OF AMERICA, NATIONAL ASSOCIATION, a
                                   national banking association

                                   By:  ______________________________________
                                        Charles H. Green, Managing Director

                                   Address for Notices:
                                   -------------------
                                   (Agent's Payment Office)

                                   Bank of America, National Association
                                   5 Park Plaza, Suite 500
                                   Irvine, California 92714-8525
                                   Attn: Mr. Charles H. Green
                                   Telephone:  (949) 260-5690
                                   Telecopier: (949) 260-5639

                                      -99-<PAGE>

                                       1

                                                                   EXHIBIT 10.67

          CONFIDENTIAL PORTIONS OMITTED PURSUANT TO RULE 24b-2 OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                         _____________________________             001009/MCM/FP
                            COLLABORATION RESEARCH

                                   AGREEMENT
                         _____________________________

This Agreement entered into as of October 13/th/, 2000 (the "Effective Date") is
made between:

CORTEX PHARMACEUTICALS Inc
Having its principal office at
15241 Barranca Parkway
Irvine, California
USA

(hereinafter "Cortex")

                                        on one part,

AND

INSTITUT DE RECHERCHES INTERNATIONALES SERVIER
A corporation duly organized and registered under the laws of France
Having its principal office at
6 Place des Pleiades
92415 Courbevoie cedex
France

(hereinafter "IRIS")

and

ADIR ET COMPAGNIE
A corporation duly organized and registered under the laws of France
Having its principal office at
1 Rue Carle Hebert
92415 Courbevoie cedex
France

(hereinafter "AEC")

IRIS et ADIR are hereinafter collectively referred to as "Servier".

                                   on the other part,
<PAGE>

                                       2

                                R E C I T A L S

     A.  Cortex possesses know-how, expertise and rights to issued United States
and foreign patents and patent applications pertaining to a class of proprietary
pharmaceuticals called "Ampakines(R)".

     B.  Certain of these Ampakines have the potential to modulate and treat
cognitive impairment and dementia.

     C.  Cortex has research facilities and experienced scientists, research
associates and other personnel at its facilities in Irvine, California which
enable it to conduct research and development activities.

     D.  Servier desires to sponsor research by Cortex to identify candidate
compounds for use in the Field (as defined below) and to collaborate with Cortex
on research of Pharmaceutical Specialties (as defined below).

     E.  Servier is engaged in the research, development, marketing,
manufacturing and distribution of pharmaceutical specialties, including in the
neuropsychopharmacological field, and Servier has developed certain know-how
that may be useful in the development of treatments for impaired cognition and
dementia.

NOW THEREFORE, in consideration of the premises and of the covenants herein
contained, the parties hereto mutually agree as follows:

1.   DEFINITIONS

     For purposes of this Agreement, the terms defined in this Article shall
have the meanings specified below:

     1.1  "Affiliate" shall mean any corporation or other entity which controls,
           ---------
is controlled by, or is under common control with a Party to this Agreement.  A
corporation or other entity shall be regarded as in control of or controlled by
another corporation or entity if it owns or directly or indirectly controls more
than fifty percent (50%) of the voting stock or other ownership interest of the
other corporation or entity, or if it possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of the
corporation or other entity or the power to elect or appoint fifty percent (50%)
or more of the members of the governing body of the corporation or other entity.

     1.2  "Ampakines" shall mean those Cortex compounds and Collaboration
           ---------
Compounds (as defined hereunder) that are positive modulators of AMPA-receptor
function.

     1.3  "Collaboration Compounds" shall have the meaning set forth in Article
           -----------------------
3.4.2.
<PAGE>

                                       3

     1.4  "Cortex Compounds" shall have the meaning set forth in Article 3.4.1.
           ----------------

     1.5  "Cortex Patent Rights" shall mean all rights under present and future,
           --------------------
foreign and domestic, patents, patent applications, patent extensions,
certificates of invention and applications for certificates of invention,
together with any originals, provisionals, divisionals, continuations or
continuations-in-part, extensions, renewals and reissues owned by, or licensed
to Cortex, including Cortex' interest in Joint Patent Rights and related to
Cortex compounds, the Collaboration Compounds and the Lead Compounds.  Cortex
Patent Rights in the Territory as of the Effective Date, and all licenses
relating to such Cortex Patent Rights are listed in Schedule 2 hereto.

     1.6  "Cortex Technology" shall mean all present and future inventions,
           -----------------
trade secrets, know-how, copyrights, data, regulatory submissions or other
intellectual property of any kind useful in the Field (including any proprietary
biological materials, compounds or reagents) and all confidential technical
information in the possession of Cortex as of the Effective Date and during the
term of this Agreement necessary or useful for the discovery, development,
manufacture, use or sale of a Pharmaceutical Specialty.

     1.7  "Data" shall have the meaning set forth in Article 2.3.1.
           ----

     1.8  "Effective Date" shall mean the date first set forth above.
           --------------

     1.9  "Executive Committee" shall mean the joint committee of
           -------------------
representatives of Servier and Cortex as described in Article 4 hereof.

     1.10 "Field" shall mean the use of Ampakines for the treatment of (i)
           -----
declines in cognitive or performance associated with aging, and (ii)
neurodegenerative diseases, including such as but not limited to Alzheimer's
disease, Parkinson's disease, multiple sclerosis, and Amyotrophic Lateral
Sclerosis.  Without limitation, the Field specifically excludes the treatment of
traumatic brain injury, stroke, spinal cord injury, ischemic conditions or
injuries and all psychiatric conditions.

     1.11 "FTE" means the full time equivalent effort, for one year, of one
           ---
person who participates directly and effectively in the research activities
contemplated under this Agreement.

     1.12 "Inventions," "Cortex Inventions" and "Servier Inventions" shall have
           ----------    -----------------       ------------------
the meanings set forth respectively in Article 7.1.1.

     1.13 "Joint Inventions" shall have the meaning set forth in Article 7.1.1.
           ----------------

     1.14 "Joint Patent Rights" shall mean all patents, patent applications,
           -------------------
patent extensions, certificates of invention, together with any divisions,
continuations or continuations-in-part covering Joint Inventions.

     1.15 "Lead Compound" shall mean those Cortex Compounds or Collaboration
           -------------
Compounds chosen by Servier, pursuant to Article 3.4.
<PAGE>

                                       4

     1.16 "Party" shall mean Cortex or Servier.
           -----

     1.17 "Parties" shall mean collectively Cortex and Servier.
           -------

     1.18 "Pharmaceutical Specialty " shall mean any therapeutic composition for
           ------------------------
administration to human subjects containing an Ampakine as a pharmaceutically
active ingredient for use in the Field.

     1.19 "Quarter" means each calendar quarter commencing on January 1, April
           -------
1, July and 1 October.

     1.20 "Research Funding Payment" shall have the meaning set forth in Article
           ------------------------
6.

     1.21 "Research Phase" shall be for a period of three (3) years from the
           --------------
date of commencement of the Research Plan unless otherwise extended pursuant to
Article 3.1.

     1.22 "Research Plan" shall mean the plan for identifying and evaluating
           -------------
potential Ampakines with applicability in the Field, as amended from time to
time by the Executive Committee, which plan, including all amendments, shall be
attached to this Agreement as Schedule 1.

     1.24 "Scientific Committee" shall mean the joint committee composed of
           --------------------
representatives of Cortex and Servier described in Article 4 hereof.

     1.25 "Servier Data" shall have the meaning set forth in Article 2.3.1.
           ------------

     1.26 "Territory" shall mean all countries in western, central and eastern
           ---------
Europe, the Middle East, Asia (including Japan) and Africa, and Argentina,
Brazil and Venezuela.  Without limitation, the Territory excludes all of North
America, all of South America (except Argentina, Brazil and Venezuela),
Australia and New Zealand.

     1.27 "Third Party" shall mean any entity other than Cortex or Servier and
           -----------
their respective Affiliates.

2.   SCOPE AND STRUCTURE OF THE COLLABORATION

     2.1  General.  Cortex and Servier wish to establish a collaborative
          -------
alliance relative to the Field and, in particular, to conduct the Research Plan,
as more particularly set out in Articles 3 and 4 below. The purpose of the
Research Plan shall be to identify and/or evaluate Ampakines with applicability
in the Field as more particularly set out therein.

     2.2  Exclusivity.
          -----------

          2.2.1 Servier acknowledges that Cortex is free to engage in activities
outside the Field anywhere in the world, and activities inside the Field outside
the Territory, on its own
<PAGE>

                                       5

behalf and for the benefit of Third Parties. Cortex undertakes that except, as
set forth in this Agreement, it will not engage in any activities in the Field
in the Territory with or on behalf of any Third Party. In the event Cortex
determines to enter into discussions with a Third Party regarding the license by
Cortex of it rights regarding Ampakines outside the Field inside the Territory,
it will inform Servier.

Notwithstanding the above, its is understood and agreed that once Servier has
selected Cortex Compounds and the Collaboration Compounds as Lead Compounds as
stated in Article 3.4 hereinafter, Cortex undertakes for such Compounds not to
engage in any activities in any other fields and/or territories directly or with
or on behalf of a Third Party provided that Cortex can develop and commercialize
Lead Compounds in the Field outside the Territory.

          2.2.2  Should Servier wish to enter with a Third Party into a research
agreement relating to compounds that are positive modulators of AMPA-receptor
function, it shall previously inform Cortex of such wish and the Parties shall
convene at a meeting in order to further discuss such research agreement.

After such meeting, should Servier wish to pursue the said research agreement
with the Third Party and Cortex disagrees with such research agreement then this
Agreement shall be terminated.

          2.2.3  Servier shall be entitled to freely develop compounds which are
positive modulators of AMPA receptor function. However should Servier commence
Phase III clinical trials on a compound which is a positive modulator of AMPA-
receptor function, it shall so inform Cortex and shall notwithstanding such
Phase III use reasonable efforts to pursue research on Collaboration Compounds
or Cortex Compounds in accordance with the terms of this Agreement.

     2.3  Data.
          ----

Collaboration Data.  Each Party shall use good scientific practices and shall
------------------
comply in all material respects with applicable regulations and customary good
laboratory and clinical practices in the performance of the Research Plan
hereunder (including all data in the form required to be maintained under any
applicable governmental regulations).  Such records shall comprise books,
results, reports, research notes, charts, graphs, comments, computations,
analyses, recordings, photographs, computer programs and documentation thereof,
computer information storage means, samples of materials and other graphic or
written data generated in connection with the Research Plan.  Any such data
developed by employees of Cortex, or others on behalf of Cortex, shall be owned
by Cortex ("Cortex Data") and any such data developed by employees of Servier,
or others on behalf of Servier, shall be owned by Servier ("Servier Data").
Each Party shall provide its Data, to the extent reasonably required for the
performance of each Party's obligations and the exercise of each Party's rights
under this Agreement; provided, however, that each Party shall maintain such
records and the information of the other Party contained therein in confidence
in accordance with Article 8 below and shall not use such
<PAGE>

                                       6

records or information of the other Party except to the extent otherwise
permitted by this Agreement.

3.   RESEARCH PHASE

     3.1  Term of the Research Phase.  The Parties shall use all reasonable
          --------------------------
endeavors to comply with the terms of the Research Plan and to conduct the
Research Plan within the Research Phase.  The Research Phase shall commence as
soon as is reasonably practicable following the Effective Date and be for a
period of three (3) years from that date, and shall thereafter continue on an
annual basis unless either Party gives notice of termination of the Research
Phase at least six (6) months prior to the expiration of the initial three (3)
year term or any one (1) year extension term.

     3.2  Research Plan.  The Research Plan will be updated and approved by the
          -------------
Executive Committee, but in no event, later than thirty (30) days prior to the
start of each year during the Research Phase.  The Research Plan in effect at
any time may not be amended except as agreed in writing by the Executive
Committee.  If at any time during the Research Phase either Party determines
that a change to the Research Plan would be beneficial to the collaboration of
the Parties, such Party shall prepare and submit to the Executive Committee a
written proposal detailing its proposed changes to the Research Plan.  The
Executive Committee shall promptly convene a meeting to consider any such
proposal.

     3.3  Subcontracts. Either Party may subcontract portions of the Research
          ------------
Plan to be performed by it in the normal course of its business to Third Parties
with the prior consent of the Scientific Committee; provided, however, that such
Third Parties enter into appropriate confidentiality agreements unless such
subcontracting would not require the transfer of confidential information (as
defined in Article 8 hereof) to the Third Party, and similar terms and
conditions than those contained herein.

     3.4  Compound Selection.
          ------------------

          3.4.1 Cortex Compounds.  At the commencement of the Research Phase,
                ----------------
Cortex will promptly provide to the Scientific Committee details of the chemical
structure and properties for all Ampakines for which Cortex then has the right
to grant the licenses herein to Servier (the "Cortex Compounds").  The
Scientific Committee shall review the Cortex Compounds within [*] days of
commencement of the Research Phase in order to retain certain of them for
further evaluation as a Lead Compound.  During the term of the Research Phase,
Cortex may evaluate such additional compounds as to which it has the right to
grant the licenses herein to Servier to determine if such compounds would be
useful in the Field.  If Cortex determines that such compounds may be more
useful in the Field than the previously selected Cortex Compounds, it shall so
inform the Scientific Committee, and Servier.  The Scientific Committee may, at
its discretion, substitute one or several of such new compounds for one or
several of the

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                       7

existing designated Cortex Compounds, in which case such replaced compound shall
become available to Cortex for development or commercialization by it or a Third
Party in accordance with Article 3.4.4.  Cortex will keep these designated
Cortex Compounds available to Servier for selection as a Lead Compound for a
period of [*] months from the date it has informed Servier of the existence of
such Cortex Compounds, and shall not, during such period, grant to any Third
Party rights to develop and commercialize such compounds.  Servier may select,
by notice in writing to Cortex, such designated Cortex Compounds as Lead
Compounds.  At the end of the [*] month period, any Cortex Compound not selected
as a Lead Compound shall become available to Cortex for development and
commercialization by it or a Third Party.

          3.4.2  Collaboration Compounds.  In accordance with the Research Plan,
                 -----------------------
Cortex will synthesize and evaluate additional compounds with potential activity
in the Field (the "Collaboration Compounds"). Upon development of each
Collaboration Compound, Cortex will promptly supply the Scientific Committee
with such information and materials in its possession which is reasonably
necessary or useful to enable the Scientific Committee to evaluate the activity
of the Collaboration Compound in the Field. Cortex will keep these Collaboration
Compounds available for selection as Lead Compounds by Servier for a period of
[*] from the end of the Research Phase.  Based upon information developed by
Cortex with respect to such compounds, Servier may select as Lead Compounds,
prior to the end of such period by notice in writing to Cortex, any of such
Collaboration Compounds.

          3.4.3  Amount of Lead Compounds selected - Substitution of Lead
                 --------------------------------------------------------
Compounds. It is understood and agreed that Servier may, in accordance with
---------
Articles 3.4.1 and 3.4.2 hereabove, select up to [*] Cortex Compounds and/or
Collaboration Compounds as Lead Compounds per year. Subject to the provisions of
this Article 3.4, Servier may return to Cortex any Lead Compound it has selected
from the Cortex Compounds or the Collaboration Compounds, in exchange for a
different Cortex Compound or Collaboration Compound, if Cortex is able, at such
time, to grant the rights set forth herein with respect to such compound. Upon
such selection, such compound shall become a Lead Compound.

          3.4.4  Return of Lead Compounds to Cortex. All rights to Cortex and
                 ----------------------------------
Collaboration Compounds which have not been selected as Lead Compounds in
accordance with Articles 3.4.1 and 3.4.2 hereabove shall revert immediately back
to Cortex, and Cortex shall be free to use all such compounds for all purposes
and may grant rights to such compounds to Third Parties for any use outside the
Territory, and for any use outside the Field inside the Territory.  When rights
to a Cortex Compound or a Collaboration Compound reverts to Cortex pursuant to
this Article 3.4, Servier agrees to execute and deliver such instruments and
take such other actions as Cortex shall reasonably request in order to carry out
the transfer of such rights, including any interest of Servier in Joint
Inventions relating to such compounds, to Cortex.

     3.5  Availability of Employees.  Each Party agrees to make its employees
          -------------------------
and nonemployee consultants reasonably available at their respective places of
employment to consult with the other Party on issues arising during the Research
Phase and in connection with any request from any regulatory agency, including
regulatory, scientific, technical and clinical

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                       8

testing issues.  If a Party requests the other Party's personnel to consult
other than at such other Party's facility, the requesting Party shall reimburse
the other Party the reasonable travel and lodging expenses of such personnel.

     3.6  Visit of Facilities.  Representatives of either Party may, upon
          -------------------
reasonable notice and at times reasonably acceptable to the other Party, visit
the other Party's facilities where the Research Plan is being implemented, and
consult informally, during such visits and by telephone, with personnel
performing work on the Research Plan.  Each Party's representatives shall abide
by all reasonable operating procedures and rules of such facilities with respect
to safety and confidentiality.

4.   MANAGEMENT OF THE RESEARCH PROGRAM

     4.1  Executive Committee.
          --------------------

          4.1.1  Formation and Composition.  A joint committee comprised of two
                 -------------------------
(2) named representatives of each of Servier and of Cortex, (the "Executive
Committee") shall be appointed promptly after the date hereof and shall meet as
needed, but not less than once each Quarter during the Research Phase. Such
meetings shall be at such times agreed to by Cortex and Servier and shall be
held alternately at the facilities of Cortex and Servier, or at such locations
as the members of the Executive Committee shall agree.

          4.1.2 Functions and Powers.  The principal functions of the Executive
                --------------------
Committee will be to (i) discuss and approve the Research Plan, (ii) discuss and
approve any recommendations from the Scientific Committee material changes to
the Research, (iii) discuss and approve any deviation of more than fifteen
percent (15%) in any previously approved budget under the Research Plan, (iv)
resolve any disputes referred by the Scientific Committee.  The Executive
Committee shall have the power to appoint other committees as appropriate.  The
Executive Committee shall endeavor in good faith to make decisions unanimously,
failing which the procedure set out in Article 11.6 shall apply.

          4.1.3 Members; Approval; Chairs.  A Party may change one or more of
                -------------------------
its representatives to the Executive Committee at any time.  Members of the
Executive Committee may be represented at any meeting by another member of the
Executive Committee, or by a deputy.  Either Party may permit additional
employees and consultants to attend and participate (on a non-voting basis) in
the Executive Committee meetings, subject to the confidentiality provisions of
Article 8.  Any approval, determination or other action agreed to by all of the
members of the Executive Committee or their deputies present at the relevant
meeting shall be the approval, determination or other action of the Executive
Committee, provided that at least one representative of each Party is present at
such meeting.  The Executive Committee shall be chaired by the representative of
the host Party.

     4.2  Scientific Committee.
          --------------------
<PAGE>

                                       9

          4.2.1  Formation and Composition.  A joint committee comprised of four
                 -------------------------
(4) named representatives of each of Servier and of Cortex, (the "Scientific
Committee") shall be appointed promptly after the date hereof and shall meet as
needed, but not less than once each Quarter during the Research Phase, and not
less than semi-annually during the Development Phase.  Such meetings shall be at
such times agreed to by Cortex and Servier, and shall be held alternately at the
facilities of Cortex and Servier, or at such other location as the members of
the Scientific Committee shall agree.

          4.2.2  Functions and Powers. The principal functions of the Scientific
                 --------------------
Committee will be to (i) resolve problems and issues relating to the research
activities under this Agreement, (ii) facilitate the exchange of research
information and data, (iii) designate the individuals responsible for preparing
the Research Plan, (iv) submit the Research Plan to the Executive Committee, (v)
submit budget expenses exceeding fifteen percent (15%) of previously approved
research expenses to the Executive Committee for approval, (vi) monitor
compliance with the Research Plan, (vii) allocate the research activities among
the Servier and Cortex scientists in accordance with this Agreement and the
Research Plan, (viii) agree on specifications for any Pharmaceutical Specialty
and (ix) evaluate candidate compounds from among Cortex Compounds, Collaboration
Compounds in view of selecting Lead Compounds.  The Scientific Committee shall
endeavor in good faith to make decisions unanimously, failing which the matter
shall be referred to the Executive Committee as set out in Article 4.1.2 above.

          4.2.3  Members; Approval; Chair.  A Party may change one or more of
                 ------------------------
its representatives to the Scientific Committee at any time.  Members of the
Scientific Committee may be represented at any meeting by another member of the
Scientific Committee, or by a deputy.  Either Party may permit additional
employees and consultants to attend and participate (on a non-voting basis) in
the Scientific Committee meetings, subject to the confidentiality provisions of
Article 8.  Any approval, determination or other action agreed to by all of the
members of the Scientific Committee or their deputies present at the relevant
Scientific Committee meeting shall be the approval, determination or other
action of the Scientific Committee, provided that at least one representative of
each Party is present at such meeting.  The Scientific Committee shall be
chaired by a representative from the host Party.

          4.2.4  Information and Results.  Except as otherwise provided, the
                 -----------------------
Parties will make available and disclose to one another all results of the work
conducted pursuant to the Research Plan prior to and in preparation for
Scientific Committee meetings, in the form and format to be designated by the
Scientific Committee.

          4.2.5  Disagreements.  All disagreements within the Scientific
                 -------------
Committee shall be subject to the following:

                 4.2.5.1  The representatives to the committee will negotiate in
good faith for a period of not more than sixty (60) days to attempt to resolve
the dispute;
<PAGE>

                                       10

                 4.2.5.2  If the representatives of the committee are unable to
resolve the dispute in accordance with subsection (a) above, then they shall
promptly present the disagreement to the Executive Committee.

          4.2.6  Reports to the Scientific Committee.  Within thirty (30) days
                 -----------------------------------
following the end of each Quarter from commencement of the Research Phase until
conclusion of the Research Phase, each Party shall provide to the members of the
Scientific Committee a written report, in a format to be approved by the
Scientific Committee, which shall summarize in reasonable detail the work it has
performed during the preceding period.

     4.3  Minutes and Reports.  The Executive Committee and the Scientific
          -------------------
Committee shall be responsible for keeping accurate minutes of their
deliberations which record all proposed decisions and all actions recommended or
taken. After approval, such minutes must be signed by each member of the
respective committee. Within twenty-one (21) days of each meeting, the co-chairs
shall provide the Parties with minutes of such meeting, a summary of the work
and progress to date, any issues requiring resolution and any proposed decisions
and actions taken, to all members of the committee. All records of the
committees shall be available to both Parties.

     4.4  No amendment. It is understood and agreed that neither the Executive
Committee nor the Scientific Committee shall be entitled to amend any of the
rights and obligations as contained in this Agreement. such amendments are
subject to Article 11.1 hereinafter.

5.   LICENSES

     5.1  Grant of License by Servier.  Servier hereby grants to Cortex (i) a
          ---------------------------
worldwide exclusive right and license in the Field under the Servier Data,
Servier Inventions and Servier's interest in Joint Patent Rights and Joint
Inventions to the extent necessary or useful to carry out Cortex's research
responsibilities under the Research Plan in accordance with this Agreement, and
(ii) an exclusive right and license under the Servier Data, Servier Inventions
and Servier's interest in Joint Patent Rights and Joint Inventions to develop,
manufacture, have manufactured, use, commercialize, distribute for sale and sell
Pharmaceutical Specialties containing Ampakines subject to the terms of Article
2 . In consideration of the grant in clause (iii) above, Cortex shall pay to
Servier a royalty of [*] percent ( [*] %) of net sales by Cortex of products
incorporating such data or inventions. Such royalty shall be payable to Servier
on the same terms and conditions, as set forth for royalty payments under the
Licensing Agreement between Cortex and AEC of even date herewith. Such royalty
shall be payable on a country by country basis for the later of [*] years from
first commercial sale or expiration of the last patent licensed under this
Article 5.1.

     5.2  Grant of Research License by Cortex.  Cortex hereby grants to Servier
          -----------------------------------
the exclusive right and license in the Field, in the Territory, under the Cortex
Patent Rights, Cortex Technology, Cortex Inventions and Cortex's interest in
Joint Patent Rights and Joint Inventions

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                       11

to the extent necessary or useful to carry out Servier's research
responsibilities under the Research Plan in accordance with this Agreement.

     5.3  Grant of Commercialization License. Cortex hereby grants to AEC, under
          ----------------------------------
the Cortex Patent Rights, Cortex Technology, Cortex Inventions and Cortex's
interest in Joint Patent Rights and Joint Inventions, subject to Article 5.4
below, the exclusive right and license (with the full right to sublicense)
inside the Field to further develop, have developed, manufacture, have
manufactured, use, commercialize, distribute, have distributed, for sale and
sell Pharmaceutical Specialties containing Lead Compound in the Territory, such
license to become effective upon selection of such Lead Compound under Article
3.4.  and are subject to the terms and conditions of the License Agreement
entered into by and between AEC and Cortex of even date herewith and referenced
n(degree)  MCM/FP/001011.

     5.4  Reserved Rights.  Cortex at all times reserves the right under the
          ---------------
Cortex Patent Rights, Cortex Technology, Cortex Inventions and Cortex's interest
in Joint Patent Rights and Joint Inventions to make and use Ampakines(R) in
order to carry out its obligations under this Agreement in accordance with the
Research Plan.

6.   PAYMENTS - FUNDING OF RESEARCH PROGRAM

     6.1  Initial Payment.  In consideration of the rights granted herein by
          ---------------
Cortex to Servier, upon execution of this Agreement, Servier shall make a
payment to Cortex of five million United States Dollars ($ 5,000,000) by wire
transfer to an account designated by Cortex. Payments made to Cortex pursuant to
this Article 6.1 shall not be credited against any other payment otherwise due
to Cortex under this Article 6 or under the terms of the Licensing Agreement
entered as of even date herewith by and between AEC and Cortex.

     6.2  FTE Funding.  In consideration of Cortex's performance of its
          -----------
obligations under the Research Plan, Servier shall fund up to [*] FTE's for
Cortex (onsite or offsite) for a period of three (3) years from the commencement
of the Research Plan.  During the first year, the cost of each FTE shall be [*]
per year.  Such amounts shall be adjusted at the beginning of each subsequent
year by an amount equal to the increase in the U.S. Department of Labor Consumer
Price Index in the prior year.  Such FTE's shall include a balanced group of
Ph.D.s or equivalent and other scientists as described in the Research Plan.
The amounts payable shall be paid by wire transfer in United States dollars in
four equal payments paid Quarterly, in advance, by the tenth (10th) business day
of each Quarter, pro-rated as necessary for the first and last Quarter (each
such payment referred to as a "Research Funding Payment").  The first Research
Funding Payment shall be paid within thirty (30) days of the commencement of the
Research Phase.  Except as otherwise agreed by the Parties, or set forth in this
Article 6.2, each Party shall bear all of its costs incurred in connection with
the Research Plan. Any modification to the above budget shall be subject to
Article 4 hereabove.

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                       12

     6.3  FTE Record Keeping.  Cortex will keep records of the time spent by its
          ------------------
FTEs on the Research Plan.  Cortex will report the level of FTE efforts to the
Scientific Committee on a Quarterly basis.  Servier shall have the right to have
these records audited by and independent public accountant selected by Servier
and acceptable to Cortex, which acceptance shall not be unreasonably withheld or
delayed.  During the course of the Research Program, Cortex will notify Servier
if it becomes apparent that the level of effort required under the Research
Program is expected to deviate from the level required under Article 6.2.  At
the end of each year of the Research Term, the Parties will restore any
imbalance between actual and funded FTEs either through appropriate payments or
refunds subject to Article 4 hereabove.  However, Servier's prior written
consent must be obtained if the actual FTE effort spent will exceed by more than
5% the costs allocated pursuant to Article 6.2 above.

7.   INTELLECTUAL PROPERTY RIGHTS

     7.1  Ownership.
          ---------

          7.1.1  Ownership of Inventions.  All right, title and interest in all
                 -----------------------
writings, inventions, discoveries, improvements and other technology or
constituting a Pharmaceutical Specialty, whether or not patentable or
copyrightable, and any patent applications, patents or copyrights based thereon
(collectively, the "Inventions") that are conceived and/or reduced to practice
during and as a result of the work conducted hereunder solely by employees of
Cortex or others acting on behalf of Cortex ("Cortex Inventions") shall be owned
by Cortex.  All right, title and interest in all Inventions that are conceived
and/or reduced to practice during and as a result of the work conducted
hereunder solely by employees of Servier or others acting on behalf of Servier
("Servier Inventions") shall be owned by Servier.  All right, title and interest
in all Inventions that are conceived and/or reduced to practice during and as a
result of the work conducted hereunder jointly by employees of Cortex and
Servier (the "Joint Inventions") shall be owned jointly by Servier and Cortex.

          7.1.2 Cooperation of Employees.  Each Party represents and agrees that
                ------------------------
(except where such assignment is required by law) all employees or others acting
on its behalf in performing its obligations under this Agreement shall be
obligated under a binding written agreement to assign to such Party, or as such
Party shall direct, all Inventions (including Joint Inventions) made or
conceived by such employee or other person, or in the case of non-employees
working for other companies or institutions on behalf of Cortex or Servier.

     7.2  Provisions Concerning the Filing, Prosecution and Maintenance of
          ----------------------------------------------------------------
Technology, Patent Rights and Joint Inventions.
----------------------------------------------

          7.2.1 Priority Filings for Inventions.  When an Invention with an
                -------------------------------
application within the Field has been made which may reasonably be considered to
be patentable or when a determination is made that Cortex Technology, or a Joint
Invention utilized in the Research Plan, may reasonably be considered to be
patentable, a priority patent application shall be filed as soon as reasonably
possible.  If Cortex Technology, Cortex Patents Rights, or a Cortex Invention or
a
<PAGE>

                                       13

Joint Invention or Joint Patent Right is involved, such application shall be
filed by Cortex, in such countries as reasonably designated by Cortex after
consultation with Servier. If a Servier Invention is involved, such application
may be filed by Servier, in such countries as reasonably designated by Servier,
after consultation with Cortex. In the event that Servier does not file,
prosecute and maintain any such patent application or patent, it shall give
Cortex forty-five (45) days' notice before any relevant deadline and transmit
all information reasonable and appropriate relating to such patent application
or patent, and Cortex shall have the right to pursue, at its own expense,
filing, prosecution and maintenance thereof, in which event Servier shall assign
all of its rights therein to Cortex.

          7.2.2 Foreign Filing Decisions for Inventions.  No later than nine (9)
                ---------------------------------------
months following the filing date of a priority patent application filed
according to Article 7.2.1, the Parties shall consult together as to whether
such priority application should be abandoned without replacement; abandoned and
refiled; proceeded with in the country of filing only; or used as the basis for
a claim of priority under the Paris Convention for corresponding applications in
other countries.

          7.2.3 Prosecution and Maintenance.  If legally possible, Cortex shall
                ---------------------------
prosecute and maintain patent applications and patents covering all Cortex
Technology, Cortex Patent Rights and Joint Inventions in all designated
countries of the Territory.  Servier shall cooperate and assist Cortex in
prosecution of Cortex Patent Rights, in particular method of use claims, in the
Territory.  For so long as the license set forth in Article 5.3 remains in
effect, Cortex agrees to file, prosecute and maintain such patent applications
and patents in all countries identified on Schedule 2.  Cortex shall consult
with Servier as to the preparation and filing (if time permits), prosecution and
maintenance of such patent applications and patents, and shall furnish to
Servier copies of documents relevant to such preparation, filing, prosecution or
maintenance sufficiently prior to filing such document or making any payment due
thereunder to allow for review and comment by Servier, and Cortex reasonably
shall consider all such comments.  Cortex shall not abandon claims under the
Cortex Patent Rights without prior notice to Servier.  In the event that Cortex
does not file, prosecute and maintain any such patent application or patent as
set forth above, it shall give Servier forty-five (45) days' notice before any
relevant deadline and transmit all information reasonable and appropriate
relating to such patent application or patent, and Servier shall have the right
to pursue, at its own expense, filing, prosecution and maintenance thereof, in
which event Cortex shall assign all of its rights therein to Servier.

          7.2.4 Patent Costs.  Unless otherwise set forth herein, Servier and
                ------------
Cortex shall [*] the expense of filing and prosecuting patent applications in
the Field in the Territory. Servier shall bear the expense of maintaining patent
applications and patents in the Field in the Territory.

     7.3  No Other Technology Rights.  Except as otherwise expressly provided in
          --------------------------
this Agreement, under no circumstances shall a Party hereto, as a result of this
Agreement, obtain any ownership interest in or other right to any technology,
know-how, patents, pending patent applications, Pharmaceutical Specialties,
products or biological materials of the other Party, including items owned,
controlled or developed by the other party, or transferred by the other

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                       14

Party to said Party at any time pursuant to this Agreement.  It is understood
and agreed that, except as expressly set forth herein, this Agreement does not
grant Servier any license or other right in the Cortex Patent Rights, Cortex
Technology or Cortex Inventions, or Cortex's interest in Joint Inventions and
Joint Patent Rights outside the Field or outside the Territory.
<PAGE>

                                       15

8 - CONFIDENTIALITY

     8.1  Nondisclosure Obligations.  Except as otherwise provided in this
          -------------------------
Article 8, during the term of this Agreement and for a period of ten (10) years
thereafter, both Parties shall maintain in confidence and use only for purposes
of performance of this Agreement information and data received from the other
Party in connection with this Agreement ("Information").  To the extent it is
reasonably necessary or appropriate to fulfill its obligations or exercise its
rights under this Agreement, a Party may disclose Information it is otherwise
obligated under this Article not to disclose to its Affiliates, consultants,
professional advisors, on a need-to-know basis on condition that such entities
or persons agree to confidentiality and non-use provisions in relation to the
Information on such terms as the disclosing Party uses for its own confidential
information of similar commercial importance; and a Party, its Affiliate may
disclose such Information to government or other regulatory authorities to the
extent that such disclosure is required by law or regulation or is reasonably
necessary perform the Study.  The obligation not to disclose Information shall
not apply to any part of such Information that (i) is or becomes patented, or
published or (ii) is or becomes part of the public domain other than by acts of
the Party obligated not to disclose such Information or its Affiliates in
contravention of this Agreement; (iii) is disclosed to the receiving Party or
its Affiliates by a Third Party, provided such Information was not knowingly
obtained by such Third Party directly or indirectly from the other Party under
this Agreement; (iv) prior to disclosure under this Agreement, was already in
the possession of the receiving Party or its Affiliates, provided such
Information was not knowingly obtained directly or indirectly from the other
Party under this Agreement; or (v) can be shown by written documents to have
been independently developed by the receiving Party or its Affiliates without
the aid or reference to the Information.

     8.2  Terms. Cortex and Servier each agrees not to disclose any terms or
          -----
conditions of this Agreement to any Third Party without the prior consent of the
other Party, except as required by applicable law or to persons with whom
Servier or Cortex has entered into or proposes to enter into a business
relationship provided that such persons are subject to appropriate
confidentiality agreements for the purpose of performance of this Agreement. If
a Party is required by law or regulation to disclose Information to its
government or other regulatory authorities, that Party shall make reasonable
efforts to keep the Information confidential and protected from public
disclosure.

9 - PUBLICITY AND PUBLICATIONS

     9.1  Publications.  In the event that either Party wishes to make a
          ------------
publication (which term shall include any oral disclosure to be made without
obligation of confidentiality) relating to any results obtained pursuant to or
in connection with this Agreement (the "Publishing Party"), it shall submit to
the other Party a copy of the proposed publication at least forty-five (45) days
prior to the intended date of submission for publication (or, in the case of an
oral
<PAGE>

                                       16

disclosure, a written abstract thereof at least sixty (60) days prior to
the date of intended disclosure), and

     9.1.1  subject to Article 9.1.2 below, if the Publishing Party is Cortex,
            Servier shall have the right to delay or prevent publication as it
            sees fit; or

     9.1.2  if the Publishing Party is Servier, or is Cortex (but only where
            Cortex is subject to a Third Party obligation to seek to publish,
            evidence of which shall be provided on Servier's request), the other
            Party shall be entitled to propose modifications or request a delay
            in publication of up to sixty (60) days in order to obtain relevant
            patent protection. Following consideration of the other Party's
            comments or expiry of the sixty (60) day period (as appropriate),
            the Publishing Party shall be free to publish.

     9.2    Press Release.  A Party shall not issue a press release on execution
            -------------
of this Agreement without the prior written consent of both Parties.
Notwithstanding the above, a party may issue a press release if such release is
in the opinion of counsel of such Party necessary or useful under applicable law
and regulation and subject that such press release is communicated for comments
to the other Party prior to its release. If the other Party has any comments on
such projected release, the releasing Party will use its reasonable efforts to
integrate such comments.

10 - TERM AND TERMINATION

     10.1 Term. This Agreement shall come into force as of the Effective Date
          ----
and shall remain in force, unless earlier terminated as specified in Article
10.2 hereinafter for the term of the Research Phase, in accordance with Article
3.1.

     10.2 Termination. This Agreement may be terminated in the following
          -----------
circumstances.

          10.2.1 Material Breach. By one upon written notice by reason of a
                 ---------------
material breach by the other Party that the breaching Party fails to remedy
within ninety (90) days after written notice thereof by the non-breaching Party,
provided however, that in the case that such breach is capable of cure but
cannot be cured within such ninety (90) day period, such period shall be
extended so long as the breaching Party continues to use diligent efforts to
cure such breach;

          10.2.2 Insolvency. By either Party upon bankruptcy, insolvency,
                 ----------
dissolution or winding up of the other subject to applicable local  laws.
<PAGE>

                                       17

          10.2.3 Exclusivity.
                 -----------
                 By either Party according to Article 2.2.2.

          10.2.4 Merger. By Servier, in case of merger and/or acquisition of
                 ------
Cortex with or by a Third Party, provided that Servier provides such notice
thereof within 30 days after being informed in writing by Cortex of such merger
or acquisition.

     10.3 The provisions of Article 5.3 shall survive the term of this as stated
in Article 10.1 and termination by Servier for material breach of Cortex in
accordance with Article 10.2.1. The provision of Article 8 shall survive term
and termination of this Agreement in accordance with said Article 8.

11 -  MISCELLANEOUS

     11.1 Force Majeure.  Neither Party shall be held liable or responsible to
          -------------
the other Party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any term of this Agreement when
such failure or delay is caused by or results from causes beyond the reasonable
control of the affected Party, including but not limited to fire, floods,
embargoes, war, acts of war (whether war is declared or not), insurrections,
riots, civil commotions, strikes, lockouts or other labor disturbances, acts of
God or acts, omissions or delays in acting by any governmental authority or the
other Party; provided, however, that the Party so affected shall use reasonable
commercial efforts to avoid or remove such causes of nonperformance, and shall
continue to perform hereunder with reasonable dispatch whenever such causes are
removed.  Either Party shall provide the other Party with prompt written notice
of any delay or failure to perform that occurs by reason of force majeure.  The
Parties shall mutually seek a resolution of the delay or the failure to perform
as noted above.

     11.2 Assignment.  This Agreement may not be assigned or otherwise
          ----------
transferred by either Party without the prior written consent of the other
Party, provided, however, that Servier may, without such consent, assign this
Agreement and its rights and obligations hereunder to its Affiliates and
provided further, that Cortex may, without such consent assign this Agreement
and its rights and obligations hereunder to its Affiliates or in connection with
the transfer or sale of all or substantially all of its business, or in the
event of its merger or consolidation or similar transaction, subject to
Servier's right under Article 10.2.4. Any purported assignment in violation of
the preceding sentences shall be void.  Any permitted assignee shall assume all
obligations of its assignor under this Agreement in writing.

     11.3 Severability.  Each Party hereby agrees that it does not intend to
          ------------
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries.  Should one or more provisions of this
Agreement be or become invalid, the Parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions
<PAGE>

                                       18

in their economic effect are sufficiently similar to the invalid provisions that
it can be reasonably assumed that the Parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the Parties would not have entered into this Agreement
without the invalid provisions.

     11.4 Notices.  Any consent, notice or report required or permitted to be
          -------
given or made under this Agreement by one of the Parties hereto to the other
shall be in writing, in English, delivered personally or by facsimile (and
promptly confirmed by personal delivery or courier) or courier, postage prepaid
(where applicable), addressed to such other Party at its address indicated
below, or to such other address as the addressee shall have last furnished in
writing to the addressor and shall be effective upon receipt by the addressee.

     If to Cortex:       CORTEX Pharmaceuticals, Inc.
                         15241 Barranca Parkway
                         Irvine, California  92618-2201
                         Attention: Chief Executive Officer
                         Fax:  949/727-3657

     If to Servier:      INSTITUT DE RECHERCHES
                         INTERNATIONALES SERVIER
                         6 Place des Pleiades
                         92415 Courbevoie cedex
                         Attention: Dr. L. Perret

     11.5 Governing Law.  This Agreement shall be governed by, and construed in
          -------------
accordance with, the laws of the state of New York as though made and to be
fully performed therein without regard to conflicts of laws principles thereof.

     11.6 Arbitration.  Any disputes arising between the Parties relating to,
          -----------
arising out of or in any way connected with this Agreement or any term or
condition hereof, or the performance by either Party of its obligations
hereunder, whether before or after termination of this Agreement, shall be
promptly presented to the Chief Executive Officers of Cortex and Servier for
resolution and if the Chief Executive Officers cannot promptly resolve such
disputes, then such dispute shall be finally resolved by binding arbitration in
accordance with the rules of arbitration of the International Chamber of
Commerce (ICC) by one or more arbitrators appointed
<PAGE>

                                       19

in accordance with such rules. Any such arbitration shall be held in New York
City, New York, USA and the language of such proceedings shall be English.

     11.7  Entire Agreement. This Agreement, together with the Schedules hereto
           ----------------
between the Parties contains the entire understanding of the Parties with
respect to the subject matter hereof.  In the event of any conflict or
inconsistency between any provision of any Schedules hereto and any provision of
this Agreement, the provisions of this Agreement shall prevail.  All express or
implied agreements and understandings, either oral or written, heretofore made
are expressly merged in and made a part of this Agreement.  This Agreement may
be amended, or any term hereof modified, only by a written instrument duly
executed by both Parties hereto.

     11.8  Headings. The captions to the Articles hereof and Schedules hereto
           --------
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the Articles hereof.

     11.9  Independent Contractors.  It is expressly agreed that Cortex and
            ----------------------
Servier shall be independent contractors and that the relationship between the
two Parties shall not constitute a partnership, joint venture or agency.
Neither Cortex nor Servier shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior consent of the other Party to do so.

     11.10 Waiver. The waiver by either Party hereto of any right hereunder or
           ------
the failure to perform or of a breach by the other Party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other Party whether of a similar nature or otherwise.

     11.11 Counterparts. This Agreement may be executed in two or more
           ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>

                                       20

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.

CORTEX PHARMACEUTICALS, INC.

By:    /s/  Vincent F. Simmon
    -----------------------------------------

Name:  Vincent F. SIMMON, Ph.D
     ---------------------------------------

Title: Chief Executive Officer
      --------------------------------------

INSTITUT DE RECHERCHES
INTERNATIONALES SERVIER

By:    /s/ Laurent Perret
   -----------------------------------------

Name:  Dr. Laurent Perret
     ---------------------------------------

Title: President of Research and Development
      --------------------------------------

ADIR ET COMPAGNIE

By:    /s/ Christian Bazantay
   -----------------------------------------

Name:  Christian BAZANTAY
     ---------------------------------------

Title: Proxy
      --------------------------------------
<PAGE>

                                       1

                                  SCHEDULE 1

                                 RESEARCH PLAN

      [* Pages 1 Through 3 Omitted And Filed Separately With Commission]
<PAGE>

                                       1

                                  SCHEDULE 2

                             CORTEX PATENT RIGHTS

      [* Pages 1 Through 6 Omitted And Filed Separately With Commission]
<PAGE>

                                       1

         CONFIDENTIAL PORTIONS OMITTED PURSUANT TO RULE 24b-2 OF THE
                       SECURITIES EXCHANGE ACT OF 1934

                         _____________________________

                              LICENSING AGREEMENT
                         _____________________________             MCM/FP/001011

This Agreement entered into as of October 13/th/, 2000 (the "Effective Date")
is made between :

CORTEX PHARMACEUTICALS Inc
Having its principal office at
15241 Barranca Parkway
Irvine, California
USA

(hereinafter "Cortex")

                                 on one part,

AND

ADIR ET COMPAGNIE
A corporation duly organized and registered under the laws of France
having its principal office at
1 rue Carle Hebert
92415 Courbevoie
France

(hereinafter "AEC")

                              on the other part,
<PAGE>

                                       2

                                   RECITALS

WHEREAS, Cortex, AEC and AEC's Affiliate IRIS, as defined hereinafter, have
entered into a Joint Clinical Research Agreement referenced no. 000993/MCM/FP
under which Cortex has granted to AEC under Article 7.2 of such Agreement a
right to select a compound called CX 516 when available to be exercised by AEC
in accordance with the terms of such agreement.

WHEREAS, Cortex, AEC and AEC's Affiliates IRIS as defined hereinafter have also
entered into a Collaboration Research Agreement referenced no. MCM/FP/001009.

WHEREAS, under such Collaboration Research Agreement, Cortex has granted AEC
under Article 5.3 of such Agreement an exclusive right and license to develop,
have developed, manufacture, have manufactured, distribute, have distributed, or
sale Pharmaceutical Specialties containing Lead Compounds as defined in such
Agreement which have been selected by AEC Affiliates under the Collaboration
Research Agreement.

WHEREAS, the Parties wish to further define (i) the terms and conditions
applicable in case AEC exercises the rights under the Joint Clinical Research
Agreement and (ii) the terms and conditions of such exclusive right and license
granted under the Collaboration Research Agreement.

Now THEREFORE IN CONSIDERATION of the premises and of the covenants herein
contained, the parties hereto mutually agree as follows.

1 - DEFINITIONS

For the purposes of this Agreement, the terms defined in this Agreement shall
have the meanings specified below:

1.1  "Affiliate" shall mean any corporation or other entity which controls, is
      ---------
     controlled by, or is under common control with a Party to this Agreement. A
     corporation or other entity shall be regarded as in control of or
     controlled by another corporation or entity if it owns or directly or
     indirectly controls more than fifty percent (50%) of the voting stock or
     other ownership interest of the other corporation or entity, or if it
     possesses, directly or indirectly, the power to direct or cause the
     direction of the management and policies of the corporation or other entity
     or the power to elect or appoint fifty percent (50%) or more of the members
     of the governing body of the corporation or other entity.

1.2  "AMPAKINES(R)" shall mean those Cortex Compounds and Collaboration
      ------------
     Compounds (as defined in the Collaboration Research Agreement) that are
     positive modulators of AMPA-receptor function.

1.3  "Collaboration Research Agreement" shall mean the Agreement entered into
     --------------------------------
     between Cortex, IRIS and AEC of even date herewith and referenced no.
     MCM/FP/001009.
<PAGE>

                                       3

1.4  "Combination Pharmaceutical Specialties" shall mean Pharmaceutical
      --------------------------------------
     Specialties comprised of two and more pharmaceutically active ingredients,
     one of which is an Ampakine.

1.5  "Cortex Patent Rights" shall mean all rights under present and future,
      --------------------
     foreign and domestic, patents, patent applications, patent extensions,
     certificates of invention and applications for certificates of invention,
     together with any originals, provisionals, divisionals, continuations or
     continuations-in-part, extensions, renewals and reissues owned by, or
     licensed to Cortex, including Cortex' interest in Joint Patent Rights as
     defined in the Collaboration Research Agreement and related to a Lead
     Compound. Cortex Patent Rights in the Territory as of the Effective Date,
     and all licenses relating to such Cortex Patent Rights are listed in
     Schedule 1 hereto.

1.6  "Customers" shall mean any Third Party, other than a sublicensee of AEC,
      ---------
     whom AEC supplies the Pharmaceutical Specialty.

1.7  "Cortex Know-How" shall mean all present and future trade secrets, know-
      ---------------
     how, copyrights, data, regulatory submissions or other intellectual
     property of any kind useful in the Field (including any proprietary
     biological materials, compounds or reagents) and all confidential technical
     information in the possession of Cortex as of the Effective Date and during
     the term of this Agreement necessary or useful for the discovery,
     development, manufacture, use or sale of a Pharmaceutical Specialty.

1.8  "Development Phase" shall mean the period of development of a Lead Compound
      -----------------
     up to the Marketing Approval of such Lead Compound as a Pharmaceutical
     Specialty.

1.9  "Field" shall mean the use of Ampakines for the treatment of (i) declines
      -----
     in cognitive or performance associated with aging, and (ii)
     neurodegenerative diseases, including such as but not limited to
     Alzheimer's disease, Parkinson's disease, multiple sclerosis and
     Amyotrophic Lateral Sclerosis. Without limitation, the Field specifically
     excludes the treatment of traumatic brain injury, stroke, spinal cord
     injury, ischemic conditions or injuries and all psychiatric conditions.

1.10 "First Commercial Sale" of any Pharmaceutical Specialty shall mean the
      ---------------------
     first sale for administration to human patients of such Pharmaceutical
     Specialty in a country after required Marketing Approval has been granted
     by the governing health authority of such country.

1.11 "Joint Clinical Research Agreement" shall mean the Agreement entered into
     between Cortex, IRIS and AEC of even date herewith and in relation to
     Cortex's compound called CX 516 and referenced no. 000993/MCM/FP.

1.12 "Lead Compound" shall mean those Cortex Compounds or Collaboration
      -------------
     Compounds (as defined in the Collaboration Research Agreement) chosen by
     AEC, pursuant to Article 3.4 of the Collaboration Research Agreement.

1.13 "Marketing Authorization" shall mean approval of a Pharmaceutical
      -----------------------
     Specialty for commercial sale in a country by the applicable regulatory
     authorities in such country.
<PAGE>

                                       4

1.14  "Marketing Authorization Application" shall mean an application filed with
       -----------------------------------
      the applicable health regulatory authorities of a country after completion
      of human clinical trials to obtain Marketing Authorization for a
      Pharmaceutical Specialty in that country

1.15  "Net Sales" with respect to any Pharmaceutical Specialty shall mean the
       ---------
      invoiced sales of all such Pharmaceutical Specialty billed to Customers by
      AEC, its Affiliates, its sublicensees, its joint venture partners or its
      co-promoters, less the following items as applicable to such
      Pharmaceutical Specialty: (a) credits or allowances granted upon returns,
      rejections or recalls; (b) freight, shipping and insurance costs; (c)
      quantity and other trade discounts, credits or allowances actually allowed
      and taken; (d) customs duties, taxes and surcharges and other governmental
      charges incurred in connection with exportation or importation; (e) bad
      debts directly related to the sale of Pharmaceutical Specialties, but not
      to exceed nine-tenths of one percent (0.9%) and (f) government mandated
      rebates. The transfer of any Pharmaceutical Specialty by AEC or one of its
      Affiliates to another Affiliate or sub-licensee of AEC shall not be
      considered a sale; in such cases, Net Sales shall be determined based on
      the invoiced sales price by the Affiliate or sub-licensee to its Customer,
      less the deductions allowed under this Article.

      The Net Sales of Combination Pharmaceutical Specialties shall be
      calculated by multiplying the standard invoice price for the Combination
      Pharmaceutical Specialty by a fraction, the numerator of which shall be
      invoice price for the Pharmaceutical Specialty (based on the same
      formulation sold separately), and the denominator of which shall be the
      invoice price of the Combination Pharmaceutical Specialty.

1.16  "Party" shall mean Cortex or AEC.
       -----

1.17  "Parties" shall mean Cortex and AEC.
       -------

1.18  "Phase III Studies" shall mean Phase III clinical studies to be performed
       -----------------
      in a Development Phase.

1.19  "Pharmaceutical Specialty" shall mean any therapeutic composition for
       ------------------------
      administration to human subjects containing a Lead Compound as a
      pharmaceutically active ingredient for use in the Field.

1.20  "Quarter" means each calendar quarter commencing on January 1, April 1,
       -------
      July and 1 October.

1.21  "Territory" shall mean all countries in western, central and eastern
       ---------
      Europe, the Middle East, Asia (including Japan) and Africa, and Argentina,
      Brazil and Venezuela. Without limitation, the Territory excludes all of
      North America, all of South America (except Argentina, Brazil and
      Venezuela), Australia and New Zealand.

1.22  "Third Party" shall mean any entity other than Cortex or AEC and their
       -----------
      respective Affiliates.

1.23  "University Licenses" shall have the meaning set forth in Article 6.3.1
       -------------------
      and Schedule 2.
<PAGE>

                                       5

1.24  "Valid Claim" shall mean with respect to a Pharmaceutical Specialty any
       -----------
      claim of any issued and unexpired patent or pending patent application
      included within the Cortex Patent Rights which has not been held,
      disallowed, revoked, unenforceable or invalid by a final, unappealable
      decision of a court or other governmental agency of competent
      jurisdiction, and which has not been admitted to be invalid or
      unenforceable through re-issue, disclaimer or otherwise, unless and until
      reinstated.

2 - SCOPE

Cortex hereby grants to AEC the exclusive right and license (with the right to
sublicense) to use Cortex Patent Rights, Cortex's Know How (including Cortex
Inventions and Cortex's interest in Joint Patent Rights and Joint Inventions as
defined in the Collaboration Development Agreement) inside the Field to further
develop, have developed, manufacture, have manufactured, use, commercialize,
have commercialized, distribute or have distributed for sale and sell
Pharmaceutical Specialties containing Lead Compounds, in the Territory, such
license to become effective upon selection of such Lead Compounds in accordance
with Article 3.4 of the Collaboration Research Agreement AEC shall notify Cortex
of any sublicense of the rights granted herein to a non-Affiliate of AEC within
thirty (30) days of entering into such sublicense.

It is understood and agreed that the terms and conditions herein shall be fully
applicable in case AEC selects CX 516 as a Lead Compound in accordance with
Article 7.2 of the Joint Clinical Research Agreement and the Collaboration
Research Agreement.

3 - DEVELOPMENT PHASE - ADVERSE REPORTS

     3.1  Development Phase
          -----------------

          3.1.1  After the execution of this Agreement, AEC and/or Affiliates
shall inform Cortex in writing of the development plans it wishes to implement
during the Development Phase of the Lead Compounds, which can be modified from
time to time by AEC as required by the needs of development. In case of any
modification of such development plans, AEC will so inform Cortex. AEC will use
its reasonable efforts to abide by such plans but in any case such plans shall
not be deemed as binding.

          3.1.2  AEC undertakes to use its best efforts under its sole
responsability and at its own cost to develop the Pharmaceutical Specialties
with the same priority and the same standard of efforts used by AEC in the
development of its own major pharmaceutical specialties in the Territory.

          3.1.3  AEC shall provide Cortex with the protocols or summaries of
protocols for all clinical and preclinical studies to be carried out by AEC
according to the development plans to give AEC an opportunity to make comments
on them before AEC commences such studies. AEC shall give due consideration to
Cortex's comments.

          3.1.4  During the Development Phase, Cortex and AEC shall meet as
often as is reasonably necessary, and at least quarterly to exchange information
and findings obtained
<PAGE>

                                       6

from their respective development activities and to promote cooperation between
the parties hereto.

          3.1.5  AEC undertakes to inform Cortex as soon as possible of the
dates of starting Phases I, II and III clinical studies respectively, as well as
filing the Marketing Authorization Application and obtaining the Marketing
Authorization in each country of the Territory.

          3.1.6  If at any time AEC decides to stop the Development Phase of a
Lead Compound, AEC shall so inform Cortex in writing, and such Lead Compound
shall then revert immediately back to Cortex, and Cortex shall be free to use
all such compounds for all purposes and may grant rights to such Compounds to
Third Parties for any use outside the Territory, and for any use outside the
Field inside the Territory. When rights to a Lead Compound reverts to Cortex
pursuant to this Article 3.1.5, AEC agrees to execute and deliver such
instrument and take such other actions as Cortex shall reasonably request in
order to carry out the transfer of such rights.

     3.2  Adverse Reports. Each Party shall promptly report to the other
          ---------------
potentially serious or unexpected adverse events with respect to Ampakines of
which it becomes aware in accordance with the rules and regulations applicable
in the countries concerned of the Territory, with the exception of Life-
Threatening Adverse Drug Experiences, which shall be notified to the other Party
within 24 hours of knowledge of the notifying Party. Each Party shall report to
the other Party summaries of other adverse events with respect to every twelve
(12) months. Cortex may provide such information that it receives from AEC under
this Article 3.2 to its other licensees. Cortex shall use commercially
reasonable efforts to include in its other agreements, similar provisions to
this Article 3.2.

4 - PAYMENTS

4.1  Milestone
     ---------

     4.1.1 Milestone Payments.  In consideration of the licenses granted to AEC
           ------------------
           hereunder, AEC shall pay the following amounts to Cortex upon the
           achievement (prior to the expiration or termination of this Agreement
           pursuant to Article 4 hereof) of each of the applicable milestones:

--------------------------------------------------------------------------------
               Milestone Event                         Amount of Payment
               ---------------                         -----------------
--------------------------------------------------------------------------------
                    [*]                                         [*]
--------------------------------------------------------------------------------
                    [*]                                         [*]
--------------------------------------------------------------------------------
                    [*]                                         [*]
--------------------------------------------------------------------------------
                    [*]                                         [*]
--------------------------------------------------------------------------------

For purposes hereof, [*] shall mean the time at which the first dose is given to
the first patient in the clinical study.

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                       7

           4.1.1.1  Each milestone payment shall be paid once only for all
                    Pharmaceutical Specialties, even if such milestone is met on
                    more than one occasion.

           4.1.1.2  AEC shall promptly notify Cortex in writing of the
                    occurrence of the milestones set forth above. Within thirty
                    (30) days after the occurrence of such milestone, AEC shall
                    pay to Cortex by wire transfer or other means reasonably
                    acceptable to Cortex and AEC, the milestone payments set
                    forth above. Payments made to Cortex pursuant to this
                    Article 4.1 shall not be credited against any other payments
                    under this Article 4.

4.2  Royalties on Net Sales.

     4.2.1 Royalty Rate.  In consideration of the licenses granted to AEC
           ------------
           pursuant to Article 2 hereof for the use of Cortex Patents and Cortex
           Know-How, AEC shall pay Cortex when applicable [*] the following
           royalties on Net Sales of Pharmaceutical Specialty,:

     --------------------------------------------------------------------------
       If Territory-Wide Calendar Year         Royalty Rate for All Net Sales
                Net Sales are:
     ---------------------------------------------------------------------------
                                                 [*]                   [*]
                                            -----------------------------------
                                                 [*]                   [*]
     --------------------------------------------------------------------------
                                                 [*]                   [*]
     --------------------------------------------------------------------------
                                                 [*]                   [*]
     --------------------------------------------------------------------------

           [*]

     4.2.2 Royalty Reports, Exchange Rates. During the term of this Agreement,
           -------------------------------
           following the First Commercial Sale of a Pharmaceutical Specialty in
           any country by AEC, AEC shall furnish to Cortex a written Quarterly
           report showing, on a country by country basis: (i) the gross sales of
           all Pharmaceutical Specialties sold by AEC and its Affiliates and its
           sublicensees during the reporting period and the calculation of Net
           Sales from such gross sales; (ii) the royalties and other payments
           payable in United States dollars which shall have accrued hereunder
           in respect of such sales; (iii) withholding taxes, if any, required
           by law to be deducted in respect of such sales, as applicable; (iv)
           the dates of the First Commercial Sales of any Pharmaceutical
           Specialties in any country by AEC and its Affiliates and its
           sublicensees during the reporting period; and (v) the exchange rates
           used in determining the amount of United States dollars. All amounts
           payable will first be calculated in the currency of sale and then
           converted into United States dollars using as a rate of exchange the
           exchange rate reported in the Wall Street Journal for the last day of
           the reporting period to which the payment relates. Reports together
           with the royalty payable for the periods to which the reports relate
           shall be due on the forty-fifth (45th) day following the close of
           each Quarter. If no royalty is due for any royalty period hereunder,
           AEC

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                       8

             shall so report. AEC shall keep complete and accurate records in
             sufficient detail to properly reflect all gross sales and Net Sales
             and to enable the royalties payable hereunder to be determined.

     4.2.3   Audits.  Upon the written request of Cortex, AEC shall permit an
             ------
             independent public accountant selected by Cortex and acceptable to
             AEC, which acceptance shall not be unreasonably withheld or
             delayed, to have access during normal business hours to such of the
             records of AEC as may be reasonably necessary to verify the
             accuracy of the royalty reports hereunder in respect of any fiscal
             year ending not more than twenty-four (24) months prior to the date
             of such request. All such verifications shall be conducted at the
             expense of Cortex and not more than once in each calendar year.

             In the event such accountant concludes that additional royalties
             were owed during such period, the additional royalty shall be paid
             within thirty (30) days of the date Cortex delivers to AEC such
             accountant's written report so concluding. The fees charged by such
             accountant shall be paid by Cortex unless the audit discloses that
             the royalties payable by AEC for the audited period are more than
             one hundred and ten percent (110%) of the royalties actually paid
             for such period, in which case AEC shall pay the reasonable fees
             and expenses charged by the accountant.

             AEC shall include in each sublicense granted by it pursuant to this
             Agreement a provision requiring the sublicensee to make reports to
             AEC, to keep and maintain records of sales made pursuant to such
             sublicense and to grant access to such records by Cortex's
             independent accountant to the same extent required of AEC under
             this Agreement. Upon the expiration of twenty-four (24) months
             following the end of any calendar year, the calculation of
             royalties payable with respect to such year shall be binding and
             conclusive upon Cortex; and AEC and its sublicensees shall be
             released from any liability or accountability with respect to
             royalties for such year.

             Cortex agrees that all information subject to review under this
             Article 4.3 or under any sublicense agreement is confidential and
             that it shall cause its accountant to retain all such information
             in confidence.

     4.2.4   Royalty Payment Terms.  Royalties shown to have accrued by each
             ---------------------
             royalty report provided for under this Agreement shall be due and
             payable from the date such royalty report is due. Payment of
             royalties in whole or in part may be made in advance of such due
             date. Royalties determined to be owing, and any overpayments to be
             credited, with respect to any prior quarter shall be added, or
             credited, as the case may be, together with interest thereon
             accruing under this Agreement from the date of the report for the
             quarter for which such amounts are owing, to the next quarterly
             payment hereunder.

4.3  Withholding of Taxes.  Any withholding of taxes levied by tax authorities
     --------------------
     outside the United States on the payments hereunder shall be borne by
     Cortex and deducted by AEC from the sums otherwise payable by it hereunder
     for payment to the proper tax authorities on behalf of Cortex. AEC agrees
     to cooperate with Cortex in the event Cortex claims exemption from such
     withholding or seeks deductions under any double taxation or other similar
     treaty or agreement from time to time in force, such
<PAGE>

                                       9

     cooperation to consist of providing receipts of payment of such withheld
     tax or other documents reasonably available to AEC. If in the opinion of
     either Party the provisions of this Article becomes unduly burdensome, the
     Parties agree to meet and discuss such other options as may be available to
     them.

4.4  Exchange Controls.  Except as hereinafter provided in this Article, all
     -----------------
     payments to be made pursuant to Article 4 shall be paid in United States
     dollars. If at any time legal restrictions prevent the prompt remittance of
     part or all royalties with respect to any country where the Pharmaceutical
     Specialty is sold, payment shall be made through such lawful means or
     methods as AEC may determine. When in any country the law or regulations
     prohibit both the transmittal and deposit of royalties on sales in such a
     country, royalty payments shall be suspended for as long as such
     prohibition is in effect, and as soon as such prohibition ceases to be in
     effect, all royalties that AEC or its sublicensees would have been
     obligated to transmit or deposit, but for the prohibition, shall forthwith
     be deposited or transmitted promptly to the extent allowable, as the case
     may be. If the royalty rate specified in this Agreement should exceed the
     permissible rate established in any country, the royalty rate for sales in
     such country shall be adjusted to the highest legally permissible or
     government-approved rate.

4.5  Interest on Late Payments
     -------------------------

     Any payments by AEC that are not paid, or overpaid before or within a
     period of [*] following the date such payments are due under this Agreement
     shall bear interest, to the extent permitted by applicable law, at [*]
     above the LIBOR rate calculated on the number of days payment is
     delinquent. LIBOR rate means the interest rate per annum as determined by
     Bank of America NT&SA, at which deposits in US dollars are generally
     available in the London interbank market with maturities of thirty (30)
     days.

5 - MARKETING AND MANUFACTURING

5.1  Marketing Plans.  AEC shall prepare and deliver to Cortex an outline of
     ---------------
     marketing plans on Marketing Approval for each Pharmaceutical Specialty in
     each country, prior to the launch of such Pharmaceutical Specialty in such
     country. Such plans shall include plans related to the launch, promotion
     and sale of Pharmaceutical Specialties. AEC shall submit the Marketing
     Plans annually to Cortex for review and comment.

5.2  Manufacturing. AEC shall have the right to manufacture the bulk drug
     -------------
     substance and the final dosage forms of the Pharmaceutical Specialty for
     its use and sale in the Territory.

5.3  Pharmaceutical Specialty Marking.  Pharmaceutical Specialties shall be
     --------------------------------
     marked as a product of AEC.

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                      10

6 - REPRESENTATIONS AND WARRANTIES

6.1  Authorization.  Each Party represents and warrants to the other that it has
     -------------
     the legal right and power to enter into this Agreement, to extend the
     rights and licenses granted or to be granted to the other in this
     Agreement, and to fully perform its obligations hereunder, and that it has
     not made nor will it make any commitments to others in conflict with or in
     derogation of such rights or this Agreement. Except as otherwise disclosed,
     each Party further represents to the other that it is not aware of any
     legal obstacles, including, patent rights of others, which could prevent it
     from carrying out its obligations under this Agreement.

6.2  Cortex Intellectual Property Representations and Warranties.
     -----------------------------------------------------------

     6.2.1  Patent Rights.  Cortex represents and warrants that it is the sole
            -------------
            and exclusive owner or exclusive licensee of the entire right, title
            and interest in and to the Cortex Patent Rights and the Cortex Know-
            How and that it has the right to license the same to AEC under this
            Agreement. Cortex represents and warrants that, as of the Effective
            Date, the Cortex Patent Rights and the Cortex Know-How are free of
            any encumbrances, including, without limitation, liens, licenses,
            judgments and/or security interests in the Field, and that all
            patents and patent applications included in the Cortex Patent Rights
            are in full force and effect as of the date hereof of this Agreement
            and that none of the Cortex Patent Rights are the current subject of
            any interference or opposition proceeding.

     6.2.2  Litigation.  Cortex represents and warrants that as of the Effective
            ----------
            Date there is no pending, or to its knowledge threatened, litigation
            that would or might adversely affect its right and ability to grant
            the licenses and to perform its obligations, or AEC's ability to
            exercise its rights, under this Agreement.

     6.2.3  Infringement.
            ------------

            6.2.3.1 Cortex and AEC shall promptly notify the other in writing of
                    any actual alleged or threatened infringement of Cortex
                    Patents and/or Cortex Know-How of which they become aware.
                    Cortex and AEC shall then confer and endeavor to reach
                    agreement of who either of AEC or Cortex shall initiate
                    action to prevent, end or prosecute any such infringement.
                    If the Parties do not agree on whether or how to proceed
                    with enforcement activity within (i) thirty (30) days
                    following the notice of alleged infringement or (ii) ten
                    (10) business days before the time limit, if any, set forth
                    in the appropriate laws and regulations for the filing of
                    such actions, whichever comes first, then Cortex may
                    commence litigations within an additional thirty (30) day
                    period with respect to the alleged or threatened
                    infringement at its own expense. In the event that Cortex
                    does not commence litigation, AEC may do so. In the event a
                    Party brings an infringement action, the other Party shall
                    cooperate fully, including, if required to bring such
                    action, the furnishing of a power of attorney. Neither Party
                    shall have the right to settle any patent infringement
                    litigation under this Article in a manner
<PAGE>

                                      11

                    that diminishes the rights or interests of the other Party
                    without the express written consent of such other Party,
                    such consent not to be unreasonably withheld or delayed.

                    It is understood and agreed that in case of a litigation the
                    royalties payable under Article 4.3.1 may be withheld up to
                    [*] percent ([*] %) by AEC for the country concerned by the
                    litigation until the resolution of such litigation. Should
                    such resolution result in the invalidity of the Cortex
                    Patent and/or Know-How then such withheld royalties shall
                    not be due by AEC to Cortex. Should such resolution not
                    affect the validity of the Cortex Patent and/or Know-How
                    then such withheld royalties shall be paid by AEC to Cortex.
                    It is understood and agreed that in case the action results
                    in the award of recovery and/or damages of any nature
                    whatsoever to the Party bringing the action as stated
                    hereabove (either AEC and Cortex), such recovery and/or
                    damages shall be fully allocated to such Party.

           6.2.3.2  In case of any Third Party claims against AEC resulting from
                    the use by AEC of Cortex Patents and Cortex Know-How in
                    accordance with this Agreement, AEC shall promptly notify
                    Cortex, and the Parties shall then confer and endeavor to
                    reach an agreement on who either of AEC or Cortex shall
                    defend AEC against such Third Party claim. If the Parties do
                    not reach agreement on who would proceed with the defense
                    thereof within (i) thirty (30) days following the notice of
                    alleged infringement or (ii) ten business days before the
                    time limit, if any, setforth in the appropriate laws and
                    regulations for the filing of answers or defenses to such
                    actions, whichever comes first, then Cortex may respond to
                    such claim. In the event that Cortex does not respond, AEC
                    may do so. In the event AEC defends against such claims the
                    costs related to such defense shall be borne [*] ([*] %- [*]
                    %) by Cortex and AEC. Should such claim result in the
                    payment by AEC (either by settlement or court decision) to
                    the claiming Third Party of any damages whatsoever
                    (including legal fees) such damages shall be borne
                    [*] ([*]% -[*]%) by Cortex and AEC.

                    It is understood and agreed that AEC shall not settle such
                    Third Party claims without Cortex's prior approval, which
                    shall not be unreasonably withheld.

                    While such claim is being processed, the royalties payable
                    by AEC under article 4.3.1 may be withheld up to [*] percent
                    ([*] %) for the country concerned by the litigation until
                    the resolution of the litigation. Should such resolution
                    result in the invalidity of the Cortex Patent and/or Know-
                    How then such withheld royalties shall not be due by AEC to
                    Cortex. Should such resolution not affect the validity of
                    the Cortex Patent and/or Know-How then such withheld
                    royalties shall be paid by AEC to Cortex.

     6.2.4 Disclosure.  Cortex represents and warrants that it has and will
           ----------
           disclose to AEC all of the Cortex Technology.

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                      12

    6.2.5  Maintenance of Confidential Information.  Cortex represents and
           ---------------------------------------
           warrants that it has taken all reasonable and necessary steps to
           protect the Cortex confidential Information contained in the Cortex
           Patents and Cortex Know-How.

6.3  Cortex License Representation and Warranties.
     --------------------------------------------

     6.3.1 License Agreements.  Cortex represents and warrants that as of the
           ------------------
           Effective Date all licenses with University for Cortex Patent Rights
           or Cortex Know-How are set forth in Schedule 2 ("University
           Licenses"), and that copies of such University Licenses have been
           provided to AEC.

     6.3.2 Effectiveness, Maintenance.  As of the Effective Date,  Cortex
           --------------------------
           represents and warrants that all such University Licenses are in full
           force and effect and neither Cortex, or to Cortex's knowledge, the
           other party, is in breach thereof. Cortex shall maintain and procure
           the maintenance of all such University Licenses in full force and
           effect during the term of this Agreement as is necessary to provide
           AEC the rights initially granted and to be granted hereunder,
           including, without limitation, fulfilling all its obligations
           thereunder and refraining from any acts which may give rise to a
           termination of any University License.

     6.3.3 Exclusivity. Cortex represents and warrants that all such  University
           -----------
           Licenses identified on Schedule 2 as exclusive are exclusive to
           Cortex as is necessary to provide AEC the exclusive licenses for the
           Territory provided herein and, pursuant to the terms thereof, no such
           licensor of Cortex has the right to grant licenses in the Field of
           patents or technology contained in the Cortex Patent Rights and
           Cortex Know-How.

7 - INDEMNITY - INSURANCE

7.1  Indemnity

     7.1.1. AEC Indemnity Obligations.  In the absence of Cortex's negligence, a
            -------------------------
            breach of contract or warranty by Cortex or willful or tortious acts
            or omissions of Cortex, AEC agrees to defend, indemnify and hold
            Cortex, its Affiliates and their respective employees and agents
            harmless from all Third Party claims, losses, damages or expenses,
            but excluding consequential losses, including, without limitation,
            economic loss or loss of profit, arising as a result of: (a) actual
            or asserted violations of any applicable law or regulation by AEC,
            its Affiliates or sublicensees by virtue of which Pharmaceutical
            Specialties manufactured, distributed or sold by AEC, its Affiliates
            or sublicensees shall be alleged or determined to be adulterated,
            misbranded, mislabeled or otherwise not in compliance with any
            applicable law or regulation; (b) claims for bodily injury, death or
            property damage attributable to the development, manufacture,
            distribution, sale or use of Pharmaceutical Specialties by AEC, its
            Affiliates or sublicensees; (c) a recall of Pharmaceutical
            Specialties manufactured, distributed or sold by AEC, its Affiliates
            or sublicensees ordered by a governmental agency or required by a
            confirmed Pharmaceutical Specialty

<PAGE>

                                      13

            failure as reasonably determined by AEC; (d) the negligent, willful
            or tortious acts or omissions of AEC, its Affiliates and
            sublicensees and their respective employees and agents in connection
            with the development, use, sale or supply of the Pharmaceutical
            Specialty; or (e) any breach of AEC's representations and warranties
            herein or other breach of the terms of this Agreement.

    7.1.2   Cortex Indemnity Obligations. Cortex agrees to defend, indemnify and
            ----------------------------
            hold AEC, its Affiliates and their respective employees and agents
            harmless from all Third Party claims, losses, damages or expenses
            arising as a result of: (a) the negligent, willful or tortious acts
            or omissions of Cortex, its Affiliates and their respective
            employees and agents; or (b) any breach of Cortex's representations
            and warranties herein or other breach of the terms of this
            Agreement.

    7.1.3   Procedure.  A Party or any of its Affiliates or their respective
            ---------
            employees or agents (the "Indemnitee") that intends to claim
            indemnification under this Article 7 shall promptly notify the other
            Party (the "Indemnitor") of any loss, claim, damage, liability or
            action in respect of which the Indemnitee intends to claim such
            indemnification, and the Indemnitor shall assume the defense thereof
            with its counsel. The indemnity agreement in this Article 7 shall
            not apply to amounts paid in settlement of any loss, claim, damage,
            liability or action if such settlement is effected without the
            consent of the Indemnitor. The failure to deliver notice to the
            Indemnitor within a reasonable time after the commencement of any
            such action, if materially prejudicial to its ability to defend such
            action, shall relieve such Indemnitor of any liability to the
            Indemnitee under this Article 7, but the omission so to deliver
            notice to the Indemnitor will not relieve it of any liability that
            it may have to any Indemnitee otherwise than under this Article 7.
            The Indemnitee under this Article 7, its employees and agents, shall
            cooperate fully with the Indemnitor and its legal representatives in
            the investigation of any action, claim or liability covered by this
            indemnification.

7.2  Insurance
     ---------

AEC shall maintain comprehensive general liability insurance against claims
regarding the implementation and execution of this Agreement, including but not
limited to the development, manufacture and sale of Pharmaceutical Specialties,
in such amounts AEC customarily maintains with similar activities. AEC shall
maintain such insurance during the term of this Agreement and thereafter for so
long as it continues to manufacture or sell any Pharmaceutical Specialties. Upon
Cortex's request, AEC shall provide Cortex with the related insurance
certificate.

8 - TERM AND TERMINATION

8.1  Expiration of This Agreement.  Unless terminated earlier pursuant to
     ----------------------------
     Article 8.2, this Agreement shall expire and the licenses granted by Cortex
     to AEC shall become fully paid and irrevocable on a country-by-country
     basis upon the later of (i) [*] years after the First Commercial Sale of
     the Pharmaceutical Specialties in such country or (ii) the expiration of
     any patents included in the Cortex Patent Rights.

     * CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH COMMISSION
<PAGE>

                                      14

8.2  Termination of This Agreement.  This Agreement may be terminated in the
     -----------------------------
     following circumstances:

     8.2.1  Material Breach.  By one Party upon written notice by reason of a
            ---------------
            material breach by the other Party that the breaching Party fails to
            remedy within thirty (30) days after written notice thereof by the
            non-breaching Party, provided however, that in the case that such
            breach is capable of cure but cannot be cured within such thirty
            (30) day period, such period shall be extended so long as the
            breaching Party continues to use diligent efforts to cure such
            breach, but in any case not beyond ninety (90) days.

     8.2.2  Bankruptcy.  By either Party upon bankruptcy, insolvency,
            ----------
            dissolution or winding up of the other, subject to applicable local
            laws.

     8.2.3  By AEC in Part.  By AEC, in its discretion, at any time after the
            --------------
            expiration of the Research Phase as defined in the Collaboration
            Research Agreement on a country-by-country basis upon delivery by
            AEC to Cortex of six (6) months prior notice thereof, as defined in
            the Collaboration Research Agreement.

     8.2.4  By AEC in Whole.  By AEC, in its discretion, at any time after the
            ---------------
            expiration of the Research Phase, as defined in the Collaboration
            Research Agreement, in its entirety, upon delivery by AEC to Cortex
            of six (6) months prior notice thereof; or

     8.2.5  Merger. By AEC, in case of merger and/or acquisition of Cortex with
            ------
            or by a Third Party, provided that AEC provides notice thereof
            within thirty (30) days after being informed in writing by Cortex of
            such merger or acquisition.

8.3  Effect of Expiration or Termination of This Agreement Generally.
     ---------------------------------------------------------------

     8.3.1  Existing Obligations.  Expiration pursuant to Article 8.1 or
            --------------------
            termination pursuant to Article 8.2 of this Agreement for any reason
            shall not relieve the Parties of any obligation that accrued prior
            to such expiration or termination.

     8.3.2  Survival.  The provisions of Article 4 (with respect only to
            --------
            payments and royalties accrued at the time of expiration or
            termination but not yet paid), Article 6, Article 7 and this Article
            8.3.2 shall survive the expiration pursuant to Article 8.1 or
            termination pursuant to Article 8.2 of this Agreement.

8.4  Effect of Termination by Cortex.  In the event that this Agreement is
     -------------------------------
     terminated by Cortex pursuant to Article 8.2.1 and 8.2.2.

     8.4.1  Termination of Licenses.  All licenses and rights granted to AEC
            -----------------------
            hereunder shall terminate and, except as provided in Article 8.4.2.
            below, AEC will immediately cease to manufacture and sell
            Pharmaceutical Specialties;

     8.4.2  Disposition of Inventory of Pharmaceutical Specialties.  (a) AEC may
            ------------------------------------------------------
            dispose of its inventory of Pharmaceutical Specialties on hand as of
            the effective date
<PAGE>

                                      15

            of termination, and may fill any orders for Pharmaceutical
            Specialties accepted prior to the effective date of termination, for
            a period of twelve (12) months after the effective date of
            termination and (b) within thirty (30) days after disposition of
            such inventory and fulfillment of such orders (and in any event
            within seven (7) months after termination) AEC will forward to
            Cortex a final report containing the details required by Article 4.3
            hereof and pay Cortex all royalties due for Net Sales in such
            period; and

8.5  Effect of Termination in Full or in Part by AEC.  In the event that AEC
     -----------------------------------------------
     terminates, in full or in part, this Agreement pursuant to Article 8.2.,
     the applicable licenses and rights granted to AEC shall terminate and AEC
     will immediately cease to manufacture and sell Pharmaceutical Specialties
     except as provided in this Article 8.5 and AEC shall be entitled to claim
     from Cortex all damages which would otherwise be due to AEC under law and
     equity. If AEC so elects to terminate this Agreement, then (a) AEC may
     dispose of its inventory of Pharmaceutical Specialties on hand as of the
     effective date of termination, and may fill any orders for Pharmaceutical
     Specialties accepted prior to the effective date of termination, for a
     period of twelve (12) months after the effective date of termination and
     (b) within thirty (30) days after disposition of such inventory and
     fulfillment of such orders (and in any event within seven (7) months after
     termination) AEC will forward to Cortex a final report containing the
     details required by Article 4.3 hereof and pay Cortex all royalties due for
     Net Sales in such period.

8.6  Additional Rights to AEC in the Event of Cortex Bankruptcy.  All licenses
     ----------------------------------------------------------
     granted under this Agreement are deemed to be, for purposes of Article
     365(n) of the U.S. Bankruptcy Code, licenses of right to "intellectual
     property" as defined in Article 101 of such Code. The Parties agree that
     AEC may fully exercise all of its rights and elections under the Bankruptcy
     Code. The Parties further agree that, in the event AEC elects to retain its
     rights as a licensee under such Code, AEC shall be entitled to complete
     access to the Cortex Technology and Patents licensed to it hereunder and
     all embodiments of such Cortex Technology and Patents, for the purposes of
     exploitation of the licenses granted under this Agreement. Such embodiments
     of the Cortex Technology and Patents shall be delivered to AEC not later
     than:

     8.6.1  the commencement of bankruptcy proceedings against Cortex, upon
            written request, unless Cortex elects to perform its obligations
            under the Agreement, or

     8.6.2  if not delivered under (a) above, upon the rejection of this
            Agreement by or on behalf of the Cortex, upon written request.

9 - MISCELLANEOUS

     9.1  Force Majeure.  Neither Party shall be held liable or responsible to
          -------------
          the other Party nor be deemed to have defaulted under or breached this
          Agreement for failure or delay in fulfilling or performing any term of
          this Agreement when such failure or delay is caused by or results from
          causes beyond the reasonable control of the affected Party, including
          but not limited to fire, floods, embargoes, war, acts of war (whether
          war is declared or not), insurrections,
<PAGE>

                                      16

          riots, civil commotions, strikes, lockouts or other labor
          disturbances, acts of God or acts, omissions or delays in acting by
          any governmental authority or the other Party; provided, however, that
          the Party so affected shall use reasonable commercial efforts to avoid
          or remove such causes of nonperformance, and shall continue to perform
          hereunder with reasonable dispatch whenever such causes are removed.
          Either Party shall provide the other Party with prompt written notice
          of any delay or failure to perform that occurs by reason of force
          majeure. The Parties shall mutually seek a resolution of the delay or
          the failure to perform as noted above.

    9.2   Assignment.  This Agreement may not be assigned or otherwise
          -----------
          transferred by either Party without the prior written consent of the
          other Party, provided, however, that AEC may, without such consent,
          assign this Agreement and its rights and obligations hereunder to its
          Affiliates and provided further, that Cortex may, without such
          consent, assign this Agreement and its rights and obligations
          hereunder to its Affiliates, or in connection with the transfer or
          sale of all or substantially all of its business, or in the event of
          its merger or consolidation or similar transaction, subject to AEC's
          right under Section 8.2.5. Any purported assignment in violation of
          the preceding sentences shall be void.  Any permitted assignee shall
          assume all obligations of its assignor under this Agreement in
          writing.

    9.3   Severability.  Each Party hereby agrees that it does not intend to
          ------------
          violate any public policy, statutory or common laws, rules,
          regulations, treaty or decision of any government agency or executive
          body thereof of any country or community or association of countries.
          Should one or more provisions of this Agreement be or become invalid,
          the Parties hereto shall substitute, by mutual consent, valid
          provisions for such invalid provisions which valid provisions in their
          economic effect are sufficiently similar to the invalid provisions
          that it can be reasonably assumed that the Parties would have entered
          into this Agreement with such valid provisions.  In case such valid
          provisions cannot be agreed upon, the invalidity of one or several
          provisions of this Agreement shall not affect the validity of this
          Agreement as a whole, unless the invalid provisions are of such
          essential importance to this Agreement that it is to be reasonably
          assumed that the Parties would not have entered into this Agreement
          without the invalid provisions.

    9.4   Notices.  Any consent, notice or report required or permitted to be
          -------
          given or made under this Agreement by one of the Parties hereto to the
          other shall be in writing, in English, delivered personally or by
          facsimile (and promptly confirmed by personal delivery or courier) or
          courier, postage prepaid (where applicable), addressed to such other
          Party at its address indicated below, or to such other address as the
          addressee shall have last furnished in writing to the addressor and
          shall be effective upon receipt by the addressee.

          If to CORTEX:       CORTEX Pharmaceuticals, Inc.
                              15241 Barranca Parkway
                              Irvine, California 92618-2201
                              Attention: Chief Executive Officer
                              Fax: 949/727-3657
<PAGE>

                                      17

          If to AEC:          ADIR ET COMPAGNIE
                              1 rue Carle Hebert
                              92415 Courbevoie cedex
                              Attention: Dr. L. Perret

     9.5  Governing Law.  This Agreement shall be governed by, and construed in
          -------------
          accordance with, the laws of the state of New York as though made and
          to be fully performed therein without regard to conflicts of laws
          principles thereof.

     9.6  Arbitration.  Any disputes arising between the Parties relating to,
          -----------
          arising out of or in any way connected with this Agreement or any term
          or condition hereof, or the performance by either Party of its
          obligations hereunder, whether before or after termination of this
          Agreement, shall be promptly presented to the Chief Executive Officers
          of Cortex and AEC for resolution and if the Chief Executive Officers
          cannot promptly resolve such disputes, then such dispute shall be
          finally resolved by binding arbitration in accordance with the rules
          of arbitration of the International Chamber of Commerce (ICC) by one
          or more arbitrators appointed in accordance with such rules. Any such
          arbitration shall be held in New York City, New York, USA and the
          language of such proceedings shall be English.

     9.7  Entire Agreement. This Agreement, together with the Schedules hereto
          ----------------
          between the Parties contains the entire understanding of the Parties
          with respect to the subject matter hereof.  In the event of any
          conflict or inconsistency between any provision of any Schedules
          hereto and any provision of this Agreement, the provisions of this
          Agreement shall prevail.  All express or implied agreements and
          understandings, either oral or written, heretofore made are expressly
          merged in and made a part of this Agreement.  This Agreement may be
          amended, or any term hereof modified, only by a written instrument
          duly executed by both Parties hereto.

     9.8  Headings. The captions to the Articles hereof and Schedules hereto are
          --------
          not a part of this Agreement, but are merely guides or labels to
          assist in locating and reading the Articles hereof.

     9.9  Independent Contractors.  It is expressly agreed that Cortex and AEC
          ----------------------
          shall be independent contractors and that the relationship between the
          two Parties shall not constitute a partnership, joint venture or
          agency.  Neither Cortex nor AEC shall have the authority to make any
          statements, representations or commitments of any kind, or to take any
          action, which shall be binding on the other, without the prior consent
          of the other Party to do so.

     9.10 Waiver. The waiver by either Party hereto of any right hereunder or
          ------
          the failure to perform or of a breach by the other Party shall not be
          deemed a waiver of any other right hereunder or of any other breach or
          failure by said other Party whether of a similar nature or otherwise.
<PAGE>

                                      18

    9.11  Counterparts. This Agreement may be executed in two or more
          ------------
          counterparts, each of which shall be deemed an original, but all of
          which together shall constitute one and the same instrument.

    9.12  Warranty Limitation
          -------------------

          EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
          WARRANTY, AND EACH PARTY EXPRESSLY DISCLAIMS ALL DISCLAIMS, ALL
          IMPLIED WARRANTIES, INCLUDING WARRANTIES OR MERCHANTABILITY OR FITNESS
          FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY COMPOUNDS OR OTHER
          BIOLOGICAL OR CHEMICAL MATERIALS OR INFORMATION PROVIDED TO THE OTHER
          PARTY PURSUANT TO THIS AGREEMENT.
<PAGE>

                                      19

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.

CORTEX PHARMACEUTICALS, INC.            ADIR ET COMPAGNIE

By: /s/ Vincent F. Simmon               By: /s/ Christian Bazantay

Name: Vincent F. SIMMON, Ph.D           Name: Christian BAZANTAY

Title: Chief Executive Officer          Title: Proxy
<PAGE>

                                      20

                                  SCHEDULE 1

                             CORTEX PATENT RIGHTS

      [* Pages 1 Through 6 Omitted And Filed Separately With Commission]
<PAGE>

                                      21

                                  SCHEDULE 2

                              UNIVERSITY LICENSES

     [*Contents Of This Page Omitted And Filed Separately With Commission]

<PAGE>

                                       1

         CONFIDENTIAL PORTIONS OMITTED PURSUANT TO RULE 24b-2 OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                     ------------------------------------
                       JOINT CLINICAL RESEARCH AGREEMENT
                     ------------------------------------          000993/MCM/FP

This Agreement entered into as of October 13/th/, 2000 (the "Effective Date")
is made between :

CORTEX PHARMACEUTICALS Inc
Having its principal office at
15241 Barranca Parkway
Irvine, California
USA

(hereinafter "CORTEX")

                                 on one part,

AND

INSTITUT DE RECHERCHES INTERNATIONALES SERVIER
A corporation duly organized and registered under the laws of France
Having its principal office at
6 Place des Pleiades
92415 Courbevoie cedex
France

(hereinafter "IRIS")

and

ADIR ET COMPAGNIE
A corporation duly organized and registered under the laws of France
Having its principal office at
1 Rue Carle Hebert
92415 Courbevoie cedex
France

(hereinafter "AEC")

IRIS et  AEC are hereinafter collectively referred to as "SERVIER"

                                                 on the other part,
<PAGE>

                                       2

                                   RECITALS

WHEREAS, CORTEX is currently planning a preliminary clinical trial in the United
States of the compound called CX 516 for the treatment of mild cognitive
impairment ("MCI");

WHEREAS, CORTEX wishes to expand this trial to become a collaborative cross
national study ;

WHEREAS, SERVIER is interested in developing its knowledge and understanding of
the use of AMPA receptor modulating compounds in mild cognitive impairment and
age related decline in brain function and therefore SERVIER is interested in
participating in the clinical trial of the compound CX 516.

NOW, THEREFORE, the Parties have agreed as follows:

ARTICLE I - DEFINITIONS

For the purpose of this Agreement, the terms defined in this Article shall be
the meaning specified below.

1.1  "Affiliate" shall mean any corporation or other entity which controls, is
      ---------
     controlled by, or is under common control with a Party to this Agreement. A
     corporation or other entity shall be regarded as in control of or
     controlled by another corporation or entity if it owns or directly or
     indirectly controls more than fifty percent (50%) of the voting stock or
     other ownership interest of the other corporation or entity, or if it
     possesses, directly or indirectly, the power to direct or cause the
     direction of the management and policies of the corporation or other entity
     or the power to elect or appoint fifty percent (50%) or more of the members
     of the governing body of the corporation or other entity.

1.2  "CX516" shall mean 1-(Quinoxalin-6-ylcarbonyl) piperdine, the
      -----
     specifications of which are attached as Schedule 1 hereto.

1.3  "Effective Date" shall mean the date first set forth above.
      --------------

1.4  "Party" shall mean CORTEX or SERVIER.
      -----

1.5  "Parties" shall mean collectively CORTEX and SERVIER.
      -------

1.6  "Protocols" shall mean the study protocols defining the studies agreed upon
      ---------
     the Parties as stated in Article 2.3.

1.7  "Studies" shall mean the studies within the scope of this Agreement as
      -------
     defined in Article 2.1 and further defined in the Protocols.
<PAGE>

                                       3

1.8  "Third Party" shall mean any entity other than CORTEX or SERVIER and their
      -----------
     respective Affiliates.

1.9  "Third Party Optionee" shall mean the corporation to which CORTEX has
      --------------------
     granted an option to a license rights to  CX 516.

1.10 "Third Party Option Agreement" shall mean the Agreement by which CORTEX has
      ----------------------------
     granted an option to a license on CX 516 to the Third Party Licensee.

ARTICLE II - SCOPE AND STRUCTURE OF THE COLLABORATION

2.1  The purpose of this Agreement is to define the terms and conditions under
     which SERVIER is willing to (i) participate in a multinational study
     initiated by CORTEX in MCI using CX 516 and (ii) initiate some
     complementary studies on CX 516.

2.2  The goal of the Studies is to enable the Parties to develop their knowledge
     of the use of AMPA-receptor modulating compounds in MCI and age related
     decline in brain function.

2.3  It is understood and agreed by the Parties hereto that the Studies shall be
     performed in accordance with Protocols to be drafted and agreed upon
     between the Parties at a Consensus Conference to be held as soon as
     possible. Once such Protocols are agreed upon between the Parties such
     Protocols shall form an integral of this Agreement. The costs of the
     Consensus Conference shall be borne by SERVIER subject that such costs must
     be duly agreed by SERVIER prior to such Consensus Conference.

2.4  The Parties shall use their reasonable efforts to perform the Studies in
     accordance with the performance schedule to be defined in the Protocols.

     Due to the nature of the Studies delays in the performance of the schedules
     shall not be considered as a breach.

ARTICLE III - SUPPLY OF CX 516

CORTEX undertakes to supply free of charge all of SERVIER's reasonable
requirements of bulk CX 516 in order to enable SERVIER to perform the Studies in
accordance with the Protocols.

CORTEX undertakes to ship at its costs quantities of bulk CX 516 to the place of
shipment specified by SERVIER.

SERVIER shall bear the costs for formulation tablets and capsules of finished
dose form of CX 516 and for the placebo.
<PAGE>

                                       4

ARTICLE IV - COSTS OF PERFORMANCE

SERVIER shall support all of its costs related to its performance of the Studies
in accordance with the Protocols other than the costs of CX 516 as stated in
Article III hereabove.

ARTICLE V - LIABILITY - ADVERSE EVENTS REPORTS

5.1  The Parties declare that the Studies shall be undertaken to the best of
     their knowledge and belief in strict compliance with all applicable
     national and local laws, regulations and guidelines relating to the
     protection of human subjects.

5.2  CORTEX as sponsor of the Studies undertakes to indemnify and hold harmless
     SERVIER and its officers, directors, employees and agents from any loss,
     damage, cost or expense (including reasonable attorney's fees) made or
     brought (whether successfully or otherwise) by or on behalf of a patient
     involved in the study against SERVIER for personal injury (including death)
     to such patient arising out or relating to the administration of CX 516 to
     such patient.

     The above indemnity by CORTEX shall not apply to any such claim or
     proceeding to the extent that such a personal injury (including death) is
     caused by the negligent or wrongful acts or omissions or breach of
     statutory duty of SERVIER or its officers, directors, employees and agents,
     or any failure of SERVIER, its Affiliates or investigators to follow the
     Protocols

     SERVIER undertakes to indemnify and hold harmless CORTEX and its officers,
     directors, employees and agents from any loss, damage, cost or expense
     (including reasonable attorney's fees) resulting from SERVIER's negligent
     or wrongful acts or omissions or breach of statutory duty of SERVIER or its
     officers, directors, employees and agents, or any failure of SERVIER, its
     Affiliates or investigators to follow the Protocols.

5.3  Each Party shall promptly report to the other potentially serious or
     unexpected adverse events (including adverse drug experiences, as defined
     in 21 C.F.R. (S) 314.80 or other applicable regulations) with respect to CX
     516 of which it becomes aware and in no event later than five (5) days
     after initial receipt of the information by such party, with the exception
     of Life-Threatening Adverse Drug Experiences (as defined in 21 C.F.R. (S)
     314.80(a)), which shall be notified to the other Party within 24 hours of
     knowledge of the notifying Party. Each Party shall report to the other
     Party summaries of other adverse events with respect to every twelve (12)
     months. CORTEX may provide such information that it receives from SERVIER
     under this Article 5.3 to its other licensees. CORTEX shall use reasonable
     efforts to include in its other agreements, similar provisions to this
     Article 5.3.
<PAGE>

                                       5

ARTICLE VI - RESULTS - INTELLECTUAL PROPERTY RIGHTS

6.1  Any and all results, data information generated by SERVIER within the
     performance of the Studies and contained in the different reports sent by
     SERVIER to CORTEX in accordance with the Protocols shall be CORTEX's sole
     and exclusive property.

6.2  Notwithstanding the above, any invention made by SERVIER within the
     performance of the Studies which is not directly related to CX 516 shall be
     SERVIER's sole and exclusive property.

6.3  Subject to Article 6.4 hereunder, it is understood and agreed by the
     Parties hereto that information, data, patents invention, know-how held by
     a Party hereto or developed by a Party hereto outside of the performance of
     the Studies shall remain at all times the sole and exclusive property of
     such Party and nothing herein shall be deemed or construed as granting to
     the other Party any rights by license or otherwise on such invention, know-
     how, patents, data, information.

6.4  Notwithstanding Article 6.3 hereabove, CORTEX grants to SERVIER for the
     purpose of performing this Agreement right to use CX 516, and any and all
     data, information, patent related thereto.

     As a consequence of the above, CORTEX hereby undertakes to indemnify and
     hold harmless SERVIER from any Third Party (including but not limited to
     Third Party Licensee) claims based on violation of any industrial and
     intellectual property rights arising out of the use by SERVIER in
     accordance with this Agreement of CX 516 and any and all data, information
     and patent related thereto as stated hereabove.

ARTICLE VII - FINANCE - COUNTERPART

7.1  It is understood and agreed by SERVIER, that CORTEX has granted to Third
     Party Optionee rights to CX 516 and therefore such rights are not
     available.

7.2  Notwithstanding Article 7.1 hereabove and as a counterpart for SERVIER's
     performance of the Studies, should Third Party Optionee not exercise its
     rights to CX 516 in accordance with the terms of the Third Party Option
     Agreement, and, therefore CORTEX regains the rights to license CX 516, and
     if AEC has entered into a Collaboration Research Agreement and Licensing
     Agreement to Ampakines, AEC may select CX 516 for development and
     commercialization thereunder.

7.3  CORTEX hereby warrants that in case Third Party Optionee exercises its
     rights to CX 516 in accordance with the Third Party Option Agreement
     nothing herein are in any future agreement between CORTEX and Third Party
     Optionee shall prevent the performance of this Agreement.
<PAGE>

                                       6

ARTICLE VIII - TERM AND TERMINATION

8.1  This Agreement shall come into force upon the Effective Date and subject to
     article 8.2 hereunder shall remain in full force and effect until the
     performance of the Studies in accordance with the Protocols, provided
     however that either Party may terminate this Agreement on thirty (30) day
     notice if the Studies are not completed by March 30, 2002 or any other
     extended time frame the Parties may have agreed within such notice.

8.2  This Agreement may be terminated in the following circumstances :

     8.2.1  By one Party upon written notice by reason of a material breach by
            the other Party that the breaching Party fails to remedy within
            ninety (90) days after written notice thereof by the non-breaching
            Party, provided however, that in the case that such breach is
            capable of cure but cannot be cured within such ninety (90) day
            period, such period shall be extended so long as the breaching Party
            continues to use diligent efforts to cure such breach;

     8.2.2  By either Party upon bankruptcy, insolvency, dissolution or winding
            up of the other subject to applicable local laws.

     8.2.3  By SERVIER, in its discretion at any time subject to a three (3)
            months prior notice sent to CORTEX.

     8.2.4  By SERVIER, in case of merger and/or acquisition of CORTEX with or
            by a third party, provided that SERVIER provides notice thereof
            within thirty (30) days after being informed by CORTEX in writing of
            such merger or acquisition.

8.3  The provisions of Article 7 shall survive the term of this Agreement as
     stated in Article 8.1 and termination by SERVIER for material breach by
     CORTEX in accordance with Article 8.2.1.

     The provisions of Articles V, VI and IX shall survive term and termination
     of this Agreement.
<PAGE>

                                       7

ARTICLE IX - CONFIDENTIALITY

9.1  Nondisclosure Obligations.  Except as otherwise provided in this Article 9,
     -------------------------
     during the term of this Agreement and for a period of ten (10) years
     thereafter, both Parties shall maintain in confidence and use only for
     purposes of performance of this Agreement information and data received
     from the other Party in connection with this Agreement ("Information"),
     provided however, that pursuant to Article 6.1, CORTEX shall own and be
     free to use results, data and information generated in the Studies.
     To the extent it is reasonably necessary or appropriate to fulfill its
     obligations or exercise its rights under this Agreement, a Party may
     disclose Information it is otherwise obligated under this Article not to
     disclose to its Affiliates, consultants, professional advisors, on a need-
     to-know basis on condition that such entities or persons agree to
     confidentiality and non-use provisions in relation to the Information on
     such terms as the disclosing Party uses for its own confidential
     information of similar commercial importance; and a Party, its Affiliate
     may disclose such Information to government or other regulatory authorities
     to the extent that such disclosure is required by law or regulation or is
     reasonably necessary perform the Studies.  The obligation not to disclose
     Information shall not apply to any part of such Information that (i) is or
     becomes patented, or published or (ii) is or becomes part of the public
     domain other than by acts of the Party obligated not to disclose such
     Information or its Affiliates in contravention of this Agreement; (iii) is
     disclosed to the receiving Party or its Affiliates by a Third Party,
     provided such Information was not knowingly obtained by such Third Party
     directly or indirectly from the other Party under this Agreement; (iv)
     prior to disclosure under this Agreement, was already in the possession of
     the receiving Party or its Affiliates, provided such Information was not
     knowingly obtained directly or indirectly from the other Party under this
     Agreement; or (v) can be shown by written documents to have been
     independently developed by the receiving Party or its Affiliates without
     the aid or reference to the Information.

9.2  CORTEX and SERVIER each agrees not to disclose any terms or conditions of
     this Agreement to any Third Party without the prior consent of the other
     Party, except as required by applicable law or to persons with whom SERVIER
     or CORTEX has entered into or proposes to enter into a business
     relationship provided that such persons are subject to appropriate
     confidentiality agreements. If a Party is required by law or regulation to
     disclose Information to its government or other regulatory authorities,
     that Party shall make reasonable efforts to keep the Information
     confidential and protected from public disclosure.

ARTICLE X - MISCELLANEOUS

10.1 Force Majeure.  Neither Party shall be held liable or responsible to the
     --------------
     other Party nor be deemed to have defaulted under or breached this
     Agreement for failure or delay in fulfilling or performing any term of this
     Agreement when such failure or delay is caused by or results from causes
     beyond the reasonable control of the affected Party, including but not
     limited to fire, floods, embargoes, war, acts of war (whether war is
     declared or not), insurrections, riots, civil commotions, strikes, lockouts
     or other labor disturbances, acts of God or acts, omissions or delays in
     acting by any governmental authority or the other Party; provided, however,
     that the Party so affected shall use
<PAGE>

                                       8

     reasonable commercial efforts to avoid or remove such causes of
     nonperformance, and shall continue to perform hereunder with reasonable
     dispatch whenever such causes are removed. Either Party shall provide the
     other Party with prompt written notice of any delay or failure to perform
     that occurs by reason of force majeure. The Parties shall mutually seek a
     resolution of the delay or the failure to perform as noted above.

10.2 Assignment.  This Agreement may not be assigned or otherwise transferred by
     -----------
     either Party without the prior written consent of the other Party,
     provided, however, that SERVIER may, without such consent, assign this
     Agreement and its rights and obligations hereunder to its Affiliates and
     provided further, that CORTEX may, without such consent, assign this
     Agreement and its rights and obligations hereunder to its Affiliates or in
     connection with the tranfer or sale of all or substantially all of its
     business, or in the event of its merger or consolidation or similar
     transaction, subject to SERVIER's right under Article 8.2.4. Any purported
     assignment in violation of the preceding sentences shall be void. Any
     permitted assignee shall assume all obligations of its assignor under this
     Agreement in writing.

10.3 Severability.  Each Party hereby agrees that it does not intend to violate
     ------------
     any public policy, statutory or common laws, rules, regulations, treaty or
     decision of any government agency or executive body thereof of any country
     or community or association of countries. Should one or more provisions of
     this Agreement be or become invalid, the Parties hereto shall substitute,
     by mutual consent, valid provisions for such invalid provisions which valid
     provisions in their economic effect are sufficiently similar to the invalid
     provisions that it can be reasonably assumed that the Parties would have
     entered into this Agreement with such valid provisions. In case such valid
     provisions cannot be agreed upon, the invalidity of one or several
     provisions of this Agreement shall not affect the validity of this
     Agreement as a whole, unless the invalid provisions are of such essential
     importance to this Agreement that it is to be reasonably assumed that the
     Parties would not have entered into this Agreement without the invalid
     provisions.

10.4 Notices.  Any consent, notice or report required or permitted to be given
     -------
     or made under this Agreement by one of the Parties hereto to the other
     shall be in writing in English, delivered personally or by facsimile (and
     promptly confirmed by personal delivery or courier) or courier, postage
     prepaid (where applicable), addressed to such other Party at its address
     indicated below, or to such other address as the addressee shall have last
     furnished in writing to the addressor and shall be effective upon receipt
     by the addressee.

     If to CORTEX:       CORTEX Pharmaceuticals, Inc.
                         15241 Barranca Parkway
                         Irvine, California  92618-2201
                         Attention: Chief Executive Officer
                         Fax:  949/727-3657
<PAGE>

                                       9

       If to SERVIER:      INSTITUT DE RECHERCHES
                           INTERNATIONALES SERVIER
                           6 Place des Pleiades
                           92415 Courbevoie
                           Attention: Dr. L. Perret

10.5   Governing Law.  This Agreement shall be governed by, and construed in
       -------------
       accordance with, the laws of the state of New York as though made and to
       be fully performed therein without regard to conflicts of laws principles
       thereof.

10.6   Arbitration. Any disputes arising between the Parties relating to,
       -----------
       arising out of or in any way connected with this Agreement or any term or
       condition hereof, or the performance by either Party of its obligations
       hereunder, whether before or after termination of this Agreement, shall
       be promptly presented to the Chief Executive Officers of CORTEX and
       SERVIER for resolution and if the Chief Executive Officers cannot
       promptly resolve such disputes, then such dispute shall be finally
       resolved by binding arbitration in accordance with the rules of
       arbitration of the International Chamber of Commerce (ICC) by one or more
       arbitrators appointed in accordance with such rules. Any such arbitration
       shall be held in New York City, New York, USA, and the language of such
       proceedings shall be English.

10.7   Entire Agreement. This Agreement, together with the Schedules and
       ----------------
       Protocols hereto between the Parties contains the entire understanding of
       the Parties with respect to the subject matter hereof. In the event of
       any conflict or inconsistency between any provision of any Schedules and
       Protocols hereto and any provision of this Agreement, the provisions of
       this Agreement shall prevail. All express or implied agreements and
       understandings, either oral or written, heretofore made are expressly
       merged in and made a part of this Agreement. This Agreement may be
       amended, or any term hereof modified, only by a written instrument duly
       executed by both Parties hereto.

10.8   Headings. The captions to the several Articles and Sections hereof and
       --------
       Exhibits hereto are not a part of this Agreement, but are merely guides
       or labels to assist in locating and reading the several Articles and
       Sections hereof.

10.9   Independent Contractors.  It is expressly agreed that CORTEX and SERVIER
       -----------------------
       shall be independent contractors and that the relationship between the
       two Parties shall not constitute a partnership, joint venture or agency.
       Neither CORTEX nor SERVIER shall have the authority to make any
       statements, representations or commitments of any kind, or to take any
       action, which shall be binding on the other, without the prior consent of
       the other Party to do so.

10.10  Waiver. The waiver by either Party hereto of any right hereunder or the
       ------
       failure to perform or of a breach by the other Party shall not be deemed
       a waiver of any other right hereunder or of any other breach or failure
       by said other Party whether of a similar nature or otherwise.

10.11  Counterparts. This Agreement may be executed in two or more counterparts,
       ------------
       each of which shall be deemed an original, but all of which together
       shall constitute one and the same instrument.
<PAGE>

                                      10

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.

CORTEX PHARMACEUTICALS, INC.

By:    /s/ Vincent F. Simmon
     --------------------------------

Name:    Vincent F. SIMMON, Ph.D
      -------------------------------

Title:   Chief Executive Officer
       ------------------------------

INSTITUT DE RECHERCHES
INTERNATIONALES SERVIER

By:           /s/ Laurent Perret
       -------------------------------------------------

Name:         Dr. Laurent PERRET
       -------------------------------------------------

Title: President of Research and Development
       -------------------------------------------------

ADIR ET COMPAGNIE

By:    /s/ Christian Bazantay
    ----------------------------------------------------

Name:     Christian BAZANTAY
      --------------------------------------------------

Title:    Proxy
       -------------------------------------------------
<PAGE>

                                      11

                                  SCHEDULE 1

                                    CX 516

       [* Pages 1 Through 3 Omitted And Filed Separately With Commission]

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