-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PagrUR1OWflLHa6VS8kfEYWtOVc6vuI6g7IwNFObFiusYVYs0dpwvzxd5ie1arDw 2LnvoYevlGpuyruqXPoD9A== 0000892569-99-002634.txt : 19991018 0000892569-99-002634.hdr.sgml : 19991018 ACCESSION NUMBER: 0000892569-99-002634 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19991007 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PRESLEY COMPANIES /DE CENTRAL INDEX KEY: 0000878093 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 330475923 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-42105 FILM NUMBER: 99724847 BUSINESS ADDRESS: STREET 1: 19 CORPORATE PLAZA CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7146406400 MAIL ADDRESS: STREET 1: 19 CORP PLAZA STREET 2: 19 CORP PLAZA CITY: NEWPORT BEACH STATE: CA ZIP: 92660 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PRESLEY COMPANIES /DE CENTRAL INDEX KEY: 0000878093 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 330475923 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-42105 FILM NUMBER: 99724848 BUSINESS ADDRESS: STREET 1: 19 CORPORATE PLAZA CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7146406400 MAIL ADDRESS: STREET 1: 19 CORP PLAZA STREET 2: 19 CORP PLAZA CITY: NEWPORT BEACH STATE: CA ZIP: 92660 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LYON WILLIAM CENTRAL INDEX KEY: 0001065244 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: C/O WILLIAM LYON HOMES INC STREET 2: 4490 VON KARMAN CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9498333600 MAIL ADDRESS: STREET 1: C/O WILLIAM LYON HOMES INC STREET 2: 4490 VON KARMAN CITY: NEWPORT BEACH STATE: CA ZIP: 92660 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LYON WILLIAM CENTRAL INDEX KEY: 0001065244 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: C/O WILLIAM LYON HOMES INC STREET 2: 4490 VON KARMAN CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9498333600 MAIL ADDRESS: STREET 1: C/O WILLIAM LYON HOMES INC STREET 2: 4490 VON KARMAN CITY: NEWPORT BEACH STATE: CA ZIP: 92660 SC 14D1 1 SCHEDULE 14D1 AND AMENDMENT NO.9 TO SCHEDULE 13D 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 AND SCHEDULE 13D (RULE 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (AMENDMENT NO. 9) ------------------------ THE PRESLEY COMPANIES (NAME OF SUBJECT COMPANY [ISSUER]) ------------------------ WILLIAM LYON AND WILLIAM H. LYON (BIDDERS) ------------------------ SERIES A COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLE OF CLASS OF SECURITIES) ------------------------ 741030-10-0 (CUSIP NUMBER OF CLASS OF SECURITIES) ------------------------ WILLIAM LYON WILLIAM H. LYON C/O WILLIAM LYON HOMES, INC. 4490 VON KARMAN NEWPORT BEACH, CALIFORNIA 92660 (949) 833-3600 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) ------------------------ COPY TO: DAVID A. KRINSKY, ESQ. O'MELVENY & MYERS LLP 610 NEWPORT CENTER DRIVE, SUITE 1700 NEWPORT BEACH, CALIFORNIA 92660-6429 (949) 823-7902 CALCULATION OF FILING FEE ============================================================================================ TRANSACTION AMOUNT OF VALUATION* FILING FEE** - -------------------------------------------------------------------------------------------- $6,994,608.76 $1,399.00 ============================================================================================
* Estimated for purpose of calculating the filing fee only. This amount assumes the purchase of 10,678,792 shares of Series A Common Stock, par value $0.01 per share, of The Presley Companies, a Delaware corporation, at a price of $0.655 per share in accordance with the terms of the tender offer described herein. ** The fee, calculated in accordance with Rule 0-11(d) of the Securities Exchange Act of 1934, is 1/50th of one percent of the aggregate Transaction Valuation. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount previously paid: Filing party: ------------------- ------------------- Form or registration no.: Date filed: ------------------- -------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SCHEDULE 14D-1 CUSIP NO. 741030-10-0 PAGE 2 OF 7 PAGES - --------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON WILLIAM LYON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) - --------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - --------------------------------------------------------------------------- 3. SEC USE ONLY - --------------------------------------------------------------------------- 4. SOURCE OF FUNDS* PF, AF, OO - --------------------------------------------------------------------------- 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) OR 2(f) [ ] - --------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES OF AMERICA - --------------------------------------------------------------------------- 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,189,589 SHARES - --------------------------------------------------------------------------- 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES* [X] - --------------------------------------------------------------------------- 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 11.7% - --------------------------------------------------------------------------- 10. TYPE OF REPORTING PERSON* IN - ---------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! 3 SCHEDULE 14D-1 CUSIP NO. 741030-10-0 PAGE 3 OF 7 PAGES - --------------------------------------------------------------------------- 1. NAME OF REPORTING PERSON WILLIAM H. LYON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) - --------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - --------------------------------------------------------------------------- 3. SEC USE ONLY - --------------------------------------------------------------------------- 4. SOURCE OF FUNDS* PF, AF, OO - --------------------------------------------------------------------------- 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) OR 2(f) [ ] - --------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES OF AMERICA - --------------------------------------------------------------------------- 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 SHARES - --------------------------------------------------------------------------- 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES* [X] - --------------------------------------------------------------------------- 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% - --------------------------------------------------------------------------- 10. TYPE OF REPORTING PERSON* IN - ---------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! 4 INTRODUCTION This Schedule 14D-1 Tender Offer Statement (this "Statement") relates to the offer by William Lyon and William H. Lyon (collectively, the "Purchasers") to purchase up to 10,678,792 shares (subject to adjustment) of outstanding Series A Common Stock, $0.01 par value per share (the "Series A Shares"), of The Presley Companies, a Delaware corporation (the "Company"), at a price of $0.655 per share, net to the tendering stockholder in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 7, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Copies of the Offer to Purchase and the Letter of Transmittal are annexed to and filed with this Schedule 14D-1 as Exhibits (a)(1) and (a)(2), respectively. This Statement also constitutes an amendment to William Lyon's Statement on Schedule 13D with respect to the beneficial ownership of Series A Shares of the Company. The item numbers and responses thereto are in accordance with the requirements of Schedule 14D-1. Capitalized terms not defined herein have the meanings assigned thereto in the Offer to Purchase. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is The Presley Companies, a Delaware corporation. The address of its principal executive offices is 19 Corporate Plaza, Newport Beach, California 92660. (b) The information set forth in the "Introduction" and Section 1 ("Terms of the Offer; Expiration Date; Amendment; Termination") of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Series A Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d), (g) This Statement is filed on behalf of William Lyon and William H. Lyon for purposes of Schedule 14D-1 and Schedule 13D. The information set forth in the "Introduction" and Section 8 ("Certain Information Concerning the Purchasers") of the Offer to Purchase is incorporated herein by reference. (e)-(f) During the last five years, neither of the Purchasers has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or a finding of any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a)-(b) The information set forth in the "Introduction," Section 8 ("Certain Information Concerning the Purchasers"), Section 9 ("Source of Funds"), Section 10 ("Background of the Offer; The Purchase Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company") of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(c) The information set forth in Section 9 ("Source of Funds") of the Offer to Purchase is incorporated herein by reference. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDERS. (a)-(e) The information set forth in the "Introduction," Section 10 ("Background of the Offer; The Purchase Agreement") and Section 11 ("Purpose of the Offer; Plans for the Company") of the Offer to Purchase is incorporated herein by reference. (f)-(g) The information set forth in Section 13 ("Effect of the Offer on the Market for the Series A Shares; Stock Exchange Listing; Exchange Act Registration; Margin Regulations") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a)-(b) The information set forth in Section 8 ("Certain Information Concerning the Purchasers") of the Offer to Purchase is incorporated herein by reference. The Purchasers disclaim beneficial ownership of the Page 4 of 7 Pages 5 Series A Shares into which the Series B Shares (as defined in the Offer to Purchase) which may be purchased by the Purchasers under the Series B Stock Purchase Agreements (as defined in the Offer to Purchase) are convertible until such time as the conditions set forth in the Series B Stock Purchase Agreements have been satisfied and the closing of the transactions contemplated thereunder have occurred. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the "Introduction," Section 9 ("Sources of Funds"), Section 10 ("Background of the Offer; The Purchase Agreement"), Section 11 ("Purpose of the Offer; Plans for the Company"), and Section 16 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in Section 16 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. Not applicable. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in the "Introduction," Section 8 ("Certain Information Concerning the Purchasers"), Section 9 ("Sources of Funds"), Section 10 ("Background of the Offer; The Purchase Agreement"), Section 11 ("Purpose of the Offer; Plans for the Company") and Section 16 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. (b)-(d) The information set forth under Section 15 ("Certain Legal Matters") of the Offer to Purchase is incorporated herein by reference. (e) To the knowledge of the Purchasers, there are no pending legal proceedings relating to the tender offer to which this Schedule 14D-1 relates. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively, to the extent not otherwise incorporated herein by reference, is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. The following exhibits are filed herewith: (a)(1) Offer to Purchase dated October 7, 1999. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Taxpayer Certification Number on Substitute Form W-9. (a)(7) Summary Advertisement dated October 7, 1999. (b) None. (c)(1) Purchase Agreement and Escrow Instructions, dated as of October 7, 1999, by and among WLHI, the Purchasers, the Company and Presley Homes. (c)(2) Stock Purchase and Sale Agreements, dated as of July 6, 1999, between WLHI and each of the Series B Stockholders. (c)(3) Nonqualified Stock Option Agreement, dated as of May 20, 1994, between the Company and William Lyon. (c)(4) Confidentiality Agreement, dated as of November 17, 1998, between the Company and WLHI. (d) None. (e) Not applicable. (f) Not applicable. 99.1 Joint Filing Agreement of William Lyon and William H. Lyon.
Page 5 of 7 Pages 6 SIGNATURE AFTER DUE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND CORRECT. /s/ WILLIAM LYON -------------------------------------- William Lyon /s/ WILLIAM H. LYON -------------------------------------- William H. Lyon Dated: October 7, 1999 Page 6 of 7 Pages 7 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------ ------------------------------------------------------------ (a)(1) Offer to Purchase dated October 7, 1999. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Taxpayer Certification Number on Substitute Form W-9. (a)(7) Summary Advertisement dated October 7, 1999. (b) None. (c)(1) Purchase Agreement and Escrow Instructions, dated as of October 7, 1999, by and among WLHI, the Purchasers, the Company and Presley Homes. (c)(2) Stock Purchase and Sale Agreements, dated as of July 6, 1999, between WLHI and each of the Series B Stockholders. (c)(3) Nonqualified Stock Option Agreement, dated as of May 20, 1994, between the Company and William Lyon. (c)(4) Confidentiality Agreement, dated as of November 17, 1998, between the Company and WLHI. (d) None. (e) Not applicable. (f) Not applicable. 99.1 Joint Filing Agreement of William Lyon and William H. Lyon.
Page 7 of 7 Pages EX-1.(A) 2 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH UP TO 10,678,792 OUTSTANDING SHARES OF SERIES A COMMON STOCK OF THE PRESLEY COMPANIES AT $0.655 NET PER SHARE BY WILLIAM LYON AND WILLIAM H. LYON THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 5, 1999, UNLESS THE OFFER IS EXTENDED. WILLIAM LYON AND WILLIAM H. LYON (COLLECTIVELY, THE "PURCHASERS") HAVE AGREED, UNDER CERTAIN CIRCUMSTANCES AND SUBJECT TO THE TERMS AND CONDITIONS OF THE OFFER, TO EXTEND THE OFFER FROM TIME TO TIME UNTIL THE CLOSING OF THE ACQUISITION (AS DEFINED HEREIN). THE OFFER IS BEING MADE AS PART OF A SERIES OF TRANSACTIONS THAT ARE EXPECTED TO RESULT IN (I) THE ACQUISITION BY PRESLEY HOMES, A CALIFORNIA CORPORATION ("PRESLEY HOMES") AND A WHOLLY OWNED SUBSIDIARY OF THE PRESLEY COMPANIES, A DELAWARE CORPORATION (THE "COMPANY"), OF SUBSTANTIALLY ALL OF THE REAL ESTATE AND RELATED ASSETS AND LIABILITIES OF WILLIAM LYON HOMES, INC. ("WLHI"), A CALIFORNIA CORPORATION OWNED BY THE PURCHASERS, (II) THE PURCHASE BY THE PURCHASERS OF OUTSTANDING SHARES OF THE COMPANY'S SERIES A COMMON STOCK ("SERIES A SHARES") PURSUANT TO THE OFFER AND THE PURCHASE BY WLHI (OR ONE OR MORE OF ITS AFFILIATES) OF OUTSTANDING SHARES OF THE COMPANY'S SERIES B COMMON STOCK ("SERIES B SHARES") PURSUANT TO THE SERIES B STOCK PURCHASE AGREEMENTS, EACH AS DESCRIBED HEREIN, SUCH THAT FOLLOWING SUCH PURCHASES, THE PURCHASERS AND THEIR AFFILIATES OWN UP TO 49.9% OF THE OUTSTANDING COMMON STOCK OF THE COMPANY, AND (III) THE MERGER OF THE COMPANY WITH AND INTO PRESLEY MERGER SUB, INC., A NEWLY-FORMED DELAWARE CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF THE COMPANY (THE "MERGER"). THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST 1,989,180 SERIES A SHARES, SUBJECT TO ADJUSTMENT AS DESCRIBED HEREIN (THE "MINIMUM CONDITION"), (B) WLHI (OR ONE OR MORE OF ITS AFFILIATES) CONTINUING TO HAVE, AS OF THE EXPIRATION OF THE OFFER, THE LEGALLY ENFORCEABLE RIGHT TO PURCHASE SERIES B SHARES PURSUANT TO EACH OF THE SERIES B STOCK PURCHASE AGREEMENTS, (C) THE CONSUMMATION OF THE ACQUISITION BY PRESLEY HOMES OF SUBSTANTIALLY ALL OF THE REAL ESTATE AND RELATED ASSETS AND LIABILITIES OF WLHI PURSUANT TO THE PURCHASE AGREEMENT (AS DEFINED HEREIN), AND (D) APPROVAL OF THE MERGER BY HOLDERS OF A MAJORITY OF THE OUTSTANDING SERIES A SHARES AND SERIES B SHARES VOTING TOGETHER AS A SINGLE CLASS. A SPECIAL COMMITTEE OF INDEPENDENT MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, AND IN FURTHERANCE OF THE TRANSACTIONS CONTEMPLATED BY THE PURCHASE AGREEMENT, HAS RECOMMENDED THAT HOLDERS OF SERIES A SHARES (OTHER THAN THE PURCHASERS AND CERTAIN HOLDERS OF SERIES B SHARES) ACCEPT THE OFFER AND TENDER THEIR SERIES A SHARES PURSUANT TO THE OFFER; PROVIDED, HOWEVER, THAT SUCH HOLDERS OF SERIES A SHARES SHOULD CONSULT WITH THEIR FINANCIAL AND TAX ADVISORS PRIOR TO TENDERING THEIR SERIES A SHARES IN THE OFFER. ------------------------ IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Series A Shares should either (i) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver it together with the certificate(s) representing tendered Series A Shares and any other required documents to the Depositary or tender such Series A Shares pursuant to the procedures for book-entry transfer set forth in Section 3, or (ii) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. A stockholder whose Series A Shares are registered in the name of a broker, dealer, commercial bank trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such stockholder desires to tender such Series A Shares. A stockholder who desires to tender Series A Shares and whose certificates representing such Series A Shares are not immediately available, or who cannot comply on a timely basis with the procedures for book-entry transfer described in this Offer to Purchase, may tender such Series A Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance, or for additional copies of this Offer to Purchase, the Letter of Transmittal or other tender offer materials, may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. Stockholders may also contact brokers, dealers, commercial banks and trust companies for assistance concerning the Offer. ------------------------ October 7, 1999 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION..................................................... 1 THE TENDER OFFER................................................. 2 1. Terms of the Offer; Expiration Date; Amendment; Termination................................................. 2 2. Acceptance for Payment and Proration; Payment............... 4 3. Procedures for Tendering Series A Shares.................... 6 4. Withdrawal Rights........................................... 8 5. Certain Federal Income Tax Consequences..................... 9 6. Price Range of Series A Shares; Dividends................... 9 7. Certain Information Concerning the Company.................. 10 8. Certain Information Concerning the Purchasers............... 13 9. Source of Funds............................................. 15 10. Background of the Offer; The Purchase Agreement............. 16 11. Purpose of the Offer; Plans for the Company................. 25 12. Dividends and Distributions................................. 25 13. Effect of the Offer on the Market for the Series A Shares; Stock Exchange Listing; Exchange Act Registration; Margin Regulations................................................. 26 14. Conditions to the Offer..................................... 27 15. Certain Legal Matters....................................... 29 16. Fees and Expenses........................................... 30 17. Miscellaneous............................................... 30
-i- 3 TO THE HOLDERS OF SERIES A COMMON STOCK OF THE PRESLEY COMPANIES: INTRODUCTION William Lyon and William H. Lyon (together, the "Purchasers") hereby offer to purchase up to an aggregate of 10,678,792 shares (subject to adjustment as described herein) of the outstanding Series A Common Stock, $0.01 par value per share (the "Series A Shares"), of The Presley Companies, a Delaware corporation (the "Company"), at a price of $0.655 per Series A Share, net to the tendering stockholder in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as extended or amended from time to time, together constitute the "Offer"). Tendering stockholders of the Company will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Series A Shares by the Purchasers pursuant to the Offer. The Purchasers will pay all charges and expenses of ChaseMellon Consulting Services, LLC, which is acting as Information Agent, and ChaseMellon Shareholder Services, LLC, which is acting as Depositary in connection with the Offer. See Section 16. The Offer is being made pursuant to the Purchase Agreement and Escrow Instructions dated as of October 7, 1999 (the "Purchase Agreement"), by and among William Lyon Homes, Inc., a California corporation owned by the Purchasers ("WLHI"), the Purchasers, the Company and Presley Homes, a California corporation and a wholly owned subsidiary of the Company ("Presley Homes"). The Purchase Agreement provides for, among other things, the acquisition by Presley Homes of substantially all of the real estate and related assets of WLHI for the cash purchase price of forty-eight million dollars ($48,000,000), subject to adjustment, together with the assumption of substantially all liabilities of WLHI (the "Acquisition"). The Purchase Agreement also contemplates that (a) the Company will be merged with and into Presley Merger Sub, Inc. ("New Presley"), a newly-formed Delaware corporation and a wholly owned subsidiary of the Company (the "Merger"), and (b) WLHI (or one or more of its affiliates) will consummate the purchase of up to 15,566,837 shares of the Company's Series B Common Stock, $0.01 par value per share (the "Series B Shares"), pursuant to separate Stock Purchase and Sale Agreements (collectively, the "Series B Stock Purchase Agreements") between WLHI and each of GS Credit Partners, L.P., ING (U.S.) Capital, LLC, and The Chase Manhattan Bank, as Trustee for First Plaza Group Trust (collectively, the "Series B Stockholders"). Each Series B Share is convertible into one Series A Share. (The Series A Shares and the Series B Shares are collectively referred to herein as the "Common Stock.") THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST 1,989,180 SERIES A SHARES, SUBJECT TO ADJUSTMENT AS DESCRIBED HEREIN (THE "MINIMUM CONDITION"), (II) WLHI (OR ONE OR MORE OF ITS AFFILIATES) CONTINUING TO HAVE, AS OF THE EXPIRATION OF THE OFFER, THE LEGALLY ENFORCEABLE RIGHT TO PURCHASE SERIES B SHARES PURSUANT TO EACH OF THE SERIES B STOCK PURCHASE AGREEMENTS, (III) THE CONSUMMATION OF THE ACQUISITION, AND (IV) APPROVAL OF THE MERGER BY HOLDERS OF A MAJORITY OF THE OUTSTANDING SERIES A SHARES AND SERIES B SHARES VOTING TOGETHER AS A SINGLE CLASS. A SPECIAL COMMITTEE OF INDEPENDENT MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, AND IN FURTHERANCE OF THE TRANSACTIONS CONTEMPLATED BY THE PURCHASE AGREEMENT, HAS RECOMMENDED THAT HOLDERS OF SERIES A SHARES (OTHER THAN THE PURCHASERS AND THE SERIES B STOCKHOLDERS) ACCEPT THE OFFER AND TENDER THEIR SERIES A SHARES PURSUANT TO THE OFFER; PROVIDED, HOWEVER, THAT SUCH HOLDERS OF SERIES A SHARES SHOULD CONSULT WITH THEIR FINANCIAL AND TAX ADVISORS PRIOR TO TENDERING THEIR SERIES A SHARES IN THE OFFER. 1 4 Warburg Dillon Read LLC ("Warburg Dillon Read"), the financial advisor to the Special Committee of the Board of Directors of the Company, has delivered to the Special Committee its written opinion dated September 16, 1999, to the effect that, after giving effect to the Acquisition, the Offer, the Merger and the transactions contemplated under the Series B Stock Purchase Agreements, the shares of common stock of New Presley to be issued in the Merger to holders of Series A Shares and, to the extent that any such holder of Series A Shares (other than the Purchasers and the Series B Stockholders) tenders Series A Shares in the Offer, the cash that may be received by each such tendering holder of Series A Shares (other than the Purchasers and the Series B Stockholders), subject to the proration provisions of the Offer, is fair to the holders of Series A Shares (other than the Purchasers and the Series B Stockholders) from a financial point of view. A copy of such opinion is included with the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders of the Company concurrently herewith. Warburg Dillon Read confirmed its opinion as of October 7, 1999. Stockholders are urged to read the opinion in its entirety for a description of the assumptions made, factors considered and procedures followed by Warburg Dillon Read. The Merger has been proposed in order to implement restrictions on the transfer of the Company's Common Stock. These stock transfer restrictions will reduce, but not eliminate, the risk that an ownership change will occur with respect to the Company that would limit the use by the Company of its substantial tax net operating loss carryforwards to offset future taxable income. The Merger and the transfer restrictions are described in detail in proxy materials of the Company which have been filed with the Securities and Exchange Commission (the "Commission"). Record holders of Common Stock as of September 15, 1999 will receive these proxy materials in a separate mailing and will be entitled to vote on the Merger at a special meeting of stockholders of the Company. The Company's proxy materials contain important financial and other information relating to the Merger and the Acquisition, and holders of Series A Shares should review the proxy materials carefully before making any decision with respect to the Offer. William Lyon is presently the Chairman of the Board of Directors of the Company. Each of the Purchasers and WLHI has agreed, and each of the Series B Stockholders has conditionally agreed, to vote all shares of Common Stock owned by them in favor of the Merger at the special meeting of the stockholders. As of the date of the Offer, the Purchasers own and have the right to vote 5,439,589 of the issued and outstanding shares of Common Stock of the Company. In addition, the Series B Stockholders have represented to WLHI in the Series B Stock Purchase Agreements that they own an aggregate of 17,264,162 of the issued and outstanding shares of Common Stock of the Company. According to the Company, as of October 6, 1999, there were 34,792,732 Series A Shares and 17,402,946 Series B Shares issued and outstanding, aggregating to 52,195,678 shares of Common Stock issued and outstanding. On October 6, 1999, the last full trading day prior to the announcement of the Purchase Agreement and the Purchasers' intention to commence the Offer, the closing price per Series A Share on the New York Stock Exchange (the "NYSE") was $0.8125. THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. THE TENDER OFFER 1. TERMS OF THE OFFER; EXPIRATION DATE; AMENDMENT; TERMINATION Upon the terms and subject to the conditions of the Offer, the Purchasers will accept for payment and pay for all Series A Shares, up to a maximum aggregate of 10,678,792 Series A Shares (subject to adjustment as described below), which are validly tendered prior to the Expiration Date (as hereinafter defined) and not properly withdrawn in accordance with Section 4. The term "Expiration Date" means 12:00 midnight, New York City time, on Friday, November 5, 1999 (the "Initial Expiration Date"), unless and until the Purchasers, as provided below, shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" means the latest time and date at which the Offer as so extended by the 2 5 Purchasers, shall expire. Pursuant to the Purchase Agreement, the Purchasers, subject to the terms and conditions of the Offer, have agreed to extend the period of time during which the Offer is open if, on the Initial Expiration Date, (i) the Minimum Condition shall not have been satisfied or waived by the Purchasers, or (ii) the Acquisition shall not have been consummated or the stockholders of the Company shall not have approved the Merger due to delays in (a) obtaining necessary governmental or regulatory approvals of, or necessary third party consents to, either of the Acquisition or the Merger, or (b) obtaining the financing required to satisfy the conditions to the Acquisition, or (c) obtaining the release of WLHI from certain performance bonds, guarantees and other obligations as set forth in the Purchase Agreement. Under such circumstances, the Purchasers have agreed to extend the Expiration Date of the Offer from time to time and for such number of business days as may be necessary to allow for such conditions to be satisfied and for the closing of the Offer to be substantially coterminous with the closing of the Acquisition; provided, however, that in no event shall the Purchasers be obligated to extend the expiration of the Offer beyond November 30, 1999 (or thirty calendar days thereafter in the event that the closing of the Acquisition or the stockholder vote upon the Merger is delayed due to further delays in the process of obtaining necessary governmental or regulatory approvals). The Purchasers expressly reserve the right to decrease or waive the Minimum Condition and otherwise to amend the terms and conditions of the Offer; provided that, without the written consent of the Company, no amendment may be made which (1) decreases the Offer Price, (2) decreases the number of Series A Shares sought, or (3) amends the terms of the Offer in any manner adverse to the holders of Series A Shares. The Purchasers have agreed that if, after receiving the advice of counsel, the Company determines that the consummation of the Offer and/or the purchases by WLHI (or one or more of its affiliates) of Series B Shares under the Series B Stock Purchase Agreements would result in an "ownership change" of the Company for federal tax purposes or other adverse tax consequence to the Company, the Purchasers will reduce the number of Series A Shares sought pursuant to the Offer (but not below the number of Series A Shares required to satisfy the Minimum Condition) to avoid such "ownership change" or other adverse federal tax consequence. If the Purchasers make a material change in the terms of the Offer or the information concerning the Offer (including a decrease in the number of Series A Shares sought pursuant to the Offer as required above) or waive a material condition of the Offer, the Purchasers will disseminate additional tender offer material and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1(b) promulgated by the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in the number of shares sought pursuant to the Offer, will depend upon the facts and circumstances, including the relative materiality of the terms or information. With respect to a change in price or a change in the number of Series A Shares, a minimum of ten business days from the date that notice of such change in the number of Series A Shares sought is first published or sent or given to stockholders is generally required to allow for adequate dissemination to stockholders and investor response. As used in this Offer to Purchase, "business day" means any day other than Saturday, Sunday or a federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time, as computed in accordance with Rule 14d-1 under the Exchange Act. The Offer is conditioned upon, among other things, the satisfaction of the Minimum Condition, the consummation of the Acquisition, approval of the Merger by holders of a majority of the Series A Shares and Series B Shares voting together as a class, and the satisfaction of the other conditions set forth in Section 14. If any such condition is not satisfied prior to the Expiration Date of the Offer, the Purchasers may, subject to the terms of the Purchase Agreement, (i) terminate the Offer and return all tendered Series A Shares to tendering stockholders, (ii) extend the Offer and, subject to withdrawal rights as set forth in Section 4, retain all such tendered Series A Shares until the Expiration Date of the Offer as so extended, (iii) other than as described in Section 14, waive such condition and, subject to any requirement to extend the period of time during which the Offer is open, purchase all Series A Shares validly tendered and not withdrawn by the Expiration Date, or (iv) delay acceptance for payment of (whether or not the Series A Shares have 3 6 theretofore been accepted for payment), or payment for, any Series A Shares tendered and not withdrawn, subject to applicable law, until satisfaction or waiver of the conditions to the Offer. Notwithstanding the foregoing, upon consummation of the Acquisition in accordance with the terms of the Purchase Agreement, all of the conditions to the Offer shall be deemed to have been satisfied (other than the condition that there be no action, legislation, regulation, ruling or judgment instituted or pending which would make illegal or otherwise prohibit consummation of the Offer, the Merger or the purchase by WLHI of the Series B Shares as contemplated under the Purchase Agreement and the Series B Stock Purchase Agreements, or impose a limitation on the ability of the Purchasers to acquire, hold or vote shares of Common Stock of the Company, or require divestiture by the Purchasers or their respective affiliates of shares of Common Stock or divestiture by the Company of any material portion of its business or assets taken as a whole). In the Purchase Agreement, the Purchasers have agreed, subject to the conditions in Section 14 and its rights under the Offer, to accept for payment and pay for Series A Shares tendered pursuant to the Offer as soon as the Purchasers are legally permitted to do so under applicable law. If the Purchasers extend the Offer, or if the Purchasers (whether before or after their acceptance for payment of Series A Shares) are delayed in their purchase of or payment for Series A Shares or are unable to pay for Series A Shares pursuant to the Offer for any reason, then, without prejudice to the Purchasers' rights under the Offer, the Depositary may retain tendered Series A Shares on behalf of the Purchasers, and such Series A Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in Section 4. The ability of the Purchasers to delay the payment for Series A Shares which the Purchasers have accepted for payment is, however, limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of the bidder's offer. Any extension, amendment or termination of the Offer will be followed as promptly as practicable by public announcement thereof, the announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rules 14d-4(c) and 14e-1(d) under the Exchange Act. The Company has provided to the Purchasers a list containing the names and addresses of the record holders of Series A Shares and lists of securities positions of Series A Shares held in stock depositories for the purpose of disseminating the Offer to stockholders of the Company. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed to record holders of Series A Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Series A Shares. 2. ACCEPTANCE FOR PAYMENT AND PRORATION; PAYMENT Pursuant to the terms of, and subject to the prior satisfaction or waiver of the conditions of, the Offer (as it may be extended or amended), the Purchasers will accept for payment and pay for all Series A Shares validly tendered prior to the Expiration Date and not properly withdrawn as promptly as practicable following such Expiration Date. If more than 10,678,792 Series A Shares have been validly tendered and not withdrawn as of the Expiration Date of the Offer, the Purchasers will accept for payment and purchase Series A Shares from tendering stockholders on a pro rata basis, which calculation will be adjusted downward to avoid acceptance for payment of fractional shares. Proration for each stockholder tendering Series A Shares will be based on the ratio of the number of Series A Shares tendered by each stockholder to the total number of Series A Shares validly tendered and not properly withdrawn. Tendering stockholders may designate in the Letter of Transmittal the order in which their Series A Shares are to be purchased if proration is required. If the stockholder does not designate an order in the Letter of Transmittal, Series A Shares will be selected for purchase by the Depositary. In the event that proration is required, the Purchasers will announce the final results of proration as soon as practicable, but in no event later than five business days following the Expiration Date. The Purchasers will not pay for any Series A Shares tendered until after the final proration factor has been determined. 4 7 Subject to applicable rules of the Commission, the Purchasers expressly reserve the right to delay acceptance for payment of, or payment for, Series A Shares in order to comply, in whole or in part, with any applicable law. See Sections 14 and 15. Any such delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder's offer). In all cases, payment for Series A Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Series A Shares (the "Share Certificates"), or timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Series A Shares, if such procedure is available, into the Depositary's account at The Depository Trust Company ("Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined below), and (iii) any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Series A Shares, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and that Purchaser may enforce such agreement against the participant. For purposes of the Offer, the Purchasers will be deemed to have accepted for payment, and thereby purchased, Series A Shares validly tendered and not withdrawn as, if, and when the Purchasers give oral or written notice to the Depositary of the Purchasers' acceptance of such Series A Shares for payment. Upon the terms and subject to the conditions of the Offer, payment for Series A Shares accepted for payment pursuant to the Offer will be made by deposit of the aggregate purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Purchasers and transmitting payment to such tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SERIES A SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Upon the deposit of funds with the Depositary for the purpose of making payments to tendering stockholders, Purchasers' obligation to make such payment will be satisfied and tendering stockholders must thereafter look solely to the Depositary for payment of amounts owed to them by reason of the acceptance for payment of Series A Shares pursuant to the Offer. If any tendered Series A Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer, or if Share Certificates are submitted evidencing more Series A Shares than are tendered, Share Certificates evidencing unpurchased or untendered Series A Shares will be returned, without expense to the tendering stockholder (or, in the case of Series A Shares tendered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure set forth in Section 3, such Series A Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration, termination or withdrawal of the Offer. If, prior to the Expiration Date, the Purchasers increase the Offer Price or otherwise increase the consideration offered to stockholders pursuant to the Offer, such increased consideration will be paid to all holders whose Series A Shares are purchased in the Offer, whether or not such Series A Shares were tendered prior to such increase in consideration. The Purchasers, and each of them individually, reserve the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of their respective affiliates, the right to purchase all or any portion of the Series A Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchasers of their obligations under the Offer or prejudice the rights of tendering stockholders to receive payment for Series A Shares validly tendered and accepted for payment pursuant to the Offer. 5 8 3. PROCEDURES FOR TENDERING SERIES A SHARES Valid Tender of Series A Shares. In order for Series A Shares to be validly tendered pursuant to the Offer, either (a) the Letter of Transmittal or a facsimile thereof, properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry delivery of Series A Shares, and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, and either the Share Certificates evidencing tendered Series A Shares must be received by the Depositary along with the Letter of Transmittal, or such Series A Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date, or (b) the tendering stockholder must comply with the guaranteed delivery procedures described below. Book-Entry Transfer. The Depositary will establish an account with respect to the Series A Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant of the Book-Entry Transfer Facility's systems may make book-entry delivery of Series A Shares by causing the Book-Entry Transfer Facility to transfer such Series A Shares into the Depositary's account at a Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Series A Shares may be effected through book-entry transfer at a Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with any required signature guarantees, or an Agent's Message, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Signature Guarantees. Signatures on all Letters of Transmittal must be guaranteed by a member firm of a registered national securities exchange which is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program, or by a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being referred to as an "Eligible Institution"), unless the Series A Shares tendered thereby are tendered (i) by a registered stockholder who has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal, or (ii) for the account of an Eligible Institution. See Instruction 1 of the Letter of Transmittal. If a Share Certificate is registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or a Share Certificate is not accepted for payment or is not tendered and is to be returned to a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Series A Shares pursuant to the Offer and such stockholder's Share Certificates are not immediately available or time will not permit all required documents to reach the Depositary prior to the Expiration Date or the procedure for book-entry transfer cannot be 6 9 completed on a timely basis, such Series A Shares may nevertheless be tendered if all the following conditions are satisfied: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchasers herewith, is received by the Depositary as provided below prior to the Expiration Date; and (iii) the Share Certificates for all tendered Series A Shares, in proper form for transfer, or a Book-Entry Confirmation, together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantee (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by such Letter of Transmittal, are received by the Depositary within three trading days after the date of execution of the Notice of Guaranteed Delivery. A "trading day" is any day on which the NYSE is open for business. Any Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Series A Shares purchased pursuant to the Offer will, in all cases, be made only after timely receipt by the Depositary of (i) the Share Certificates evidencing such Series A Shares, or a Book-Entry Confirmation of the delivery of such Series A Shares, (ii) a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) (or, in the case of a book-entry delivery, an Agent's Message), and (iii) any other documents required by the Letter of Transmittal. Backup Federal Withholding Tax. To prevent backup federal income tax withholding with respect to payment of the purchase price of Series A Shares purchased pursuant to the Offer, each such stockholder must provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") and certify that such stockholder is not subject to backup federal income tax withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. Foreign and nonresident alien stockholders must submit a completed Form W-8 to avoid 31% backup withholding. This form may be obtained from the Depositary. See Instruction 11 of the Letter of Transmittal. Appointment as Proxy. By executing a Letter of Transmittal as set forth above, a tendering stockholder irrevocably appoints designees of the Purchasers as such stockholder's attorneys-in-fact and proxies, in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Series A Shares tendered by such Stockholder and accepted for payment by the Purchasers (and any and all non-cash dividends, distributions, rights, other Series A Shares, or other securities issued or issuable in respect of such Series A Shares on or after the date of this Offer to Purchase). All such proxies shall be irrevocable and considered coupled with an interest in the tendered Series A Shares. This appointment will be effective if, when, and only to the extent that, the Purchasers accept such Series A Shares for payment pursuant to the Offer. Upon such acceptance for payment, all prior proxies given by such stockholder and not yet exercised or voted with respect to such Series A Shares and other securities will, without further action, be revoked, and no subsequent proxies may be given. The designees of the Purchasers will, with respect to the Series A Shares and other securities for which the appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual, special, adjourned or postponed meeting of stockholders, by written consent or otherwise, and in order for Series A Shares or other securities to be deemed validly tendered, immediately upon the Purchasers' acceptance for payment of such Series A Shares, the Purchasers must be able to exercise full voting rights with respect to such Series A Shares and other securities. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tendered Series A Shares pursuant to any of the procedures described above will be determined by the Purchasers, in their sole discretion, whose determination will be final and 7 10 binding on all parties. The Purchasers reserve the absolute right to reject any or all tenders of any Series A Shares determined by them not to be in proper form or if the acceptance for payment of, or payment for, such Series A Shares might, in the opinion of Purchasers' counsel, be unlawful. The Purchasers also reserve the absolute right, in their sole discretion, to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to Series A Shares of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. The Purchasers' interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. None of the Purchasers, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. Binding Agreement. A tender of Series A Shares pursuant to any one of the procedures described above will constitute the tendering stockholder's acceptance of the terms and conditions of the Offer, as well as the tendering stockholder's representation and warranty that said stockholder has the full power and authority to tender and to assign the Series A Shares tendered, as specified in the Letter of Transmittal. The Purchasers' acceptance for payment of Series A Shares validly tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Purchasers upon the terms and subject to the conditions of the Offer. 4. WITHDRAWAL RIGHTS Series A Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Purchasers pursuant to the Offer, may also be withdrawn at any time after December 5, 1999, or at such later time as may apply if the Offer is extended. If the Purchasers extend the Offer, are delayed in their acceptance of Series A Shares for payment or are unable to accept Series A Shares for payment pursuant to the Offer for any reason, then, without prejudice to the Purchasers' rights under the Offer, the Depositary may, nevertheless, on behalf of the Purchasers, retain tendered Series A Shares, and such Series A Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in this Section 4. Any such delay will be by an extension of the Offer to the extent required by law. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Series A Shares to be withdrawn, the number of Series A Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Series A Shares. If Share Certificates evidencing Series A Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Series A Shares have been tendered for the account of an Eligible Institution. If Series A Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Series A Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchasers, in their sole discretion, whose determination will be final and binding. None of Purchasers, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Series A Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Series A Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3. 8 11 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following general discussion summarizes the anticipated material United States federal income tax consequences of the Offer to stockholders whose Series A Shares are purchased pursuant to the Offer. The following discussion does not address any tax consequences arising from or related to the Merger. Stockholders should refer to the Company's proxy materials for the special meeting of stockholders for a discussion of the United States federal income tax consequences arising from or related to the Merger. This discussion addresses only stockholders who hold their Series A Shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and does not address all of the United States federal income tax consequences that may be relevant to particular stockholders in light of their individual circumstances or to stockholders who are subject to special rules, such as: - financial institutions, - tax-exempt organizations, - insurance companies, - dealers in securities or foreign currencies, - traders in securities who elect to apply a mark-to-market method of accounting, - foreign holders, - persons who hold Series A Shares as a hedge against currency risk or as part of a straddle, constructive sale or conversion transaction, or - holders who acquired their shares upon the exercise of employee stock options or otherwise as compensation. The following discussion is not binding on the Internal Revenue Service. It is based upon the Code, laws, regulations, rulings and decisions in effect as of the date of this Offer, all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and foreign laws are not addressed. THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL INFORMATIONAL PURPOSES ONLY. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER AND THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES. The receipt of cash for Series A Shares pursuant to the Offer will be a taxable transaction for federal income tax purposes (and may also be a taxable transaction under applicable foreign, state, local and other tax laws). In general, for federal income tax purposes, a stockholder will recognize gain or loss equal to the difference between his or her adjusted tax basis in the Series A Shares sold pursuant to the Offer and the amount of cash received therefor. Gain or loss must be determined separately for each block of Series A Shares (i.e., Series A Shares acquired at the same cost in a single transaction) sold pursuant to the Offer. Such gain or loss will be capital gain or loss (provided such Series A Shares are held as capital assets) and long-term capital gain or loss if the stockholder has held the Series A Shares for more than one year on the date of sale. Long term capital gains recognized by individual taxpayers currently are taxed at a maximum federal income tax rate of 20%. 6. PRICE RANGE OF SERIES A SHARES; DIVIDENDS The Series A Shares are currently listed and traded on the NYSE and quoted under the symbol "PDC". The following table sets forth, for the quarters indicated, the range of high and low sales prices for the Series A 9 12 Shares on the NYSE, as reported in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998 (the "1998 Form 10-K/A") and in published financial sources:
MARKET PRICE ------------------ HIGH LOW ------- ------- FISCAL YEAR ENDED DECEMBER 31, 1997: First Quarter............................................. $1.2500 $0.8750 Second Quarter............................................ $1.8750 $1.0000 Third Quarter............................................. $1.9375 $0.8125 Fourth Quarter............................................ $1.0625 $0.5625 FISCAL YEAR ENDED DECEMBER 31, 1998: First Quarter............................................. $1.1250 $0.6250 Second Quarter............................................ $1.1250 $0.6875 Third Quarter............................................. $1.3125 $0.5625 Fourth Quarter............................................ $0.7500 $0.4375 FISCAL YEAR ENDED DECEMBER 31, 1999: First Quarter............................................. $0.7500 $0.3750 Second Quarter............................................ $1.0000 $0.5000 Third Quarter............................................. $1.1250 $0.6250 Fourth Quarter (through October 6, 1999).................. $0.8750 $0.7500
On October 6, 1999, the last full trading day prior to the announcement of the Purchase Agreement and the Purchasers' intention to commence the Offer, the closing price per Series A Share on the NYSE was $0.8125. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SERIES A SHARES. The Company has reported in its 1998 Form 10-K/A that it has not paid any cash dividends on its Common Stock during the last two fiscal years and that it expects that for the foreseeable future, it will follow a policy of retaining earnings in order to help finance its business. In addition, the Company reports in the 1998 Form 10-K/A that the Company's principal financing agreements currently prohibit the payment of dividends by the Company. 7. CERTAIN INFORMATION CONCERNING THE COMPANY General. The Company is a Delaware corporation and its principal executive offices are located at 19 Corporate Plaza, Newport Beach, California 92660; telephone: (949) 640-6400. The Company and its subsidiaries are primarily engaged in designing, constructing and selling single family detached and attached homes in California, Arizona, New Mexico and Nevada. The Company designs, constructs and sells a wide range of homes designed to meet the specific needs of each of its markets, although it primarily emphasizes sales to the entry-level and move-up home buyer markets. The Company currently markets its homes through 46 sales locations in both its wholly owned projects and projects being developed in unconsolidated joint ventures. In the Company's 1998 Form 10-K/A, the Company reports that it had total sales of $368.3 million and (together with its unconsolidated joint ventures) sold 2,139 homes during the fiscal year ended December 31, 1998. Available Information. The Company is subject to the information and reporting requirements of the Exchange Act, and is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the Commission. These reports, proxy statements and other information are available for inspection at the public reference facilities of the Commission located at Judiciary Plaza, 450 Fifth Street, N.W., 10 13 Washington, D.C. 20549, and are available for inspection and copying at prescribed rates at the following regional offices of the Commission: Seven World Trade Center, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such materials may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a website on the Internet (http://www.sec.gov) that contains reports, proxy statements and other information relating to the Company which have been filed via the Commission's EDGAR System. Such material should also be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Except as otherwise noted in this Offer to Purchase, all the information with respect to the Company and its affiliates set forth in this Offer to Purchase has been derived from publicly available information and information provided by the Company. Although the Purchasers do not have any knowledge that any such information is untrue, none of the Purchasers, the Information Agent or the Depositary takes any responsibility for, or makes any representation with respect to, the accuracy or completeness of such information or for any failure by the Company to disclose events that may have occurred and that may affect the significance or accuracy of any such information. A copy of this Offer to Purchase, and certain of the agreements referred to herein, are attached as exhibits to the Purchasers' Tender Offer Statement on Schedule 14D-1, dated October 7, 1999 (the "Schedule 14D-1"), which has been filed with the Commission. The Schedule 14D-1 and the exhibits thereto, along with such other documents as may be filed by the Purchasers with the Commission, may be examined and copied in the same manner as set forth above for documents filed with Commission by the Company. 11 14 Summary Financial Information for the Company. The following table sets forth certain summary consolidated financial information and certain operating information with respect to the Company and its subsidiaries excerpted or derived from the audited financial statements contained in the Company's 1998 Form 10-K/A, and the unaudited financial information contained in the Company's Quarterly Reports on Form 10-Q/A and Form 10-Q for the six months ended June 30, 1999 and June 30, 1998, respectively. More comprehensive financial and operating information is included in such reports and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to such documents (which may be inspected and obtained as described above), including the financial statements and related notes contained therein. None of the Purchasers, the Information Agent or the Depositary assumes any responsibility for the accuracy of the financial information set forth below. THE PRESLEY COMPANIES SUMMARY FINANCIAL INFORMATION (In Thousands, Except Per Common Share Amounts and Number of Homes)
UNAUDITED SIX MONTHS ENDED AUDITED FROM 10-K JUNE 30, YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Sales............................ $178,012 $147,008 $368,282 $329,942 $318,997 $285,505 $270,168 Operating income (loss).......... 18,685 954 15,580 (84,534) 163 (41,335) 14,318 Income (loss) before extraordinary item............. 13,084 (2,607) 7,114 (89,894) 152 (39,785) 6,037 Net income (loss)................ 14,873 (2,085) 9,855 (89,894) 152 (37,097) 6,037 Basic and diluted earnings per common share: Before extraordinary item...... $ 0.25 $ (0.05) $ 0.14 $ (1.72) $ -- $ (0.76) $ 0.11 After extraordinary item....... 0.28 (0.04) 0.19 (1.72) -- (0.71) 0.11
JUNE 30, DECEMBER 31, ------------------- ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- -------- BALANCE SHEET DATA: Real estate inventories.......... $176,522 $196,555 $174,502 $255,472 $306,381 $315,535 $382,055 Total assets..................... 246,232 258,085 246,404 285,244 331,615 340,933 425,637 Notes payable.................... 181,290 231,810 195,393 254,935 208,524 224,434 272,717 Stockholder's equity (deficit)... 23,188 (7,766) 5,824 (5,681) 84,213 84,061 121,158
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- -------- OTHER OPERATING DATA (INCLUDING UNCONSOLIDATED JOINT VENTURES): Number of homes sold............. 1,259 1,161 2,139 1,718 1,804 1,488 1,423 Number of homes closed........... 1,051 734 1,925 1,597 1,838 1,425 1,442 Number of homes in escrow at end of period...................... 825 830 617 403 282 316 253 Average sales prices of homes closed......................... $ 208 $ 186 $ 202 $ 192 $ 173 $ 162 $ 182
Additional Information Relating to the Acquisition and the Merger. The Acquisition and the Merger are described in detail in proxy materials which have been prepared by the Company in connection with its special meeting of stockholders to be held on November 5, 1999 for the purpose of considering and voting upon the Merger. The Company's proxy materials (including the information incorporated therein by reference) 12 15 contain important financial and other information with respect to the Company and WLHI, including historical and pro forma financial information, financial forecasts and a financial projection for WLHI and the Company on stand-alone and combined bases. The Company's proxy materials, including the information incorporated therein by reference, have been filed with the Commission (and thus may be inspected, obtained and copied as described above) and will be mailed to all record holders of Common Stock as of September 15, 1999. HOLDERS OF SERIES A SHARES SHOULD REVIEW THE COMPANY'S PROXY MATERIALS CAREFULLY BEFORE MAKING ANY DECISION WITH RESPECT TO THE OFFER. 8. CERTAIN INFORMATION CONCERNING THE PURCHASERS Identity and Background The Purchasers are William Lyon and William H. Lyon. The Purchasers are the owners of WLHI, a California-based homebuilder and real estate developer, and their principal business address is 4490 Von Karman, Newport Beach, California 92660. Both Purchasers are citizens of the United States. Since September 1992, William Lyon has served as the Chairman of the Board, President and Chief Executive Officer of WLHI. Since 1987, he has also served as the Chairman of the Board of Directors of the Company. William Lyon is the father of William H. Lyon. William H. Lyon has served as an Assistant Project Manager at WLHI since November of 1997. Prior to such time, he was a full-time student. William H. Lyon is the son of William Lyon. Interests in Securities of the Company William Lyon beneficially owns an aggregate of 6,189,589 Series A Shares representing approximately 17.4% of the total number of Series A Shares and approximately 11.7% of the total number of shares of Common Stock of the Company outstanding as of August 10, 1999 (as reported in the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999), such percentages being calculated in accordance with Rule 13d-3 promulgated under the Exchange Act by the Commission. Of the 6,189,589 Series A Shares beneficially owned by William Lyon, 750,000 are shares that he has the right to acquire pursuant to stock options granted by the Company to him in 1994 in respect of his service as a consultant to the Company. It is contemplated under the Purchase Agreement that these stock options (which have an exercise price of $2.875 per share) will be cancelled by the Company and William Lyon upon the closing of the Acquisition, and thus the Series A Shares issuable upon the exercise of such options are not taken into account for purposes of determining the number of shares necessary to satisfy the Minimum Condition under the terms of the \Purchase Agreement. Except as may otherwise be provided under applicable community property laws, William Lyon has the sole power to vote or to direct the vote, and the sole power to dispose or direct the disposition, of all Series A Shares beneficially owned by him. Pursuant to the Purchase Agreement, William Lyon has agreed to vote all shares of Common Stock owned by him in favor of the Merger at the special meeting of stockholders called for such purpose. William H. Lyon is the beneficiary of a trust which owns 492,450 Series A Shares. However, William H. Lyon does not have or share, directly or indirectly, the power to vote or to direct the vote, or the power to dispose or to direct the disposition, of such Series A Shares, and thus is not considered to have beneficial ownership of such shares. William H. Lyon does not otherwise beneficially own any shares of Common Stock of the Company. For purposes of determining the number of shares necessary to satisfy the Minimum Condition under the terms of the Purchase Agreement, the Purchasers are deemed to own 5,932,039 Series A Shares as of the commencement of the Offer, consisting of 5,439,589 Series A Shares owned directly by William Lyon and 492,450 Series A Shares held in trust for the benefit of William H. Lyon. 13 16 Series B Stock Purchase Agreements The following is a summary of certain provisions of the Series B Stock Purchase Agreements. A copy of each of the Series B Stock Purchase Agreements is attached as an exhibit to the Schedule 14D-1 and is incorporated herein by reference. The Series B Stock Purchase Agreements may be examined, and copies may be obtained, as set forth in Section 7 above. The following summary is qualified in its entirety by reference to the Series B Stock Purchase Agreements. WLHI, which is controlled by William Lyon (and in which William H. Lyon has a non-controlling, minority interest), has entered into the Series B Stock Purchase Agreements with each of the Series B Stockholders, which agreements provide for the purchase from the Series B Stockholders by WLHI or its permitted assigns of an aggregate minimum of 9,434,813 Series B Shares and an aggregate maximum of 15,566,837 Series B Shares for a cash price of $0.655 per share. The Series B Shares are convertible on a share for share basis into Series A Shares. The exact number of Series B Shares to be purchased under the Series B Stock Purchase Agreements depends upon the number of Series A Shares tendered and not withdrawn as of the Expiration Date of the Offer. If the maximum of 10,678,792 Series A Shares are tendered and not withdrawn as of the Expiration Date of the Offer, then WLHI will have the right to purchase the minimum of 9,434,813 Series B Shares under the Series B Stock Purchase Agreements. If, however, the number of Series A Shares validly tendered and not withdrawn as of the Expiration Date, when added to the 5,932,039 Series A Shares which are deemed for this purpose to be owned by the Purchasers and the minimum of 9,434,813 Series B Shares which may be purchased by WLHI under the Series B Stock Purchase Agreements, does not aggregate to 26,045,644 shares of Common Stock (constituting approximately 49.9% of the total shares of Common Stock which are issued and outstanding), then the Series B Stockholders have agreed to sell to WLHI, on a pro rata basis, additional Series B Shares at a price of $0.655 per share, up to a maximum aggregate of 15,566,837 Series B Shares. The purchase of the Series B Shares under the Series B Stock Purchase Agreements is subject to numerous conditions as set forth therein, including the consummation of the Acquisition, the acceptance of and payment for Series A Shares pursuant to the Offer, the approval of the Merger by holders of a majority of the Series A Shares and Series B Shares voting together as a class, and the absence of any person (other than the Purchasers and their affiliates) owning beneficially five percent (5%) or more of the outstanding Common Stock of the Company. If and when such conditions are satisfied or waived by WLHI, the closing of the purchases under the Series B Stock Purchase Agreements is expected to occur after the Expiration Date of the Offer and prior to the effective date of the Merger. Each of the Series B Stock Purchase Agreements may be terminated by either WLHI or the Series B Stockholder party thereto upon (among other events) the termination of the Purchase Agreement or in the event the closing under the Series B Stock Purchase Agreement has not occurred on or before November 15, 1999. Each of the Series B Stockholders has agreed that, prior to the closing of the transactions contemplated by the Series B Stock Purchase Agreements, it will not (i) transfer or dispose of any interest in, tender (pursuant to the Offer or otherwise), or pledge or otherwise create any encumbrance on any shares of the Company's Common Stock owned by such Series B Stockholder, (ii) convert any Series B Shares into Series A Shares, or (iii) acquire any beneficial interest in any shares of the Company's Common Stock, or any options, warrants or other rights to acquire shares of the Company's Common Stock. Each of the Series B Stockholders has also conditionally agreed to vote all shares of Common Stock owned by it and its respective affiliates in favor of the Merger. WLHI has agreed that, for a period of three years from the closing date of the purchase of Series B Shares under the Series B Stock Purchase Agreements, WLHI and its affiliates will not sell any shares of the Company's Common Stock, other than the Series A Shares owned by WLHI or its affiliates (including the Purchasers) prior to the commencement of the Offer, unless such sale takes place in connection with a transaction in which all other holders of the Company's Common Stock are afforded an opportunity to participate pro-rata, and on the same terms and conditions as WLHI and its affiliates. Excluded from this restriction is WLHI's or any of its affiliates' right to transfer shares of Common Stock to and among certain 14 17 affiliated entities, individuals and trusts, provided that such transferees agree to the foregoing restrictions on transfer. Sales of Series A Shares by the Purchasers On August 12, 1999, and in separate transactions, William Lyon and William H. Lyon sold an aggregate of 2,500,000 Series A Shares and 500,000 Series A Shares, respectively, for a cash price of $0.65 per share. Such sales were effected through privately-negotiated sale transactions not involving a broker or dealer. Except as set forth in this Offer to Purchase, neither the Purchasers nor, to the best knowledge of the Purchasers, any associate or majority-owned-subsidiary of such persons, beneficially owns or has a right to acquire any equity security of the Company, and neither the Purchasers nor, to the best knowledge of the Purchasers, any of the other entities or persons referred to above, or any of the respective directors, executive officers or subsidiaries of any of the foregoing, has effected any transaction in any equity security of the Company during the past 60 days. In addition, except as otherwise set forth in this Offer to Purchase, the Purchasers do not have any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, without limitation, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of the Company, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Other Information Confidentiality Agreement. WLHI and the Company are parties to a letter agreement dated November 17, 1998 (the "Confidentiality Agreement") which requires the Company and its representatives to maintain the confidentiality of certain information provided to the Company by WLHI for the purpose of evaluating a possible transaction with WLHI and to use such information solely for the purpose of evaluating a possible transaction. Purchase of Lots by WLHI. During the fiscal year ended December 31, 1998, WLHI made a bulk lot purchase from the Company for $6,996,000 in cash. The Purchasers believe that the sale was an arm's length transaction representing fair market value at the time the transaction was negotiated based upon competitive bids from other homebuilders. Indemnification Agreement. William Lyon is the Chairman of the Board of Directors of the Company. Pursuant to an indemnification agreement (the "Indemnification Agreement"), the Company has agreed to indemnify him to the fullest extent permitted by the bylaws of the Company and applicable law for all expenses, damages, liabilities and settlement payments which may be incurred by him in connection with any actions brought against him as a result of or relating to any act taken in his capacity as a director or officer of the Company. Except as set forth in this Offer to Purchase, the Purchasers have not had, since January 1, 1996, any business relationships or transactions with the Company, or any of its executive officers, directors or affiliates that would require reporting under applicable rules of the Commission. 9. SOURCE OF FUNDS The Offer is not subject to any financing condition. The total amount of funds required by the Purchasers to consummate the Offer and to pay related fees and expenses is estimated to be approximately $7.75 million. Assuming that the maximum number of Series A Shares are validly tendered pursuant to the Offer and not withdrawn, the total amount of additional funds required by the Purchasers to consummate the purchase of the Series B Shares pursuant to the Series B Stock Purchase Agreements and to pay related fees and expenses is estimated to be approximately $6.2 million. The Purchasers expect to use a combination of proceeds received from the Acquisition and personal funds (including distributions received as shareholders of WLHI prior to the closing date of the Acquisition) to consummate the Offer and the purchase of the Series B Shares and to pay the related fees and expenses. 15 18 10. BACKGROUND OF THE OFFER; THE PURCHASE AGREEMENT Background of the Offer The Company announced on or about May 5, 1998 that it had engaged Warburg Dillon Read to explore various strategic alternatives for the Company. Subsequent thereto and in connection therewith, a Special Committee comprised of independent directors of the Company's Board of Directors was formed to evaluate strategic alternatives. On or about June 30, 1998, WLHI submitted a non-binding proposal to the Company (the "June 30 Proposal"), proposing a series of related transactions by which WLHI would acquire all of the Common Stock of the Company for a cash price of $0.40 per share. The June 30 Proposal was conditioned on, among other things, the negotiation and execution of a definitive agreement, completion of due diligence, certain amendments of the Company's 12 1/2% Senior Notes due 2001 (the "Senior Notes"), and regulatory, stockholder and other approvals. The June 30 Proposal, by its terms, would expire on July 31, 1998, unless accepted prior to that date. On or about July 28, 1998, the Special Committee advised WLHI that the Special Committee had determined to continue exploring additional strategic alternatives. The Special Committee did, however, invite WLHI at the same time to make a new or revised proposal to the Special Committee. During September and October of 1998, WLHI continued to indicate its interest in pursuing a transaction with the Company. In November of 1998, William Lyon and WLHI submitted a revised proposal to the Special Committee. WLHI and the Special Committee, and their respective representatives, continued to negotiate the revised proposal through the month of December, 1998. On December 31, 1998, WLHI, the Company and Presley Homes entered into a letter of intent setting forth their preliminary understanding with respect to (i) the proposed acquisition by the Company of substantially all of the assets of WLHI for approximately $48,000,000 together with the assumption of related liabilities, and (ii) the concurrent purchase by WLHI pursuant to a tender offer for not less than 40% and not more than 49% of the outstanding shares of the Company's Common Stock held by stockholders other than WLHI and its affiliates at a price of $0.62 per share. Following the completion of the proposed transactions, WLHI, William Lyon and their respective affiliates would own beneficially between 55% and 65% (depending on the number of shares tendered) of the outstanding shares of the Company's Common Stock. Under the terms of the letter of intent, the proposed transactions would be subject to various conditions, including the successful negotiation and execution of a definitive agreement, the receipt of opinions of the Company's advisors with respect to the fairness of the transactions to the Company and its stockholders as well as the solvency of the Company following consummation of the transactions, the receipt of real estate appraisals satisfactory to the Company and WLHI with respect to the real estate assets of WLHI, the approval of a definitive agreement by the respective boards of directors of the Company and WLHI by March 31, 1999, receipt of all required regulatory approvals and third party consents, including any required lender consents, the receipt of agreements from certain significant stockholders of the Company to tender their shares pursuant to the tender offer, the receipt of financing by the Company in an amount sufficient to enable the Company to finance the transactions, and the absence of any material adverse change in the business or financial condition of either the Company or WLHI. In addition, the letter of intent contemplated that each of the transactions would be structured so as to be subject to the successful completion of the other and, by imposing share transfer restrictions, to avoid triggering the change of control tax provisions that would result in the loss of the Company's net operating losses for tax purposes. The letter of intent also contemplated that the Company's Senior Notes would remain outstanding without modification. The letter of intent provided that, subject to the fiduciary duties of their respective boards of directors, the Company and WLHI would negotiate exclusively with each other toward a definitive agreement until March 31, 1999. The letter of intent did not constitute a binding agreement to consummate the transactions. 16 19 On February 18, 1999, WLHI proposed a modification to the December 31, 1998 letter of intent. Under the proposed modification, WLHI would make a tender offer for not more than 37% of the outstanding shares of Common Stock of the Company for a purchase price of $0.62 per share. In the event that more than 37% of the outstanding shares of Common Stock of the Company were tendered, WLHI would purchase shares from each tendering stockholder on a pro rata basis. The tender offer was to be conditioned upon there being tendered and not withdrawn, a number of shares which constituted at least 37% of the outstanding shares of the Company. The proposed modification also provided that the transactions would be structured to permit William Lyon and his affiliates, prior to consummation of the transaction and consistent with applicable securities laws, to sell shares of the Company's Common Stock owned by them up to a maximum of 4% of the total number of shares of the Company's Common Stock presently outstanding. On March 30, 1999, the parties amended the December 31, 1998 letter of intent to extend its term and the period of exclusive negotiations to April 30, 1999. The parties also agreed that WLHI could participate in discussions and negotiations with the holders of Series B Shares regarding the purchase by WLHI of such percentage of the Series B Shares so as to reduce each such Series B Stockholder's ownership interest in the Company's Common Stock to below 5% of the Company's outstanding Common Stock following consummation of the proposed transactions. WLHI was also permitted to seek commitments from the Series B Stockholders to sell additional shares to WLHI to the extent that the number of Series A Shares tendered in the tender offer were below the minimum threshold to be set forth in a definitive agreement. On May 4, 1999, WLHI, the Company and Presley Homes entered into a revised letter of intent setting forth their preliminary understanding with respect to (i) the proposed acquisition by the Company of substantially all of the assets of WLHI for a cash purchase price of $48,000,000 and the assumption of all or substantially all of the liabilities of WLHI; and (ii) the proposed purchase by WLHI of a portion of the outstanding shares of Common Stock of the Company. Under the terms of the revised letter of intent, WLHI would make offers to the holders of Series B Shares and a tender offer to the holders of Series A Shares to purchase, for a cash purchase price of $0.655 per share, an aggregate number of shares of Common Stock which when added to the number of shares of Common Stock already owned by WLHI and its affiliates, and after giving effect to a disposition by William Lyon and his affiliates of up to 8% of the total number of shares of Common Stock of the Company then outstanding, would cause WLHI and its affiliates to own an aggregate of approximately 49% of the outstanding shares of the Company's Common Stock. The proposed transactions were subject to various conditions, including the successful negotiation and execution of a definitive agreement; the receipt of opinions of the Company's advisors with respect to the fairness of the transactions to the Company and its stockholders as well as the solvency of the Company following the consummation of the transactions; the receipt of real estate appraisals satisfactory to the Company and WLHI with respect to the real estate assets of WLHI; the approval of a definitive agreement by the respective boards of directors of the Company and WLHI by July 15, 1999; receipt of all required regulatory approvals and third party consents, including any required lender consents; the possession of sufficient borrowing capacity or the receipt of financing by the Company in an amount sufficient to enable the Company to finance the transactions; the holders of the Company's Series B Shares not acquiring or disposing of any beneficial interest in the Company's Common Stock prior to closing; the purchase by WLHI or its affiliates of a sufficient number of shares of Common Stock to cause, when added to the number of shares already owned by WLHI and its affiliates and after giving effect to the sale by WLHI and its affiliates of up to 8% of the outstanding Common Stock, WLHI and its affiliates to own at least 49% of the Company's Common Stock (but not more than 49.9%); and the absence of any material adverse change in the business or financial condition of either the Company or WLHI. Effective as of July 15, 1999, the Company and WLHI amended the revised letter of intent to extend from July 15 to October 15, 1999 the term of the letter of intent, the period of exclusive negotiations and the date by which the respective boards of directors of the Company and WLHI must approve a definitive agreement with respect to the proposed transactions. 17 20 PURCHASE AGREEMENT The following is a summary of certain provisions of the Purchase Agreement. A copy of the Purchase Agreement is attached as an exhibit to the Schedule 14D-1 and is incorporated herein by reference. The Purchase Agreement may be examined, and copies may be obtained, as set forth in Section 7 above. The following summary is qualified in its entirety by reference to the Purchase Agreement. On October 7, 1999, WLHI, the Purchasers, the Company and Presley Homes entered into the Purchase Agreement. Pursuant to the terms of the Purchase Agreement, Presley Homes or its permitted assigns will purchase, and WLHI will sell, substantially all of WLHI's real estate and related assets for a cash purchase price of $48,000,000, subject to the adjustments described below, and the assumption by Presley Homes of all or substantially all of the liabilities of WLHI. The closing of the purchase and sale of assets pursuant to the Purchase Agreement is expected to occur immediately prior to the expiration of the Offer and prior to the completion of the Merger. The completion of the Acquisition is a condition precedent to the completion of the Offer and the Merger. Assets to be Acquired by Presley Homes Subject to the terms and conditions in the Purchase Agreement, WLHI will sell, and will cause any partnership or limited liability company through which WLHI owns real property to sell, to Presley Homes or its permitted assigns, all or substantially all of the assets and properties of WLHI or any such partnership or limited liability company, including without limitation the following assets: (i) substantially all real property located in the State of California that is owned by WLHI or by partnerships and limited liability companies of which WLHI is a partner or a member, in each case, as identified on a schedule to the Purchase Agreement, inclusive of any and all buildings, structures, fixtures and improvements located on such real property and all associated rights, privileges and easements appurtenant to, or used in connection with, such real property; (ii) substantially all personal property of any kind that is owned by WLHI or by any partnerships or limited liability companies in which WLHI is a partner or member and used in connection with or related to the real property being sold to Presley Homes; and (iii) all receivables, escrow proceeds, deposits and other assets arising out of or related to the real property and the personal property being sold by WLHI or the selling partnerships and limited liability companies to Presley Homes. Pursuant to the Purchase Agreement, certain assets are specifically excluded from the Acquisition and will be retained by WLHI or the partnerships, or limited liability companies, including but not limited to: (i) any rights and claims to tax refunds; (ii) the cash consideration to be paid by Presley Homes to WLHI pursuant to the Purchase Agreement; (iii) company records and all income tax records and non-transferable licenses and permits; (iv) assets acquired after the closing date of the Purchase Agreement except for assets that are acquired with proceeds constituting part of the assets transferred to Presley Homes; (v) cash reserves in respect of or relating to any of the excluded liabilities that are not assumed by Presley Homes under the Purchase Agreement; and (vi) assets scheduled as excluded under the Purchase Agreement. Adjustments to the Purchase Price The purchase price for the real property of $48,000,000 was determined based on the value of the real property and related assets owned directly or indirectly by WLHI and the selling partnerships and limited liability companies as of December 31, 1998. The parties intend that these assets, together with all income, receivables, escrow and other proceeds, purchase deposits, cash and other assets earned or received by WLHI or the selling partnerships and limited liability companies from the sale of any of these assets, including any assets acquired with sales proceeds, in the ordinary course of business since January 1, 1999 and through the closing date of the Acquisition will inure to Presley Homes. The amounts so inuring to Presley Homes are to be net of any amounts that have been used to pay or satisfy land acquisition or development costs, capital expenditures, principal or interest on indebtedness, accounts payable, accrued liabilities, employee wages and benefits, taxes and other liabilities and operating expenses existing at December 31, 1998 and incurred in the ordinary course of business. 18 21 The cash portion of the purchase price will be reduced by certain distributions and payments made and liabilities accrued by WLHI or the selling partnerships or limited liability companies in the interim time period between January 1, 1999 and the closing date of the Acquisition (the "Operating Period"), except to the extent such payments have been recorded on the books of the applicable selling party, including: (i) dividends, redemptions or similar payments or distributions; (ii) the unpaid balance of any loans or other advances to or for the personal benefit of its shareholders or affiliates or partners other than WLHI, but excluding loans or other advances in which the right to receive payment is being transferred to Presley Homes and any advances or payments made in the form of salary or other compensation for services rendered in the ordinary course of business; (iii) bonuses and other compensation to directors, officers and employees for services rendered prior to December 31, 1998; (iv) warranty expenses related to real estate assets sold and closed prior to December 31, 1998; (v) payments and related legal fees made in settlement of legal claims, other than claims relating to the assets being purchased or the liabilities being assumed; and (vi) significant and unusual charitable contributions during the period. The cash portion of the purchase price will be further reduced for: (i) the value of any real estate assets scheduled as assets excluded from purchase; (ii) the amount of any costs and operating expenses incurred or accrued by WLHI or the selling partnership during the period in respect of or relating directly to any of the excluded assets; (iii) the amount of any non-cash adjustments made on the books and records of the applicable seller during the period for write-offs or abandonment of assets to be purchased that were recorded on the books at December 31, 1998, but only to the extent that amount exceeds $500,000 in the aggregate; (iv) the amount of any cash reserves to be retained in respect of liabilities that are not being assumed by Presley Homes; and (v) any amounts paid or incurred by the applicable selling party (except to the extent that a corresponding liability was recorded on the books as of December 31, 1998), to the extent the amounts were paid or incurred in respect of legal, financial and tax accounting, appraisal, or financial advisory fees and expenses incurred in connection with the transactions contemplated by the Purchase Agreement which are in the aggregate greater than $1,250,000. The cash portion of the purchase price will be increased by the aggregate amount of the following: (i) any capital contribution or other equity investment made in WLHI or the selling partnerships or limited liability companies made during the operating period, if approved by Presley Homes after the date of the Purchase Agreement; (ii) accounts payable, accrued liabilities or indebtedness secured by or relating to any of the assets excluded from purchase; (iii) warranty reserves reflected on the books and records of WLHI or any of the selling partnerships or limited liability companies as of the closing date retained by WLHI; and (iv) tax refunds, insurance recoveries, utility deposits and other assets acquired by WLHI or any of the selling partnerships or limited liability companies during the period in exchange for or in respect of any claims or other assets that were not reflected on their books as of December 31, 1998. Any adjustment to the purchase price will be determined by Ernst & Young LLP or other independent accounting firm acceptable to Presley Homes and WLHI based on a review of the books and records of the selling parties. The independent auditor will perform a preliminary review and notify the parties and the escrow holder not later than five business days prior to the closing date of its estimate of any proposed adjustment. Unless either Presley Homes or WLHI objects, the adjustment will be made to the purchase price at the closing through escrow. If either objects, the escrow holder is required to withhold the amount of the proposed adjustment until the amount of the adjustment is finally determined. After the closing, the independent auditor will complete a review and deliver to the parties its final determination of any adjustment to the purchase price within thirty (30) calendar days of the closing date. If the parties agree or fail to timely object, the determination will be final and conclusive. If either party disagrees or makes a timely objection, the parties are required to make a good faith attempt to resolve any differences. If the parties can't resolve the matter, it will be directed to Arthur Andersen LLP or another independent accounting firm acceptable to the parties whose determination shall be binding. 19 22 Liabilities to be Assumed by Presley Homes Pursuant to the Purchase Agreement, Presley Homes and its permitted assigns will assume certain obligations and liabilities of WLHI and the selling partnerships or limited liability companies related to the assets purchased pursuant to the Purchase Agreement (other than those obligations and liabilities excluded from assumption), including but not limited to the following: (i) the subcontract agreements on the standard form contracts for services, materials or supplies to be incorporated into the works of improvement on the real property; (ii) the purchase agreements on the standard form contracts for the sale of individual lots to homebuyers which sales have not closed escrow on or before the closing date under the Purchase Agreement; (iii) the subdivision agreements, development agreements and other entitlement agreements with governmental entities relating to the real property; (iv) construction or performance bonds, guaranties and similar commitments entered into in connection with the development of the real property; (v) the contracts listed on an exhibit to the Purchase Agreement; (vi) accounts payable and accrued liabilities arising in the ordinary course of business with respect to the assets; and (vii) compensation, salary, wages or other benefits for employees who are to continue employment with Presley Homes, to the extent such benefits are accrued and reflected on the books and records of WLHI, disclosed on a list delivered to Presley Homes or incurred by WLHI or the partnerships with respect to the payment period in which the closing occurs. Presley Homes will not assume or be responsible for any of the liabilities or obligations of WLHI and the partnership or limited liability companies which: (i) result from any alleged or actual defect or breach of warranty claim with respect to any portion of the real property, including all improvements thereon, for work done by WLHI or the partnerships or limited liability companies on the real property prior to the closing date; (ii) result from any claim or other proceeding made by or against WLHI or the partnerships or limited liability companies, either before the closing date or after the closing date, with respect to events that occurred or conditions that existed before the closing date; (iii) result from taxes, other than property taxes; (iv) relate to or arise out of the excluded assets that are not being purchased by Presley Homes and will remain with WLHI or the partnerships or limited liability companies; (v) arise after the closing date in connection with the Purchase Agreement; (vi) result from its ownership interest in WLHI or the partnerships or limited liability companies; (vii) result from indebtedness secured by mortgages or other security interests on the assets purchased to which WLHI or the partnerships or limited liability companies is not directly or indirectly liable or does not provide credit support; (viii) the selling party has the right to be indemnified or reimbursed by an insurer or other third party with respect to; and (ix) are scheduled as excluded liabilities in the Purchase Agreement. As soon as reasonably possible after the execution of the Purchase Agreement, the parties will open an escrow with First American Title Insurance Company, the escrow holder. The closing of the purchase and sale of the real property and related assets will take place through the escrow when all the conditions to closing have been satisfied, but in no event later than November 30, 1999; provided, however, that if the closing of the transactions has not occurred by November 30, 1999 due to delays in obtaining governmental or regulatory approvals of the transactions, then the parties have agreed to extend the closing date for up to an additional thirty (30) calendar days to obtain such approvals. The close of escrow shall occur when Presley Homes deposits the purchase price into escrow and the grant deeds held by WLHI conveying the real property to Presley Homes are recorded through escrow in the official records of the counties in which each respective parcel of real property is located. The Offer The Purchase Agreement provides for the making of the Offer by the Purchasers. The Purchasers have agreed to complete the Offer in accordance with its terms and accept for payment and pay for the Series A Shares tendered pursuant to the Offer as soon as they are legally permitted to do so under applicable law. The Offer will be subject to various conditions set forth in the Purchase Agreement, including the Minimum Condition, as described in Section 14 of this Offer to Purchase. The Purchasers may amend or waive the Minimum Condition but shall not decrease the Offer Price, or decrease the number of Series A Shares sought, or amend any other condition of the Offer in any manner adverse to the holders of Series A Shares without the prior written consent of the Company. 20 23 In the event that the Company determines that consummation of the Offer or the purchase of Series B Shares pursuant to the Series B Stock Purchase Agreements would result in an "ownership change" under applicable federal income tax laws and regulations or other adverse tax consequences, the Purchasers have agreed to amend the Offer to decrease the number of Series A Shares being sought, but not below the number of shares required to satisfy the Minimum Condition. If certain conditions to the Offer, including the Minimum Condition, consummation of the Acquisition and the receipt of the requisite stockholder approval of the Merger, have not been satisfied or waived by the Purchasers as of the Expiration Date due to delays in obtaining government or regulatory approvals or third party consents or obtaining financing or obtaining necessary releases, then the Purchasers may extend the Expiration Date of the Offer to allow the conditions to be satisfied, but in no event are the Purchasers obligated to extend the Offer beyond November 30, 1999 (or thirty calendar days thereafter in the event the closing of the Acquisition or Merger is delayed due to further delays in obtaining government or regulatory approvals). Notwithstanding the foregoing, all conditions to the Offer set forth in the Purchase Agreement (other than the condition that there be no actions by governmental entities that would prohibit completion of the Offer) shall be deemed to have been satisfied upon completion of the Acquisition. The Company represents that a Special Committee of independent members of the Company's Board of Directors has determined that the Purchase Agreement and the transactions contemplated in it, taken together, are fair to and in the best interests of the Company and the holders of the Series A Common Stock, other than the Purchasers, provided that each holder is advised to consult with their financial and tax advisors. The Company has received an opinion from Warburg Dillon Read, financial advisor to the Special Committee, to the effect that, after giving effect to the Acquisition, the Offer, the Merger and the transactions contemplated by the Series B Stock Purchase Agreements, the shares of common stock of New Presley to be issued in the Merger to holders of Series A Shares, and to the extent that any such holder of Series A Shares (other than the Purchasers and the Series B Stockholders) tenders Series A Shares in the Offer, the cash that may be received by each such tendering holder of Series A Shares (other than the Purchasers and the Series B Stockholders), subject to the pro ration provisions of the Offer, is fair to the holders of the Series A Shares from a financial point of view. The Special Committee has approved the transactions contemplated in the Purchase Agreement and resolved to recommend that the holders of Series A Shares (other than the Purchasers and the Series B Stockholders) accept the Purchasers' tender offer, provided that holders of Series A Shares should consult with their financial and tax advisors prior to tendering their Series A Shares and that the recommendation may be withdrawn, modified or changed if in their opinion, after consultation with counsel, the failure to take that action would be inconsistent with their fiduciary duties. In the event that the Offer is oversubscribed, the Purchasers will purchase Series A Shares from each tendering stockholder on a pro rata basis. In the event that the Offer is undersubscribed, the Purchasers will purchase additional shares of Common Stock at $0.655 per share from the Series B Stockholders on a pro rata basis pursuant to the Series B Stock Purchase Agreements, such that William Lyon and one or more of his affiliates or associates will own not more than 49.9% of the issued and outstanding shares of the Company's Common Stock. William Lyon and one or more of his affiliates or associates will in no event purchase a number of shares of Common Stock of the Company such that an "ownership change" would occur with respect to the Company under applicable federal income tax laws and other regulations. Representations and Warranties The Purchase Agreement contains certain representations and warranties of WLHI including, without limitation, representations as to organization, authority of WLHI and the individuals relative to the Purchase Agreement and the Series B Stock Purchase Agreements, identification of WLHI equity interests, California residency status, condition and marketability of personal property assets, financial statements, no default, zoning, government notices, undisclosed defects, unrecorded interests, compliance with law, absence of certain contracts, litigation, environmental compliance, absence of endangered species, accounts receivable, employee benefit plans, insurance, no conflicts, WARN Act, and brokers' fees. 21 24 The Company and Presley Homes make certain representations and warranties to WLHI in the Purchase Agreement including, without limitation, representations as to authority with respect to the Purchase Agreement, no conflicts, broker's fees, litigation, and WARN Act. Indemnification and Survival of Representations. The representations and warranties of WLHI made in the Purchase Agreement will survive for a period of one (1) year after the closing date. From and after the closing date, WLHI will indemnify and hold the Company and Presley Homes harmless from any losses resulting from any breach of representation, any breach of a covenant, and any of the excluded liabilities. The indemnity liability will be reduced to the extent that the underlying loss already resulted in an adjustment to the purchase price as provided for in the Purchase Agreement. WLHI will not be obligated to indemnify the Company or Presley Homes for losses resulting from any breach of representation or covenant unless the losses in the aggregate exceed $500,000, and then only to the extent such losses exceed $500,000. In no event will WLHI be obligated to cover losses from any breach of representation or covenant (that are not covered by insurance) in excess of $2,400,000. From and after the closing date, the Company and Presley Homes will indemnify and hold WLHI harmless from any losses resulting from any breach of representation, any breach of a covenant, and any of the assumed liabilities. The Company and Presley Homes will not be obligated to indemnify WLHI for losses resulting from any breach of representation or covenant unless the losses in the aggregate exceed $500,000, and then only to the extent such losses exceed $500,000. In no event will the Company or Presley Homes be obligated to cover losses from any breach of representation or covenant in excess of $2,400,000. The Purchasers and WLHI have agreed to maintain the corporate existence of WLHI and to maintain in WLHI a tangible net worth of not less than $2.4 million for a period of one year after closing and for such longer period thereafter as the representations and warranties may be extended pursuant to the Purchase Agreement. Interim Covenants Prior to the closing date, WLHI agrees to provide Presley Homes with reasonable access to the assets and the books and records of WLHI, to use best efforts to maintain and preserve the assets being sold to Presley Homes and to manage the assets reasonably consistent with past practices in the ordinary course of business and to cooperate in the obtaining of governmental or third party consents necessary to complete the transactions. Prior to the closing date, the Company and Presley Homes agree to cooperate in the obtaining of any governmental or third party consents necessary to complete the transactions, maintain and preserve the business operations of Presley Homes in accordance with past practices and use reasonable efforts to obtain financing without triggering a default under the senior notes of Presley Homes. Conditions to the Acquisition The obligations of the Company and Presley Homes under the Purchase Agreement are conditioned upon the satisfaction or waiver of certain conditions, including: (i) the accuracy of the representations and warranties by WLHI and the performance of all covenants by WLHI and the Purchasers; (ii) receipt of all required regulatory approvals and third party consents; (iii) absence of any material adverse change to the assets or assumed liabilities; (iv) receipt of a legal opinion from O'Melveny & Myers LLP, counsel for WLHI; (v) absence of any litigation affecting the assets or the completion of the asset purchase; (vi) issuance of acceptable policies of title insurance in favor of Presley Homes; (vii) assignment of all necessary real property documents to Presley Homes; (viii) receipt by the Company of a solvency opinion from Houlihan Lokey Howard & Zukin Financial Advisors, Inc., (or such other firm of national standing and reasonably acceptable to the Company and WLHI); (ix) receipt of adequate financing; (x) absence of any default under the Senior Notes of the Company; (xi) determination by the Company of the absence of an "ownership change" under 22 25 applicable federal income tax laws; (xii) conditions to the Offer shall have been satisfied or waived; (xiii) approval of the stockholders of the Company of the Merger; (xiv) each of the Series B Stock Purchase Agreements shall be in full force and effect against the Series B Stockholders in accordance with their terms; and (xv) cancellation by William Lyon of all his outstanding options to acquire 750,000 shares of the Series A Shares. The obligations of WLHI under the Purchase Agreement are conditioned upon the satisfaction or waiver of certain conditions, including: (i) the accuracy of the representations and warranties and the performance of all covenants by the Company and Presley Homes; (ii) the receipt of all required regulatory approvals and third party consents; (iii) the receipt of legal opinions from Irell & Manella LLP and Morris, Nichols, Arsht & Tunnell, counsel for the Company and Presley Homes, and of Nancy M. Harlan, Esq., Senior Vice President and General Counsel of the Company; (iv) the absence of any litigation affecting the completion of the Acquisition; (v) the conditions to the Offer shall have been satisfied or waived; (vi) the approval of the stockholders of the Company of the Merger; (vii) the release of WLHI from its contracts and obligations assumed by Presley Homes; (viii) the Series B Stock Purchase Agreements shall continue in full force and effect and shall be enforceable against the Series B Stockholders in accordance with their terms, except that this condition shall be satisfied if any failure is due solely to a breach of the Series B Stock Purchase Agreements by WLHI; and (ix) the determination by WLHI and its affiliates of the absence of an "ownership change" under applicable federal income tax laws. Post Closing Obligations. After the closing date, Presley Homes agrees to offer continued employment (on an "at will" basis) to the officers, employees and sales agents of WLHI identified on an exhibit to the Purchase Agreement on substantially the same terms and conditions as are in effect at WLHI on the closing date. WLHI will remain liable and indemnify and defend Presley Homes for any claims relating to homes which close escrow prior to the closing date for the Acquisition. Presley Homes will be liable and indemnify and defend WLHI for any claims relating to homes where no work had commenced prior to the closing date. To the extent that construction has begun on any improvements prior to the closing date, or a home has been started but has not yet closed escrow, Presley Homes and WLHI will each remain liable for any claims for alleged construction defects for any work done by or for them, respectively, on the real property, and each shall indemnify the other in accordance with the Purchase Agreement. After the closing date, Presley Homes agrees to manage and to provide such other related services as WLHI may reasonably request with respect to certain real estate development projects which are identified on a schedule to the Purchase Agreement and are being retained by WLHI. WLHI has agreed to reimburse Presley Homes for all costs incurred for its management services relating to such projects. The Purchasers and WLHI shall, and shall cause the Company and New Presley to, comply with all applicable federal and state laws and all applicable listing criteria of the NYSE (or such other securities exchange on which the common stock of New Presley shall be listed) concerning the corporate governance of the Company and New Presley, as applicable, following consummation of the Offer, including obligations in respect of New Presley's stockholders, directors, officers and otherwise. After the closing date, WLHI agrees to cooperate, and to cause the partnerships and the limited liability companies through which it owns real property to cooperate, in the transfer and delivery of the assets being purchased by Presley Homes and to maintain adequate levels of insurance coverage to protect the assets being purchased by Presley Homes. 23 26 Termination The Purchase Agreement may be terminated under the following circumstances: (i) by mutual consent of the parties; (ii) by the Company, Presley Homes or WLHI if any governmental entity issues an order, decree or ruling which permanently restrains or otherwise prohibits the purchase of the shares pursuant to the Offer or the Series B Stock Purchase Agreements; (iii) by the Company, Presley Homes or WLHI if the closing of the Acquisition has not occurred (other than through the failure of any party seeking to terminate to comply fully with its obligations under the Purchase Agreement) on or before November 30, 1999; provided that if the closing has not occurred by that date due to delays in obtaining government approvals, then the parties agree to extend the closing date for up to an additional thirty (30) days; (iv) by Presley Homes or the Company if the Purchasers fail to commence the Offer within the time set forth in the Purchase Agreement, provided that Presley Homes is not in material breach at that time; (v) by Presley Homes or the Company in connection with entering into a definitive agreement with a third party as permitted under the Purchase Agreement in respect of the Company's Board of Directors' fiduciary duties to the Company's stockholders (provided that Presley Homes has complied with all provisions of the Purchase Agreement); (vi) by Presley Homes or the Company if WLHI shall have breached in any material respect any of its representations, warranties or agreements, if the breach cannot be or has not been cured within thirty (30) days after written notice of the breach; (vii) by WLHI if, due to an occurrence not involving a breach by it of its obligations under the Purchase Agreement which makes it impossible to satisfy any of the conditions to the Offer, the Purchasers shall have failed to commence the Offer within the time specified in the Purchase Agreement; (viii) by WLHI if, prior to the purchase of the Series A Shares by the Purchasers pursuant to the Offer, the Company's Board of Directors shall have withdrawn, modified or changed in a manner adverse to the Purchasers its approval or recommendation of the Offer or shall have recommended an acquisition proposal or executed an agreement relating to an acquisition proposal or similar business combination with a person or entity other than WLHI or its affiliates; or (ix) by WLHI if Presley Homes or the Company shall have breached any representation, warranty or covenant in the Purchase Agreement which cannot be or has not been cured within thirty (30) days after notice. If the Purchase Agreement is terminated, all further obligations of the parties shall terminate, provided that the termination will not relieve any party of any liability that it may have for breach of any representation or warranty or nonperformance of any covenant or constitute a waiver of any available remedy for breach or nonperformance. No Solicitation Each of WLHI and the Company has agreed that prior to the closing, neither it nor any of its representatives will solicit or encourage the submission of an acquisition proposal other than from a party to the Purchase Agreement; or provide any information concerning it or its assets to any other person or permit any other person to visit its premises in connection with or for the purpose of soliciting or facilitating an acquisition proposal. In the event any other potential acquiror contacts a party to the Purchase Agreement regarding an acquisition proposal, that party is required to inform the other parties and to inform the potential acquiror of the period of exclusive negotiations. If the board of directors of the Company or WLHI, after receiving advice from counsel, determines that a failure to act would be inconsistent with such board's fiduciary duties, the party may furnish information pursuant to confidentiality agreements and participate in discussions and 24 27 negotiations. If a party enters into a definitive agreement with respect to a competing proposal, that party is required to concurrently pay all fees and expenses incurred by the other party through that date in connection with the Purchase Agreement. Except as set forth in this Offer to Purchase, there have not been, since January 1, 1996, any contacts, negotiations or transactions between the Purchasers, on the one hand, and the Company or its executive officers, directors or affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, election of directors, or a sale or other transfer of a material amount of assets. 11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY The Purchasers have commenced the Offer pursuant to the terms of the Purchase Agreement and for the purpose of acquiring such number of Series A Shares as will enable the Purchasers and their respective affiliates to own up to 49.9% of the outstanding Common Stock of the Company. The purchase of Series A Shares pursuant to the Offer will also allow for the Acquisition and the Merger to be consummated. Except as disclosed in this Offer to Purchase, none of the Purchasers or their respective affiliates has any present plans or proposals that would (a) result in (i) an extraordinary corporate transaction, such as a merger, reorganization, liquidation, or sale or transfer of a material amount of assets, involving the Company or any of its subsidiaries, or (ii) any change in the present board of directors or management of the Company, or (iii) any material change in the present capitalization or dividend policy of the Company, or (iv) any other material change in the Company's corporate structure or business, or (b) cause a class of the Company's securities to be delisted from the NYSE or eligible for termination of registration under the Exchange Act. 12. DIVIDENDS AND DISTRIBUTIONS If, on or after October 7, 1999 and prior to the Expiration Date of the Offer, the Company should (i) split, combine or otherwise change the Common Stock or its capitalization, (ii) issue or sell any additional securities of the Company or otherwise cause an increase in the number of outstanding securities of the Company (except for Series A Shares issuable upon the exercise of employee stock options outstanding on October 7, 1999), or (iii) acquire currently outstanding shares of Common Stock or otherwise cause a reduction in the number of outstanding shares of Common Stock, then, without prejudice to the Purchasers' rights under Sections 1 and 14 of this Offer to Purchase, the Purchasers in their sole discretion, subject to the terms of the Purchase Agreement, may make such adjustments as they deem appropriate in the Offer Price and other terms of the Offer. If, on or after October 7, 1999, the Company should declare or pay any dividend on the Common Stock or make any distribution (including, without limitation, cash dividends, the issuance of additional shares of Common Stock pursuant to a stock dividend or stock split, the issuance of other securities or the issuance of rights for the purchase of any securities, with respect to shares of Common Stock, that is payable or distributable to stockholders of record on a date prior to the transfer to the names of the Purchasers or their respective nominees or transferees on the Company's stock transfer records of the Series A Shares purchased pursuant to the Offer, then, without prejudice to the Purchasers' rights under Sections 1 and 14, any such dividend, distribution or right to be received by the tendering stockholders will be received and held by the tendering stockholders for the account of the Purchasers and will be required to be promptly remitted and transferred by each tendering stockholder to the Depositary for the account of the Purchasers, accompanied by appropriate documentation of transfer. Pending such remittance and subject to applicable law, the Purchasers will be entitled to all rights and privileges as owner of any such dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchasers in their sole discretion. 25 28 13. EFFECT OF THE OFFER ON THE MARKET FOR THE SERIES A SHARES; STOCK EXCHANGE LISTING; EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS Market for the Series A Shares. The purchase of Series A Shares pursuant to the Offer will reduce the number of Series A Shares that might otherwise trade publicly and may reduce the number of holders of Series A Shares, which could adversely affect the liquidity and market value of the remaining Series A Shares held by the stockholders other than the Purchasers. The Purchasers cannot predict whether the reduction in the number of Series A Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Series A Shares or whether such reduction would cause future market prices to be greater or less than the Offer Price. The Purchase Agreement contemplates that, assuming holders of a majority of the Company's outstanding Common Stock approve the Merger, the Merger will take effect after the closing of the Offer, the Acquisition and the purchase of Series B Shares pursuant to the Series B Stock Purchase Agreements. The Merger will implement transfer restrictions on the common stock of New Presley. Such transfer restrictions would, absent prior approval of the Company's Board of Directors, prohibit certain sales of common stock of New Presley by or to persons owning 5% or more of New Presley's common stock or that would result in any person becoming the holder of 5% or more of New Presley's common stock. Accordingly, the transfer restrictions will have the effect of further restricting the liquidity of New Presley's common stock following the Merger. The Merger and the transfer restrictions are described in detail in the Company's proxy materials prepared in connection with the special meeting of the Company's stockholders to be held on November 5, 1999. Such proxy materials have been filed with the Commission, and copies of these materials may be obtained as described in Section 7 of this Offer to Purchase. In addition, the proxy materials will be mailed to holders of record of the Common Stock as of September 15, 1999. The Merger and the transfer restrictions are also discussed in the Company's Schedule 14D-9, which is being mailed to stockholders herewith and which has been filed by the Company with the Commission. Holders of Series A Shares should review these materials carefully before making a decision to tender Series A Shares pursuant to the Offer. Stock Exchange Listing. The Series A Shares are presently listed on the NYSE under the symbol "PDC." Upon consummation of the Merger, each Series A Share will be converted into the right to receive 0.2 share of New Presley common stock, and the Series A Shares will cease to be listed on the NYSE. The Company states in its proxy materials relating to the Merger that the NYSE has authorized New Presley's common stock for listing on the NYSE. However, the Company has also announced that the NYSE has informed the Company that it is not in compliance with the NYSE's recently amended continued listing criteria, and that failure by the Company to raise its stock price above $1.00 per share (over a 30 trading-day period) within six months will result in immediate suspension of trading and application to the Commission for delisting. The Company has stated in its filings with the Commission that it has presented a business plan to the NYSE that demonstrates compliance with all aspects of the NYSE's continued listing criteria (other than the minimum stock price requirement) within 12 months of the date of the NYSE's notification. Under these criteria, the Company (or, after consummation of the Merger, New Presley) must have: - a total market capitalization of not less than $50 million and stockholders' equity of not less than $50 million; and - an average market capitalization of not less than $15 million over a consecutive 30 day period. The NYSE will monitor the Company and New Presley for quarterly compliance with its plan. If the Company or New Presley fails to achieve the quarterly milestones included in the plan or, at the completion of the 12 months, is not in compliance with the NYSE's continued listing criteria, the shares of common stock of the Company or New Presley will be suspended from trading on the NYSE, and the NYSE, will apply to the Commission to delist the shares. Delisting of the Company's or New Presley's shares could adversely impact the liquidity and market price of such shares. 26 29 If the NYSE were to delist the Company's or New Presley's shares, it is possible that such shares would continue to trade on other securities exchanges or in the over-the-counter market and that price quotations would be reported by such exchanges or through the Nasdaq Stock Market or other sources. The extent of the public market for such shares and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of the publicly traded shares remaining at such time, the interest in maintaining a market in the shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. The Purchasers will not be required to accept for payment or pay for any tendered Series A Shares and may terminate or amend the Offer, as of the Expiration Date, if it is reasonably determined that upon consummation of the Offer, the purchases of Series B Shares under the Series B Stock Purchase Agreements and the Merger, (1) the shares of Common Stock of the Company (or the shares of Common Stock of New Presley) will cease to be listed on the NYSE or another national securities exchange, or will not be quoted on an inter-dealer quotation system of a registered national securities association, or (2) the shares of Common Stock of the Company (or the shares of Common Stock of New Presley) outstanding immediately following consummation of such transactions will be held of record by less than 300 persons. Exchange Act Registration. The Series A Shares are currently registered under the Exchange Act, and the shares of New Presley are expected to be registered under the Exchange Act. Registration of the Series A Shares or the shares of New Presley under the Exchange Act may be terminated upon application of the Company or New Presley to the Commission if such shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Series A Shares or the shares of New Presley under the Exchange Act would substantially reduce the information required to be furnished by the Company or New Presley to its stockholders and to the Commission and would make certain provisions of the Exchange Act no longer applicable to the Company or New Presley, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with stockholders' meetings and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company or New Presley and persons holding "restricted securities" of the Company or New Presley to dispose of such securities pursuant to Rule 144 or Rule 144A under the Securities Act of 1933, as amended, may be impaired or eliminated. Margin Regulations. The Series A Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Series A Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that, following the Offer and the Merger, the Series A Shares or the shares of New Presley would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. 14. CONDITIONS TO THE OFFER Notwithstanding any other provision of the Offer, the Purchasers shall not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to the Purchasers obligation to pay for or return tendered Shares promptly after termination of withdrawal of the Offer), pay for, and may delay the acceptance for payment of or, subject to the restriction referred to above, the payment for, any tendered Series A Shares, and may amend the Offer or terminate the Offer and not accept for payment any tendered Shares, if (i) the Minimum Condition has not been satisfied or waived (pursuant to the Purchase Agreement) by the Expiration Date, (ii) the Acquisition has not been consummated in accordance with the terms of the Purchase Agreement, (iii) the stockholders of the Company have not approved the Merger by the required vote, or (iv) at any time after October 7, 1999 27 30 and prior to the Expiration Date, any of the following events shall have occurred and be continuing as of the Expiration Date: (a) there shall be any action taken, instituted or pending, or any statute, rule, regulation, legislation, interpretation, ruling, condition, judgment, order or injunction enacted, enforced, promulgated, proposed, amended, issued or deemed applicable to the Offer, the purchase of the Series B Shares pursuant to the Series B Stock Purchase Agreements, the Acquisition or the Merger, by any Governmental Entity (as defined in the Purchase Agreement), that could reasonably be expected to, directly or indirectly: (1) make illegal or otherwise prohibit consummation of the Offer, the purchase of the Series B Shares pursuant to the Series B Stock Purchase Agreements, the Acquisition or the Merger as contemplated by the Purchase Agreement, (2) impose a limitation on the ability of the Purchasers effectively to acquire, hold or exercise full rights of ownership of Common Stock of the Company, including, without limitation, the right to vote any shares acquired or owned by the Purchasers on all matters properly presented to the Company's stockholders, or (3) require divestiture by the Purchasers, WLHI or their respective affiliates of shares of Common Stock of the Company or any material portion of the business or assets of the Company taken as a whole; (b) (1) the representations of the Company and Presley Homes set forth in the Purchase Agreement shall not be true and correct in any material respect as of the date of the Purchase Agreement and as of consummation of the Offer as though made on and as of such date, (2) the Company or Presley Homes shall have failed to comply in all material respects with their respective covenants and agreements set forth in the Purchase Agreement, (3) there shall have occurred any events or changes which have had or could reasonably be expected to have a material adverse effect on the business, assets, prospects, condition (financial and other) and results of operations of the Company taken as a whole; (c) (1) it shall have been publicly disclosed, or the Purchasers and WLHI shall have otherwise learned, that beneficial ownership (determined for the purposes of this paragraph (c) as set forth in Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the outstanding shares of Common Stock has been acquired by any person (including the Company and Presley Homes or any of their subsidiaries or affiliates) or group (as defined in Section 13(d)(3) under the Exchange Act), (2) the Board of Directors of the Company or any committee thereof shall have withdrawn, or shall have modified or amended in a manner adverse to the Purchasers and WLHI, the approval, adoption or recommendation, as the case may be, of the Offer or the Merger, or approved or recommended any, merger, consolidation, other business combination, sale of material assets, takeover proposal or other acquisition of shares of Common Stock other than the Offer, the Acquisition, the Merger and the other transactions contemplated by the Purchase Agreement, (3) a third party shall have entered into a definitive agreement or a written agreement in principle with the Company with respect to a tender offer or exchange offer for any shares of Common Stock of the Company or a merger, consolidation, other business combination with the Company or sale of material assets of the Company or any of its subsidiaries (except as specifically permitted by the Purchase Agreement), or (4) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing and such resolution shall be made public; (d) The Company, Presley Homes and WLHI agree to terminate the Offer, the Acquisition or the Purchase Agreement, or the Purchase Agreement shall have been otherwise terminated in accordance with its terms; (e) there shall have occurred, and continued to exist, (1) any general suspension of, or limitation on prices for, trading in securities on the NYSE (excluding any coordinated trading half- triggered solely as a result of a specified decrease in a market index and suspensions on limitations resulting solely from physical damage or interference with such exchanges not related to market conditions), or (2) a banking moratorium in the United States or other limitation on the extension of credit, or (3) a commencement of a war, armed hostilities or other national or international 28 31 calamity involving the United States and having a material adverse effect on the business, assets, prospects, condition (financial and other) and results of operations of the Company, taken as a whole, or materially adversely affecting or delaying the Offer, or (4) in the case of any condition, circumstance or event referenced in any of the foregoing clauses (1), (2) and (3) and existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; (f) the Series B Stock Purchase Agreements shall no longer be in full force or effect, or the Series B Stock Purchase Agreements shall no longer be enforceable against the Series B Stockholders in accordance with their terms (except for any such failure to be in full force or effect or enforceable which is due solely to a breach thereof by WLHI); or (g) it is reasonably determined that upon consummation of the Offer, the purchase of Series B Shares under the Series B Stock Purchase Agreements and the Merger, (1) the shares of Common Stock of the Company will cease to be listed on the NYSE or another national securities exchange, or will not be quoted on an inter-dealer quotation system of a registered national securities association, or (2) the shares of Common Stock of the Company outstanding immediately following consummation of such transactions will be held of record by less than 300 persons. The foregoing conditions are for the sole benefit of the Purchasers and may be asserted by the Purchasers regardless of the circumstances giving rise to any such conditions or may be waived by the Purchasers in whole or in part, at any time and from time to time in their sole discretion, subject to the terms of the Purchase Agreement. Subject to the terms of the Purchase Agreement, the failure by Purchasers at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right and each right will be deemed an on-going right which may be asserted at any time and from time to time. Any reasonable determination by the Purchasers concerning any events described in the above conditions will be final and binding on all parties. Notwithstanding the foregoing, all conditions to the Offer (other than the condition set forth in paragraph (a) of this Section 14) shall be deemed to have been satisfied upon consummation of the Acquisition in accordance with the terms of the Purchase Agreement. In addition, if on the Initial Expiration Date, (i) the Minimum Condition shall not have been satisfied or waived by the Purchasers, or (ii) the Acquisition shall not have been consummated or the stockholders of the Company shall not have approved the Merger due to delays in (a) obtaining necessary governmental or regulatory approvals of, or necessary third party consents to, either the Acquisition or the Merger, or (b) obtaining the financing required to satisfy the conditions to the Acquisition, or (c) obtaining the release of WLHI from certain performance bonds, guarantees and other obligations set forth in the Purchase Agreement, the Purchasers have agreed to extend the Initial Expiration Date of the Offer from time to time and for such number of business days as may be necessary to allow for such conditions to be satisfied and for the closing of the Offer to be substantially coterminous with the closing of the Acquisition; provided, however, that in no event shall the Purchasers be obligated to extend the Expiration Date of the Offer beyond November 30, 1999 (or thirty days thereafter in the event that the closing of the Acquisition or the stockholder vote upon the Merger is delayed due to further delays in the process of obtaining necessary governmental or regulatory approvals). 15. CERTAIN LEGAL MATTERS General. Except as otherwise disclosed herein, based on a review of publicly available filings by the Company with the Commission and the review of certain information furnished by the Company to the Purchasers and their representatives, the Purchasers are not aware of (i) any governmental license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the acquisition of Series A Shares by the Purchasers pursuant to the Offer, or (ii) except as set forth below, any approval or other action by any governmental, administrative or regulatory agency or authority, domestic or foreign, that would be required for the acquisition or ownership of Series A Shares by the Purchasers as contemplated herein. Should any such approval or other action be required, the Purchasers currently contemplate that such approval or action would be sought. While the Purchasers do not currently intend to delay the acceptance for payment of Series A Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or 29 32 action, if needed, would be obtained or would be obtained without substantial conditions or that adverse consequences might not result to the business of the Company or the Purchasers or that certain parts of the businesses of the Company or the Purchasers might not have to be disposed of in the event that such approvals were not obtained or any other actions were not taken. The Purchasers' obligation under the Offer to accept for payment and pay for Series A Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section 15. See Section 14. State Takeover Statutes. A number of states have adopted laws and regulations which purport, to varying degrees, to apply to attempted acquisitions of securities of corporations which are incorporated, or have substantial assets, stockholders, principal executive offices or principal places of business, or whose business operations otherwise have substantial economic effects, in such states. In 1982, in Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Statute, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the Indiana Control Share Acquisition Act was constitutional. Such Act, by its terms, is applicable only to corporations that have a substantial number of stockholders in Indiana and are incorporated there. Subsequently, a number of federal courts have ruled that various state takeover statutes were unconstitutional insofar as they apply to corporations incorporated outside the state of enactment. The Company, directly or through subsidiaries, conducts business in California, Arizona, New Mexico and Nevada, some of which states have enacted takeover laws. The Purchasers do not know whether any of these laws will, by their terms, apply to the Offer and have not complied with any such laws. Should any person seek to apply any state takeover law, the Purchasers will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover laws is applicable to the Offer, and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, the Purchasers might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, the Purchasers might be unable to accept for payment any Series A Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer. In such case, the Purchasers may not be obligated to accept for payment any Series A Shares tendered. See Section 14. 16. FEES AND EXPENSES Except as set forth below, the Purchasers will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Series A Shares pursuant to the Offer. Purchaser has retained ChaseMellon Consulting Services, L.L.C. to act as the Information Agent and ChaseMellon Shareholder Services, L.L.C. to act as the Depositary in connection with the Offer. The Information Agent may contact stockholders by mail, electronic mail, telephone, facsimile, telegraph and personal interviews, and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners of Series A Shares. The Information Agent and the Depositary will receive reasonable and customary compensation for their services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by the Purchasers for customary mailing and handling expenses incurred by them in forwarding the Offer materials to their customers. 17. MISCELLANEOUS The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Series A Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. However, the Purchasers may, in their discretion, take such action as they may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Series A Shares in such jurisdiction. 30 33 The Purchasers have filed with the Commission the Schedule 14D-1, furnishing certain additional information with respect to the Offer, and may file amendments thereto. The Schedule 14D-1 and any amendments thereto, including exhibits, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in Section 7 above (except that they will not be available at the regional offices of the Commission). The Company's recommendation with respect to the Offer and other information required to be disseminated to stockholders pursuant to Rule 14d-9 is contained in the Company's Schedule 14D-9, which is being mailed to stockholders herewith and which has been filed by the Company with the Commission. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF THE PURCHASERS NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. WILLIAM LYON WILLIAM H. LYON October 7, 1999 31 34 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Series A Shares and any other required documents should be sent by each stockholder or such stockholder's broker, dealer, bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Registered/Certified Mail: By Hand: Overnight Delivery: Reorganization Department Reorganization Department Reorganization Department P.O. Box 3301 120 Broadway 85 Challenger Rd. South Hackensack, NJ 07606 13th Floor Mail Stop - Reorg. Dept. New York, NY 10271 Ridgefield Park, NJ 07660 By Facsimile Transmission (For Eligible Institutions Only) (201) 296-4293 Confirm Facsimile by Telephone: (201) 296-4860
Questions and requests for assistance or for additional copies of the Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent at the telephone number and location listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: CHASEMELLON CONSULTING SERVICES, L.L.C. 450 West 33rd Street 14th Floor New York, NY 10001 For Information Telephone: (888) 566-9474 EX-2.(A) 3 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF SERIES A COMMON STOCK OF THE PRESLEY COMPANIES PURSUANT TO THE OFFER TO PURCHASE DATED OCTOBER 7, 1999 BY WILLIAM LYON AND WILLIAM H. LYON THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 5, 1999, UNLESS THE OFFER IS EXTENDED. WILLIAM LYON AND WILLIAM H. LYON (COLLECTIVELY, THE "PURCHASERS") HAVE AGREED, UNDER CERTAIN CIRCUMSTANCES AND SUBJECT TO THE TERMS AND CONDITIONS OF THE OFFER, TO EXTEND THE OFFER FROM TIME TO TIME UNTIL THE CLOSING OF THE ACQUISITION (AS DEFINED IN THE OFFER TO PURCHASE). The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Registered or Certified Mail: By Hand: Overnight Delivery: Reorganization Department Reorganization Department Reorganization Department P.O. Box 3301 120 Broadway 85 Challenger Rd. South Hackensack, NJ 07606 13th Floor Mail Stop-Reorg. Dept. New York, NY 10271 Ridgefield Park, NJ 07660 By Facsimile (For Eligible Institutions Only): (201) 296-4293 Confirm by Telephone: (201) 296-4860
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
- ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF SERIES A SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SERIES A SHARE CERTIFICATE(S) AND SERIES A SHARE(S) TENDERED (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) APPEAR(S) ON SHARE CERTIFICATE(S)) - ------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SERIES A NUMBER SHARE SHARES REPRESENTED OF SERIES A CERTIFICATE BY SHARE SHARES NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2) - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ Total Series A Shares - ------------------------------------------------------------------------------------------------------------------------ [ ] Indicate in this box the order (by certificate number) in which Series A Shares are to be purchased in event of proration. (Attach additional list if necessary.)(3) See Instruction 8. Shares: 1st: 2nd: 3rd: 4th: - ------------------------------------------------------------------------------------------------------------------------ (1) Need not be completed by Book-Entry Stockholders. (2) Unless otherwise indicated, it will be assumed that all Series A Shares represented by Share Certificates delivered to the Depositary are being tendered hereby. See Instruction 4. (3) If you do not designate an order, in the event that less than all Series A Shares tendered are purchased due to proration, Series A Shares will be selected for purchase by the Depositary. See Instruction 8. - ------------------------------------------------------------------------------------------------------------------------
2 This Letter of Transmittal is to be used by stockholders of The Presley Companies either if certificates for Series A Shares (as such term is defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in Instruction 2 below) is utilized, if delivery of Series A Shares is to be made by book-entry transfer to an account maintained by ChaseMellon Shareholder Services, L.L.C. (the "Depositary") at the Book-Entry Transfer Facility (pursuant to the procedures set forth in Section 3 of the Offer to Purchase). Stockholders who deliver Series A Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders" and other stockholders who deliver Series A Shares are referred to herein as "Certificate Stockholders." Stockholders whose certificates for Series A Shares (the "Series A Share Certificates") are not immediately available or who cannot deliver either their Series A Share Certificates for, or a Book-Entry Confirmation (as defined in Section 2 of the Offer to Purchase) with respect to the Series A Shares and all other required documents to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) and who wish to tender their Series A Shares must tender their Series A Shares pursuant to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. [ ] CHECK HERE IF SERIES A SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE DEPOSITARY'S ACCOUNT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING. (ONLY PARTICIPANTS IN THE BOOK-ENTRY FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER.) Name of Tendering Institution: Account Number: at The Depository Trust Company Transaction Code Number: [ ] CHECK HERE IF SERIES A SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING. PLEASE ENCLOSE A NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Owner(s): Window Ticket Number (if any): Date of Execution of Notice of Guaranteed Delivery: Name of Institution which Guaranteed Delivery: If delivery is by book-entry transfer: Name of Tendering Institution: Account Number: at The Depository Trust Company Transaction Code Number: -2- 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to William Lyon, an individual, and William H. Lyon, an individual (together, the "Purchasers"), the above-described shares of Series A Common Stock, par value $.01 per share (the "Series A Shares"), of The Presley Companies, a Delaware corporation (the "Company"), pursuant to Purchasers' offer to purchase up to 10,678,792 of the outstanding Series A Shares (subject to adjustment as described in the Offer to Purchase) at a price of $0.655 per Series A Share, net to the tendering stockholder in cash, without interest thereon (the "Offer Price") upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 7, 1999, receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"). The undersigned understands that (i) all Series A Shares, up to a maximum of 10,678,792 Series A Shares, properly tendered and not properly withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) will be purchased at the Offer Price, upon the terms and subject to the conditions of the Offer, including its proration provisions, (ii) the Purchasers will return all other Series A Shares not purchased pursuant to the Offer, including Series A Shares not purchased because of proration, and (iii) the Purchasers reserve the right to transfer or assign, in whole, or from time to time in part, to one or more of their affiliates, the right to purchase all or any portion of the Series A Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchasers of their obligations under the Offer or prejudice the rights of tendering stockholders to receive payment for Series A Shares validly tendered and accepted for payment pursuant to the Offer. Upon the terms and subject to the terms and conditions of the Offer, and effective upon acceptance for payment of, and payment for, the Series A Shares tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchasers all right, title and interest in and to all the Series A Shares that are being tendered hereby and any and all dividends on the Series A Shares (including, without limitation any and all non-cash dividends, distributions, rights, other Series A Shares, or other securities issued or issuable in respect of such Series A Shares on or after the date of the Offer to Purchase (collectively, "Distributions")) and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact and proxy to the undersigned with respect to such Series A Shares (and Distributions), with full power of substitution (such power of attorney and proxy being deemed to be an irrevocable power coupled with an interest), to (i) deliver Series A Share Certificates (and Distributions), or transfer ownership of such Series A Shares (and Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of the Purchasers upon receipt by the Depositary, (ii) present such Series A Shares (and Distributions) for transfer on the books of the Company, and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Series A Shares (and Distributions), all in accordance with the terms of the Offer. By executing this Letter of Transmittal, the undersigned hereby irrevocably appoints the Purchasers, and each of them, as attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to the full extent of such stockholder's rights with respect to all Series A Shares (and Distributions) tendered by such stockholder and accepted for payment by the Purchasers, to vote in such manner as each such attorney-in-fact and proxies of the undersigned or his substitute shall, in his sole discretion, deem proper at any annual, special, adjourned or postponed meeting of stockholders, with respect to, to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his substitute shall, in his sole discretion, deem proper with respect to, and to otherwise act as each such attorney-in-fact and proxy or his substitute shall, in his sole discretion, deem proper with respect to, all of the Series A Shares (and Distributions) tendered hereby and accepted for payment by the Purchasers. This appointment will be effective if and when, and only to the extent that, the Purchasers accept such Series A Shares for payment pursuant to the Offer. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Series A Shares in accordance with the terms of the Offer. Such acceptance for payment shall, without further action, revoke any prior powers of attorney and proxies granted by the undersigned at any time with respect to such Series A Shares (and Distributions), and no subsequent powers of attorney, proxies, consents or revocations may be given by the undersigned with respect thereto (and, if given, will not be deemed effective). The Purchasers require that, in order for Series A Shares (or other Distributions) to be deemed validly tendered, immediately upon the Purchasers' acceptance for -3- 4 payment of such Series A Shares, the Purchasers must be able to exercise full voting rights with respect to such Series A Shares (and Distributions), including voting at any meeting of the Company's stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Series A Shares tendered hereby and all Distributions, that the undersigned owns the Series A Shares tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that the tender of Series A Shares hereby complies with Rule 14e-4 under the Exchange Act, and that when the same are accepted for payment by the Purchasers, the Purchasers will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Purchasers to be necessary or desirable to complete the sale, assignment and transfer of the Series A Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of the Purchasers all Distributions in respect of the Series A Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer or appropriate assurance thereof, the Purchasers shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Series A Shares tendered hereby or deduct from such purchase price, the amount or value of such Distribution as determined by the Purchasers in their sole discretion. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, successors and assigns of the undersigned. Except as stated in the Offer to the Purchase this tender is irrevocable. The undersigned understands that the valid tender of Series A Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the Instructions hereto will constitute a binding agreement between the undersigned and the Purchasers upon the terms and subject to the conditions of the Offer, including its proration provisions (and if the Offer is extended or amended, the terms or conditions of any such extension or amendment). The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, the Purchasers may not be required to accept for payment any of the Series A Shares tendered hereby. The undersigned recognizes that, under certain circumstances set forth in the Offer to Purchase, the Purchasers may terminate or amend the Offer or may postpone the acceptance for payment of, or the payment for, Series A Shares tendered, or may accept for payment less than all of the Series A Shares tendered hereby. In any such event, the undersigned understands that certificate(s) for any Series A Shares delivered herewith but not tendered or purchased will be returned to the undersigned at the address indicated above, unless otherwise indicated under the "Special Payment Instruction" or "Special Delivery Instructions" boxes below. The undersigned recognizes that under certain conditions, the Purchasers have the right to extend the Offer and subject to the withdrawal rights, as set forth in Section 4 of the Offer to Purchase, retain all tendered Series A Shares until the Expiration Date as so extended. The undersigned recognizes that the Purchasers have no obligation, pursuant to the Special Payment Instructions, to transfer any certificate for Series A Shares from the name of its registered holder, or to order the registration or transfer of Series A Shares tendered by book-entry transfer, if the Purchasers do not purchase any of the Series A Shares represented by such certificate or tendered by such book-entry transfer. Unless otherwise indicated under "Special Payment Instructions," please issue the check for the purchase price of all Series A Shares purchased and/or return any Share Certificates not tendered or accepted for payment in the name(s) of the registered holder(s) appearing above under "Description of Series A Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price of all Series A Shares purchased and/or return any certificates for Series A Shares not tendered or not accepted for payment (and any accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Series A Shares Tendered." In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all Series A Shares purchased and/or return any certificates evidencing Series A Shares not tendered or not accepted for payment (and any accompanying documents, as appropriate) in the name(s) of, and deliver such check and/or return any such certificates (and any accompanying documents, as appropriate) to, the person(s) so indicated. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please credit any Series A Shares tendered herewith by book-entry -4- 5 transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that the Purchasers have no obligation, pursuant to the "Special Payment Instructions," to transfer any Series A Shares from the name of the registered holder thereof if the Purchasers do not accept for payment any of the Series A Shares so tendered. [ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING THE SERIES A SHARES THAT YOU OWN HAVE BEEN LOST, DESTROYED OR STOLEN AND SEE INSTRUCTION 12. Number of the Series A Shares represented by lost, destroyed or stolen certificates: ________________ ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of the Series A Shares accepted for payment (less the amount of any federal income and backup withholding tax required to be withheld) or certificates for the Series A Shares not tendered or not accepted for payment are to be issued in the name of someone other than the undersigned. Issue: [ ] check [ ] certificate(s): Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Series A Shares accepted for payment (less the amount of any federal income and backup withholding tax required to be withheld) or certificates for Series A Shares not tendered or not purchased are to be sent to someone other than the undersigned or to the undersigned at an address other than that shown under "Description of Series A Shares Tendered." Mail: [ ] check [ ] certificate(s) to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9) ------------------------------------------------------------ -5- 6 SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) X - -------------------------------------------------------------------------------- (SIGNATURE(S) OF STOCKHOLDER(S)) Dated - ------------------------, 1999 (Must be signed by registered holder(s) exactly as name(s) appear(s) on the Series A Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) - -------------------------------------------------------------------------------- (PLEASE PRINT) Name of Firm - -------------------------------------------------------------------------------- Capacity (full title) - -------------------------------------------------------------------------------- (SEE INSTRUCTION 5) Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number - -------------------------------------------------------------------------------- Taxpayer Identification or Social Security No. - ---------------------------------------------------------------------- (SEE SUBSTITUTE FORM W-9) GUARANTEE OF SIGNATURE(S) (IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5) Authorized Signature - -------------------------------------------------------------------------------- Name(s) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT) Title - -------------------------------------------------------------------------------- Name of Firm - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number - -------------------------------------------------------------------------------- -6- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Signatures on all Letters of Transmittal must be guaranteed by a member firm of a registered national securities exchange which is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program, or by a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being referred to as an "Eligible Institution"), unless the Series A Shares tendered thereby are tendered (a) by a registered stockholder who has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal, or (b) for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by stockholders of the Company either if Series A Share certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Series A Shares is to be made by book-entry transfer pursuant to the procedures set forth herein and in Section 3 of the Offer to Purchase. For a stockholder to validly tender Series A Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees, or an Agent's Message (in connection with book-entry transfer), and any other required documents, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date and either (i) certificates for tendered Series A Shares must be received by the Depositary at one of such addresses prior to the Expiration Date or (ii) Series A Shares must be delivered pursuant to the procedures for book-entry transfer set forth herein and in Section 3 of the Offer to Purchase and a Book-Entry Confirmation must be received by the Depositary prior to the Expiration Date or (b) the tendering stockholder must comply with the guaranteed delivery procedures set forth herein and in Section 3 of the Offer to Purchase. Stockholders whose certificates for Series A Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot comply with the book-entry transfer procedures on a timely basis may tender their Series A Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth herein and in Section 3 of the Offer to Purchase. Pursuant to such guaranteed delivery procedures, (i) such tender must be made by or through an Eligible Institution, (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchasers, must be received by the Depositary prior to the Expiration Date, and (iii) the certificates for all tendered Series A Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all tendered Series A Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the New York Stock Exchange (the "NYSE") is open for business. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Series A Shares, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against the participant. The signatures on this Letter of Transmittal cover the Series A Shares tendered hereby. THE METHOD OF DELIVERY OF THE SERIES A SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. THE SERIES A SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY AT ONE OF ITS ADDRESSES SET FORTH ON THE BACK COVER OF THE OFFER TO PURCHASE. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. -7- 8 No alternative, conditional or contingent tenders will be accepted, and no fractional Series A Shares will be purchased. All tendering stockholders, by executing this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of acceptance of their Series A Shares for payment. 3. INADEQUATE SPACE. If the space provided herein under "Description of Series A Shares Tendered" is inadequate, the number of Series A Shares tendered and the Series A Share certificate numbers with respect to such Series A Shares should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (Not applicable to stockholders who tender by book-entry transfer). If fewer than all the Series A Shares evidenced by any Series A Share certificate delivered to the Depositary herewith are to be tendered hereby, fill in the number of Series A Shares that are to be tendered in the box entitled "Number of Series A Shares Tendered." In any such case, new certificate(s) for the remainder of the Series A Shares that were evidenced by the old certificates will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date or the termination of the Offer. All Series A Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Series A Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Series A Shares tendered hereby are held of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Series A Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any Series A Share certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Purchasers of the authority of such person so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Series A Shares listed and transmitted hereby, no endorsements of Series A Share certificates or separate stock powers are required unless payment or certificates for Series A Shares not tendered or not accepted for payment are to be issued in the name of a person other than the registered holder(s). Signatures on any such Series A Share certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Series A Shares evidenced by certificates listed and transmitted hereby, the Series A Share certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the Series A Share certificates. Signature(s) on any such Series A Share certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, the Purchasers will pay all stock transfer taxes with respect to the transfer and sale of any Series A Shares to them or their order pursuant to the Offer. If, however, payment of the purchase price of any Series A Shares purchased is to be made to, or if certificates for Series A Shares not tendered or not accepted for payment are to be registered in the name of, any person other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such other person) payable on account of the transfer to such other person will be deducted from the purchase price of such Series A Shares purchased unless evidence satisfactory to the Purchasers of the payment of such taxes, or exemption therefrom, is submitted. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase price of any Series A Shares accepted for payment is to be issued in the name of, and/or Series A Share certificates for Series A Shares not accepted for payment or not tendered are to be issued in the name of and/or returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent, and/or such certificates are to be returned, to a person other than the signer of this Letter of Transmittal, or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal -8- 9 should be completed. Any stockholder(s) delivering Series A Shares by book-entry transfer may request that Series A Shares not purchased be credited to such account maintained at the Book-Entry Transfer Facility as such stockholder(s) may designate in the box entitled "Special Payment Instructions." If no such instructions are given, any such Series A Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above as the account from which such Series A Shares were delivered. 8. ORDER OF PURCHASE IN EVENT OF PRORATION. As described in Section 2 of the Offer to Purchase, stockholders may designate the order in which their Series A Shares are to be purchased in the event of proration. The order of purchase may have an effect on the Federal income tax treatment of the purchase price for the Series A Shares purchased. If you do not designate an order, in the event that less than all Series A Shares tendered are purchased due to proration, Series A Shares will be selected for purchase by the Depositary. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the Information Agent at the address and phone number set forth below. 10. WAIVER OF CONDITIONS. Subject to the Purchase Agreement, the Purchasers reserve the absolute right in their sole discretion to waive, at any time or from time to time, any of the specified conditions of the Offer, in whole or in part, in the case of any Series A Shares tendered. 11. BACKUP WITHHOLDING. In order to avoid "backup withholding" of federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Series A Shares in the Offer must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 in this Letter of Transmittal and certify, under penalties of perjury, that such TIN is correct and that such stockholder is not subject to backup withholding. Backup withholding is not an additional income tax. Rather, the amount of the backup withholding can be credited against the federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder upon filing an income tax return. The stockholder is required to give the Depositary the TIN (i.e., social security number or employer identification number) of the record owner of the Series A Shares. If the Series A Shares are held in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified TIN is provided to the Depositary. However, such amounts will be refunded to such stockholder if a TIN is provided to the Depositary within 60 days. Certain stockholders (including, among others, individual retirement accounts and certain foreign individuals and entities) are not subject to backup withholding. Foreign and nonresident alien stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. 12. LOST, DESTROYED OR STOLEN SHARE CERTIFICATES. If any certificate(s) representing Series A Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions and indicating the number of Series A Shares lost. The stockholder will then be instructed as to the steps that must be taken in order to replace the Share certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Series A Share certificates have been followed. -9- 10 IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF) TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE, AND EITHER CERTIFICATES FOR TENDERED SERIES A SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SERIES A SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from the Information Agent at its address or telephone number set forth below. -10- 11 IMPORTANT TAX INFORMATION Under federal income tax law, a stockholder whose tendered Series A Shares are accepted for payment is required to provide the Depositary (as payer) with such stockholder's correct taxpayer identification number on Substitute Form W-9 below. If such stockholder is an individual, the taxpayer identification number is his or her social security number. If a tendering stockholder is subject to backup withholding, such stockholder must cross out item (2) of the Certification box on the Substitute Form W-9. If the Depositary is not provided with the correct taxpayer identification number, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Series A Shares purchased pursuant to the Offer may be subject to backup withholding. Certain stockholders (including, among others, individual retirement accounts, and certain foreign individuals and entities) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Depositary. Exempt stockholders, other than foreign individuals, should furnish their TIN, write "Exempt" on the face of the Substitute Form W-9 below, and sign, date and return the Substitute Form W-9 to the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. Purpose of Substitute Form W-9 To prevent backup withholding on payments that are made to a stockholder with respect to Series A Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of such stockholder's correct taxpayer identification number by completing the form contained herein certifying that the taxpayer identification number provided on Substitute Form W-9 is correct (or that such stockholder is awaiting a taxpayer identification number). What Number to Give the Depositary The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, such stockholder should write "Applied For" in the space provided for in the TIN in Part 1, and sign and date the Substitute Form W-9. If "Applied For" is written in Part 1 and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the purchase price until a TIN is provided to the Depositary. -11- 12 - ------------------------------------------------------------------------------------------------------------------------------ PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. - ------------------------------------------------------------------------------------------------------------------------------ SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. --------------------------------- DEPARTMENT OF THE TREASURY Social Security Number INTERNAL REVENUE SERVICE (If awaiting TIN, write "Applied For") OR --------------------------------- Employer Identification Number (If awaiting TIN, write "Applied For") ------------------------------------------------------------------------------------------- PART 2 -- CERTIFICATE -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued for me), and PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION (2) I am not subject to backup withholding because: (a) I am exempt from backup NUMBER (TIN) withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. ------------------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS -- You must cross out PART 3 -- item (2) above if you have been notified by the IRS Awaiting TIN [ ] that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax returns. However, if after being notified by the IRS that you are subject to backup withholding, you receive another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). (Also see instructions in the enclosed Guidelines). - ------------------------------------------------------------------------------------------------------------------------------ Signature: --------------------------------------------------------------------------- Date: -----------------------1999 - ------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. -12- 13 YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number to the Depositary by the time of payment, 31% of all reportable payments made to me thereafter will be withheld, but that such amounts will be refunded to me if I provide a certified Taxpayer Identification Number to the Depositary within sixty (60) days. - ------------------------------------------------------------ ----------------------------- Signature Date
Name: - -------------------------------------------------------------------------------- (PLEASE PRINT) Address: - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) -13- 14 Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below: The Information Agent for the Offer is: CHASEMELLON CONSULTING SERVICES, L.L.C. 450 West 33rd Street 14th Floor New York, New York 10001 (888) 566-9474 EX-3.(A) 4 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY TO TENDER SHARES OF SERIES A COMMON STOCK OF THE PRESLEY COMPANIES PURSUANT TO THE OFFER TO PURCHASE DATED OCTOBER 7, 1999 BY WILLIAM LYON AND WILLIAM H. LYON This Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer (as defined below) if (i) certificates ("Share Certificates") evidencing shares of Series A Common Stock, par value $.01 per share (the "Series A Shares"), of The Presley Companies, a Delaware corporation (the "Company"), are not immediately available, (ii) time will not permit all required documents to reach ChaseMellon Shareholder Services, L.L.C., as Depositary (the "Depositary"), prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase (as defined below)), or (iii) the procedure for book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Mail: By Hand: By Overnight Delivery: Reorganization Department Reorganization Department Reorganization Department P.O. Box 3301 120 Broadway 85 Challenger Road South Hackensack, NJ 07606 13th Floor Mail-Stop Reorg. Department New York, NY 10271 Ridgefield Park, NJ 07660
By Facsimile Transmission (For Eligible Institutions Only): (201) 296-4293 Confirm by Telephone: (201) 296-4860 For Information Telephone: (888) 566-9474 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. 2 Ladies and Gentlemen: The undersigned hereby tenders to William Lyon, an individual, and William H. Lyon, an individual, (together the "Purchasers"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 7, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), receipt of each of which is hereby acknowledged, the number of Series A Shares specified below pursuant to the guaranteed delivery procedures described in Section 3 of the Offer to Purchase. Number of Series A Shares: ------------------------------------------------------------------------------ Certificate No(s). (if available): ------------------------------------------------------------------------------ Check box if Series A Shares will be tendered by book-entry transfer: [ ] Account Number at The Depository Trust Company: -------------------------------------------------------------- Name(s) of Record Holder(s): ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ (Please Type or Print) Address(es): ------------------------------------------------------------------------------ (Include Zip Code) Area Code and Tel. No.: ------------------------------------------------------------------------------ Signature(s) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Dated: -------------------------- , 1999 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a commercial bank or trust company having an office or correspondent in the United States or a firm that is a member in good standing of a registered national securities exchange and which is a participant in any of the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each of the foregoing being referred to as an "Eligible Institution"), hereby guarantees (a) that the above named person(s) "own(s)" the Series A shares tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) that the tender of Series A Shares effected hereby complies with Rule 14e-4, and (c) to deliver to the Depositary, at one of its addresses set forth above, Share Certificates evidencing the Series A Shares tendered hereby in proper form for transfer, or confirmation of book-entry transfer of such Series A Shares into the Depositary's accounts at the Book-Entry Transfer Facility, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) with any required signature guarantees, or an Agent's Message (as defined in Section 2 of the Offer to Purchase), and any other documents required by the Letter of Transmittal, within three New York Stock Exchange, Inc. trading days after the date of execution of this Notice of Guaranteed Delivery. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and Share Certificates to the Depositary within the time period shown herein. Failure to do so could result in financial loss to such Eligible Institution. Name of Firm: -------------------------------------- Address: -------------------------------------------- ----------------------------------------------------- (Zip Code) Area Code and Telephone No.: ---------------------- - ----------------------------------------------------- (Authorized Signature) Name: - ---------------------------------------------- (Please Print) Title: - ----------------------------------------------- Dated: - ---------------------------------------------- NOTE: DO NOT SEND SHARE CERTIFICATE(S) WITH THIS NOTICE OF GUARANTEED DELIVERY. SHARE CERTIFICATE(S) SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL -2- EX-4.(A) 5 LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS 1 OFFER TO PURCHASE FOR CASH UP TO 10,678,792 OUTSTANDING SHARES OF SERIES A COMMON STOCK OF THE PRESLEY COMPANIES AT $0.655 NET PER SHARE BY WILLIAM LYON AND WILLIAM H. LYON THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 5, 1999, UNLESS THE OFFER IS EXTENDED. WILLIAM LYON AND WILLIAM H. LYON (COLLECTIVELY, THE "PURCHASERS") HAVE AGREED, UNDER CERTAIN CIRCUMSTANCES AND SUBJECT TO THE TERMS AND CONDITIONS OF THE OFFER, TO EXTEND THE OFFER FROM TIME TO TIME UNTIL THE CLOSING OF THE ACQUISITION (AS DEFINED IN THE OFFER TO PURCHASE). October 7, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by William Lyon, an individual, and William H. Lyon, an individual (together, the "Purchasers"), to act as Information Agent in connection with the Purchasers' offer to purchase up to 10,678,972 shares (subject to adjustment as provided in the Offer to Purchase) of the Series A Common Stock, par value $.01 per share (the "Series A Shares"), of The Presley Companies, a Delaware corporation (the "Company"), at a price of $0.655 per Series A Share, net to the tendering stockholder in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Purchasers' Offer to Purchase, dated October 7, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Series A Shares registered in your name or in the name of your nominee. For your information and for forwarding to your clients for whom you hold Series A Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. The Offer to Purchase dated October 7, 1999; 2. Letter of Transmittal for your use and for the information of your clients, together with Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; 3. Notice of Guaranteed Delivery to be used to accept the Offer if Series A Shares and all other required documents cannot be delivered to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") by the Expiration Date (as defined in the Offer to Purchase); 4. A printed form of letter which may be sent to your clients for whose accounts you hold Series A Shares registered in your name or in the name of your nominees, with space provided for obtaining such clients' instructions with regard to the Offer; and 5. Solicitation/Recommendation Statement on Schedule 14D-9 issued by the Company. The Company has advised the Purchasers that it expects to distribute in a separate mailing to holders of record of the Company's Common Stock as of September 15, 1999 a Proxy Statement/Prospectus with respect to the Merger (as defined in the Offer to Purchase). Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchasers will be deemed to have accepted for payment, and will pay for, the Series A Shares validly tendered and not properly withdrawn prior to the Expiration Date (as defined in the Offer to Purchase), up to a maximum of 10,678,792 Series A Shares, as, if and when the Purchasers give oral or written notice to the Depositary of the Purchasers' acceptance of such Series A Shares for payment pursuant to the Offer. In the event that more than 10,678,972 Series A 2 Shares are validly tendered and not withdrawn as of the Expiration Date, the Purchasers will accept for payment, and thereby purchase, Series A Shares on a pro rata basis (adjusted downward to avoid acceptance for payment of fractional shares) upon the terms and subject to the conditions of the Offer. In all cases, payment for Series A Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Series A Shares (or timely confirmation of a book-entry transfer of such Series A Shares into the Depositary's account at The Depository Trust Company) pursuant to the procedures set forth in Sections 2 and 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in Section 2 of the Offer to Purchase), and (iii) any other documents required by the Letter of Transmittal. The Purchasers will not pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent and the Depositary) in connection with the solicitation of tenders of Series A Shares pursuant to the Offer. The Purchasers will, however, upon request, reimburse you for reasonable and customary mailing and handling expenses incurred by you in forwarding the enclosed materials to your clients. The Purchasers will pay any stock transfer taxes incident to the transfer to them of validly tendered Series A Shares, except as otherwise provided in Instruction 6 of the Letter of Transmittal. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 5, 1999, UNLESS THE OFFER IS EXTENDED. THE PURCHASERS HAVE AGREED, UNDER CERTAIN CIRCUMSTANCES AND SUBJECT TO THE TERMS AND CONDITIONS OF THE OFFER, TO EXTEND THE OFFER FROM TIME TO TIME UNTIL THE CLOSING OF THE ACQUISITION (AS DEFINED IN THE OFFER TO PURCHASE). In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal (or a facsimile thereof), with any required signature guarantees and any other required documents, and certificates evidencing the tendered Series A Shares (or an "Agent's Message" in connection with a book-entry delivery of Series A Shares), should be delivered to the Depositary by 12:00 midnight, New York City time, on Friday, November 5, 1999, all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Series A Shares wish to tender Series A Shares, but it is impracticable for them to forward their certificates evidencing Series A Shares or other required documents to the Depositary prior to the Expiration Date or to comply with the procedures for book-entry transfer on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in Section 3 of the Offer to Purchase. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the undersigned, as Information Agent, at the address and telephone number set forth below and on the back cover of the Offer to Purchase. Very truly yours, ChaseMellon Consulting Services, L.L.C. as Information Agent 450 West 33rd Street 14th Floor New York, New York 10001 Telephone: (888) 566-9474 NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF THE PURCHASERS, THE COMPANY, THE INFORMATION AGENT, THE DEPOSITARY OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED AND THE STATEMENTS CONTAINED THEREIN. -2- EX-5.(A) 6 LETTER TO CLIENTS 1 OFFER TO PURCHASE FOR CASH UP TO 10,678,792 OUTSTANDING SHARES OF SERIES A COMMON STOCK OF THE PRESLEY COMPANIES AT $0.655 NET PER SHARE BY WILLIAM LYON AND WILLIAM H. LYON THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 5, 1999, UNLESS THE OFFER IS EXTENDED. WILLIAM LYON AND WILLIAM H. LYON (COLLECTIVELY, THE "PURCHASERS") HAVE AGREED, UNDER CERTAIN CIRCUMSTANCES AND SUBJECT TO THE TERMS AND CONDITIONS OF THE OFFER, TO EXTEND THE OFFER FROM TIME TO TIME UNTIL THE CLOSING OF THE ACQUISITION (AS DEFINED IN THE OFFER TO PURCHASE). October 7, 1999 To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated October 7, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") in connection with the offer by William Lyon, an individual, and William H. Lyon, an individual (together, the "Purchasers"), to purchase up to 10,678,792 outstanding shares (subject to adjustment as described in the Offer to Purchase) of Series A Common Stock, par value $.01 per share (the "Series A Shares"), of The Presley Companies, a Delaware corporation (the "Company"), at a price of $0.655 per Series A Share, net to the tendering stockholder in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase. THIS MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SERIES A SHARES HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. A TENDER OF SUCH SERIES A SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SERIES A SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender on your behalf any or all of the Series A Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The Offer is being made for up to 10,678,792 outstanding Series A Shares (subject to adjustment as described in the Offer to Purchase). In the event that more than 10,678,972 Series A Shares are validly tendered and not withdrawn prior to the Expiration Date (as defined in the Offer to Purchase), the Purchasers will accept for payment, and thereby purchase, Series A Shares on a pro rata basis (adjusted downward to avoid acceptance for payment of fractional shares) upon the terms and subject to the conditions of the Offer. 2. The Offer Price is $0.655 per Series A Share, net to the tendering stockholder in cash, without interest thereon. 2 3. The Offer, proration period and withdrawal rights will expire at 12:00 midnight, New York City time, on Friday, November 5, 1999, unless the Offer is extended. The Purchasers have agreed, under certain circumstances and subject to the terms and conditions of the Offer, to extend the Offer from time to time until the closing of the Acquisition (as defined in the Offer to Purchase). 4. The Offer is being made as part of a series of transactions that are expected to result in (a) the acquisition by Presley Homes, a California corporation ("Presley Homes") and a wholly owned subsidiary of the Company, of substantially all of the real estate and related assets and liabilities of William Lyon Homes, Inc. ("WLHI"), a California corporation owned by the Purchasers, (b) the purchase by the Purchasers of outstanding Series A Shares pursuant to the Offer and the purchase by WLHI (or one or more of its affiliates) of outstanding shares of the Company's Series B Common Stock ("Series B Shares") pursuant to the Series B Stock Purchase Agreements, each as described in the Offer to Purchase, such that following such purchases, the Purchasers and their affiliates own up to 49.9% of the outstanding Common Stock of the Company, and (c) the merger of the Company with and into Presley Merger Sub, Inc., a newly-formed Delaware corporation and a wholly owned subsidiary of the Company (the "Merger"). 5. The Offer is conditioned upon, among other things, (a) there being validly tendered and not withdrawn, prior to the expiration of the Offer, at least 1,989,180 Series A Shares, subject to adjustment as described in the Offer to Purchase (the "Minimum Condition"), (b) WLHI (or one or more of its affiliates) continuing to have, as of the expiration of the Offer, the legally enforceable right to purchase Series B Shares pursuant to each of the Series B Stock Purchase Agreements, (c) the consummation of the Acquisition pursuant to the Purchase Agreement (as defined in the Offer to Purchase), and (d) approval of the Merger by holders of a majority of the outstanding Series A Shares and Series B Shares voting together as a single class. 6. A Special Committee of independent members of the Board of Directors of the Company has unanimously determined that the Purchase Agreement and the transactions contemplated thereby are fair to and in the best interests of the Company and its stockholders, and in furtherance of the transactions contemplated by the Purchase Agreement, has recommended that holders of Series A Shares (other than the Purchasers and certain holders of Series B Shares) accept the Offer and tender their Series A Shares pursuant to the Offer; provided, however, that such holders of Series A Shares should consult with their financial and tax advisors prior to tendering their Series A Shares in the Offer. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Series A Shares by the Purchaser pursuant to the Offer. Payment for Series A Shares purchased pursuant to the Offer will in all cases be made only after timely receipt by ChaseMellon Shareholder Services, L.L.C. (the "Depositary") of (a) Series A Share certificates or timely confirmation of the book-entry transfer of such Series A Shares into the account maintained by the Depositary at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (b) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer) in connection with a book-entry delivery, and (c) any other documents required by the Letter of Transmittal. Accordingly, payment may not be made to all tendering stockholders at the same time depending upon when certificates for or confirmations of book-entry transfer of such Series A Shares into the Depositary's account at the Book-Entry Transfer Facility are actually received by the Depositary. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Series A Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. -2- 3 If you wish to have us tender any or all of your Series A Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Series A Shares, all such Series A Shares will be tendered unless otherwise specified on the instruction form contained in this letter. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. -3- 4 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH UP TO 10,678,792 OUTSTANDING SHARES OF SERIES A COMMON STOCK OF THE PRESLEY COMPANIES The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated October 7, 1999 and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), in connection with the offer by William Lyon and William H. Lyon (together, the "Purchasers") to purchase up to 10,678,792 outstanding shares of Series A Common Stock, par value $.01 per share (the "Series A Shares"), of The Presley Companies, a Delaware corporation, at a price equal to $0.655 per Series A Share, net to the tendering stockholder in cash. This will instruct you to tender to the Purchasers the number of Series A Shares indicated below (or, if no number is indicated below, all Series A Shares) held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. Number of Series A Shares to be Tendered*: - ------------------------------------------------------------ Dated: ______________________________, 1999 SIGN HERE Signature(s): - -------------------------------------------------------------------------------- Print or Type Name(s): - -------------------------------------------------------------------------------- Print or Type Address(es): - ------------------------------------------------------------------------------- Area Code and Telephone Number(s): - ------------------------------------------------------------------ Taxpayer Identification or Social Security Number(s): - ------------------------------------------------- [ ] Indicate in this box the order (by certificate number) in which Series A Shares are to be purchased in event of proration. (Attach additional list if necessary)** See Instruction 8 to the Letter of Transmittal. Shares: 1st:________ 2nd:________ 3rd:________ 4th:________ 5th:________ - --------------- * Unless otherwise indicated, it will be assumed that all Series A Shares held by us for your account are to be tendered. ** If you do not designate an order, in the event that less than all the Series A Shares tendered are purchased due to proration, Series A Shares will be selected for purchase by the Depositary. See Instruction 8 to the Letter of Transmittal. -4- EX-6.(A) 7 GUIDELINES ON SUBSTITUTE FORM W-9 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. Social security numbers and IRS individual taxpayer identification numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - ----------------------------------------------------------- GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - ----------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account, or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) 4. a. The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under State law 5. Sole proprietorship account The owner(3) - ----------------------------------------------------------- - ----------------------------------------------------------- GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF-- - ----------------------------------------------------------- 6. A valid trust, estate, or Legal entity (Do not pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4) 7. Corporate account The corporation 8. Association, club, The organization religious, charitable, educational or other tax-exempt organization 9. Partnership account The partnership 10. A broker or registered The broker or nominee nominee 11. Account with the Department The public entity of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - -----------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number (if you have one). (4) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Card, Form W-7, Application for IRS Individual Taxpayer Identification Number, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding include the following: - An organization exempt from tax under section 501 (a) of the Internal Revenue Code (the "Code"), or an individual retirement account, or a custodial account under Code section 403(b)(7) if the account satisfies the requirements of Code section 401(f)(2). - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. Other payees that MAY BE EXEMPT from backup withholding include: - A corporation. - A financial institution. - A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. - A futures commission merchant registered with the Commodity Futures Trading Commission. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a) of the Code. - An entity registered at all times during the tax year under the Investment Company Act of 1940. - A foreign central bank of issue. - A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. - A trust exempt from tax under section 664 or described in section 4947 of the Code. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM, AND RETURN IT TO THE PAYER. PAYMENTS EXEMPT FROM BACKUP WITHHOLDING Payments of dividends and patronage dividends that generally are exempt from backup withholding include the following: - Payments to nonresident aliens subject to withholding under Code section 1441. - Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Code section 404(k) payments made by an ESOP. Payments of interest that generally are exempt from backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under Code section 852). - Payments described in Code section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under Code section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid to you. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. PRIVACY ACT NOTICE.--Section 6109 of the Code requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The IRS may also provide this information to the Department of Justice for civil and criminal litigation and to cities, States and the District of Columbia to carry out their tax laws. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonments. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-7.(A) 8 SUMMARY ADVERTISEMENT 1 This announcement is not an offer to purchase or a solicitation of an offer to sell Series A Shares. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal and is not being made to (nor will tenders be accepted from or on behalf of) holders of Series A Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction in which the applicable laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchasers by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NOTICE OF OFFER TO PURCHASE FOR CASH UP TO 10,678,792 SHARES OF SERIES A COMMON STOCK OF THE PRESLEY COMPANIES AT $0.655 NET PER SHARE BY WILLIAM LYON AND WILLIAM H. LYON William Lyon and William H. Lyon (together, the "Purchasers") hereby offer to purchase up to an aggregate of 10,678,792 shares (subject to adjustment) of the outstanding Series A Common Stock, $0.01 par value per share (the "Series A Shares"), of The Presley Companies, a Delaware corporation (the "Company"), at a price of $0.655 per Series A Share, net to the tendering stockholder in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 7, 1999 (the "Offer to Purchase") and in the related Letter of Transmittal (which, as extended or amended from time to time, together constitute the "Offer"). The Purchasers have commenced the Offer pursuant to the terms of the Purchase Agreement (as defined below) for the purpose of acquiring such number of Series A Shares as will enable the Purchasers and their respective affiliates to own up to 49.9% of the outstanding Common Stock of the Company and to enable the Acquisition and the Merger (as such terms are defined below) to be consummated. ---------------------------------------------------------------------- THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, NOVEMBER 5, 1999, UNLESS THE OFFER IS EXTENDED. ---------------------------------------------------------------------- The Offer is being made pursuant to the Purchase Agreement and Escrow Instructions dated as of October 7, 1999 (the "Purchase Agreement"), by and among William Lyon Homes, Inc., a California corporation owned by the Purchasers ("WLHI"), the Purchasers, the Company and Presley Homes, a California corporation and a wholly owned subsidiary of the Company ("Presley Homes"). The Purchase Agreement provides for, among other things, the acquisition by Presley Homes of substantially all of the real estate and related assets of WLHI for the cash purchase price of $48,000,000 (subject to adjustment), together with the assumption of substantially all liabilities of WLHI (the "Acquisition"). The Purchase Agreement also contemplates that (a) the Company will be merged with and into Presley Merger Sub, Inc., a newly-formed Delaware corporation and a wholly owned subsidiary of the Company (the "Merger"), and (b) WLHI (or one of more of its affiliates) will consummate the purchase of up to 15,566,837 shares of the Company's Series B Common Stock, $0.01 par value per share (the "Series B Shares"), pursuant to separate Stock Purchase and Sale Agreements (the "Series B Stock Purchase Agreements") between WLHI and each of GS Credit Partners, L.P., ING (U.S.) Capital, LLC, and The Chase Manhattan Bank, as Trustee for First Plaza Group Trust (collectively, the "Series B Stockholders"). Each Series B Share is convertible into one Series A Share. A SPECIAL COMMITTEE OF INDEPENDENT MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE PURCHASE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, AND IN FURTHERANCE OF THE TRANSACTIONS CONTEMPLATED BY THE PURCHASE AGREEMENT, HAS RECOMMENDED THAT HOLDERS OF SERIES A SHARES (OTHER THAN THE PURCHASERS AND THE SERIES B STOCKHOLDERS) ACCEPT THE OFFER AND TENDER THEIR SERIES A SHARES PURSUANT TO THE OFFER; PROVIDED, HOWEVER, THAT SUCH HOLDERS OF SERIES A SHARES ARE ADVISED TO CONSULT WITH THEIR FINANCIAL AND TAX ADVISORS PRIOR TO TENDERING THEIR SERIES A SHARES IN THE OFFER. 2 THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) OF THE OFFER AT LEAST 1,989,180 SERIES A SHARES, SUBJECT TO ADJUSTMENT AS DESCRIBED IN THE OFFER TO PURCHASE (THE "MINIMUM CONDITION"), (ii) WLHI (OR ONE OR MORE OF ITS AFFILIATES) CONTINUING TO HAVE, AS OF THE EXPIRATION DATE, THE LEGALLY ENFORCEABLE RIGHT TO PURCHASE SERIES B SHARES PURSUANT TO EACH OF THE SERIES B STOCK PURCHASE AGREEMENTS, (iii) THE CONSUMMATION OF THE ACQUISITION, AND (iv) APPROVAL OF THE MERGER BY HOLDERS OF A MAJORITY OF THE OUTSTANDING SERIES A SHARES AND SERIES B SHARES VOTING TOGETHER AS A SINGLE CLASS. THE OFFER IS ALSO CONDITIONED ON OTHER TERMS AND CONDITIONS CONTAINED IN THE OFFER TO PURCHASE. SEE SECTIONS 1 AND 14 OF THE OFFER TO PURCHASE. If any condition to the Offer is not satisfied as of the Expiration Date of the Offer, the Purchasers may, subject to the terms of the Purchase Agreement, (i) terminate the Offer and return all tendered Series A Shares to tendering stockholders, (ii) extend the Offer and, subject to withdrawal rights as set forth in Section 4 of the Offer to Purchase, retain all such tendered Series A Shares until the Expiration Date of the Offer as so extended, (iii) other than as described in Section 14 of the Offer to Purchase, waive such condition and, subject to any requirement to extend the period of time during which the Offer is open, purchase all Series A Shares validly tendered and not withdrawn as of the Expiration Date, or (iv) delay acceptance for payment of (whether or not Series A Shares have theretofore been accepted for payment), or payment for, any Series A Shares tendered and not withdrawn, subject to applicable law, until satisfaction or waiver of the conditions to the Offer. Notwithstanding the foregoing, upon consummation of the Acquisition in accordance with the terms of the Purchase Agreement all of the conditions to the offer shall be deemed to have been satisfied (other than the condition that there be no action, legislation, regulation, ruling or judgment instituted or pending which would make illegal or otherwise prohibit consummation of the Offer, the Merger or the purchase by WLHI of the Series B Shares as contemplated under the Purchase Agreement and the Series B Stock Purchase Agreements, or impose a limitation on the ability of the Purchasers to acquire, hold or vote shares of Common Stock of the Company, or require divestiture by the Purchasers or their respective affiliates of shares of Common Stock or divestiture by the Company of any material portion of its business or assets taken as a whole). In the Purchase Agreement, the Purchasers have agreed, subject to the conditions in Section 14 of the Offer to Purchase and their rights under the Offer, to accept for payment and pay for Series A Shares tendered pursuant to the Offer as soon as the Purchasers are legally permitted to do so under applicable law. The Purchasers have agreed that if, after receiving the advice of counsel, the Company determines that the consummation of the Offer and/or the purchases by WLHI (or one or more of its affiliates) of Series B Shares under the Series B Stock Purchase Agreements would result in an "ownership change" of the Company for federal tax purposes or other adverse tax consequences to the Company, the Purchasers will reduce the number of Series A Shares sought pursuant to the Offer (but not below the number of Series A Shares required to satisfy the Minimum Condition) to avoid such "ownership change" or other adverse federal tax consequence. The term Expiration Date means 12:00 midnight, New York City time, on Friday, November 5, 1999 (the "Initial Expiration Date"), unless and until the Purchasers, as provided below, shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" means the latest time and date at which the Offer as so extended by the Purchasers, shall expire. Pursuant to the Purchase Agreement, the Purchasers, subject to the terms and conditions of the Offer, have agreed to extend the period of time during which the Offer is open if, on the Initial Expiration Date, (i) the Minimum Condition shall not have been satisfied or waived by the Purchasers, or (ii) the Acquisition shall not have been consummated or the stockholders of the Company shall not have approved the Merger due to delays in (a) obtaining necessary governmental or regulatory approvals of, or necessary third party consents to, either of the Acquisition or the Merger, or (b) obtaining the financing required to satisfy the conditions to the Acquisition, or (c) obtaining the release of WLHI from certain performance bonds, guarantees and other obligations as set forth in the Purchase Agreement. Under such circumstances, the Purchasers have agreed to extend the Expiration Date of the Offer from time to time and for such number of business days as may be necessary to allow for such conditions to be satisfied and for the closing of the Offer to be substantially coterminous with the closing of the Acquisition; provided, however, that in no event shall the Purchasers be obligated to extend the expiration of the Offer beyond November 30, 1999 (or thirty calendar days thereafter in the event that the closing of the Acquisition or the stockholder vote upon the Merger is delayed due to further delays in the process of obtaining necessary governmental or regulatory approvals). The Purchasers expressly reserve the right to decrease or waive the Minimum Condition and otherwise to amend the terms and conditions of the Offer; provided that, without the written consent of the Company, no amendment may be made which (1) decreases the Offer Price, (2) decreases the number of Series A Shares sought, or (3) amends the terms of the Offer in any manner adverse to the holders of Series A Shares. If the Purchasers extend the Offer, or if the Purchasers (whether before or after their acceptance for payment of Series A Shares) are delayed in their purchase of or payment for Series A Shares or are unable to pay for Series A Shares pursuant to the Offer for any reason, then, without prejudice to the Purchasers' rights under the Offer, the Depositary may retain tendered Series A Shares on behalf of the Purchasers, and such Series A Shares may not be withdrawn except to the 3 extent tendering stockholders are entitled to withdrawal rights as described in Section 4 of the Offer to Purchase. The ability of the Purchasers to delay the payment for Series A Shares which the Purchasers have accepted for payment is, however, limited to Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of the bidder's offer. For purposes of the Offer, the Purchasers will be deemed to have accepted for payment, and thereby purchased, Series A Shares validly tendered and not withdrawn as, if, and when the Purchasers give oral or written notice to ChaseMellon Shareholder Services, L.L.C. (the "Depositary"), of the Purchasers' acceptance of such Series A Shares for payment. Upon the terms and subject to the conditions of the Offer, payment for Series A Shares accepted for payment pursuant to the Offer will be made by deposit of the aggregate purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Purchasers and transmitting payment to such tendering stockholders. In all cases, payment for Series A Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Series A Shares (the "Share Certificates"), or timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Series A Shares, if such procedure is available into the Depositary's account at The Depository Trust Company ("Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase), and (iii) any other documents required by the Letter of Transmittal. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SERIES A SHARES BE PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If more than 10,678,792 Series A Shares have been validly tendered and not withdrawn as of the Expiration Date, the Purchasers will accept for payment and purchase Series A Shares from tendering stockholders on a pro rata basis, which calculation will be adjusted downward to avoid acceptance for payment of fractional shares. Proration for each stockholder tendering Series A Shares will be based on the ratio of the number of Series A Shares tendered by each stockholder to the total number of Series A Shares validly tendered and not properly withdrawn. Tendering stockholders may designate in the Letter of Transmittal the order in which their Series A Shares are to be purchased if proration is required. If the stockholder does not designate an order in the Letter of Transmittal, Series A Shares will be selected for purchase by the Depositary. In the event that proration is required, the Purchasers will announce the final results of proration as soon as practicable, but in no event later than five business days following the Expiration Date. The Purchasers will not pay for any Series A Shares tendered until after the final proration factor has been determined. Series A Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date, and, unless theretofore accepted for payment by the Purchasers pursuant to the Offer, may also be withdrawn at any time after December 5, 1999, or at such later time as may apply if the Offer is extended. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Series A Shares to be withdrawn, the number of Series A Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Series A Shares. If Share Certificates evidencing Series A Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Series A Shares have been tendered for the account of an Eligible Institution. If Series A Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Series A Shares. Any Series A Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Series A Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in Section 3 of the Offer to Purchase. Any extension, amendment or termination of the Offer will be followed as promptly as practicable by public announcement thereof, the announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rules 14d-4(c) and 14e-1(d) under the Exchange Act. The information required to be disclosed by paragraph 14d-6(e)(1)(vii) under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided to the Purchasers a list containing the names and addresses of the record holders of Series A Shares and lists of securities positions of Series A Shares held in stock depositories for the purpose of disseminating 4 the Offer to stockholders of the Company. This Offer to Purchase and the related Letter of Transmittal and other relevant materials will be mailed to record holders of Series A Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Series A Shares. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. IN ADDITION, RECORD HOLDERS OF SERIES A SHARES AS OF SEPTEMBER 15, 1999 WILL BE RECEIVING BY MAIL PROXY MATERIALS PREPARED BY THE COMPANY AND CONTAINING IMPORTANT FINANCIAL AND OTHER INFORMATION RELATING TO THE MERGER AND THE ACQUISITION. HOLDERS OF SERIES A SHARES SHOULD LIKEWISE REVIEW THESE PROXY MATERIALS CAREFULLY BEFORE MAKING ANY DECISION WITH RESPECT TO THE OFFER. Any questions or requests for assistance or for copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below, and copies will be furnished promptly at the Purchasers' expense. No fees or commissions will be payable to brokers, dealers or other persons (other than the Information Agent and the Depository) for soliciting tenders of Series A Shares pursuant to the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [LOGO OF CHASEMELLON CONSULTING SERVICES, L.L.C.] ChaseMellon Consulting Services, L.L.C. 450 West 33rd Street, 14th Floor New York, New York 10001 Banks and Brokers, please call: (212) 273-8083 All others call toll-free: (888) 566-9474 October 7, 1999 EX-1.(C) 9 PURCHASE AGREEMENT 1 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS DATED AS OF OCTOBER 7, 1999 BY AND AMONG WILLIAM LYON HOMES, INC., A CALIFORNIA CORPORATION, WILLIAM LYON, AN INDIVIDUAL, WILLIAM H. LYON, AN INDIVIDUAL, PRESLEY HOMES, A CALIFORNIA CORPORATION, AND THE PRESLEY COMPANIES, A DELAWARE CORPORATION 2 TABLE OF CONTENTS
PAGE 1. Purchase and Sale...................................................................2 1.1 Seller's Assets..............................................................2 1.2 Partnership Assets...........................................................4 2. Assets Excluded from Purchase.......................................................5 3. Purchase Price, Adjustments and Allocation..........................................6 3.1 Purchase Price...............................................................6 3.2 Adjustment to Purchase Price.................................................6 3.3 Allocation of Purchase Price; Tax Filings...................................10 4. Assumption of Liabilities..........................................................10 4.1 Contracts...................................................................10 4.2 Accounts Payable and Accrued Liabilities....................................11 4.3 Employee Obligations........................................................11 5. Liabilities Not Assumed............................................................11 6. Opening of Escrow..................................................................12 7. Close of Escrow....................................................................12 8. Title Report.......................................................................13 9. The Series A Offer.................................................................13 9.1 Commencement and Conditions.................................................13 9.2 Satisfaction of Conditions..................................................14 9.3 Lyon SEC Filings............................................................14 9.4 Presley-Del.'s Actions With Respect to the Series A Offer...................15 9.5 Over- or Under-Subscription of Offer........................................16 9.6 Successors in Interest to Lyons.............................................17 10. Presley-Del./New Presley Merger and Other Matters..................................17 11. Representations and Warranties of Seller...........................................18 11.1 Good Standing...............................................................18 11.2 Power.......................................................................19 11.3 Requisite Action............................................................19 11.4 Authority...................................................................19 11.5 Binding Agreements..........................................................19 11.6 Partnership and Membership Interests in Real Property.......................19
-i- 3 TABLE OF CONTENTS (continued)
Page 11.7 Income Tax Information......................................................19 11.8 Condition of Personal Property Assets.......................................19 11.9 Financial Statements; Contingencies; Conduct of Business Since December 31, 1998...........................................................20 11.10 Contracts...................................................................20 11.11 Zoning......................................................................20 11.12 Governmental Notices........................................................21 11.13 Undisclosed Defects.........................................................21 11.14 No Unrecorded Interests.....................................................21 11.15 Real Property in Compliance.................................................21 11.16 Public Improvements.........................................................21 11.17 No Other Agreements.........................................................21 11.18 Litigation..................................................................22 11.19 Environmental Matters.......................................................22 11.20 Endangered or Threatened Species............................................23 11.21 Accounts Receivable.........................................................23 11.22 Employment Contracts and Benefits...........................................24 11.23 Insurance Policies..........................................................25 11.24 Authority and Consents......................................................25 11.25 Plant Closing...............................................................26 11.26 No Brokers or Finders.......................................................26 11.27 Knowledge Convention........................................................26 12. Representations and Warranties of Buyer and Presley-Del............................26 12.1 Power.......................................................................26 12.2 Requisite Action............................................................26 12.3 Authority...................................................................26 12.4 No Conflicts................................................................26 12.5 No Brokers or Finders.......................................................26 12.6 Legal Proceedings...........................................................27 12.7 Plant Closing...............................................................27 13. Survival of Representations and Warranties; Indemnity..............................27
-ii- 4 TABLE OF CONTENTS (continued)
Page 13.1 Survival of Representations and Warranties..................................27 13.2 Seller's Indemnity Obligation...............................................27 13.3 Buyer's and Presley-Del.'s Indemnity Obligation.............................28 13.4 Notice......................................................................28 14. Seller's Obligations Before Closing................................................28 14.1 Buyer's Access to Premises and Information..................................28 14.2 Conduct of Business in Normal Course........................................29 14.3 Preservation of Real Property and Operations................................29 14.4 Maintenance of Insurance....................................................29 14.5 Maintenance of Intangibles..................................................29 14.6 Employees and Compensation..................................................29 14.7 Other Transactions..........................................................29 14.8 Notification of Certain Matters.............................................29 14.9 Permits and Approvals; Third Party Consents.................................30 14.10 Supplements to Schedules....................................................30 14.11 Financing...................................................................30 15. Presley-Del.'s and Buyer's Obligations Before Closing..............................30 15.1 Cooperation in Securing Consents of Third Parties...........................30 15.2 Resale Certificate..........................................................30 15.3 Conduct of Business in Normal Course........................................30 15.4 Financing...................................................................30 15.5 Notification of Certain Matters.............................................31 16. Conditions Precedent to Presley-Del.'s and Buyer's Performance.....................31 16.1 Accuracy of Seller's Representations and Warranties; Satisfaction of Covenants...................................................................31 16.2 Regulatory Approvals and Other Consents.....................................31 16.3 No Material Adverse Change..................................................31 16.4 Opinion of Seller's Counsel.................................................32 16.5 Absence of Litigation.......................................................33 16.6 Title Policy................................................................33 16.7 Assignment of Real Property Documents.......................................33
-iii- 5 16.8 Solvency Opinion............................................................33 16.9 Financing...................................................................34 16.10 No "Ownership Change".......................................................34 16.11 Series A Offer..............................................................34 16.12 Presley-Del. Stockholder Approval...........................................34 16.13 Series B Purchase Agreements................................................34 16.14 Cancellation of Lyon Stock Options..........................................34 17. Conditions Precedent to Seller's Performance.......................................34 17.1 Accuracy of Buyer's and Presley-Del.'s Warranties...........................34 17.2 Regulatory Approvals and Other Consents.....................................35 17.3 Opinion of Buyer's and Presley-Del.'s Counsel...............................35 17.4 Absence of Litigation.......................................................36 17.5 Series A Offer..............................................................36 17.6 Presley-Del. Stockholder Approval...........................................36 17.7 Release of Seller From Certain Assumed Liabilities..........................36 17.8 Series B Purchase Agreements................................................36 17.9 No "Ownership Change".......................................................36 18. The Parties' Obligations after Closing.............................................37 18.1 Employee Matters............................................................37 18.2 WARN Act....................................................................37 18.3 Maintenance of Seller's Corporate Existence; Tangible Net Worth.............37 18.4 Corporate Governance........................................................37 18.5 Further Agreements..........................................................38 18.6 Post Closing Obligations....................................................39 18.7 Management of Certain Excluded Projects Following the Closing...............39 19. Escrow Closing Obligations.........................................................39 19.1 Deliveries by Seller to Escrow Holder.......................................39 19.2 Deliveries by Buyer to Escrow Holders.......................................41 19.3 Disbursements and Other Actions by Escrow Holder............................41 20. Escrow Cancellation................................................................42 20.1 Charges.....................................................................42
-iv- 6 TABLE OF CONTENTS (continued)
Page 21. Escrow Costs; Taxes and Assessments................................................42 21.1 Escrow and Other Costs......................................................42 21.2 Real Property Taxes and Assessments.........................................43 21.3 Supplemental Real Property Taxes............................................43 21.4 Other Taxes.................................................................43 22. Condemnation and Destruction.......................................................43 22.1 Condemnation................................................................43 22.2 Fire or Other Casualty During Escrow........................................44 23. Waiver and Consent.................................................................44 24. Miscellaneous......................................................................44 24.1 Successors and Assigns......................................................44 24.2 Expenses....................................................................44 24.3 Attorney's Fees.............................................................45 24.4 Notices.....................................................................45 24.5 Gender and Name.............................................................46 24.6 Entire Agreement............................................................46 24.7 Captions....................................................................47 24.8 Time of Essence.............................................................47 24.9 Governing Law...............................................................47 24.10 Invalidity of Provision.....................................................47 24.11 Amendments..................................................................47 24.12 Counterparts................................................................47 24.13 Schedules and Exhibits......................................................47 24.14 Time References.............................................................47 24.15 Construction of Agreement...................................................47 24.16 No Recording Without Consent................................................47 24.17 Parties in Interest.........................................................48 24.18 Specific Performance and Waiver of Rescission Rights........................48 25. Termination Events.................................................................48 26. Effect of Termination..............................................................49 27. No Solicitation....................................................................49
-v- 7 LIST OF SCHEDULES* Schedule 1.1(a) - Seller's Real Property Schedule 1.1(c)(iii) - Seller's Intangible Property Schedule 1.1(c)(vi) - Other Assets Schedule 1.2 - The Partnerships Schedule 1.2(a) - Partnership Real Property Schedule 1.2(c)(iii) - Partnership Intangible Property Schedule 1.2(c)(vi) - Other Partnership Assets Schedule 2.6 - Excluded Assets Schedule 4.1 - Specified Contracts Schedule 5.9 - Excluded Liabilities Schedule 11.10 - Conflicts with Contracts Schedule 11.24 - Consents, Waivers and Releases Schedule 12.4 - Presley Conflicts Schedule 17.7 - Releases from Third Parties Schedule 19.1(b) - Properties Under Option or Contract EXHIBITS* Exhibit A - Escrow Holder's General Provisions Exhibit B - Conditions to Series A Offer Exhibit C - Form of Certificates of Ownership and Merger Exhibit D - Form of Seller's Affidavit Exhibit E - Form of Cancellation of Lyon Stock Options Exhibit F - Form of Seller Grant Deeds Exhibit G - Form of Assignment of Plans and Warranties Exhibit H - Form of Bill of Sale Exhibit I - Form of Assignment of Other Assets Exhibit J - Form of Assignment and Assumption of Leaseholds Exhibit K - Form of Assignment and Assumption Agreement - ----------- * Except for Exhibit B to the Purchase Agreement and Escrow Instructions, the Schedules and Exhibits are not filed herewith. The Filer hereby agrees to furnish supplementally a copy of any omitted Schedule or Exhibit upon the request of the Commission. -vi- 8 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS To: First American Title Insurance Company 114 East Fifth Street Santa Ana, California 91701 Escrow Officer: Toni Rice-Groetch Telephone: (714) 558-3211 Telecopier: (714) 647-2139 Escrow No.: N991215G THIS PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS ("Agreement") is made and entered into as of October 7, 1999, and constitutes an agreement by and among WILLIAM LYON HOMES, INC., a California corporation ("Seller"), WILLIAM LYON, an individual, WILLIAM H. LYON, an individual (William Lyon and William H. Lyon are collectively referred to herein as the "Lyons"), PRESLEY HOMES, a California corporation ("Buyer"), and THE PRESLEY COMPANIES, a Delaware corporation ("Presley-Del."). This Agreement also constitutes escrow instructions of Buyer, Seller and Presley-Del. to First American Title Insurance Company, 114 East Fifth Street, Santa Ana, California 91701 ("Escrow Holder") for its Escrow No. N991215G. Seller, the Lyons, Buyer and Presley-Del. are hereinafter collectively referred to as the "Parties," and each individually as a "Party." RECITALS: WHEREAS, Seller is engaged in the business of residential development in the State of California; and WHEREAS, Buyer desires to purchase, and Seller desires to sell, substantially all of Seller's real estate assets and certain other assets of Seller related thereto for a cash purchase price of $48 million (subject to adjustment as provided herein) and the assumption by Buyer of substantially all of the liabilities of Seller relating to such assets, all as provided for herein (such purchase and assumption being referred to herein as the "Acquisition"); and WHEREAS, Seller has entered into separate Stock Purchase and Sale Agreements dated as of July 6, 1999 (collectively, the "Series B Purchase Agreements") with each of GS Credit Partners, L.P., ING (U.S.) Capital, L.L.C., and The Chase Manhattan Bank, as Trustee for First Plaza Group Trust (collectively, the "Series B Shareholders"), which provide for the purchase by Seller from the Series B Shareholders of an aggregate of 9,434,813 shares (subject to adjustment as provided therein) of Series B Common Stock of Presley-Del. for a cash price of $0.655 per share (such transactions being referred to herein collectively as the "Series B Purchases"); and WHEREAS, the Lyons propose to purchase a number of the issued and outstanding shares of Presley-Del. Series A Common Stock, par value $.01 per share (the "Series A Common Stock"), such that, after such purchase (and after giving effect to the Series B Purchases and to the disposition by the Lyons on August 13, 1999 of an aggregate of 3,000,000 shares of Series A Common Stock of Presley-Del.), the Lyons and their affiliates would own approximately 49% (but not more than 49.9%) of the outstanding Common Stock of Presley-Del; and 1 9 WHEREAS, in furtherance thereof, the Lyons propose to make a cash tender offer (the "Series A Offer") to acquire, for a purchase price of $0.655 per share, 10,678,792 shares (subject to adjustment as provided herein) of Series A Common Stock. AGREEMENT NOW THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties contained in this Agreement, the Parties hereby agree, and Escrow Holder is instructed, as follows. 1. Purchase and Sale. 1.1 Seller's Assets. Subject to the terms and conditions set forth in this Agreement, on the Closing Date (as hereinafter defined), Seller will sell, convey, transfer, assign, and deliver to Buyer or to Buyer's Permitted Assigns (as hereinafter defined), as applicable, and Buyer or Buyer's Permitted Assigns, as applicable, will purchase and accept delivery from Seller of the following assets of Seller: (a) Real Property. All of Seller's rights, title and interest in and to all of that certain real property located in the State of California and more particularly described on Schedule 1.1(a) attached hereto (collectively, "Seller's Real Property"), inclusive of (i) any and all buildings, structures, fixtures and improvements located on or in Seller's Real Property, and (ii) all of Seller's rights, privileges and easements appurtenant to or used in connection with any of Seller's Real Property and/or any of the improvements, buildings, structures or fixtures located therein or thereon, including, without limitation, all minerals, oil, gas and other hydrocarbon substances, all development rights, all entitlement rights, air rights, water, water rights and water stock relating to any of Seller's Real Property, all strips and gores, all of Seller's rights, title and interest in and to any streets, alleys, easements, rights-of-way, public ways, and all other rights of Seller appurtenant, adjacent or connected to any of Seller's Real Property, but exclusive of any parcels and improvements included in Seller's Real Property which are sold by Seller prior to the Closing in the ordinary course of Seller's business. (b) Personal Property. All supplies, materials, work in process, equipment, machinery, furniture, fixtures, motor vehicles, claims and rights under leases (as lessor or lessee), contracts, notes, evidences of indebtedness, purchase and sales orders, copyrights, service marks, trademarks, trade names, trade secrets, licenses and permits (to the extent transferable) and deposits (collectively, "Personal Property Assets") that are owned, leased or licensed by Seller and used in connection with or relate to the development, marketing or sale of Seller's Real Property ("Seller's Personal Property"). (c) Other Seller Assets. (i) All receivables, escrow and other proceeds, purchase deposits, cash, real estate assets (including improvements) and other assets 2 10 (inclusive of any interest or other amounts earned thereon) of Seller existing as of the Closing Date and which were earned, acquired or generated by Seller in the conduct of its real estate development business, including without limitation those arising out of or relating to any of the following: (A) sales, transfers, assignments or other dispositions of real property and related assets, improvements and other rights by Seller between January 1, 1999 and the Closing Date, including without limitation, sales, transfers, assignments or other dispositions of any portion of Seller's Real Property, Seller's Personal Property or Seller's interests in the Partnerships (as defined in Section 1.2 hereof) in the ordinary course of business after the date hereof and prior to the Closing Date; (B) purchases or other investments in real estate development and related assets after the date hereof and prior to the Closing Date; and (C) Seller's right to receive capital, profits, assets, allocations, returns (whether preferred or not), distributions, fees or other payments from any of the Partnerships (as defined in Section 1.2 hereof) between January 1, 1999 and the Closing Date. (ii) All accruals and cash reserves of Seller in respect of or relating to any of the Assumed Liabilities (as defined in Section 5 below). (iii) All of Seller's right, title and interest in and to the intangible property identified on Schedule 1.1(c)(iii). (iv) All sales data, customer lists, mailing lists, supplier and contractor lists, and marketing and advertising materials relating to the marketing and sale of Seller's Real Property. (v) All of Seller's rights under the Contracts (as defined in Section 4.1 hereof). (vi) All other assets of Seller identified on Schedule 1.1(c)(vi). (vii) All of Seller's books and records relating to any of Seller's Real Property, Seller's Personal Property or any of the other assets to be transferred pursuant to this Section 1.1(c). All of the foregoing assets of Seller to be sold, assigned and transferred at Closing by Seller to Buyer (other than Seller's Excluded Assets as defined in Section 2 below) are hereinafter collectively referred to as "Seller's Assets." 1.2 Partnership Assets. Subject to the terms and conditions set forth in this Agreement, on the Closing Date (as hereinafter defined), Seller shall cause each of the partnerships and limited liability companies identified on Schedule 1.2 attached hereto 3 11 (collectively, the "Partnerships") to sell, convey, transfer, assign, and deliver to Buyer or to Buyer's Permitted Assigns (as hereinafter defined), as applicable, and Buyer or Buyer's Permitted Assigns, as applicable, will purchase and accept delivery of, the following assets of each Partnership: (a) Partnership Real Property. All of each Partnership's rights, title and interest in and to all of that certain real property located in the State of California as more particularly described on Schedule 1.2(a) attached hereto (collectively, the "Partnership Real Property," and together with Seller's Real Property, the "Real Property"), inclusive of (i) any and all buildings, structures, fixtures and improvements located on or in the Partnership Real Property, and (ii) each of the Partnership's rights, privileges and easements appurtenant to or used in connection with any of the Partnership Real Property and/or any of the improvements, buildings, structures or fixtures located therein or thereon, including, without limitation, all minerals, oil, gas and other hydrocarbon substances, all development rights, all entitlement rights, air rights, water, water rights and water stock relating to any of the Partnership Real Property, all strips and gores, all of each Partnership's rights, title and interest in and to any streets, alleys, easements, rights-of-way, public ways, and all other rights of each of the Partnerships appurtenant, adjacent or connected to any of the Partnership Real Property, but exclusive of any parcels and improvements included in the Partnership Real Property which are sold by any of the Partnerships prior to the Closing and in the ordinary course of business. (b) Partnership Personal Property. All Personal Property Assets (as defined in Section 1.1(b) hereof) that are owned, leased or licensed by any of the Partnerships and used in connection with or relate to the development, marketing or sale of the Partnership Real Property (collectively, the "Partnership Personal Property," and together with Seller's Personal Property, the "Personal Property"). (c) Other Partnership Assets. (i) All receivables, escrow and other proceeds, purchase deposits, cash, real estate assets (including improvements) and other assets (inclusive of any interest or other amounts earned thereon) of any of the Partnerships existing as of the Closing Date and which were earned, acquired or generated by any of the Partnerships in the conduct of their respective real estate development businesses, including without limitation those arising out of or relating to any of the following: (A) sales, transfers, assignments or other dispositions of real property and related assets, improvements and other rights by any of the Partnerships between January 1, 1999 and the Closing Date, including without limitation sales, transfers, assignments or other dispositions of any portion of the Partnership Real Property or the Partnership Personal Property after the date hereof and prior to the Closing Date; and 4 12 (B) purchases or other investments in real estate development and related assets after the date hereof and prior to the Closing Date. (ii) All accruals and cash reserves of the Partnerships in respect of or relating to any of the Assumed Liabilities (as defined in Section 5 below) of the Partnerships. (iii) All of each Partnership's right, title and interest in and to the intangible property identified on Schedule 1.2(c)(iii). (iv) All sales data, customer lists, mailing lists, supplier and contractor lists, and marketing and advertising materials relating to the marketing and sale of the Partnership Real Property. (v) All of each Partnership's obligations and liabilities under any of the Contracts (as defined in Section 4.1 hereof). (vi) All other assets of the Partnerships identified on Schedule 1.2(c)(vi). (vii) All of the Partnerships' books and records relating to any of the Partnership Real Property, the Partnership Personal Property or any of the other assets to be transferred pursuant to this Section 1.2. All of the foregoing assets of the Partnerships to be sold, assigned and transferred at Closing by such Partnerships to Buyer or Buyer's Permitted Assigns (other than the Excluded Assets as defined in Section 2 below) are hereinafter collectively referred to as the "Partnership Assets," and together with Seller's Assets, as the "Assets." 2. Assets Excluded from Purchase. Notwithstanding Section 1 hereof, the following assets of Seller and/or the Partnerships shall not be transferred and sold to Buyer (or Buyer's Permitted Assigns) pursuant to Section 1, but shall be retained by Seller and/or the Partnerships, as applicable (the "Excluded Assets"): 2.1 Seller's and the Partnerships' rights and claims to tax refunds and adjustments of any kind (other than those relating to property taxes paid or payable with respect to property owned by Seller or any of the Partnerships as of December 31, 1998 or acquired by Seller or any of the Partnerships after such date); 2.2 The consideration delivered to Seller pursuant to this Agreement; 2.3 Seller's and the Partnerships' articles of incorporation, corporate seals, minute books, stock books, books of account, partnership agreements, organizational documents and other corporate, partnership or limited liability company records and all income tax records and nontransferable licenses and permits; provided however, that copies of such corporate, partnership, limited liability company, tax and accounting records and nontransferable permits shall be delivered to Buyer at the Closing; 5 13 2.4 Any assets acquired by Seller or any of the Partnerships after the Closing Date (other than with proceeds which constitute any part of the Assets to be transferred pursuant to Sections 1.1(c) or 1.2(c)); 2.5 All cash reserves of Seller or any of the Partnerships in an amount equal to the amount of any and all recorded accounts payable or accrued liabilities in respect of or relating to any of the Excluded Liabilities under Section 5 hereof; 2.6 Such other Excluded Assets as are identified on Schedule 2.6. 3. Purchase Price, Adjustments and Allocation. 3.1 Purchase Price. The purchase price for the Assets (the "Purchase Price") shall be (i) the assumption of the Assumed Liabilities (as defined herein), plus (ii), subject to Section 3.2 below, Forty-Eight Million Dollars ($48,000,000), which shall be payable, together with Buyer's share of any escrow closing costs, through the Escrow created pursuant to Section 6 hereof and as provided for herein. The cash portion of the Purchase Price, together with Buyer's share of any escrow closing costs, shall be deposited in Escrow by Buyer in cash or other immediately available funds on or prior to the Close of Escrow. 3.2 Adjustment to Purchase Price. The Purchase Price for the Assets was determined based on the value of the real property and related assets, rights and improvements owned directly or indirectly by Seller and the Partnerships as of December 31, 1998 and held for development and/or resale or otherwise used in their respective real estate development businesses (collectively referred to as the "1998 Real Estate Development Assets"). Buyer and Seller intend that the 1998 Real Estate Development Assets, together with all income, receivables, escrow and other proceeds, purchase deposits, cash and other assets earned or received by Seller or any of the Partnerships from the sale of any of the 1998 Real Estate Development Assets (including any assets purchased or acquired with the sale proceeds thereof) or otherwise earned or acquired by Seller or any of the Partnerships in the ordinary course of business since January 1, 1999 and through the Closing Date (the "Operating Period"), shall inure to the benefit of Buyer (or Buyer's Permitted Assigns), net of any such assets or amounts which have been or will be used by Seller or any of the Partnerships prior to the Closing Date to pay or satisfy land acquisition or development costs, capital expenditures, principal of or interest on indebtedness, accounts payable, accrued liabilities, employee wages and benefits, taxes and other liabilities and operating expenses existing at December 31, 1998 or incurred by Seller or any of the Partnerships in the ordinary course of business during the Operating Period. In furtherance of the foregoing, Buyer and Seller agree that the $48,000,000 cash portion of the Purchase Price shall be: (a) reduced by the aggregate amount (if any) of: (i) except to the extent recorded or otherwise provided for on the books of Seller as of December 31, 1998, any dividends, redemption payments or other similar distributions (whether of cash or property) made by Seller during the Operating Period to any of its stockholders in respect of their stock; 6 14 (ii) except to the extent recorded or otherwise provided for on the books of Seller or the applicable Partnership as of December 31, 1998, the unpaid balance (outstanding as of the Closing Date, and inclusive of any interest) of any loans or other advances, and the unreimbursed portion of any other payments, made during the Operating Period by Seller to or for the personal benefit of any of its shareholders or affiliates, or by any of the Partnerships to or for the personal benefit of any partner (or affiliate of such partner) other than Seller, but excluding (A) any loans or advances, the right to receive repayment of which is included among the Assets to be transferred to Buyer pursuant to either Section 1.1(c) or Section 1.2(c) hereof, (B) any advances or other payments made in the form of salary or other compensation for services rendered to Seller or any of the Partnerships in the ordinary course of business, and (C) any payments made or amounts incurred in respect of legal, financial and tax accounting, appraisal or financial advisory fees and expenses incurred in connection with the transactions contemplated by this Agreement (it being the intent of the Parties that any adjustments for such fees and expenses be governed by clause (viii) of this Section 3.2(a)); (iii) the amount of any payments made or liabilities accrued by Seller during the Operating Period in respect of any of the following items, but only to the extent that the payment or other liability had not been accrued and reflected or otherwise provided for on Seller's or the applicable Partnership's books and records as of December 31, 1998: (A) bonuses and other compensation to directors, officers and employees of Seller or any of the Partnerships for services rendered prior to December 31, 1998; (B) warranty expenses related to real estate assets sold and closed prior to December 31, 1998; (C) payments (and related legal fees) made in settlement of legal claims, other than claims relating to any of the Assets or Assumed Liabilities; and (D) any significant and unusual charitable contributions made by Seller or any of the Partnerships during the Operating Period; (iv) the value of any real estate assets identified as "Excluded Assets" on Schedule 2.6, such value to be (A) with respect to any such asset acquired after December 31, 1998, the net book value of such asset as of the Closing Date (as reflected on Seller's or the applicable Partnership's books and records and determined in accordance with generally accepted accounting principles), and (B) with respect to any such asset owned by Seller or any of the Partnerships as of December 31, 1998, the fair value of such asset as of January 1, 1999 as adjusted for any increases or decreases in the carrying value of the particular asset(s) as of the Closing Date; 7 15 (v) the amount of any operating expenses incurred or accrued by Seller or any of the Partnerships during the Operating Period in respect of or relating directly to any of the Excluded Assets; (vi) the amount of any non-cash adjustments made on the books and records of Seller or any of the Partnerships during the Operating Period for write-offs or abandonment of assets which were recorded on the books at December 31, 1998 (other than with respect to any Excluded Assets), but only to the extent such amount exceeds $500,000 in the aggregate; (vii) the amount of any cash reserves to be retained by Seller or any of the Partnerships pursuant to Section 2.4 hereof in respect of Excluded Liabilities; and (viii) any amounts (A) paid by Seller or any of the Partnerships during the Operating Period (except to the extent that the corresponding liability was recorded on the books and records of Seller or the applicable Partnership as of December 31, 1998), or (B) incurred by Seller or any of the Partnerships during the Operating Period and accrued on the books and records of Seller or the applicable Partnership as of the Closing Date, in the case of (A) and (B), to the extent such amounts were paid or incurred in respect of legal, financial or tax accounting, appraisal or financial advisory fees or expenses incurred in connection with the transactions contemplated by this Agreement, but only to the extent such amounts exceed $1,250,000 in the aggregate; and (b) increased by the aggregate amount (if any) of: (i) any capital contribution to or other equity investment made in Seller by any of its shareholders during the Operating Period, provided that if such contribution or investment is made after the date hereof, such contribution or investment has been approved by Buyer in writing; (ii) any accounts payable, accrued liabilities and/or indebtedness secured by or relating to any of the Excluded Assets; (iii) warranty reserves reflected on the books and records of Seller or any of the Partnerships as of the Closing Date, but only to the extent that such reserves are retained by Seller; and (iv) tax refunds, insurance recoveries, utility deposits and any other assets acquired by Seller or any of the Partnerships during the Operating Period in exchange for or in respect of any claims or other assets which were not reflected on their respective books and records as of December 31, 1998; provided, however, that except as expressly provided in Section 3.2(a)(viii) above, nothing contained in this Section 3.2 or elsewhere in this Agreement shall be interpreted or construed to 8 16 cause a reduction in the Purchase Price for any amounts paid or incurred by Seller or any of the Partnerships in respect of legal, financial and tax accounting, appraisal, lender commitment, financial advisory, exchange agent, depositary, printing, filing and registration, escrow, title, recording property transfer and other fees and expenses incurred by Seller, the Partnerships or their respective affiliates in connection with the transactions contemplated by this Agreement. Any adjustment to the Purchase Price shall be determined in accordance with the foregoing provisions of this Section 3.2 based upon a review of Seller's and the Partnerships' respective books and records by Ernst & Young LLP or such other independent accounting firm as may be acceptable to Buyer and Seller (the "Independent Auditor"). Buyer and Seller shall instruct the Independent Auditor to perform a preliminary review of such books and records and notify Buyer, Seller and Escrow Holder in writing not later than five (5) business days prior to the Closing Date of the Independent Auditor's estimate of any proposed adjustment to the Purchase Price pursuant to this Section 3.2, such notice to include reasonable detail as to the nature and calculation of any such proposed adjustment. Unless Buyer or Seller shall deliver written notice to Escrow Holder prior to the Closing Date of its objection to any such proposed adjustment, such adjustment shall be made to the Purchase Price at the Closing through Escrow. If either Buyer or Seller notifies Escrow Holder in writing prior to the Closing of its objections to the Independent Auditor's estimated adjustment, Escrow Holder shall withhold the amount of the proposed adjustment from the Purchase Price and continue to hold such amount in Escrow (in an interest bearing account) until such adjustment amount is finally determined in accordance with the procedures set forth in the following paragraphs. Following the Closing, Buyer and Seller shall instruct the Independent Auditor to complete a review of Seller's books and records through the Closing Date for the purpose of determining the final adjustment (if any) to the Purchase Price pursuant to this Section 3.2. The Independent Auditor shall complete such review and deliver to Buyer and Seller written notice of its final determination of any adjustment to the Purchase Price pursuant to this Section 3.2 within 30 calendar days of the Closing Date. If Buyer and Seller agree with the Independent Auditor's determination (or fail to deliver written notice of any objection within 10 business days of receipt of such determination), such determination shall become final and conclusive for all purposes under this Agreement. If either Buyer or Seller shall disagree with such determination, it shall notify the other Party, Escrow Holder and the Independent Auditor in writing of such objection within 10 business days, such notice to set forth in reasonable detail the basis for such objection. Buyer and Seller shall make a good faith attempt to resolve any differences and to agree upon a final adjustment amount, but if such Parties are unable reach agreement within 20 calendar days of the date of the objection notice, the matter will be directed to Arthur Andersen LLP or another independent accounting firm acceptable to Buyer and Seller, whose determination pursuant to this Section 3.2 shall be binding and conclusive for all purposes under this Agreement. The fees and expenses of such firm shall be shared equally by Buyer and Seller. Within two (2) business days of the final determination of any adjustment to the Purchase Price pursuant to this Section 3.2, Buyer and Seller shall instruct Escrow Holder to remit to such Parties any funds remaining in Escrow in such relative amounts as are necessary and appropriate to effect such adjustment, together with any interest earned on such funds from the Closing Date. After disbursement of any of the funds remaining in Escrow, any additional amounts due and owing between Buyer and Seller as a result of any adjustment of the Purchase 9 17 Price pursuant to this Section 3.2 shall be paid within five (5) business days of the final determination, together with interest on such additional amount from the Closing Date to the date of payment calculated on the basis of the prime rate in effect on the Closing Date and published in The Wall Street Journal. 3.3 Allocation of Purchase Price; Tax Filings. Buyer and Seller agree to negotiate in good faith with respect to the allocation of the Purchase Price among the Assets and the Assumed Liabilities. Buyer and Seller agree that their agreed upon allocation shall be used, reported and implemented for all federal, state, local and other tax purposes. 4. Assumption of Liabilities. At the Closing, Buyer and Buyer's Permitted Assigns shall assume, and agree to pay, perform and discharge, or cause to be paid, performed and discharged, all of Seller's and each of the Partnerships' obligations and liabilities under or with respect to the following: 4.1 Contracts. All (a) subcontract agreements on Seller's or the Partnerships' (as applicable) standard forms of contract for services, materials or supplies to be incorporated into the works of improvement on the Real Property, (b) purchase and sale agreements on Seller's or the Partnerships' (as applicable) standard forms of contract and escrow instructions on Seller's, the Partnerships' or escrow holders' standard forms for the sale of individual lots to home buyers which sales have not closed escrow on or before the Closing, (c) subdivision agreements, development agreements and other entitlement agreements to which Seller or any of the Partnerships is a party with Governmental Entities (as hereinafter defined in Section 10.1) relating to the Real Property, (d) all obligations and liabilities of Seller and any of the Partnerships under construction or performance bonds, guaranties and similar commitments entered into in connection with the development of the Real Property, and (e) the contracts, leases, instruments (including debt instruments), profit participation agreements and other agreements listed on Schedule 4.1. (The contracts identified in the previous sentence are hereinafter referred to as the "Contracts."); 4.2 Accounts Payable and Accrued Liabilities. Accounts payable and accrued liabilities of Seller and the Partnerships arising in the ordinary course of business with respect to the Assets and their respective development businesses; and 4.3 Employee Obligations. Any liabilities or obligations of Seller and the Partnerships to pay compensation, salary, wages or other benefits (including vacation, sick leave, retirement, health and other similar benefits) to employees of Seller or any of the Partnerships who are hired to continue employment with Buyer or any of Buyer's Permitted Assigns following the Closing Date, but only to the extent that such liabilities or obligations (a) are accrued and reflected or otherwise provided for on Seller's or the applicable Partnership's books and records as of the Closing Date, (b) are disclosed on the list or in other documents delivered to Buyer pursuant to Section 11.22 of this Agreement, or (c) represent compensation, salary, wages or other benefit obligations incurred by Seller or any of the Partnerships with respect to the payment period in which the Closing Date occurs. All of the foregoing liabilities and obligations of Seller and the Partnerships to be assumed, paid, performed and/or discharged by Buyer or Buyer's Permitted Assigns (other than the Excluded Liabilities set forth in Section 5 below) are hereinafter collectively referred to as the "Assumed Liabilities." 10 18 5. Liabilities Not Assumed. Notwithstanding Section 4 of this Agreement, Buyer and Buyer's Permitted Assigns shall not directly or indirectly assume, pay, perform, discharge or be responsible for any of the liabilities or obligations of Seller or any of the Partnerships or any of their respective affiliates, whether liquidated or unliquidated, known or unknown, actual or inchoate, accrued, contingent or otherwise, which are identified below (the "Excluded Liabilities"): 5.1 Any liabilities or obligations incurred, arising from or out of, or in connection with or as a result of, any alleged or actual defect, or any alleged or actual breach of warranty (whether express or implied), with respect to any portion of the Real Property (including all improvements thereon) worked on by Seller, the Partnerships or any of their respective contractors, subcontractors or other affiliates prior to the Closing Date; 5.2 Any liabilities or obligations incurred, arising from or out of, or in connection with or as a result of, any claim, action, suit, litigation, arbitration or administrative or other proceeding made by or against Seller or any of the Partnerships either (a) before the Closing Date, or (b) after the Closing Date with respect to events which occurred or conditions which existed before the Closing Date (except, in the case of clause (b) hereof only, for such liabilities and obligations which have been expressly assumed by Buyer pursuant to Section 4 of this Agreement); 5.3 Any obligation, liability or expense of Seller or any of the Partnerships for taxes (other than property taxes relating to the Real Property or any other real estate assets included in the Assets to be transferred to Buyer pursuant to Section 1 hereof); 5.4 Any obligation, liability or expense relating to or arising out of the Excluded Assets; 5.5 Any liabilities or obligations of Seller or any of the Partnerships which are incurred or arise after the Closing Date from, or out of, or in connection with, this Agreement; 5.6 Any liabilities or obligations of Seller to its shareholders in respect of their ownership interest in Seller, or any of the Partnerships to their respective Partners; 5.7 Any liabilities or obligations for indebtedness secured by mortgages, deeds of trust or other liens or security interests on or in the Assets, which indebtedness is non-recourse to Seller or the Partnerships (as applicable) or as to which Seller or the Partnerships (as applicable) are not directly or indirectly liable or as to which Seller or the Partnerships (as applicable) do not provide credit support; 5.8 Any liabilities or obligations of Seller or the Partnerships, or costs and expenses incurred in connection with them, to the extent Seller or the Partnerships have the right to be indemnified or reimbursed by an insurer or other third party with respect to such liabilities or obligations; and 5.9 Those liabilities and obligations set forth on Schedule 5.9 hereto. 11 19 6. Opening of Escrow. As soon as reasonably possible after the execution of this Agreement, Buyer, Seller (on behalf of itself and the Partnerships) and Presley-Del. shall open an escrow ("Escrow") with Escrow Holder. Escrow Holder shall notify all Parties in writing of the date of Opening of Escrow. As used in this Agreement, the term "Opening of Escrow" shall mean the date on which three (3) copies of this Agreement signed by Buyer, Seller and Presley-Del. are delivered to Escrow Holder. Upon receipt of such items, Escrow Holder is hereby instructed to open the Escrow, to insert the Escrow Number on page 1 of each copy of this Agreement, to insert the date of the Opening of Escrow on the signature page of each copy of this Agreement, to sign the signature page of each copy of this Agreement, and to deliver one (1) complete copy of this Agreement to Seller and one (1) complete copy of this Agreement to Buyer and Presley-Del. This Agreement shall also constitute instructions to Escrow Holder. Escrow Holder's general provisions are attached hereto as Exhibit "A" and incorporated by reference herein. If there is any conflict between the provisions of this Agreement and the provisions of Exhibit "A", the provisions of this Agreement shall control as among Presley-Del., Buyer and Seller, but the provisions of Exhibit "A" shall control as to the duties of Escrow Holder. 7. Close of Escrow. The closing ("Closing") of the purchase and sale of the Real Property and the Assets shall take place through the Escrow when all of the conditions to Closing have been satisfied, but in no event later than November 30, 1999 (the "Closing Date"); provided, however, that if the Closing of the Acquisition or the Series A Offer (as hereinafter defined) has not occurred by November 30, 1999 due to delays in obtaining governmental or regulatory approvals of any of the transactions contemplated by this Agreement, then the Parties agree to extend the Closing Date for up to an additional 30 calendar days to allow the process of obtaining such approvals to be completed. As used in this Agreement, the final act of the "Closing" or the "Close of Escrow" shall refer to the date on which Buyer deposits the Purchase Price into Escrow and "Seller's Grant Deeds" (as hereinafter defined) conveying the Real Property to Buyer (or Buyer's Permitted Assigns) are recorded through Escrow in the Official Records of the Counties in which each respective parcel of Real Property is located. All other deliveries pursuant to Section 15 and Section 16 hereof shall have taken place prior to the recording of any of such Seller's Grant Deeds. 8. Title Report. Seller has caused Escrow Holder to provide Buyer with preliminary title reports issued by First American Title Insurance Company, 114 East Fifth Street, Santa Ana, California 91701, with respect to the Real Property, together with copies of all documents referred to therein and maps of the Real Property showing the location of all easements (collectively, the "Title Documents"). Buyer's failure to approve or disapprove the preliminary title reports (and any exceptions thereon) by delivery of written notice thereof to Seller and Escrow Holder within thirty (30) calendar days of the date of this Agreement shall be deemed Buyer's approval. Seller shall take commercially reasonable actions to remove from title to the Real Property as of the Closing Date any matters and exceptions reasonably objected to by Buyer in writing within such period. 9. The Series A Offer. 9.1 Commencement and Conditions. (a) Provided that this Agreement shall not have been terminated in accordance with its terms and, subject to Section 9.2 below, none of 12 20 the events set forth in Exhibit "B" shall have occurred and be existing, as promptly as practicable (but in no event later than five business days after the public announcement of the execution of this Agreement), the Lyons shall commence (within the meaning of Rule 14d-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), a cash tender offer to acquire up to 10,678,792 shares of Series A Common Stock at $0.655 per share (the "Offer Price"), subject to adjustment to ensure that the Lyons' purchase of Presley-Del. Common Stock pursuant to the Series A Offer and/or the Series B Purchase Agreements does not result in an "ownership change" of Presley-Del. for Federal income tax purposes or which would have an adverse effect on Presley-Del.'s (or its successor's) ability to utilize its net operating losses for tax purposes. Subject to the conditions set forth in Exhibit "B" hereto, the Lyons shall use reasonable efforts to consummate the Series A Offer in accordance with its terms and to accept for payment and pay for shares of Series A Common Stock tendered pursuant to the Series A Offer as soon as the Lyons are legally permitted to do so under applicable law. The Series A Offer shall be made by means of the Offer to Purchase (as defined below) and shall be subject only to the conditions set forth in Exhibit "B" hereto and shall reflect, as appropriate, the other terms set forth in this Agreement. The Lyons may decrease or waive the Minimum Condition (as defined in Exhibit "B" hereto) but shall not decrease the Offer Price or decrease the number of shares of Series A Common Stock sought, or amend any other condition of the Series A Offer in any manner adverse to the holders of the shares of Series A Common Stock without the written consent of Presley-Del. The Lyons may increase the amount they offer to pay per share in the Series A Offer, and the Series A Offer may be extended to the extent required by law in connection with such increase, in each case without the consent of Presley-Del. (b) If, after receiving the advice of counsel, Presley-Del. determines that the consummation of the Series A Offer and/or Series B Purchases would result in an "ownership change" of Presley-Del. for Federal tax purposes or other adverse tax consequence to Presley-Del., Presley-Del. will notify the Lyons, who will reduce the number of shares of Series A Common Stock sought pursuant to the Series A Offer (but not below the number of shares required to satisfy the Minimum Condition) to avoid such "ownership change" or other adverse tax consequence. (c) If on the initial scheduled expiration date of the Series A Offer, which shall be no earlier than twenty (20) business days after the date upon which the Series A Offer is commenced, any of the following shall have occurred and be continuing: (i) the condition set forth in clause (i) of Exhibit "B" hereto shall not have been satisfied or waived by the Lyons; or (ii) either of the conditions set forth in clause (ii) or clause (iii) of Exhibit "B" hereto shall not have been satisfied or waived by the Lyons due to delays in (A) obtaining necessary governmental or regulatory approvals of, or any necessary third party consents to, any of the transactions contemplated by the Agreement, or (B) obtaining the financing required to satisfy the condition set forth in Section 16.9 of this Agreement, or (C) obtaining the releases necessary to satisfy the condition set forth in Section 17.7 of this Agreement; then the Lyons shall extend the expiration date of the Series A Offer from time to time and for 13 21 such number of business days as may be necessary to allow for such conditions to be satisfied and for the closing of the Series A Offer to be substantially coterminous with the closings of the other transactions contemplated under this Agreement; provided, however, that in no event shall the Lyons be obligated to extend the expiration date of the Series A Offer beyond November 30, 1999 (or 30 calendar days thereafter in the event that the Closing Date is extended pursuant to Sections 7 and 25.3 hereof). 9.2 Satisfaction of Conditions. Notwithstanding the provisions of Section 9.1, upon consummation of the Acquisition in accordance with the terms of this Agreement, all of the conditions set forth in Exhibit "B" (other than the condition specified in Section (iv)(a) thereof) shall be deemed to have been satisfied, and the Lyons' obligation to consummate the Series A Offer hereunder shall not be subject to such conditions that are deemed satisfied hereunder. 9.3 Lyon SEC Filings. Concurrently with the commencement of the Series A Offer, the Lyons shall file with the SEC a tender offer statement on Schedule 14D-1 with respect to the Series A Offer (the "Schedule 14D-1"). The Schedule 14D-1 will include, as exhibits, an Offer to Purchase (the "Offer to Purchase") and a form of letter of transmittal. The Lyons will take all steps necessary to cause the Offer to Purchase, form of letter of transmittal and other exhibits to the Schedule 14D-1, together with any amendments and supplements thereto (the "Offer Documents"), to be filed with the SEC and to be disseminated to holders of the Series A Common Stock, in each case as and to the extent required by applicable Federal securities laws. The Lyons and Seller, on the one hand, and Presley-Del. and Buyer, on the other hand, will promptly correct any information provided by such Party for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect, and the Lyons will take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of the Series A Common Stock, in each case as and to the extent required by applicable Federal securities laws. Presley-Del. and Buyer and their counsel shall be given the opportunity to review the initial Schedule 14D-1 before it is filed with the SEC. The Lyons will provide Presley-Del. and Buyer and their counsel in writing with any comments or other communications, whether written or oral, that the Lyons or their counsel may receive from time to time from the SEC or its staff with respect to the Offer Documents, promptly after the receipt of such comments or other communications. The Offer Documents (as hereinafter defined) will comply in all material respects with the provisions of applicable Federal securities laws and, on the date filed with the SEC and on the date first published or sent or given to Presley-Del.'s stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. 9.4 Presley-Del.'s Actions With Respect to the Series A Offer. (a) Presley-Del. hereby represents that a Special Committee of its Board of Directors, at a meeting duly called and held, has, pursuant to authority granted to it by Presley-Del.'s Board of Directors, (i) unanimously determined that this Agreement and the transactions contemplated hereby, taken together, are fair to and in the best interests of Presley-Del. and the holders of the Series A Common Stock (other than the Lyons), provided that each such holder of Series A Common Stock is advised to consult with their financial and tax advisors regarding the impact thereof on such holder, (ii) received the opinion of Warburg Dillon Read LLC, financial 14 22 advisor to the Special Committee of the Board of Directors, to the effect that the shares of common stock of New Presley and/or, to the extent any holder of Series A Common Stock (other than the Lyons and the Series B Shareholders) tenders shares of Series A Common Stock in the Offer, the cash that may be received by each holder of Series A Common Stock (other than the Lyons and the Series B Shareholders), subject to the pro ration provisions of the Offer, after giving effect to the transactions contemplated by this Agreement, is fair to the holders of the Series A Common Stock (other than the Lyons and the Series B Shareholders) from a financial point of view, (iii) approved this Agreement and the transactions contemplated hereby, and (iv) resolved to recommend that the holders of the Series A Common Stock (other than the Lyons and the Series B Shareholders) accept the Series A Offer and tender their shares pursuant thereto; provided, however, that such holders of Series A Common Stock should consult with their financial and tax advisors prior to tendering their shares in the Series A Offer, and provided further that, subject to the provisions contained in Section 27 of this Agreement, such recommendation may be withdrawn, modified, or changed if, in the opinion of Presley-Del.'s Board of Directors or its Special Committee, after consultation with counsel, the failure to take such action would be inconsistent with their fiduciary duties under applicable law. (b) As soon as practicable on or after the date the Series A Offer is commenced, Presley-Del. shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which shall contain Presley-Del.'s recommendation with respect to the Series A Offer. At the time the Offer Documents are first mailed to the holders of Series A Common Stock, or as soon as practicable thereafter, Presley-Del. shall mail or cause to be mailed to the holders of its Series A Common Stock as of the applicable record date the Schedule 14D-9 together with the Offer Documents. Presley-Del. further agrees to take all steps necessary to cause the Schedule 14D-9 to be disseminated to the holders of the Series A Common Stock, as and to the extent required by applicable Federal securities laws. Each of Presley-Del., on the one hand, and the Lyons, on the other hand, agrees to promptly correct any information provided by it or him for use in the Schedule 14D-9 if and to the extent that it shall have become false and misleading in any material respect. Presley-Del. further agrees to take all steps necessary to cause the Schedule 14D-9, as so corrected, to be filed with the SEC and to be disseminated to holders of the Series A Common Stock, in each case as and to the extent required by applicable Federal securities laws. In addition, Presley-Del. agrees to provide the Lyons and their counsel with any comments, whether written or oral, that Presley-Del. or its counsel may receive from time to time from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments or other communications. (c) In connection with the Series A Offer, Presley-Del. will furnish or cause to be furnished to the Lyons such information and assistance as the Lyons or their agents may reasonably request in communicating the Series A Offer to the record and beneficial holders of the Series A Common Stock. Except for such steps as are necessary to disseminate the Offer Documents, the Lyons shall hold in confidence the information referred to in the preceding sentence, will use such information only in connection with the Series A Offer, and, if this Agreement is terminated, will, upon request by Presley-Del., deliver or cause to be delivered to Presley-Del. all copies of such information then in its possession or the possession of its agents or representatives. 15 23 (d) The information supplied by Presley-Del. expressly for inclusion in the Offer Documents and the Schedule 14D-9 will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The Schedule 14D-9 will comply in all material respects with the provisions of applicable Federal securities laws and, on the date filed with the SEC and on the date first published or sent or given to Presley-Del.'s stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, except that no representation is made by Presley-Del. or Buyer with respect to statements made therein based on information furnished by the Lyons for inclusion in the Schedule 14D-9. 9.5 Over- or Under-Subscription of Offer. In the event that the Series A Offer is over-subscribed, the Lyons will purchase shares of Series A Common Stock from each tendering holder of Series A Common Stock on a pro rata basis such that the Lyons and their affiliates will not acquire, directly or indirectly, a number of shares of Common Stock that would result in an "ownership change" of Presley-Del. for Federal income tax purposes or other adverse tax consequence of Presley-Del. In the event that the Series A Offer is under-subscribed, Seller (or Seller's assignee) will purchase additional shares of Common Stock from each holder of Series B Common Stock on a pro rata basis pursuant to the Series B Purchase Agreements such that the Lyons and their affiliates will hold up to 49.9% of the outstanding Common Stock (but in no event shall they acquire a number of shares of Common Stock that would result in an "ownership change" for Federal income tax purposes or other adverse tax consequence that would limit Presley-Del. from utilizing its tax net operating losses). 9.6 Successors in Interest to Lyons. William Lyon and William H. Lyon agree that, in the event of the death, disability or other incapacity of either of them, their respective estates or other successors in interest shall be obligated to consummate the Series A Offer in accordance with the terms hereof. 10. Presley-Del./New Presley Merger and Other Matters. 10.1 Prior to the Closing, upon the terms and subject to the conditions of this Agreement, each of the Parties shall use its respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable (subject to any applicable laws) to consummate and make effective the merger, in accordance with the terms set forth in the Certificate of Ownership and Merger attached hereto as Exhibit "C" (the "Certificate of Ownership and Merger"), of Presley-Del. with and into its wholly owned subsidiary, Presley Merger Sub, Inc. ("New Presley") (the "Merger"), as promptly as practicable including, but not limited to (a) the preparation and filing of all forms, registrations and notices required to be filed to consummate the Merger and the taking of such actions as are necessary to obtain any requisite approvals, consents, orders, exemptions or waivers by any third party or any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency (each, a "Governmental Entity"), and (b) the satisfaction of the conditions to the closing of the Merger (the "Merger Closing"). In addition, none of the Parties shall take any action after the date hereof that would reasonably be 16 24 expected to materially delay the obtaining of, or result in not obtaining, any permission, approval or consent from any Governmental Entity necessary to be obtained prior to the Merger Closing. 10.2 Prior to the Merger Closing, each Party shall promptly consult with the other Parties hereto with respect to, provide any necessary information with respect to, and provide the other Parties (or their respective counsel) with copies of, all filings made by such Party with any Governmental Entity or any other information supplied by such Party to a Governmental Entity in connection with this Agreement or the Merger. Each Party hereto shall promptly inform the other of any communication from any Governmental Entity regarding the Merger. If any Party hereto or affiliate thereof receives a request for additional information or documentary material from any such Governmental Entity with respect to the Merger, then such Party shall endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and after consultation with the other Parties, an appropriate response in compliance with such request. To the extent that transfers, amendments or modifications of permits (including environmental permits) are required as a result of the execution of this Agreement or consummation of the Merger, the Parties shall use their best efforts to effect such transfers, amendments or modifications. 10.3 Notwithstanding the foregoing, nothing in this Agreement shall be deemed to require any Party to commence any litigation against any entity in order to facilitate the consummation of the Merger or to defend against any litigation brought by any Governmental Entity seeking to prevent the consummation of the Merger. 10.4 Presley-Del. has filed with the SEC a proxy statement with respect to the Merger, which will also serve as a prospectus with respect to the common stock of New Presley (the "Proxy Statement/Prospectus") and be included in a Registration Statement to be filed with the SEC on Form S-4 (the "Registration Statement"). The Parties agree to use their best reasonable efforts to cause the Registration Statement to be declared effective by the SEC. Presley-Del. agrees to promptly mail the Proxy Statement/Prospectus to its stockholders after the Registration Statement has been declared effective by the SEC. Seller shall cooperate with Presley-Del. and New Presley in preparing the Proxy Statement/Prospectus and in seeking the declaration of effectiveness of the Registration Statement by the SEC. 10.5 Each of William Lyon, William H. Lyon and Seller agree to vote all shares of Common Stock owned by them for the Merger at the special meeting of stockholders of Presley-Del. called for such purpose (the "Stockholders' Meeting"). 10.6 Subject to satisfaction of the conditions to the Merger, and after receiving the requisite approval of Presley-Del.'s stockholders at the Stockholders' Meeting, and after the Closing and the consummation of the purchase of shares of Common Stock pursuant to the Series A Offer and the terms of the Series B Purchase Agreements, Presley-Del. agrees to cause the Certificate of Ownership and Merger to be promptly filed with the Secretary of State of the State of Delaware. 10.7 All notices to third parties and all other publicity concerning the Merger will be jointly planned and coordinated by and between the Parties. No Party will act unilaterally in this regard without the prior written approval of the others unless required under 17 25 applicable securities laws (in which case each party agrees to give reasonable notice to and consult with the other parties prior to issuing any such release, statement, or other notice); however, this approval will not be unreasonably withheld. 11. Representations and Warranties of Seller. Seller hereby makes the following representations and warranties to Buyer as of the date hereof: 11.1 Good Standing. Seller is a corporation duly organized, validly existing, and in good standing under the laws of California and has full corporate power and authority to own the Assets. Each of the Partnerships is duly organized, validly existing, and in good standing under the laws of their respective states of formation and have full power and authority to own the Real Property owned by such Partnerships. The ownership of their properties does not require Seller or any of the Partnerships to be qualified in any jurisdiction other than California. 11.2 Power. Seller has the corporate power, right and authority to enter into this Agreement and the instruments referenced herein, and to consummate the transactions contemplated hereby. 11.3 Requisite Action. All requisite corporate action has been taken by Seller in connection with the entering into of this Agreement, the execution and delivery of the instruments referenced herein, and the consummation of the transactions contemplated hereby. All requisite partnership action has been taken by the Partnerships in connection with the Acquisition. 11.4 Authority. The individuals executing this Agreement and the instruments referenced herein on behalf of Seller have been duly authorized by Seller and have the legal power, right and actual authority to bind Seller to the terms and conditions hereof and thereof. 11.5 Binding Agreements. This Agreement and the Series B Purchase Agreements (in the form previously filed with the SEC as exhibits to William Lyon's Statement on Schedule 13D relating to the Common Stock) have been duly executed and delivered by Seller and, assuming due and valid authorization, execution and delivery thereof by Presley-Del., Buyer, and the Series B Shareholders, as applicable, this Agreement and the Series B Purchase Agreements are valid and binding obligations of Seller enforceable against Seller in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws of general application affecting enforcement of creditors' rights generally, and (b) the availability of the remedy of specific performance or injunctive or other forms of equitable relief may be subject to equitable defenses and would be subject to the discretion of the court before which any proceeding therefor may be brought. To Seller's knowledge, each of the Series B Purchase Agreements is a valid and binding agreement against each of the Series B Shareholders which is a party thereto. 11.6 Partnership and Membership Interests in Real Property. The partnership and limited liability company interests identified on Schedule 1.2 hereto, together with the partnership and limited liability company interests identified on Schedule 2.6, are the only 18 26 interests that Seller has in any partnership, limited liability company, corporation, or other organization through which Seller has an interest in Real Property. 11.7 Income Tax Information. Seller is not a non-resident alien, a foreign corporation, a foreign partnership, a foreign trust, or a foreign estate (as those terms are defined in the United States Internal Revenue Code of 1986, as amended (the "Code"), and Income Tax Regulations) for purposes of United States income taxation. Seller is a California resident within the meaning of Section 18662 of the California Revenue and Taxation Code. In connection therewith, Seller shall, and shall cause each of the Partnerships to, deliver to Escrow Holder for delivery to Buyer at the Closing an affidavit ("Seller's Affidavit") in the form attached hereto as Exhibit "D". 11.8 Condition of Personal Property Assets. Seller and each of the Partnerships has good and marketable title to the Personal Property which it owns, free and clear of any claim, charge, easement, encumbrance, security interest, lien, option or pledge (collectively, "Encumbrances"), except for Encumbrances for taxes which are not yet due and payable and except for such encumbrances as Seller has otherwise disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement. Except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, Seller and each of the Partnerships have all rights, power and authority to sell, convey, assign, transfer and deliver the Personal Property to Buyer in accordance with the terms of this Agreement. At the Closing, Seller shall, and shall cause the Partnerships to, deliver the Personal Property to Buyer, free and clear of any Encumbrances except for such as relate to any of the Assumed Liabilities and except for such matters as would, if strictly enforced, have no adverse effect upon the continued use and operation of the Personal Property in the manner in which it has heretofore been used by Seller or the Partnerships or upon the value of the Personal Property. Except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, the furniture, computers, vehicles and other equipment included in the Personal Property are in a good state of maintenance and repair, ordinary wear and tear excepted. 11.9 Financial Statements; Contingencies; Conduct of Business Since December 31, 1998. (a) Seller has delivered to Buyer financial statements, including a balance sheet and related statements of operations, stockholders' equity and cash flows, for each of Seller and each of the Partnerships as of and for the period ended December 31, 1998, which financial statements (in the case of Seller only) are audited, and as of and for the interim period ended June 30, 1999, which financial statements are unaudited. To Seller's knowledge, neither Seller nor any of the Partnerships has any liabilities except liabilities that (i) are reflected or disclosed in the financial statements referred to above, (ii) were incurred after June 30, 1999 in the ordinary course of business, or (iii) are set forth in any Schedule attached hereto or have otherwise been disclosed in writing to Buyer or Presley-Del. on or prior to the date hereof. (b) Since December 31, 1998, (i) Seller and the Partnerships have conducted their respective businesses in the ordinary course and consistent with past practices, and (ii) there have been no dividends, redemptions or other distributions by Seller in respect of its outstanding common stock. 19 27 11.10 Contracts. Each Contract is valid and subsisting; Seller and/or the applicable Partnership has duly performed all of its material obligations thereunder to the extent that such obligations to perform have accrued; and no material breach or default, alleged material breach or default, or event which would (with the passage of time, notice or both) constitute a breach or default thereunder by Seller or any of the Partnerships, as the case may be (or, to the best knowledge of Seller, any other party or obligor with respect thereto), has occurred or as a result of this Agreement or its performance will occur. Except as set forth in Schedule 11.10, consummation of the transactions contemplated by this Agreement will not (and will not give any person a right to) terminate or modify any rights of, or accelerate or augment any obligation of, Seller or any of the Partnerships under any of the Contracts. 11.11 Zoning. Except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, (a) to Seller's knowledge, the zoning of each parcel of Real Property permits residential use (except for 12.2 acres located in Rancho Cucamonga, which permits commercial use) or such other uses (such as schools, parks, common areas and similar uses) which are currently contemplated under Seller's or the applicable Partnership's development plans for such parcel, and (b) neither Seller nor any of the Partnerships has commenced, or received notice of the commencement of, any proceeding that would affect the present zoning classification of any such parcel. 11.12 Governmental Notices. Except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, (a) neither Seller nor any of the Partnerships has received any notification from any governmental authority imposing any special assessments on the Real Property or bringing any condemnation actions against the Real Property, or any part thereof, nor is Seller or any of the Partnerships aware of any special assessments or condemnation actions being contemplated, and (b) neither Seller nor any of the Partnerships has received any notification from the Department of Building and Safety, Health Department or any other Governmental Entity having jurisdiction over the Real Property requiring any work to be done on or affecting the Real Property, the cost of which is reasonably expected to materially increase the development costs previously budgeted by Seller or the applicable Partnership for such parcel of Real Property. 11.13 Undisclosed Defects. Except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, to the knowledge of Seller, (a) no defect or condition of the Real Property, improvements thereon or soil exists that may materially adversely affect Buyer's proposed development of the Real Property, and (b) all of the improvements built on the Real Property by Seller or any of the Partnerships have been built in a good and workmanlike manner and comply in all material respects with all plans and specifications, building codes and all applicable laws. 11.14 No Unrecorded Interests. Except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, and to the knowledge of Seller, there are no unrecorded leases, licenses, or other possessory interests in the Real Property. 11.15 Real Property in Compliance. Except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, and to the knowledge of Seller, the Real Property is in compliance in all material respects with all applicable laws and 20 28 regulations and all covenants, conditions, restrictions, easements and similar matters affecting the Real Property. 11.16 Public Improvements. Except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, and to the knowledge of Seller, there are no intended public improvements that may involve any charge being levied or assessed, or that may result in the creation of any lien that would have a material adverse effect upon Buyer's ability to develop the Real Property. 11.17 No Other Agreements. To Seller's knowledge, except as has otherwise been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, neither Seller nor any of the Partnerships has any oral or written commitments to, or understandings or agreements with, any private party or any Governmental Entity that would materially adversely affect (a) Buyer's (or Buyer's Permitted Assigns') ownership of the Real Property, the Personal Property, the Contracts and the other Assets, or (b) the proposed development of the Real Property. 11.18 Litigation. Except as has been disclosed to Buyer or Presley-Del. on or prior to the date of this Agreement, there is no material action, suit, claim, inquiry, proceeding or investigation by or before any court or governmental or other regulatory or administrative agency or commission pending or, to Seller's knowledge, threatened against or involving Seller, any of the Partnerships, the Assets or the Real Property, or which questions or challenges the validity of this Agreement or any action taken or to be taken by Seller or the Partnerships pursuant to this Agreement or in connection with the transactions contemplated by this Agreement; and to Seller's knowledge, except as has been disclosed to Buyer or Presley-Del. on or prior to the date of this Agreement, there is no valid basis for any such action, proceeding or investigation. Neither Seller, the Partnerships, the Assets, or the Real Property are subject to any judgment, writ, injunction, order or decree which individually or in aggregate may have a material adverse effect on (a) Buyer's (or Buyer's Permitted Assigns') development of the Real Property, (b) Buyer's (or Buyer's Permitted Assigns') ownership of the Real Property, the Personal Property, the Contracts and the other Assets, or (c) Seller's or the Partnerships' ability to consummate the transactions contemplated hereby. 11.19 Environmental Matters. Except as has been disclosed to Buyer or Presley-Del. on or prior to the date of this Agreement: (a) To the knowledge of Seller, Seller and each of the Partnerships are in compliance in all material respects with all applicable Federal, state and local laws and regulations relating to pollution or protection of human health or the environment, including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata, and natural resources (together "Environmental Laws" and including, without limitation, the California Environmental Quality Act, as amended, Cal. Pub. Res. Code Section 21000 et seq., the National Environmental Policy Act, as amended, 42 U.S.C. Section 4321 et seq., and laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic or hazardous substances or wastes, petroleum and petroleum products, asbestos or asbestos-containing materials, polychlorinated biphenyls, lead or lead-based paints or materials, or radon 21 29 ("Materials of Environmental Concern")), or otherwise relating to the manufacture, generation, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern, or the preservation of the environment or mitigation of adverse effects thereon and each law and regulation with regard to record keeping, notification, disclosure, and reporting requirements respecting Materials of Environmental Concern. (b) Neither Seller nor any of the Partnerships has received any written communication, whether from a governmental authority, citizens group, employee or otherwise, which alleges that there is any restriction on the use or development of the Real Property on account of the presence of Materials of Environmental Concern on, under or in the vicinity of the Real Property. (c) There is no claim, action, investigation or proceeding (each, an "Environmental Claim") by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (i) the presence, or release into the environment, of any Material of Environmental Concern on or adjacent to any parcel included in the Real Property, or (ii) any violation, or alleged violation, of any Environmental Law, that in either case is pending or, to Seller's knowledge, threatened against Seller or any of the Partnerships or, to Seller's knowledge, against any person or entity whose liability for any Environmental Claim Seller or any of the Partnerships has retained or assumed either contractually or by operation of law. (d) To Seller's knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents involving or with respect to the Real Property, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that could reasonably be expected to form the basis of any Environmental Claim against Seller or any of the Partnerships or, to Seller's knowledge, against any person or entity whose liability for any Environmental Claim Seller or any of the Partnerships has retained or assumed either contractually or by operation of law. (e) To Seller's knowledge, Seller has provided to Buyer all assessments, reports, data, results of investigations or audits, and other information that is in the possession of, or reasonably available to, Seller or any of the Partnerships regarding environmental matters pertaining to or the environmental condition of the Real Property, or the compliance (or noncompliance) by Seller or any of the Partnerships with any Environmental Laws, with respect to the Real Property. 11.20 Endangered or Threatened Species. To the knowledge of Seller, except as has been disclosed to Buyer or Presley-Del. in writing on or prior to the date of this Agreement, Buyer's and each of the Partnerships' proposed development of the Real Property will not involve the taking of any endangered or threatened species of animals, plants or insects. To the knowledge of Seller, there are no environmental or biological characteristics of the Real Property 22 30 which, under existing law, will adversely affect Buyer's (or Buyer's Permitted Assigns') proposed development of the Real Property. 11.21 Accounts Receivable. As of the date hereof, all of the accounts receivable shown on the most recent interim financial statements of Seller and each of the Partnerships (the "Accounts Receivable"), except to the extent of reserves with respect thereto: (a) arose from valid sales in the ordinary course of business; (b) to the knowledge of Seller, are valid and legally enforceable obligations of the persons purported to be liable thereon and are fully collectible; (c) to the knowledge of Seller, are free of any defense, counterclaim, setoff or deduction; and (d) reflect adequate reserves for doubtful accounts and any trade discounts, on a basis consistent with that of prior years. 11.22 Employment Contracts and Benefits. (a) Seller has previously delivered to Buyer copies, descriptions and/or a list of all employment contracts and collective bargaining agreements, and all compensation, pension, retirement, deferred compensation, health care, bonus, profit-sharing, stock option or other plans, trusts, funds, agreements or arrangements, providing for employee remuneration or benefits to any of Seller's present officers, employees and sales agents (collectively, "Employee Benefit Plans") and to which Seller or any of the Partnerships is a party or by which Seller or any of the Partnerships is bound. Such copies, descriptions and list, taken together, sets forth for the present officers, employees and sales agents of Seller and each of the Partnership's complete information with respect to withholding accounts, accrued vacation, sick leave and other amounts, and all other accruals and accounts held for employee benefit, including but not limited to, any insurance policies or accounts. Except as set forth in such copies or descriptions or on such list, neither Seller nor any of the Partnerships has entered into any severance or similar arrangement in respect of any present or former officer, employee or sales agent that will result in any absolute or contingent obligation of Buyer to make any payment to any present or former officer, employee or sales agent following termination of employment. (b) Except as set forth in such copies or descriptions or the list delivered to Buyer pursuant to this Section 11.22 or as otherwise disclosed in the schedules hereto or in the financial statements delivered pursuant to Section 11.9 hereof, and to Seller's knowledge, (i) Neither Seller nor any of the Partnerships, nor any entity (an "ERISA Affiliate") which, together with any of them, is deemed a "single employer" within the meaning of Section 4001(a)(15) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), nor any of the plans so listed which is an "employee welfare benefit plan" or "employee pension benefit plan" as such terms are defined in Sections 3(1) and 3(2) of ERISA (such plans being referred to herein as "ERISA Plans"), nor any trust created thereunder, nor any trustee or administrator thereof, has engaged in a transaction or has taken or failed to take any action in connection with which Buyer or Presley-Del. could be subject to a tax imposed pursuant to Section 4980B of the Internal Revenue Code (the "Code"). 23 31 (ii) Each of the plans so listed or described has been operated and administered in all material respects in accordance with applicable laws, including but not limited to ERISA and the Code. (iii) Each of the ERISA Plans that is intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified. (iv) No amounts payable under the plans so listed or any other agreement or arrangement to which Seller, the Partnerships, or any ERISA Affiliate is a party will fail to be deductible for Federal income tax purposes by virtue of Section 280G of the Code. (v) No "leased employee," as that term is defined in Section 414(n) of the Code, performs services for Seller or any of the Partnerships. (vi) There are no liens against the Assets under Section 412(n) of the Code or Sections 302(f) or 4068 of ERISA. (vii) None of Seller, the Partnerships or any of their respective ERISA Affiliates is, or at anytime during the previous six (6) years was, obligated to contribute to any "multi-employer plan" within the meaning of Section 3(37) of ERISA or any plan subject to Title IV of ERISA. (viii) Except for such obligations and liabilities as are assumed by Buyer pursuant to Section 4.3 of this Agreement, from and after the Closing, Buyer will have no obligation to contribute to, or any liability in respect of, any Employee Benefit Plan sponsored or maintained by Seller, any Partnership or any ERISA Affiliate, or to which Seller, any Partnership or any ERISA Affiliate is or was obligated to contribute. 11.23 Insurance Policies. Seller and the Partnerships, as applicable, have maintained and now maintain (a) insurance on all of the Assets and the Real Property of a type customarily insured, covering property damage and loss of income by fire or other casualty consistent with industry practice, and (b) adequate insurance protection against all liabilities, claims and risks against which it is customary to insure including, without limitation, property damage, comprehensive general liability and workers compensation. Seller and the Partnerships, as applicable, are not in default with respect to payment of premiums on any such policy. Seller has previously delivered to Buyer complete copies of all such insurance policies of Seller and the Partnerships. All such insurance policies are in full force and effect. 11.24 Authority and Consents. Except as set forth on Schedule 11.24, the consummation of the transactions contemplated by this Agreement will not result in or constitute any of the following: (a) a default or an event that, with the giving of notice, the lapse of time, or both, would be a default, breach, or violation of the articles of incorporation or bylaws of Seller or the organizational documents of any Partnership or any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, or other agreement, instrument or arrangement to which Seller or any Partnership is a party or by which it or the Assets are or the Real Property bound; (b) an event that would permit any party to terminate any 24 32 agreement or to accelerate the maturity of any indebtedness or other obligation of Seller or any of the Partnerships; or (c) the creation or imposition of any lien, charge, or encumbrance on any of the Assets or the Real Property. On or before the Closing, Seller shall obtain consents, waivers or releases of all material interests set forth on Schedule 11.24. Buyer will reasonably cooperate with Seller in obtaining the consents, waivers or releases of all interests set forth on Schedule 11.24. All such consents, waivers or releases, unless absolute and unconditional, shall be on terms acceptable to Seller and Buyer in its reasonable discretion. 11.25 Plant Closing. Subject to Buyer's performance of the covenant set forth in Section 18.1 hereof, and on the basis of Presley-Del.'s and Buyer's representation in Section 12.7 hereof, Seller represents to Buyer and Presley-Del. that neither it nor, to Seller's knowledge, any of Seller's affiliates, intends to implement a "plant closing" or a "mass lay-off", as those terms are defined in the Worker Adjustment and Retraining Notification Act (the "WARN Act"), 29 U.S.C. Sections 2101 et seq., within one hundred fifty (150) days of the Closing. 11.26 No Brokers or Finders. No agent, broker, finder or investment or commercial banker, or other person or firms engaged by or acting on behalf of Seller in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated hereby, is or will be entitled to any broker's or finder's or similar fees or other commissions as a result of this Agreement or the transactions. 11.27 Knowledge Convention. Whenever reference is made in this Agreement to Seller's knowledge or awareness, such knowledge or awareness includes only the present actual knowledge of any of William Lyon, Chief Executive Officer, Thomas Mitchell, President of Southern California Division, Douglas Bauer, President of Northern California Division and Chief Financial Officer, Richard S. Robinson, Senior Vice President, or Michael Grubbs, Vice President and Corporate Controller. 12. Representations and Warranties of Buyer and Presley-Del. Buyer and Presley-Del. hereby represent and warrant to Seller and to the Lyons as follows: 12.1 Power. Each of Presley-Del. and Buyer has the legal power, right and authority to enter into this Agreement and the instruments referenced herein, and to consummate the Acquisition and the Merger. 12.2 Requisite Action. Except for the approval of Presley-Del.'s stockholders of the Merger, which Presley-Del. agrees to seek at the Stockholders' Meeting prior to the Closing, all requisite action has been taken by each of Presley-Del. and Buyer in connection with entering into this Agreement, the execution and delivery of the instruments referenced herein by Presley-Del. or Buyer, and the consummation of the Acquisition and the Merger. 12.3 Authority. The individuals executing this Agreement and the instruments referenced herein on behalf of each of Presley-Del. and Buyer have the power, right and actual authority to bind such Party to the terms and conditions hereof and thereof. 12.4 No Conflicts. Except as set forth on Schedule 12.4 hereto, the execution, delivery and performance of this Agreement by each of Presley-Del. and Buyer will not violate the provisions of, or constitute a breach or default under (a) the charter documents or bylaws of 25 33 each such Party, (b) any law to which such Party is subject, or (c) any contract to which such Party is a party that is material to the financial condition, results of operations, business, assets, liabilities, or prospects of such Party. 12.5 No Brokers or Finders. No agent, broker, finder or investment or commercial banker, or other person or firms engaged by or acting on behalf of Buyer or Presley-Del. in connection with the negotiation, execution or performance of this Agreement or the transactions contemplated by this Agreement, is or will be entitled to any broker's or finder's or similar fees or other commissions as a result of this Agreement or such transactions, except for Warburg Dillon Read LLC, as to which Seller shall have no liability. 12.6 Legal Proceedings. There is no order or action pending or, to the best knowledge of Buyer or Presley-Del., threatened in writing against or affecting Buyer or Presley-Del. that individually or when aggregated with one or more other actions or orders has or might reasonably be expected to have a material adverse effect on Buyer's or Presley-Del.'s ability to perform this Agreement or any other aspect of the transactions contemplated by this Agreement. 12.7 Plant Closing. Presley-Del and Buyer represent to Seller that they do not intend to implement a "plant closing" or a "mass lay-off", as those terms are defined in the WARN Act, in respect of Seller's Business within one hundred fifty (150) days of the Closing, it being understood that such representation does not extend to the intentions of William Lyon, Chairman of the Board of Presley-Del. 13. Survival of Representations and Warranties; Indemnity. 13.1 Survival of Representations and Warranties. The representations and warranties of Seller contained in or made pursuant to this Agreement (and the corresponding indemnification obligations set forth in Section 13.2 hereof) shall survive for a period of one (l) year after the Closing Date; provided, however, that if a claim or notice is duly given under this Section 13 with respect to a breach by Seller of any representation or warranty made hereunder prior to the expiration of such one (1) year period, such representation or warranty (and the corresponding indemnification obligation) shall continue (but only with respect to the claim referenced in the notice) until the applicable claim is finally resolved. 13.2 Seller's Indemnity Obligation. From and after the Closing Date, Seller agrees to indemnify and hold harmless Buyer and Presley-Del. from and against any damage, claim, liability or expense, including, without limitation, reasonable attorney's fees and expenses (collectively, "Losses"), based upon or arising from: (a) any breach by Seller of its representations and warranties contained in or made pursuant to this Agreement; (b) any breach by Seller of its covenants, obligations or other agreements to be performed by Seller pursuant to this Agreement; and (c) any of the Excluded Liabilities; provided, however, that (x) Seller's liability under this Section 13.2 for a particular Loss shall be reduced, dollar for dollar, to the extent that such Loss has already resulted in a reduction of the Purchase Price pursuant to Section 3.2(a) of this Agreement; (y) Seller shall not be liable with respect to the matters described in clause (a) or clause (b) of this Section 13.2 unless and until the Losses incurred by Buyer and Presley-Del. with respect to such matters shall exceed $500,000 (the "Threshold") on a cumulative basis, at which time Seller shall only be liable to Buyer and Presley-Del. for the 26 34 amount by which such Losses exceed the Threshold; and (z) in no event shall Seller's aggregate liability (not including liabilities that are covered by Seller's or any of the Partnership's insurance or indemnification of Seller or any of the Partnerships by third parties) to the Buyer and Presley-Del. for all matters indemnified under clause (a) or clause (b) of this Section 13.2 exceed $2,400,000. Notwithstanding any other provision contained herein to the contrary, in no event shall Seller's liability to the Buyer or Presley-Del. for indemnification under clause (c) with respect to any Excluded Liability referenced in Section 5.1 hereof exceed the amount of Seller's available insurance coverage therefor. The remedies provided in this Section 13.2 shall be the sole and exclusive remedy to Buyer and Presley-Del. with respect to all claims relating to the breach by Seller of any representations, warranties, covenants or other obligations under this Agreement. 13.3 Buyer's and Presley-Del.'s Indemnity Obligation. From and after the Closing Date, Buyer and Presley-Del. each agree, jointly and severally, to indemnify and hold harmless Seller from and against any Losses based upon or arising from: (a) any breach by Buyer or Presley-Del. of their respective representations and warranties contained in or made pursuant to this Agreement; (b) any breach by Buyer or Presley-Del. of their respective covenants, obligations or other agreements to be performed by Buyer or Presley-Del. pursuant to this Agreement; and (c) any of the Assumed Liabilities; provided, however, that neither Presley-Del. nor Buyer shall have any liability with respect to the matters described in clause (a) or clause (b) of this Section 13.3 unless and until the Losses incurred by Seller with respect to such matter shall exceed the Threshold on a cumulative basis, at which time Buyer shall only be liable to Seller for the amount by which such Losses exceed the Threshold. In no event shall Buyer's or Presley-Del.'s aggregate liability (not including liabilities that are covered by Buyer's or Presley-Del.'s insurance or indemnification from third parties) to the Seller for all matters indemnified under clause (a) or clause (b) of this Section 13.3 exceed $2,400,000. The remedies provided in this Section 13.3 shall be the sole and exclusive remedy to Seller with respect to all claims relating to the breach by Presley-Del. and Buyer of any representations, warranties, covenants or other obligations under this Agreement. 13.4 Notice. Any party seeking indemnification (an "Indemnified Party") with respect to any Losses shall give notice thereof to the party required to provide indemnity hereunder (the "Indemnifying Party") within ten (10) days after receipt by the Indemnified Party of notice of any demand, claim, or circumstances which could give rise to a claim, or the commencement (or threatened commencement) of any action, proceeding, or investigation, which could give rise to a right to indemnification pursuant to this Section 13. Notwithstanding the foregoing, the rights of any Indemnified Party to be indemnified in respect of any Losses resulting from the asserted liability shall not be adversely affected by the Indemnified Party's failure to give or delay in giving notice unless (and then only to the extent that) the Indemnifying Party is materially prejudiced thereby. 14. Seller's Obligations Before Closing. Seller warrants, covenants and agrees that from the date of this Agreement until the Closing: 14.1 Buyer's Access to Premises and Information. Buyer and its counsel, accountants and other representatives will have reasonable access during normal business hours to the Real Property and all properties, books, accounts, records, contracts and documents of or 27 35 relating to Seller and any of the Partnerships. Seller will furnish or cause to be furnished to Buyer and its representatives all data and information concerning the Real Property, the Assets and the Contracts that may reasonably be requested. 14.2 Conduct of Business in Normal Course. Seller will, and Seller will cause each of the Partnerships to, carry on its respective business activities in substantially the same manner as they previously have been carried out, and such entities will not, without first obtaining Buyer's written consent, make or institute any unusual or novel methods of purchase, sale, lease, management, accounting or operation that vary materially from those methods used by Seller and the applicable Partnership as of the date of this Agreement. 14.3 Preservation of Real Property and Operations. Seller will use its best efforts, and will cause each of the Partnerships to use its best efforts, to preserve their business organizations intact to the extent they relate to the Real Property, to keep available to Seller and the Partnerships their present officers and employees, and to preserve their present relationships with suppliers, contractors, customers and others having business relationships with them. Seller shall take no action, and Seller shall not cause the Partnerships to take any action, that would reasonably be expected to materially impair the value of the Real Property. 14.4 Maintenance of Insurance. Seller will, and shall cause each of the Partnerships to, continue to carry its existing insurance. 14.5 Maintenance of Intangibles. Seller will not do, or agree to do, or cause any of the Partnerships to do, any of the following acts without the prior written consent of Buyer: (a) waive or compromise any material right or claim; or (b) cancel, without full payment, any material note, loan, or other obligation owing to Seller or any of the Partnerships. 14.6 Employees and Compensation. Seller will not do, or agree to do, or cause any of the Partnerships to do, any of the following acts other than in the ordinary course and consistent with past practice: (a) make any material change in compensation payable, or to become payable, to any officer, employee, sales agent, or representative; or (b) make any material change in benefits payable to any officer, employee, sales agent, or representative under any bonus or pension plan or other contract or commitment. 14.7 Other Transactions. Without Buyer's prior written consent, (a) Seller shall not distribute cash, securities or other property to any shareholder of Seller in respect of its interest in Seller, and (b) Seller shall not, and shall not cause any of the Partnerships to, enter into any material contract, commitment or transaction not in the ordinary course of its respective business. 14.8 Notification of Certain Matters. Seller shall give prompt notice to Buyer of (a) the occurrence, or failure to occur, of any event that would be likely to cause any of its representations or warranties contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Closing Date, and (b) any failure on its part to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall modify Seller's representations or warranties or its obligations under 28 36 this Agreement. Seller shall give prompt notice to the other Parties hereto of any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement. 14.9 Permits and Approvals; Third Party Consents. Seller will use its best efforts to obtain any governmental or third party approvals that may be necessary for Seller to consummate the transactions contemplated by this Agreement. 14.10 Supplements to Schedules. From time to time prior to the Closing Date, Seller may supplement or amend the Schedules referred to herein with respect to any matter arising after the date hereof that, if existing or occurring at the date hereof, would have been required to be set forth or described in such Schedules; provided, however, that unless otherwise agreed by the Parties, no such amendment or supplement shall modify Seller's representations or warranties or its obligations under this Agreement. 14.11 Financing. Seller shall use its best efforts to cooperate with Buyer and Presley-Del. in obtaining financing for the Acquisition, including the preparation of any disclosure documents requested by Buyer or Presley-Del. 15. Presley-Del.'s and Buyer's Obligations Before Closing. Buyer and Presley-Del. warrant, covenant and agree that from the date of this Agreement until the Closing: 15.1 Cooperation in Securing Consents of Third Parties. Buyer will use its best reasonable efforts to assist Seller in obtaining the consent of all necessary persons and agencies to the assignment and transfer to Buyer of the Real Property, the Personal Property, the Contracts and the other properties, Assets and any other agreements to be assigned and transferred under the terms of this Agreement. Buyer agrees to use its best reasonable efforts to obtain all approvals and permits of Governmental Entities and third parties that may be necessary for Buyer to consummate the transactions contemplated by this Agreement. 15.2 Resale Certificate. Buyer will furnish any resale certificate or other documents reasonably requested by Seller to comply with the provisions of the sales and use tax laws of the State of California. 15.3 Conduct of Business in Normal Course. Presley-Del. and Buyer will carry on their business activities in substantially the same manner as they previously have been carried out and will not make or institute any unusual or novel methods of purchase, sale, lease, management, accounting or operation that vary materially from those methods used by Presley-Del. and Buyer as of the date of this Agreement. 15.4 Financing. Presley-Del. and Buyer shall use reasonable efforts to obtain financing and take other action such that, as of the Closing Date, (a) Buyer will have (i) borrowing capacity under the terms of its existing bank credit facility, and/or (ii) obtained other bank or third-party financing on terms reasonably acceptable to Buyer, in any case, in an amount sufficient to enable Buyer to finance the Acquisition as contemplated herein (inclusive of any refinancing of existing indebtedness with respect to the Real Property), and (b) no event of default (or other act or event which would permit acceleration of the indebtedness) shall have 29 37 occurred and be continuing with respect to Presley-Del.'s 12 1/2% Senior Notes due 2001 as a result of the transactions contemplated by this Agreement. 15.5 Notification of Certain Matters. Buyer shall give prompt notice to Seller of (a) the occurrence, or failure to occur, of any event that would be likely to cause any of its representations or warranties contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Closing Date, and (b) any failure on its part to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall modify Presley-Del.'s or Buyer's representations or warranties or its obligations under this Agreement. Presley-Del. or Buyer shall give prompt notice to Seller of any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement. 16. Conditions Precedent to Presley-Del.'s and Buyer's Performance. The obligations of Presley-Del. and Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or before the Closing, of all the conditions set forth below in this Section 16 and to the performance by Seller of its obligations set forth in Section 19.1. Presley-Del. and Buyer may waive any or all of these conditions in whole or in part without prior notice. 16.1 Accuracy of Seller's Representations and Warranties; Satisfaction of Covenants. All representations and warranties by Seller, or in any written statement that is delivered to Buyer by Seller under this Agreement, that are qualified as to materiality shall be true and complete and any such representations and warranties that are not so qualified shall be true and complete in all material respects, in each case as of the date of this Agreement and as of the Closing Date (as if made on the Closing Date); each of Seller and the Lyons shall have performed, satisfied, and complied in all material respects with all covenants, agreements and conditions required of it and them, respectively, by this Agreement; and each of Seller and the Lyons shall have delivered a certificate to the foregoing effect, dated the Closing Date, and signed by a duly authorized officer of Seller (in the case of Seller's certificate) and the Lyons (in the case of the Lyons' certificate). 16.2 Regulatory Approvals and Other Consents. The Parties shall have received all required regulatory approvals and third party consents (including, without limitation, lender consents, but not including those consents which, if not received, would not have a material adverse effect on the Parties or their ability to effect the Acquisition), in each case without the imposition of any condition which is reasonably unacceptable to Presley-Del. or Buyer. 16.3 No Material Adverse Change. Since the date of this Agreement through the Closing Date, there shall not have been (a) any change to the Real Property or Assets that materially adversely affects the value of the Real Property or Assets taken as a whole, or (b) any material increase in the Assumed Liabilities other than as may have occurred in the ordinary course of business and be substantially offset in amount by a corresponding increase in the value of the Assets to be purchased hereunder. 30 38 16.4 Opinion of Seller's Counsel. Buyer shall have received from O'Melveny and Myers LLP, counsel for Seller, an opinion dated as of the Closing Date, in form and substance reasonably satisfactory to Buyer and its counsel, that: (a) Due Incorporation. Seller has been duly incorporated and is validly existing and in good standing under the laws of the State of California, with corporate power to own its properties and assets, to enter into this Agreement and to perform its obligations hereunder. Each of the Partnerships has been validly formed and is in good standing in the State of its formation, with the power to own its properties and assets. (b) Due Authorization Execution and Delivery. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Seller, and this Agreement has been duly executed and delivered by Seller. (c) Enforceability. This Agreement constitutes the legally valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. (d) No Consents Required. No order, consent, permit or approval of any California or Federal governmental authority that such counsel has, in the exercise of customary professional diligence, recognized as applicable to the Seller or to transactions of the type contemplated by this Agreement is required on the part of Seller for the execution and delivery of, and the performance by Seller on or prior to the date of such opinion under this Agreement, except for such as have been obtained. (e) No Violation of Charter Documents, Agreements, Orders, Etc. The Seller's execution and delivery of, and performance of its obligations on or prior to the date of such opinion under, this Agreement do not (i) violate the Seller's articles of incorporation or bylaws, (ii) violate, breach or result in a default under any of the Contracts identified, in good faith, to such counsel in an officer's certificate as being material to Seller and the Partnerships taken as a whole (which Seller hereby agrees shall be, as of the Closing Date, all of the Contracts material to Seller and the Partnerships taken as a whole), or (iii) breach or otherwise violate any judgment or decree of any California or Federal court or governmental authority binding on the Seller and identified to such counsel in an officer's certificate. Such counsel need express no opinion as to the effect of the Seller's performance of its obligations in this Agreement on the Seller's compliance with financial covenants in any loan agreement to which it is a party. 31 39 In rendering such opinion, counsel for Seller may rely on certificates of officers and directors of Seller as to factual matters, certificates of public officials, and opinions of associate counsel approved by Buyer. 16.5 Absence of Litigation. No action, suit, or proceeding before any court or any Governmental Entity, which could reasonably be expected to have a material adverse effect on the Real Property, the Assets or the transactions contemplated by this Agreement or to their consummation, shall have been instituted or threatened in writing on or before the Closing Date. 16.6 Title Policy. The Title Company shall have issued or be committed to issue to Buyer or to Buyer's Permitted Assigns, at Seller's expense, standard coverage CLTA owner's policies of title insurance ("Title Policies") in the total amount for each parcel of Real Property as set forth on Schedule 1.1(a) and Schedule 1.2(a) (as such Schedules shall be updated at the Closing to omit parcels which have been sold and to add parcels which have been acquired by Seller since the date of this Agreement in the ordinary course of business), together with a CLTA 101.4 mechanic's lien endorsement, dated as of the Close of Escrow, insuring Buyer (or Buyer's Permitted Assigns, as applicable) as the fee owner of the Real Property, and showing title to Seller's Real Property vested in Buyer (or Buyer's Permitted Assigns) subject only to: (a) Nondelinquent general and special real property taxes, bonds and assessments, which shall be prorated as of the Close of Escrow; (b) All exceptions approved by Buyer. If Buyer requires any endorsements to the Title Policy (other than mechanic's lien coverage), or if Buyer requires an American Land Title Association ("ALTA") policy of title insurance or a binder in lieu of a policy of title insurance, then: (i) Buyer shall make such election in a timely manner so as to not interfere with or delay the Close of Escrow; (ii) Seller shall pay only the cost of the CLTA owner's policy described above and the mechanic's lien endorsement; and (iii) Buyer shall pay the additional cost of obtaining any other endorsements or such ALTA policy or binder, including, without limitation, any survey costs. 16.7 Assignment of Real Property Documents. Seller shall have assigned to Buyer all documents, warranties, rights and claims, including, but not limited to, reports, plans, surveys, maps, development agreements, conditions of approval, entitlements, subdivision agreements, licenses and permits, studies, drawings, books and records, financial data, and all other similar documents or materials issued or prepared in connection with the ownership, operation, use and development of the Real Property. Such assignment shall be in the form of the "Assignment of Plans and Warranties" (as hereinafter defined). 16.8 Solvency Opinion. Presley-Del. shall have received a solvency opinion (in form and substance reasonably satisfactory to Presley-Del.) from Houlihan Lokey Howard & Zukin Financial Advisors (or such other firm of national standing and reasonably acceptable to Presley-Del. and Seller) with respect to the solvency of Presley-Del. and New Presley following the consummation of the Transactions. 16.9 Financing. As of the Closing Date, (a) Buyer will have (i) borrowing capacity under the terms of its existing bank credit facility, and/or (ii) obtained other bank or 32 40 third-party financing on terms reasonably acceptable to Buyer, in any case, in an amount sufficient to enable Buyer to finance the Acquisition as contemplated herein (inclusive of any refinancing of existing indebtedness with respect to the Real Property), and (b) no event of default (or other act or event which would permit acceleration of the indebtedness) shall have occurred and be continuing with respect to Presley-Del.'s 12 1/2% Senior Notes due 2001 as a result of the transactions contemplated by this Agreement. 16.10 No "Ownership Change". Presley-Del. shall have determined to its satisfaction that the purchases of shares of Common Stock pursuant to the Series A Offer and the Series B Purchase Agreements will not result in an "ownership change" of Presley-Del. for Federal tax purposes that would impair Presley-Del.'s ability to utilize its tax net operating losses. 16.11 Series A Offer. The conditions to the Series A Offer set forth in Exhibit "B" hereto (other than the condition in clause (ii) thereof) shall have been satisfied or waived by the Lyons. 16.12 Presley-Del. Stockholder Approval. The stockholders of Presley-Del., by a vote sufficient under applicable law and Presley-Del's Certificate of Incorporation, shall have approved the Merger. 16.13 Series B Purchase Agreements. Each of the Series B Purchase Agreements shall be in full force and effect and enforceable by Seller against the Series B Shareholders in accordance with their terms. 16.14 Cancellation of Lyon Stock Options. William Lyon shall have executed and delivered to Presley-Del. an instrument in the form of Exhibit E attached hereto, canceling his outstanding options to acquire 750,000 shares of Presley-Del. Common Stock. 17. Conditions Precedent to Seller's Performance. The obligations of Seller to sell and transfer the Assets under this Agreement are subject to the satisfaction, at or before Closing, of all the following conditions set forth in this Section 17 and to the performance by Buyer and Presley-Del. of their respective obligations set forth in Section 19.2 below. Seller may waive any or all of these conditions in whole or in part without prior notice. 17.1 Accuracy of Buyer's and Presley-Del.'s Warranties. All representations and warranties by Buyer and Presley-Del. contained in this Agreement or in any written statement delivered by Buyer or Presley-Del. under this Agreement that are qualified as to materiality shall be true and complete and any such representations and warranties that are not so qualified shall be true and complete in all material respects, in each case as of the date of this Agreement and as of the Closing Date (as if made on the Closing Date). Buyer and Presley-Del. shall have performed and complied with all covenants and agreements and satisfied all conditions that they are required by this Agreement to perform, comply with, or satisfy, before or at the Closing; and Buyer and Presley-Del. shall have each delivered to Seller a certificate to the foregoing effect, dated as of the Closing Date and signed by a duly authorized officer of each entity. 33 41 17.2 Regulatory Approvals and Other Consents. The Parties shall have received all required regulatory approvals and third party consents (including, without limitation, lender consents, but not including those consents which, if not received, would not have a material adverse effect on the Parties or their ability to effect the Acquisition), in each case without the imposition of any condition which is reasonably unacceptable to Seller. 17.3 Opinion of Buyer's and Presley-Del.'s Counsel. Buyer and Presley-Del. shall have furnished to Seller opinions, dated as of the Closing Date, of each of Irell & Manella LLP and Morris, Nichols, Arsht & Tunnell, counsel for Buyer and Presley-Del., and Nancy M. Harlan, Esq., Senior Vice President and General Counsel of Presley-Del., each opinion to be in form and substance reasonably satisfactory to Seller and its counsel, and such opinions collectively to be to the effect that: (a) Due Incorporation. Buyer and Presley-Del. have each been duly incorporated and are validly existing and in good standing under the laws of their respective states of incorporation, with corporate power to own their properties and assets, to enter into this Agreement and to perform their respective obligations hereunder. (b) Due Authorization, Execution, and Delivery. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Buyer and Presley-Del., and this Agreement has been duly executed and delivered by each of Buyer and Presley-Del. (c) Enforceability. This Agreement constitutes the legally valid and binding obligation of Buyer and Presley-Del., enforceable against them in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. (d) No Consents Required. No order, consent, permit or approval of any California or Federal governmental authority that such counsel has, in the exercise of customary professional diligence, recognized as applicable to Buyer or Presley-Del. or to transactions of the type contemplated by this Agreement is required on the part of Buyer or Presley-Del. for the execution and delivery of, and the performance by Buyer and Presley-Del. under this Agreement, except for such as have been obtained. (e) No Violation of Charter Documents, Agreements, Orders, Etc. Buyer's and Presley-Del.'s execution or delivery of, and performance of their respective obligations under, this Agreement do not (i) violate Buyer's or Presley-Del.'s respective charter documents, (ii) violate, breach, or result in a default under, any existing obligation of or restriction on either Buyer or Presley-Del. under any agreement identified to such counsel in an officer's certificate as being material to Buyer or Presley-Del., or (iii) breach or otherwise violate any judgment or decree of any California or Federal court or governmental authority binding on Buyer or Presley-Del and identified in an officer's 34 42 certificate of Buyer and Presley-Del. Such counsel need express no opinion as to the effect of Buyer's or Presley-Del.'s performance under this Agreement on such Parties' compliance with financial covenants in any loan agreement which either of them is a party. In rendering such opinion, counsel for Buyer may rely on certificates of officers and directors of Presley-Del. and/or Buyer as to factual matters, certificates of Governmental Entities and opinions of associate counsel approved by Seller. 17.4 Absence of Litigation. No action, suit, or proceeding before any court or any governmental body or authority, pertaining to the transactions contemplated in this Agreement or to their consummation, shall have been instituted or threatened in writing on or before the Closing Date. 17.5 Series A Offer. The conditions to the Series A Offer set forth in Exhibit "B" hereto (other than the condition set forth in clause (ii) thereof) shall have been satisfied or waived by the Lyons. 17.6 Presley-Del. Stockholder Approval. The stockholders of Presley-Del., by a vote sufficient under applicable law and Presley-Del.'s Certificate of Incorporation, shall have approved the Merger. 17.7 Release of Seller From Certain Assumed Liabilities. Seller shall have been released from its obligations under the contracts and instruments identified on Schedule 17.7, such releases to be in form and substance reasonably satisfactory to Seller. 17.8 Series B Purchase Agreements. The Series B Purchase Agreements shall continue to be in full force and effect, and shall be enforceable by Seller against the Series B Shareholders in accordance with their terms; provided, however, that the condition set forth in this Section 17.8 shall be deemed to have been satisfied if any failure of the Series B Purchase Agreements to be in full force and effect and enforceable by Seller against the Series B Shareholders is due solely to a breach of such Series B Purchase Agreements by Seller. 17.9 No "Ownership Change". Seller and the Lyons shall have determined to their satisfaction that the purchases of shares of Common Stock pursuant to the Series A Offer and the Series B Purchase Agreements will not result in an "ownership change" of Presley-Del. for Federal tax purposes that would impair Presley-Del.'s ability to utilize its tax net operating losses. 18. The Parties' Obligations after Closing. 18.1 Employee Matters. (a) Effective as of the Closing Date, Buyer will offer employment on an "at will" basis to officers, employees and sales agents of Seller on such terms and conditions of employment that are substantially similar in the aggregate to the terms and conditions applicable to similarly situated employees of Buyer. Buyer shall credit each Seller Employee who accepts such offer of employment for his or her service with Seller 35 43 for purposes of eligibility, benefit accrual and vesting with respect to vacation, personal and sick days and benefits under each ERISA Plan maintained by Buyer and provided to such Seller Employee. (b) Seller shall take all actions necessary to comply with the applicable requirements of Section 4980B of the Code and part 6 of Subtitle B of Title I of ERISA ("COBRA") and any comparable state or local law with respect to the termination of its employees and the employees of the Partnerships in connection with the transactions contemplated by this Agreement. Seller, the Partnerships and their ERISA Affiliates will continue any group health plan coverage to their employees to the extent necessary to prevent Buyer from being deemed to be a successor employer of Seller, any Partnership or any of their ERISA Affiliates within the meaning of Proposed Treasury Regulations Section 54.4980B-9 Q&A-8(c). 18.2 WARN Act. The Parties acknowledge and agree that, for the purposes of the WARN Act, any person who is a Seller Employee who accepts Buyer's offer of employment made pursuant to Section 18.1 hereof shall be considered to be an employee of Buyer immediately upon the Closing and the Parties agree to comply with any applicable requirements of the WARN Act with respect to such Seller Employees. 18.3 Maintenance of Seller's Corporate Existence; Tangible Net Worth. The Lyons and Seller agree to maintain the corporate existence of Seller for a period of one (1) year after the Closing Date and to maintain a Tangible Net Worth (as defined below) of not less than $2.4 million for a period of one (1) year after the Closing Date, and for such period thereafter as such one (1) year period may be extended with respect to certain representations and warranties as provided in Section 13.1 above. The term "Tangible Net Worth" as used herein shall be equal to the difference between (a) the sum of Seller's cash; accounts receivable; liquid securities and investments; other current assets; real property and other property (but not including goodwill or other intangibles) and (b) the sum of Seller's accounts payable; accrued salary and wages; accrued sales and other tax liabilities; bank revolver and term loans. Calculation of Tangible Net Worth shall take into account any reserves, including, without limitation, reserves for uncollectible accounts receivable. 18.4 Corporate Governance. The Lyons and Seller shall, and shall cause Presley-Del. and New Presley to, comply with all applicable Federal and state law and all applicable listing criteria of the New York Stock Exchange, Inc. (or such other securities exchange on which the New Presley Common Stock shall be listed) concerning the corporate governance of Presley-Del. and New Presley, as applicable, following consummation of the Series A Offer, including obligations in respect of New Presley's stockholders, directors, officers and otherwise. 18.5 Further Agreements. Each of the Parties hereto agrees to cooperate in good faith with each other, and to execute and deliver such further documents and perform such other acts as may be reasonably necessary or appropriate to consummate and carry into effect the transactions contemplated under this Agreement including, but not limited to, the following: 36 44 (a) Prior to the Closing and the consummation of the Series A Offer, the Series B Purchase Agreements and the Merger, upon the terms and subject to the conditions of this Agreement, the Parties shall use their respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done and cooperate with each other in order to do, all things necessary, proper or advisable (subject to any applicable laws) to consummate the Closing and the other transactions contemplated hereby as promptly as practicable including, but not limited to (i) the preparation and filing of all forms, registrations and notices required to be filed to consummate the Closing and the other transactions contemplated hereby and the taking of such actions as are necessary to obtain any requisite approvals, authorizations, consents, orders, licenses, permits, qualifications, exemptions or waivers by any third party or Governmental Entity, (ii) the preparation of any disclosure documents requested by Buyer in order to facilitate financing of the Acquisition, and (iii) the satisfaction of the other parties' conditions to Closing. In addition, no party hereto shall take any action after the date hereof that could reasonably be expected to materially delay the obtaining of, or result in not obtaining, any permission, approval or consent from any Governmental Entity or other person required to be obtained prior to Closing or consummation of the other transactions contemplated hereby. (b) Prior to the Closing and the consummation of the other transactions contemplated hereby, each Party shall promptly consult with the other Parties hereto with respect to, provide any necessary information with respect to, and provide the other Parties (or their respective counsel) with copies of, all filings made by such Party with any Governmental Entity or any other information supplied by such Party to a Governmental Entity in connection with this Agreement or the transactions contemplated hereby. Each Party hereto shall promptly inform the others of any communication received by such Party from any Governmental Entity regarding the transactions contemplated hereby. If any Party hereto or affiliate thereof receives a request for additional information or documentary material from any such Governmental Entity with respect to any of the transactions contemplated hereby, then such Party shall endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and after consultation with the other Parties, an appropriate response in compliance with such request. To the extent that transfers, amendments or modifications of permits (including environmental permits) are required as a result of the execution of this Agreement or consummation of the transactions contemplated hereby, the Parties shall use their best efforts to effect such transfers, amendments or modifications. 18.6 Post Closing Obligations. (a) Seller will, and will use its best efforts to cause each of the Partnerships to, execute, acknowledge, and deliver any further deeds, assignments, conveyances, and other assurances, documents, and instruments of transfer, necessary or reasonably requested by Buyer, and will take any other action consistent with the terms of this Agreement that may be necessary or reasonably requested by Buyer for the purpose of assigning, transferring, granting, conveying, and confirming to Buyer, or reducing to possession, any or all property to be conveyed and transferred under this Agreement, including, without limitation, the Real Property. If requested by Buyer, Seller will prosecute or otherwise enforce in its own name (or the name of the Partnerships) for the benefit of Buyer any claims, rights or benefits that are transferred to Buyer under this Agreement and that require prosecution 37 45 or enforcement in Seller's name (or the name of the Partnerships). Any prosecution or enforcement of claims, rights, or benefits under this paragraph will be solely at Buyer's expense, unless the prosecution or enforcement is made necessary by a breach of this Agreement by the Seller. (b) Seller shall remain liable and indemnify and defend Buyer, in accordance with the provisions of Section 13.2, for any claims involving any actual or alleged construction defect or breach of warranty with respect to homes which are sold by Seller or the Partnerships and which close escrow prior to the close of Escrow. Buyer shall be liable and indemnify and defend Seller, in accordance with the provisions of Section 13.3, for any claims involving any actual or alleged construction defect or breach of warranty with respect to homes where no work had commenced prior to the close of Escrow. Notwithstanding any other provision of this Agreement, to the extent that construction has begun on any improvements prior to close of Escrow hereunder, or a home has been started but has not yet closed escrow as of such date, Buyer and Seller shall each remain liable for any claims for alleged construction defects or breach of warranty for any work done by or for them, respectively, on the Real Property, and each shall indemnify the other, in accordance with the provisions of Sections 13.2 and 13.3, respectively for any claims arising from work done by or for them. The intent of this provision is to maximize insurance coverage, whether purchased for the benefit of Buyer, any Permitted Assignee of Buyer, Seller, or any Partnership, and nothing contained in this Agreement shall be construed to reduce or change coverage to the detriment of any of Buyer, any Permitted Assignee of Buyer, Seller, or any Partnership. Specifically, the Parties agree that the floors and ceilings for indemnity set forth in Sections 13.2 and 13.3 shall not be construed to affect or limit in any way any insurance coverage of any party. 18.7 Management of Certain Excluded Projects Following the Closing. Following the Closing, Buyer agrees to manage and to provide such other related services as Seller may reasonably request with respect to the real estate development projects which are identified on Schedule 2.6 hereto as Excluded Assets. Seller shall reimburse Buyer for all costs incurred by Buyer in the performance of such management services. 19. Escrow Closing Obligations. 19.1 Deliveries by Seller to Escrow Holder. Subject to the conditions set forth in Section 17 hereof, Seller hereby covenants and agrees to deliver, and shall cause each of the Partnerships to deliver, as applicable, to Escrow Holder on or prior to the Closing Date the following instruments and documents, the delivery of each of which shall be a condition to the Close of Escrow for the benefit of Buyer: (a) Grant Deeds. Grant Deeds, duly executed and acknowledged by Seller or the applicable Partnership, conveying the Real Property to Buyer (or Buyer's Permitted Assigns), in the form attached hereto as Exhibit "F" (the "Seller Grant Deeds")." (b) Assignments of Deposits. Assignments of all of Seller's and the Partnerships' rights (including the right to any deposit made by Seller), with consents signed by the sellers, optionors or other parties, in a form reasonably acceptable to Buyer, 38 46 of any purchase agreements, escrow instructions, options, rights of first refusal or other agreements to purchase or acquire real property, including, but not limited to, the properties listed on Schedule 19.1(b). (c) Assignments of Plans and Warranties. Two (2) copies of each Assignment of Plans and Warranties, executed by Seller or the applicable Partnership, in the form attached hereto as Exhibit "G" (the "Assignments of Plans and Warranties"). (d) Bills of Sale. Two (2) copies of each Bill of Sale conveying the Personal Property, executed by Seller or the applicable Partnership, in the form attached hereto as Exhibit "H" (the "Bills of Sale"). Any other instruments of transfer, such as Department of Motor Vehicle title, shall be in the form required by law or as reasonably acceptable to Buyer. (e) Assignments of Other Assets. Two (2) copies, executed by Seller or the applicable Partnership, of each of the instruments of assignment and transfer of all other Assets to be transferred by Seller or any of the Partnerships pursuant to Section 1.1(c) and Section 1.2(c) hereof, respectively. The general assignments shall be in the form attached hereto as Exhibit "I" (the "Assignments of Other Assets"). Any other instruments of transfer shall be in the form required by law, executed by the entity holding the asset and reasonably acceptable to Buyer. (f) Assignments and Assumption of Leaseholds. Two (2) copies of assignments and assumption of all leaseholds, properly executed and acknowledged by Seller and the applicable Partnerships, and accompanied by all consents of lessors required by this Agreement and the leases being assigned. The assignment and assumption shall be in the form attached hereto as Exhibit "J" (the "Assignment and Assumption of Leaseholds"). (g) Seller's Affidavits. The Seller's Affidavits, duly executed by Seller and each of the Partnerships, respectively. (h) Assignment and Assumption Agreements. Two (2) copies, executed by Seller or the applicable Partnership, of an Assignment and Assumption Agreement in the form attached hereto as Exhibit "K" (the "Assignment and Assumption Agreements"). 19.2 Deliveries by Buyer to Escrow Holders. Subject to the conditions set forth in Section 16 hereof, Buyer hereby covenants and agrees to deliver to Escrow Holder on or prior to the Closing Date the following, the delivery of each of which shall be a condition to the Close of Escrow for the benefit of Seller: (a) Funds. The Purchase Price, together with Buyer's share of any Escrow closing costs and prorations in the amount determined by Escrow Holder consistent with the terms hereof, shall be delivered to Escrow Holder by Buyer in cash or other immediately available funds not later than the business day immediately prior to the Closing Date. 39 47 (b) Assignments of Plans and Warranties. Two (2) copies of the Assignments of Plans and Warranties, executed by Buyer. (c) Assignment and Assumption Agreements. Two (2) copies of the Assignment and Assumption Agreement, executed by Buyer. (d) Assignments and Assumption of Leaseholds. Two (2) copies of each Assignment and Assumption of leasehold, executed by Buyer. 19.3 Disbursements and Other Actions by Escrow Holder. Upon the Close of Escrow, and when all required funds and documents have been deposited into the Escrow, Escrow Holder shall promptly undertake all of the following in the following order: (a) Cause Seller's Grant Deeds for the Real Property (with documentary transfer tax information to be affixed after recording) to be recorded in the Official Records of the County in which the Real Property is located. (b) Disburse all funds deposited with Escrow Holder by Buyer in payment of the Purchase Price for the Assets and in payment of Buyer's share of any Escrow closing costs and prorations as follows: (i) Deduct from the funds deposited with Escrow Holder by Buyer in payment of Buyer's share of any Escrow closing costs and prorations the amount of all such items chargeable to the account of Buyer hereunder; (ii) Deduct from the funds deposited with Escrow Holder by Buyer in payment of the Purchase Price all items chargeable to the account of Seller, including, without limitation, the amount of any deeds of trust, tax liens or other monetary encumbrances to be paid by Seller and Seller's share of any Escrow closing costs and prorations; (iii) Disburse the remaining balance of the Purchase Price (as such may be adjusted pursuant to Section 3.2) to Seller (or to Seller's designee) promptly upon the Close of Escrow. Any funds deposited by or on behalf of Buyer in excess of the sum of the Purchase Price and Buyer's share of any Escrow closing costs and prorations shall be returned to Buyer (except for any amounts which are to be withheld pursuant to Section 3.2). (c) Deliver the Seller's Affidavit to Buyer. (d) Deliver one (1) copy of the (i) Bill of Sale, (ii) Assignment of Plans and Warranties, (iii) each Assignment and Assumption of Leasehold, (iv) Assignment of Other Assets, and (v) Assignment and Assumption Agreement to Buyer, and one (1) copy to Seller and each of the Partnerships. (e) Cause the Title Policy described in Section 16.6 above to be delivered to Buyer. 40 48 20. Escrow Cancellation. If any Party defaults with respect to its obligations hereunder, or if Escrow is not in a condition to close by the agreed Closing Date, Escrow Holder shall continue to comply with the instructions contained herein until a written demand has been made by a party entitled to do so for the cancellation of Escrow. Escrow Holder shall notify the other party of any such demand. 20.1 Charges. If the Close of Escrow fails to occur due to Seller's default, Seller shall pay all Escrow cancellation charges. If the Close of Escrow fails to occur due to Buyer's default, Buyer shall pay all Escrow cancellation charges. If the Close of Escrow fails to occur for any reason other than the foregoing, Buyer and Seller shall each pay one-half (1/2) of any Escrow cancellation charges, and each party shall release the other party from all liability hereunder for the failure of the Close of Escrow to occur, provided that any other funds deposited by Buyer into Escrow, together with all interest earned thereon in Escrow, less Buyer's one-half (1/2) share of any Escrow cancellation charges, shall be returned to Buyer. "Escrow cancellation charges" means all fees, charges and expenses charged by Escrow Holder as well as all charges related to the services of the Title Company in connection with title matters relating to this Escrow. 21. Escrow Costs; Taxes and Assessments. 21.1 Escrow and Other Costs. Subject to Section 20.1 above, Buyer and Seller shall each pay one-half (1/2) of Escrow Holder's escrow fees for the Escrow. Seller shall bear the cost of all documentary transfer taxes and the cost of the CLTA standard owner's title policy described in Section 16.6 above including the mechanic's lien endorsement. If Buyer requires any other endorsements to the Title Policy, or if Buyer requires an ALTA policy of title insurance or a binder in lieu of a policy of title insurance, then Buyer shall pay the additional cost of obtaining such endorsements or such ALTA policy or binder, including, without limitation, any survey cost. Buyer and Seller shall each bear their own respective legal and accounting costs, if any, outside of Escrow. All recording costs or fees and all other costs or expenses not otherwise provided for in this Agreement shall be apportioned or allocated between Buyer and Seller in the manner customary in Orange County, California. 21.2 Real Property Taxes and Assessments. All nondelinquent general and special real property taxes, bonds and assessments with respect to the Real Property shall be paid by Buyer outside of Escrow. To the extent that the applicable tax assessor parcels, or any assessment district or other tax parcels, which have been established as of the Closing include both the Real Property hereunder and other adjacent real property, then the applicable nondelinquent general and special real property taxes, bonds and assessments shall be allocated between the Real Property hereunder and such other adjacent real property based on acreage. Finally, if the regular tax bill or bills for the Real Property for the fiscal year in which this Escrow closes are not available as of the Closing, Buyer shall pay all such general and special real property taxes, bonds and assessments for the Property outside of Escrow based upon the then current fiscal year's regular tax bill or bills within thirty (30) days following the date such regular tax bill or bills are actually received by the parties. Any Mello-Roos assessments, special assessments, district assessments or any other bonds and assessments with respect to the Real Property shall not be paid in full by Buyer. 41 49 21.3 Supplemental Real Property Taxes. With respect to any supplemental taxes assessed against the Real Property pursuant to California Revenue and Taxation Code Section 75, et seq., Buyer and Seller hereby agree between themselves that Buyer shall be obligated to pay all such supplemental taxes assessed against the Property for any period from and after January 1, 1999. 21.4 Other Taxes. Buyer will pay all sales and use taxes arising from the transfer of the Assets. 22. Condemnation and Destruction. 22.1 Condemnation. If all or any material portion of any particular development project included in the Real Property is taken prior to the Close of Escrow as a result of condemnation (including the filing of any notice of intended condemnation or proceedings in the nature of eminent domain), then Seller shall immediately notify Buyer of such fact. In such event, Buyer shall have the option to terminate its obligation to acquire such project (the "Condemnation Excluded Property") under this Agreement upon written notice to Seller given not later than thirty (30) days after Buyer's receipt of such notice, and the remainder of this Agreement shall remain in full force and effect; provided, however, that the Purchase Price shall be reduced by the amount allocated to the Condemnation Excluded Property by mutual determination of the parties hereto. Buyer shall have no right to terminate its obligations with respect to any project under this Agreement as a result of any taking of a portion of such project that is not a material portion. If Buyer does not elect or has no right to terminate as to such project, Seller shall assign and turn over to Buyer, and Buyer shall be entitled to receive and keep, all awards for the taking by condemnation of such project and Buyer shall be deemed to have accepted the Real Property subject to the taking without reduction in the Purchase Price. 22.2 Fire or Other Casualty During Escrow. If there is damage to any portion of the Real Property or if any portion of the Real Property is destroyed by earthquake, flood, landslide, fire or other casualty prior to the Closing Date, then this Agreement shall remain in full force and effect, and all insurance proceeds payable to Seller or any of the Partnerships with respect to such damage or destruction, if any, shall be assigned and delivered by Seller to Buyer at the Close of Escrow hereunder, and Buyer shall receive, as a credit against the Purchase Price, an amount equal to the deductible amount with respect to the insurance. 23. Waiver and Consent. Either party may specifically and expressly waive in writing any breach by the other party of any provision of this Agreement, but no such waiver shall constitute a further or continuing waiver of any preceding or succeeding breach of the same or any other provision. A waiving party may at any time thereafter require further compliance by the other party with any breach so waived. The consent by one party to any act by the other for which such consent was required shall not be deemed to imply consent or waiver of the necessity of obtaining such consent for the same or any similar acts in the future. No waiver or consent shall be implied from silence or any failure of a party to act, except as otherwise specified in this Agreement. 42 50 24. Miscellaneous. 24.1 Successors and Assigns. Buyer shall not voluntarily or by operation of law assign or transfer any right, interest or obligation hereunder without Seller's prior written consent, which consent shall not be unreasonably delayed or withheld by Seller. Each and all of the covenants and conditions and other terms of this Agreement shall inure to the benefit of and shall be binding upon the respective heirs, executors, administrators, successors and assigns of Buyer, Presley-Del. (including New Presley) and Seller. As used in this Section 24, the term "successors" shall refer to the successors to all or substantially all of the assets of a party and to a party's successors by merger or consolidation. Notwithstanding the foregoing, Buyer shall have the right, without the consent of Seller or the Lyons, to transfer Buyer's rights and interests under this Agreement to a partnership, limited liability company or other entity, so long as Buyer retains at least a fifty percent (50%) interest in such partnership, limited liability company or other entity (such a partnership, limited liability company or other entity being herein referred to as a "Permitted Assign"). 24.2 Expenses. Subject to Sections 3.2, 19.3, 20.1, 21.1, 24.3, 25.5 and 27 hereof, (a) Presley-Del. shall pay all fees, costs, and expenses incurred in connection with obtaining the fairness and solvency opinions referenced in Sections 9.4(a) and 16.8 hereof or required under the Indenture relating to Presley-Del.'s 12 1/2% Senior Notes due 2001, and any appraisals of assets of Presley-Del. or of Buyer that may be required in connection with obtaining any requisite financing for Buyer to consummate the Acquisition, and (b) Seller shall pay all fees, costs, and expenses incurred in connection with obtaining financing commitments and any appraisals of assets of Seller that may be required in connection with the Acquisition, or the satisfaction of the condition set forth in Section 16.9 hereof. Subject to the provisions of Section 3.2, and except as provided in Sections 19.3, 20.1, 21.1, 24.3, 25.5 and 27 hereof and in this Section 24.2, each Party shall pay its own expenses incurred in connection with the transactions contemplated hereby. 24.3 Attorney's Fees. If any legal action is instituted among any of Seller, the Lyons and Buyer and Presley-Del. or Escrow Holder in connection with this Agreement, then the prevailing party or parties shall be entitled to recover from the losing party or parties all of its costs and expenses, including court costs and reasonable attorneys' fees. 24.4 Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing (including telex and telegraphic communications) and shall be (as elected by the person giving such notice) hand delivered by messenger or courier service, telecommunicated with confirming copy by mail, or mailed by United States mail (postage prepaid), registered or certified, return receipt requested, addressed as follows: If to Buyer or Presley-Del.: The Presley Companies 19 Corporate Plaza Newport Beach, California 92660 Attention: Nancy M. Harlan, Esq. Telephone: (949) 640-6400 Telecopier: (949) 640-1818 43 51 Mailing Address: P.O. Box 6110 Newport Beach, California 92658-6110 With a copy to: The Presley Companies 19 Corporate Plaza Newport Beach, California 92660 Attention: David M. Siegel Telephone: (949) 640-6400 Telecopier: (949) 640-1710 Mailing Address: P.O. Box 6110 Newport Beach, California 92658-6110 With a copy to: Keith P. Bishop, Esq. Irell & Manella LLP 840 Newport Center Drive, Ste. 500 Newport Beach, California 92660 Telephone: (949) 760-0991 Telecopier: (949) 760-5200 With a copy to: Brian J. McCarthy, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071-3144 Telephone: (213) 687-5000 Telecopier: (213) 687-5600 If to Seller or the Lyons: William Lyon Homes, Inc. 4490 Von Karman Avenue Newport Beach, California 92660-2008 Attention: William Lyon Telephone: (949) 833-3600 Telecopier: (949) 476-2178 With a copy to: David A. Krinsky, Esq. O'Melveny & Myers LLP 610 Newport Center Drive, Ste. 1700 Newport Beach, California 92660 Telephone: (949) 760-9600 Telecopier: (949) 823-6994 44 52 If to Escrow Holder: First American Title Insurance Company 114 East Fifth Street Santa Ana, California 91701 Escrow Officer: Toni Rice-Groetch Telephone: (714) 558-3211 Telecopier: (714) 647-2139 Each notice shall be deemed delivered: (1) on the date delivered if by personal delivery, (2) on the date telecommunicated if by telegraph, (3) on the date of transmission with confirmed answer back if by telex or telecopier, and (4) seventy-two (72) hours after deposit in the United States mail (postage prepaid) if by registered or certified mail. By giving to the other parties at least fifteen (15) days' written notice, the parties to this Agreement and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses and each shall have the right to specify as its address any other address within the State of California. 24.5 Gender and Name. In this Agreement (unless the context requires otherwise), the masculine, feminine and neuter genders and the singular and the plural shall be deemed to include one another, as appropriate. 24.6 Entire Agreement. This Agreement and its Exhibits constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and the final, complete and exclusive expression of the terms and conditions thereof. All prior agreements, representations, negotiations and understandings of the parties hereto, oral or written, express or implied, are hereby superseded and merged herein. 24.7 Captions. The captions used herein are for convenience only and are not a part of this Agreement and do not in any way limit or amplify the terms and provisions hereof. 24.8 Time of Essence. Time is of the essence of every provision of this Agreement in which time is an element. 24.9 Governing Law. This Agreement and the Exhibits attached hereto have been negotiated and executed in the State of California and shall be governed by and construed in accordance with the laws of the State of California without giving effect to conflicts of laws principles. 24.10 Invalidity of Provision. If any provision of this Agreement as applied to either party or to any circumstance shall be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the same shall in no way affect (to the maximum extent permissible by law) any other provision of this Agreement, the application of any such provision under circumstances different from those adjudicated by the court, or the validity or enforceability of the Agreement as a whole. 24.11 Amendments. No addition to or modification of any provision contained in this Agreement shall be effective unless fully set forth in writing by both Buyer and Seller. 45 53 24.12 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 24.13 Schedules and Exhibits. All Schedules and Exhibits to this Agreement are incorporated herein by this reference as though fully set forth in the body hereof. 24.14 Time References. Any references in this Agreement to time for performance of obligations or elapsed time shall mean consecutive calendar days, months, or years, as applicable, unless otherwise explicitly indicated herein. In the event that the day on which Buyer or Seller is required to take any action-under the terms of this Agreement is not a business day, such action shall be taken on the next succeeding business day. Whenever notice, approval or disapproval must be given to Escrow Holder and Escrow Holder is closed on the last day for taking such action, then the parties shall have until 5:00 p.m. on the first following day Escrow Holder is open to take such action. 24.15 Construction of Agreement. The agreements contained herein shall not be construed in favor of or against either party, but shall be construed as if both parties prepared this Agreement. 24.16 No Recording Without Consent. Pending the Close of Escrow, neither Buyer nor Seller shall, without the consent of the other party, record this Agreement or a short form or memorandum hereof, or take any other action that would materially and adversely affect the marketability of Seller's title to the Property. 24.17 Parties in Interest. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns; nothing in this Agreement is intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement; and no provision will give any third persons any right of subrogation or action against any party to this Agreement other than those obligations expressly assumed in writing by Buyer. Except for the Assumed Liabilities, Buyer is not assuming, and shall not be deemed to assume, any liability of any kind or nature whatsoever (i) of Seller, or (ii) arising out of or in connection with the Assets or Seller's operations or construction of improvements. 24.18 Specific Performance and Waiver of Rescission Rights. Each Party's obligation under this Agreement is unique. If any Party should default in its obligations under this Agreement, the Parties each acknowledge that it would be extremely impracticable to measure the resulting damages; accordingly, the nondefaulting Party or Parties, in addition to any other available rights or remedies, may sue in equity for specific performance, and the Parties each expressly waive the defense that a remedy in damages will be adequate. Despite any breach or default by any of the Parties of any of their respective representations, warranties, covenants, or agreements under this Agreement, if the purchase and sale contemplated by it has been consummated, each of the Parties waives any rights that they may have to rescind this Agreement or the transaction consummated by it provided that this waiver will not affect any other rights or remedies available to the parties under this Agreement or under the law. 46 54 25. Termination Events. This Agreement may, by written notice delivered prior to the Closing Date, be terminated: 25.1 by mutual consent of Buyer, Presley-Del. and Seller; 25.2 by Buyer, Presley-Del. or Seller if any Governmental Entity shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the Parties hereto shall use their reasonable efforts to lift), which permanently restrains, enjoins or otherwise prohibits the acceptance for payment of, or payment for, shares pursuant to the Series A Offer or the Series B Purchases and such order, decree, ruling or other action shall have become final and non-appealable; 25.3 by Buyer, Presley-Del. or Seller if the Closing has not occurred (other than through the failure of any Party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before November 30, 1999; provided, however, that if the Closing has not occurred by such date due to delays in obtaining governmental or regulatory approvals with respect to the Acquisition, the Series A Offer or the Merger, then the Parties agree to extend the Closing Date for up to an additional 30 calendar days to allow the process of obtaining such approvals to be completed; 25.4 by Buyer or Presley-Del. if Seller shall have failed to commence the Series A Offer on or prior to the time required in Section 9.1 hereof; provided, however, that Buyer may not terminate this Agreement pursuant to this Section 25.4 if Buyer is at such time in material breach of its obligations under this Agreement; 25.5 by Buyer or Presley-Del. in connection with entering into a definitive agreement as permitted under this Agreement in respect of Presley-Del.'s Board of Directors' fiduciary duties to Presley-Del.'s stockholders; provided, however, that Buyer has complied with all provisions of this Agreement, including the notice provisions of Section 27 hereof, and that Buyer makes concurrent payment to Seller of fees and expenses as required by Section 27 hereof; 25.6 by Buyer or Presley-Del. if Seller shall have breached in any material respect any of its respective representations, warranties, covenants or other agreements contained in this Agreement, which breach cannot be or has not been cured within 30 days after the giving of written notice by Buyer to Seller, as applicable; 25.7 by Seller if, due to an occurrence not involving a breach by Seller or the Lyons of their obligations hereunder, which breach makes it impossible to satisfy any of the conditions set forth in Exhibit "B" hereto, the Lyons shall have failed to commence the Series A Offer on or prior to the time required under Section 9.1(a) hereof; 25.8 by Seller if, prior to the purchase of shares of Common Stock by Seller pursuant to the Series A Offer, Presley-Del.'s Board of Directors shall have withdrawn, modified or changed in a manner adverse to Seller its approval or recommendation of the Series A Offer or the Merger or shall have recommended an Acquisition Proposal or shall have executed an agreement in principle or definitive agreement relating to an Acquisition Proposal (as hereinafter 47 55 defined) or similar business combination with a person or entity other than Seller or its affiliates; or 25.9 by Seller if Buyer or Presley-Del. shall have breached in any material respect any representation, warranty, covenant or other agreement contained in this Agreement, which breach cannot be or has not been cured within 30 days after the giving of written notice to Buyer or Presley-Del., as applicable. 26. Effect of Termination. If this Agreement is terminated pursuant to Section 25 hereof prior to the Closing, all further obligations of the parties under this Agreement shall terminate; provided, however, that a termination of this Agreement shall not relieve any party of any liability it may have for breach of any representation or warranty or nonperformance of any covenant or obligation hereunder, or constitute a waiver of any available remedy (including specific performance, if available) for any such breach or nonperformance. 27. No Solicitation. Each of the Parties agrees that, prior to the Closing, neither it nor any of its directors, officers, employees, representatives or agents (including financial advisors and attorneys) (collectively referred to herein as "Representatives") will (a) solicit, initiate, encourage or facilitate the submission of, or consider, enter into discussions concerning or agree to, any Acquisition Proposal (as defined below) other than from the other party hereto, or (b) provide any information concerning it or its assets or business operations to any person or permit any person to visit its premises in connection with or for the purpose of soliciting or facilitating any Acquisition Proposal, in each case, other than the other party hereto and its Representatives. In the event any other potential acquiror or Representative thereof contacts a party or any of its Representatives with respect to an Acquisition Proposal, such party shall notify the other party hereto and provide such party with the details of such contact. Further, the person so contacted will inform the contacting party that the party is in a period of exclusive negotiations and terminate such contact without disclosing any details concerning the negotiations with the other party hereto. Notwithstanding the foregoing provisions of this Section 27, if the Board of Directors of Presley-Del. or Seller, as the case may be, after receiving advice from outside legal counsel, determines that a failure to act would be inconsistent with such Board of Directors' fiduciary duties to stockholders under applicable law, such party may (i) furnish information with respect to such party to any person in response to an unsolicited request pursuant to a confidentiality agreement with terms and conditions similar to those contained in the confidentiality agreements by and between the Parties, and (ii) participate in discussions and negotiations regarding any potential Acquisition Proposal. Such party shall promptly notify the other party hereto of any request received by such party with respect to a potential competing Acquisition Proposal. If a party receives a competing Acquisition Proposal, such party shall promptly, and in any event at least three (3) business days prior to entering into any agreement with respect to such competing Acquisition Proposal, notify the other party of the receipt of such competing Acquisition Proposal, specifying the material terms and conditions of the proposal and identifying the person making such proposal. If a party enters into a definitive agreement with respect to a competing Acquisition Proposal, such party shall concurrently with entering into such agreement pay, or cause to be paid, all fees and expenses incurred by the other party through such date in connection with the transactions contemplated by this Agreement 48 56 (including, without limitation, all attorneys', accountants', financial advisors', bankers', appraisers' and similar professional fees and expenses). For purposes of this Section 27, the term "Acquisition Proposal" means any proposal to acquire (whether by merger, stock or asset purchase, direct investment, or otherwise) any equity interest in the other party hereto, any of its subsidiaries, or all or any material portion of its assets (except with respect to sales of homes, lots or parcels in the ordinary course of business). 49 57 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. WILLIAM LYON WILLIAM LYON HOMES, INC. (as to Sections 9.1-9.3, 9.5-9.6, 10.1-10.6, a California corporation 10.7, 18.3, 18.4, 18.5, 24.1-24.18 and 27, only) /s/ William Lyon By: /s/ William Lyon - ----------------------------------------------- -------------------------- William Lyon Its: President and CEO --------------------- "SELLER" WILLIAM H. LYON (as to Sections 9.1-9.3, 9.5-9.6, 10.1-10.6, 10.7, 18.3, 18.4, 18.5, 24.1-24.18 and 27, only) /s/ William H. Lyon - ----------------------------------------------- William H. Lyon THE PRESLEY COMPANIES, PRESLEY HOMES, a Delaware corporation a California corporation By: Nancy M. Harlan By: Nancy M. Harlan -------------------------------- ------------------------- Its: Senior Vice President and Its: Senior Vice President and General Counsel General Counsel ----------------------- -------------------- By: Linda L. Foster By: Linda L. Foster ---------------------------- ------------------------- Its: Vice President and Its: Vice President and Corporate Secretary Corporate Secretary ----------------------- -------------------- "PRESLEY-DEL." "BUYER" 50 58 First American Title Insurance Company, the Escrow Holder under this Agreement, hereby certifies that the date of Opening of Escrow pursuant to Section 6 of this Agreement is October __, 1999. FIRST AMERICAN TITLE INSURANCE COMPANY a California corporation By: ---------------------------------------- Its: ----------------------------------- "ESCROW HOLDER" 51 59 EXHIBIT B CONDITIONS TO THE SERIES A OFFER The capitalized terms used in this Exhibit "B" shall have the meaning set forth in the Purchase Agreement and Escrow Instructions to which this Exhibit is attached, except that the term "Agreement" shall be deemed to refer to such Purchase Agreement and Escrow Instructions. CONDITIONS TO THE OFFER. Notwithstanding any other provisions of the Series A Offer, the Lyons shall not be required to accept for payment or pay for any tendered shares of Series A Common Stock and may terminate or, subject to the terms of the Agreement, amend the Series A Offer, if (i) there shall not be validly tendered and not properly withdrawn prior to the expiration date for the Series A Offer (the "Expiration Date") that number of shares of Series A Common Stock which, when added to (x) the number of shares of Common Stock owned by Seller, the Lyons and their affiliates as of the date of such test (exclusive of the shares underlying the stock options to be cancelled as contemplated in Section 16.14 of the Agreement), and (y) the number of shares of Common Stock held by each of the Series B Shareholders which such holders are legally obligated to sell to Seller pursuant to the Series B Purchase Agreements (including pursuant to Seller's option to purchase additional shares of Series B Common Stock in the event of an undersubscribed Series A Offer), would aggregate at least 45% of the outstanding number of shares of Common Stock (the "Minimum Condition"); (ii) the Acquisition has not been consummated in accordance with the terms of the Agreement; (iii) the stockholders of Presley-Del. shall not have approved the Merger by the requisite vote at the Stockholders' Meeting; or (iv) at any time on or after the date of the Agreement and prior to the time of payment for any shares of Common Stock, any of the following events (each, an "Event") shall have occurred and be continuing as of the Expiration Date: (a) there shall be any action taken, instituted or pending, or any statute, rule, regulation, legislation, interpretation, ruling, condition, judgment, order or injunction enacted, enforced, promulgated, proposed, amended, issued or deemed applicable to the Series A Offer, the Series B Purchases, the Acquisition or the Merger, by any Governmental Entity, that could reasonably be expected to, directly or indirectly: (1) make illegal or otherwise prohibit consummation of the Series A Offer, the Series B Purchases, the Acquisition or the Merger as contemplated by the Agreement, (2) impose a limitation on the ability of the Lyons effectively to acquire, hold or exercise full rights of ownership of the Common Stock, including, without limitation, the right to vote any shares acquired or owned by the Lyons on all matters properly presented to Presley-Del.'s or New Presley's stockholders, or (3) require divestiture by the Lyons, Seller or their respective affiliates of shares of Common Stock of Presley-Del. or any material portion of the business or assets of Presley-Del. taken as a whole; or (b) (1) the representations of Presley-Del. and Buyer set forth in the Merger Agreement shall not be true and correct in any material respect as of the date of the Agreement and as of consummation of the Series A Offer as though made on and as of such date, (2) Presley-Del. or Buyer shall have failed to comply in all material respects with their respective covenants and agreements set forth in the Agreement, (3) there shall B-1 60 have occurred any events or changes which have had or could reasonably be expected to have a material adverse effect on the business, assets, prospects, condition (financial and other) and results of operations of Presley-Del. taken as a whole; or (c) (1) it shall have been publicly disclosed, or the Lyons and Seller shall have otherwise learned, that beneficial ownership (determined for the purposes of this paragraph (c) as set forth in Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the outstanding shares of Common Stock has been acquired by any person (including Presley-Del. and the Buyer or any of their subsidiaries or affiliates) or group (as defined in Section 13(d)(3) under the Exchange Act), (2) the Board of Directors of Presley-Del. or any committee thereof shall have withdrawn, or shall have modified or amended in a manner adverse to the Lyons and Seller, the approval, adoption or recommendation, as the case may be, of the Series A Offer or the Merger, or approved or recommended any, merger, consolidation, other business combination, sale of material assets, takeover proposal or other acquisition of shares of Common Stock other than the Series A Offer, the Acquisition, the Merger and the other transactions contemplated by the Agreement, (3) a third party shall have entered into a definitive agreement or a written agreement in principle with Presley-Del. with respect to a tender offer or exchange offer for any shares of Common Stock or a merger, consolidation, other business combination with Presley-Del. or sale of material assets with or involving Presley-Del. or any of its subsidiaries (except as specifically permitted by the Agreement), or (4) the Board of Directors of Presley-Del. or any committee thereof shall have resolved to do any of the foregoing and such resolution shall be made public; or (d) Presley-Del., the Buyer and the Seller shall have reached an agreement that the Series A Offer, the Acquisition or the Agreement be terminated, or the Agreement shall have been otherwise terminated in accordance with its terms; or (e) there shall have occurred, and continued to exist, (1) any general suspension of, or limitation on prices for, trading in securities on the New York Stock Exchange (excluding any coordinated trading half-triggered solely as a result of a specified decrease in a market index and suspensions on limitations resulting solely from physical damage or interference with such exchanges not related to market conditions), or (2) a banking moratorium in the United States or other limitation on the extension of credit, or (3) a commencement of a war, armed hostilities or other national or international calamity involving the United States and having a material adverse effect on the business, assets, prospects, condition (financial and other) and results of operations of Presley-Del., taken as a whole, or materially adversely affecting or delaying the Series A Offer, or (4) in the case of any condition, circumstance or event referenced in any of the foregoing clauses (1), (2) and (3) and existing at the time of the commencement of the Series A Offer, a material acceleration or worsening thereof; or (f) the Series B Purchase Agreements shall no longer be in full force or effect, or the Series B Purchase Agreements shall no longer be enforceable against the Series B Shareholders in accordance with their terms (except for any such failure to be in full force or effect or enforceable which is due solely to a breach thereof by Seller); or B-2 61 (g) it is reasonably determined that upon consummation of the Series A Offer, the Series B Purchases and the Merger, (1) the shares of Common Stock will cease to be listed on the New York Stock Exchange or another national securities exchange, or will not be quoted on an inter-dealer quotation system of a registered national securities association, or (2) the shares of Common Stock to be outstanding immediately following consummation of such transactions will be held of record by less than 300 persons. The foregoing conditions are for the benefit of the Lyons and may be asserted by them regardless of the circumstances giving rise to any such conditions and may be waived by them, in whole or in part, at any time and from time to time in their reasonable discretion, in each case, subject to the terms of the Agreement, including Section 9.2 thereof. Subject to Section 9.2 of the Agreement, the failure by the Lyons at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any reasonable determination by the Lyons concerning the events described in this Exhibit "B" will be final and binding on all Parties. B-3 EX-2.(C) 10 SERIES B PURCHASE AGREEMENTS 1 EXHIBIT (C)(2) STOCK PURCHASE AND SALE AGREEMENT THIS STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into as of this 6th day of July, 1999 by and among William Lyon Homes, Inc., a California corporation ("Purchaser"), and The Chase Manhattan Bank, as Trustee for First Plaza Group Trust ("Seller"). RECITALS: WHEREAS, Purchaser, The Presley Companies, a Delaware corporation ("Presley-Del."), and Presley Homes, a California corporation ("Presley-Cal."), are parties to a letter of intent dated May 3, 1999 attached hereto as Exhibit A (the "Letter of Intent") which sets forth such parties' mutual, preliminary understanding with respect to Presley-Cal.'s proposed acquisition of substantially all of the assets of Purchaser (the "Acquisition") and Purchaser's proposal to acquire a portion of the outstanding shares of Common Stock of Presley-Del.; and WHEREAS, the Letter of Intent contemplates that Purchaser will make offers to the holders of Presley-Del. Series B Common Stock (the "Series B Offer") and a tender offer to the holders of the Presley Del. Series A Common Stock (the "Series A Offer") to purchase, for a cash purchase price of $0.655 per share, an aggregate number of shares of the Presley Del. Common Stock which, when added to the number of shares of Presley-Del Common Stock already owned by Purchaser and its affiliates (and after giving effect to dispositions of Presley-Del. Common Stock held by Purchaser and its affiliates as contemplated in the Letter of Intent), will cause Purchaser and its affiliates to own an aggregate of approximately 49% (but in no event more than 49.9%) of the shares of Presley-Del. Common Stock outstanding; and WHEREAS, Seller owns shares of Presley-Del. Series B Common Stock and, as part of the Series B Offer, Seller and Purchaser desire to enter into this Agreement to provide for the sale by Seller to Purchaser of 4,186,748 shares (subject to adjustment as provided herein) of such Series B Common Stock on the terms and subject to the conditions set forth herein. AGREEMENT NOW THEREFORE, in consideration of the foregoing and the representations, warranties and covenants set forth in this Agreement, the parties agree as follows: ARTICLE I PURCHASE AND SALE 1.1 Purchase and Sale of Shares. At the Closing (as defined in Section 1.3 of this Agreement), and on the terms and subject to the conditions set forth in 1 2 this Agreement, Seller agrees to sell, transfer and deliver to Purchaser, and Purchaser hereby agrees to purchase and acquire from Seller, 4,186,748 shares of Presley-Del. Series B Common Stock (the "Shares") for a cash price of $0.655 per share, or an aggregate purchase price of $2,742,319.94 (the "Purchase Price"). The number of Shares of Presley-Del. Series B Common Stock to be purchased and sold hereunder, and the aggregate Purchase Price to be paid therefor, shall be subject to adjustment as provided in Section 4.1 and Section 7.12 of this Agreement. 1.2 Deliveries at Closing. At the Closing, Seller shall deliver to Purchaser the certificate or certificates representing the Shares, duly endorsed for transfer to, or accompanied by duly executed stock powers in favor of, Purchaser or its nominee, and otherwise in a form acceptable for transfer on the books of Presley-Del., against payment by Purchaser of the Purchase Price by wire transfer of immediately available funds to the account specified on Schedule 1.2 attached hereto. 1.3 Closing. Unless otherwise agreed by the parties hereto, the closing of the transaction contemplated in this Article I (the "Closing") shall take place at the offices of Purchaser at 9:00 a.m. Pacific time on the second business day following the delivery by Purchaser to Seller of written notice to the effect that the conditions set forth in Sections 5.3(c), 5.3(d) and 5.3(e) of this Agreement have been satisfied or waived. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." ARTICLE II REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as of the date of this Agreement and as of the Closing Date as follows (it being understood and agreed that Purchaser makes no representations or warranties in connection with the purchase and sale of the Shares hereunder other than as set forth in this Article II and in Section 7.10 hereof): 2.1 Due Incorporation; Authority. Purchaser has been duly incorporated and is validly existing in good standing under the laws of the State of California. Purchaser has the corporate power and corporate authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, and the performance of Purchaser's obligations hereunder, have been duly authorized by all necessary corporate action on the part of Purchaser. 2.2 Binding Obligation. This Agreement has been duly executed and delivered by Purchaser, and constitutes the legal, valid and binding obligation of Purchaser, enforceable in accordance with its terms against Purchaser, except that (a) such enforcement may be limited by the effect of applicable bankruptcy, reorganization, insolvency, moratorium or similar laws relating to or affecting creditors rights generally; and (b) such enforcement may be limited by general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the 2 3 possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. 2.3 No Conflict or Violation. Purchaser's execution and delivery of, and performance of its obligations under, this Agreement do not (a) violate Purchaser's articles of incorporation or bylaws, (b) constitute a material breach or default under any existing obligation of or restriction on Purchaser under any other agreement to which Purchaser is a party, or (c) breach or otherwise violate any law, statute, rule, regulation, order or decree applicable to Purchaser. No consent, order, permit or approval of any person or governmental authority is required on the part of Purchaser for the execution and delivery of, and performance of its obligations under, this Agreement. 2.4 Investment Intent. Purchaser is purchasing the Shares for its own account and not with a view to distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser is an "accredited investor," as such term is defined in Rule 501(a) under the Securities Act, which, by reason of its business and financial experience, has such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the investment in the Shares. Purchaser understands that (a) the Shares have not been registered under the Securities Act and may not be offered or sold unless the Shares are registered under the Securities Act or an exemption from the registration requirements of the Securities Act is available, (b) if any transfer of the Shares is to be made in reliance on an exemption under the Securities Act, Presley-Del. may require an opinion of counsel satisfactory to it that such transfer may be made pursuant to such exemption, and (c) so long as deemed appropriate by Presley-Del., the Shares may bear a legend to the effect of clauses (a) and (b) of this paragraph. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Purchaser as of the date of this Agreement and as of the Closing Date as follows (it being understood and agreed that Seller makes no representations or warranties in connection with the purchase and sale of the Shares hereunder other than as set forth in this Article III and in Section 7.10 hereof): 3.1 Organization and Good Standing; Authority. Seller has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization. Seller has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, and the performance of Seller's obligations hereunder, have been duly authorized by all necessary corporate, partnership or trust action (as the case may be) on the part of Seller. 3.2 Binding Obligation. This Agreement has been duly executed and delivered by Seller, and constitutes the legal, valid and binding obligation of Seller, enforceable in accordance with its terms against Seller, except that (a) such enforcement 3 4 may be limited by the effect of applicable bankruptcy, reorganization, insolvency, moratorium or similar laws relating to or affecting creditors rights generally; and (b) such enforcement may be limited by general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. 3.3 No Conflict or Violation. Seller's execution and delivery of, and performance of its obligations under, this Agreement do not (a) violate Seller's charter or other organizational documents, (b) to Seller's knowledge, constitute a material breach or default under any existing obligation of or restriction on Seller under any other agreement to which Seller is a party, or (c) breach or otherwise violate any law, statute, rule, regulation, order or decree applicable to Seller. No consent, order, permit or approval of any person or governmental authority is required on the part of Seller for the execution and delivery of, and performance of its obligations under, this Agreement. 3.4 Share Ownership. Seller's record and beneficial ownership of Presley-Del. equity securities is correctly set forth on Schedule 3.4 attached hereto. Seller owns all of the Shares of record and beneficially, free and clear of any charge, claim, property interest, right of first refusal, condition, lien, option, pledge, security interest or other adverse claim or interest of any kind (collectively, "Encumbrances"). At the Closing, Seller will transfer to Purchaser good title to the Shares, free and clear of all Encumbrances except for such Encumbrances as may be imposed by applicable securities laws or as may be otherwise expressly provided herein. ARTICLE IV ADDITIONAL AGREEMENTS 4.1 Purchase and Sale of Additional Series B Shares. (a) Seller acknowledges that it is Purchaser's objective, following the Closing of the Series A Offer and the Series B Offer, to own (together with Purchaser's affiliates) an aggregate of approximately 49% (but in no event more than 49.9%) of Presley-Del.'s outstanding Common Stock. In the event that the Series A shareholders do not tender a sufficient number of shares of Series A Common Stock in response to the Series A Offer to enable Purchaser and its affiliates (after taking into account the Series B shares to be acquired pursuant to the Series B Offer and after giving effect to the possible disposition by Purchaser and its affiliates of up to 8% of the outstanding shares of Presley-Del. Common Stock as contemplated in the Letter of Intent) to achieve the desired ownership target, Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Seller, at a price of $0.655 per share in cash, an additional number of shares of Series B Common Stock owned by Seller so as to enable Purchaser and its affiliates to reach the desired ownership target. The number of additional shares of Series B Common Stock to be sold by Seller pursuant to this Section 4.1 shall be determined in accordance with the following formula: 4 5 Number of Additional Shares = A x B --- C Where A = Total number of additional shares of Presley-Del. Common Stock necessary to enable Purchaser and its affiliates to achieve the desired ownership target; B = Total number of shares of Presley-Del. Common Stock owned by Seller (after giving effect to the sale of the Shares specified in Section 1.1 of this Agreement); and C = Total number of shares of Presley-Del. Common Stock owned by each of the Series B shareholders identified on Schedule 3.4 attached hereto (after giving effect to the sale of the Shares specified in Section 1.1 of this Agreement and in Section 1.1 of each of the agreements entered into with the other Series B Shareholders in connection with the Series B Offer). (b) The number of additional shares of Series B Common Stock to be purchased pursuant to this Section 4.1 (if any) shall be set forth in the notice delivered by Purchaser to Seller in accordance with Section 1.3 of this Agreement. The purchase and sale of any additional shares of Series B Common Stock pursuant to this Section 4.1 shall occur in the same manner and at the same time as the transaction provided for in Article I of this Agreement. The term "Shares," as used in this Agreement, shall refer equally to any additional shares of Series B Common Stock purchased and sold pursuant to this Section 4.1. 4.2 Agreements Not to Tender, Transfer or Acquire Shares. Seller hereby agrees that, prior to the Closing, Seller will not: (a) transfer or dispose of any interest in, tender (pursuant to the Series A Offer or otherwise), or pledge or otherwise create (or allow to exist) any Encumbrance on, any shares of Presley-Del. Common Stock which it owns (except as contemplated in this Agreement); (b) convert any Series B shares which it owns into Series A shares; or (c) acquire any beneficial interest in shares of Presley-Del. Common Stock or any options, warrants or other rights to acquire shares of Presley-Del. Common Stock. Notwithstanding anything herein to the contrary, any affiliate of Seller which, in the ordinary course of its business, engages in any of the following activities may engage in such activities (other than for its own account) with respect to shares of Presley-Del. Common Stock and options, warrants or other rights to acquire shares of Presley-Del. 5 6 Common Stock: brokerage, investment advisory, investment company, financial advisory, anti-raid advisory, financing, asset management, trading, market making, arbitrage and other similar activities. 4.3 Restriction on Sales of Presley-Del Common Stock by Purchaser. Purchaser hereby agrees that during the period from the Closing Date through and including the third anniversary of the Closing Date, Purchaser and its affiliates will not sell or otherwise transfer for value any shares of Presley-Del. Common Stock (other than the 7,939,589 shares of Series A Common Stock which are currently owned by Purchaser and its affiliates) unless such sale takes place in connection with a transaction in which all other holders of Presley-Del. Common Stock are afforded an opportunity to participate pro rata (based on ownership of Presley-Del. Common Stock) and on the same terms and conditions as Purchaser and its affiliates. Notwithstanding the foregoing, nothing contained in this Section 4.3 shall prohibit any transfer of Presley-Del. Common Stock by Purchaser or any of its affiliates to (a) any other affiliate of Purchaser, (b) William Lyon, his spouse or any of his lineal descendants, (c) any person who acquires such shares under the terms of a will or by the laws of descent and distribution, or (d) any trustee of any trust, the beneficiaries of which consist only of William Lyon, his spouse or lineal descendants, or any charitable organization as defined in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, provided that any such permitted transferee first agrees in writing to be bound by this Section 4.3 to the same extent as Purchaser and its affiliates. 4.4 Consent to Transactions; Agreement to Vote in Favor of Presley-Del. Charter Amendments. Seller hereby approves of and consents to the transactions contemplated in the Letter of Intent, a copy of which has previously been provided to Seller. Subject to the condition set forth in the next sentence, Seller hereby agrees to vote all shares of Presley-Del. Common Stock which it (or any of its affiliates) owns in favor of the transactions contemplated by such Letter of Intent which are submitted for a vote of Presley-Del. stockholders and for which approval has been recommended by the Presley-Del. Board of Directors. In particular, but conditioned upon the understanding that such provisions will not be effective until after the closing of the Series A Offer, the Series B Offer and the Acquisition, Seller agrees to vote all shares of Presley-Del. Common Stock which it (or any of its affiliates) owns in favor of certain provisions proposed to be added to Presley-Del.'s certificate of incorporation (whether by amendment, merger or otherwise) which would restrict the transfer of Presley-Del shares by holders of 5% or more of its outstanding shares so as to avoid triggering certain tax law provisions which could result in the loss of Presley-Del.'s net operating losses for tax purposes. ARTICLE V CONDITIONS TO CLOSING The obligation of Purchaser and Seller to effect the Closing shall be subject to the following conditions: 6 7 5.1 Conditions Precedent to Purchaser's and Seller's Obligations. Purchaser's and Seller's respective obligations to consummate the purchase and sale of the Shares hereunder and to take the other actions required to be taken at the Closing are subject to the satisfaction as of the Closing Date of the condition that the purchase and sale of the Shares as contemplated in this Agreement shall not violate or contravene any applicable law, statute, rule, regulation, order or decree of any governmental authority. 5.2 Conditions Precedent to Seller's Obligation to Close. Seller's obligations to sell the Shares and to take the other actions required to be taken by Seller at the Closing are subject to the satisfaction as of the Closing Date of each of the following conditions (each of which may be waived by Seller, in whole or in part): (a) the representations and warranties of Purchaser contained in this Agreement must have been true and correct in all respects on the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made on the Closing Date; and (b) Purchaser shall have performed all of the covenants and obligations that Purchaser is required to perform or to comply with at or prior to the Closing pursuant to this Agreement. 5.3 Conditions Precedent to Purchaser's Obligation to Close. Purchaser's obligations to purchase the Shares and to take the other actions required to be taken by Purchaser at the Closing are subject to the satisfaction as of the Closing Date of each of the following conditions (each of which may be waived by Purchaser, in whole or in part): (a) The representations and warranties of Seller contained in this Agreement must have been true and correct in all respects on the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made on the Closing Date; (b) Seller shall have performed all of the covenants and obligations that Seller is required to perform or to comply with at or prior to the Closing pursuant to this Agreement; (c) The stockholders of Presley-Del., by a vote sufficient under applicable law, shall have approved certain provisions which are proposed to be added to Presley-Del.'s certificate of incorporation and/or bylaws to restrict transfers of shares of Presley-Del. Common Stock by holders of 5% or more of the outstanding Common Stock so as to avoid triggering the change-in-control tax provisions which could result in a loss of Presley-Del.'s net operating losses for tax purposes, and Presley-Del. shall have notified Purchaser in writing of its intention to effect such provisions (by filing with the Delaware Secretary of State a certificate of amendment or certificate of merger) following and conditioned only upon the closing of the Series A Offer and the Series B Offer; 7 8 (d) Presley-Cal. and Purchaser shall have closed the Acquisition; (e) Purchaser shall have purchased (or shall have the legally enforceable right to purchase) shares of Presley-Del. Common Stock pursuant to the Series A Offer and/or the Series B Offer such that the number of shares so purchased, when added to the number of shares of Presley-Del. Common Stock then owned by Purchaser and its affiliates, causes Purchaser and its affiliates to own at least 49% (but not more than 49.9%) of the outstanding shares of Presley-Del. Common Stock; and (f) upon the closing of the Series B Offer, no person (other than Purchaser and its affiliates) shall own beneficially 5% or more of the outstanding Common Stock of Presley-Del. ARTICLE VI TERMINATION 6.1 Termination Events. This Agreement may, by written notice delivered prior to the Closing, be terminated: (a) by mutual consent of Purchaser and Seller; (b) by Purchaser or Seller (if such party is not itself then in breach), if a material breach of this Agreement has been committed by the other party, and such breach has not been waived or cured within 10 calendar days of the date written notice of such breach is delivered to the breaching party; (c) by Purchaser or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before November 15, 1999, or such later date as the parties may agree upon in writing; (d) (i) by Purchaser, if any of the conditions in Section 5.3 of this Agreement has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Purchaser to perform its obligations under this Agreement), or (ii) by Seller, if any of the conditions in Section 5.2 of this Agreement has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to perform its obligations under this Agreement); or (e) by Purchaser or Seller, if Purchaser, Presley-Del. and Presley-Cal. terminate the Letter of Intent (or any definitive agreement entered into with respect to the transactions contemplated by the Letter of Intent), or the Letter of Intent (or any such definitive agreement) expires in accordance with its terms prior to the Closing Date. 8 9 6.2 Effect of Termination. If this Agreement is terminated pursuant to Section 6.1 hereof, all further obligations of the parties under this Agreement shall terminate; provided, however, that a termination of this Agreement shall not relieve any party of any liability it may have for breach of any representation or warranty or nonperformance of any covenant or obligation hereunder, or constitute a waiver of any available remedy (including specific performance, if available) for any such breach or nonperformance. ARTICLE VII GENERAL PROVISIONS 7.1 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. 7.2 Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of California applicable to agreements made and to be performed wholly within the State of California, without regard to conflict of laws principles. 7.3 Entire Agreement. This Agreement contains all of the agreements between the parties with respect to the matters contained herein and supersedes all prior written or oral and all contemporaneous oral agreements or understandings between the parties pertaining to any such matters. No provision of this Agreement may be amended or added to except by an agreement in writing signed by the parties to this Agreement or their respective successors in interest and expressly stating that it is an amendment of this Agreement. 7.4 Further Assurances. The parties agree to do such further acts and things and to execute and deliver such additional agreements and instruments as any other party may reasonably require to consummate, evidence or confirm the agreements contained herein in the manner contemplated hereby. 7.5 Assignment. This Agreement and the rights, duties, and obligations hereunder may not be assigned by any party prior to the Closing without the prior written consent of the other party, and any attempted assignment is void. Notwithstanding the foregoing, either Purchaser or Seller may assign its rights and delegate its obligations under this Agreement to one or more of their respective affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) or, in the case of Seller, to any successor trust or successor trustee of Seller, provided that, in each case, (a) the assignee first agrees in writing to be bound by the terms of this Agreement, and (b) any such assignment and delegation shall not relieve Purchaser or Seller of any of its obligations hereunder. 9 10 7.6 Successors and Assigns. Subject to Section 7.5 hereof, this Agreement shall be binding upon each of the parties to it and their respective successors and permitted assigns. 7.7 Severability. In the event any provision of this Agreement shall finally be determined to be unlawful, such provision shall be deemed to be severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 7.8 Expenses. Each party shall bear its own expenses in connection with the transactions contemplated hereunder. Each party further represents and warrants that it has not engaged or authorized any broker, finder or similar agent who would be entitled to a commission or other fee in respect of the transactions contemplated hereunder. 7.9 Applicability in the Event of Conversion, Reclassification or Exchange of Series B Common Stock. In the event that shares of Presley-Del. Series B Common Stock are converted, reclassified or split into, or otherwise exchanged for, other securities of the same or different issuer, the terms and provisions of this Agreement shall be deemed to apply to such other securities with the same force and effect (with such adjustments to the number of securities and the purchase price thereof as may be necessary or appropriate to give effect to the parties' intent and the transactions contemplated hereunder). 7.10 Acknowledgement. Purchaser and Seller acknowledge that each of them has a representative who is a director of Presley Del. and that each of Purchaser and Seller may be deemed to be an affiliate of Presley-Del. (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). Purchaser and Seller further acknowledge that each of them may have confidential information concerning Presley-Del.'s business and affairs which is not public and may be considered material. Recognizing the foregoing, neither Purchaser nor Seller has requested, desires or requires the other to disclose any confidential information relating to Presley-Del. or otherwise. Each of Purchaser and Seller has conducted its own investigation, to the extent it has determined necessary or desirable, in connection with the purchase and sale of the Shares hereunder and expressly further acknowledges that (a) it has not relied upon any representation, warranty or statement (other than the limited representations, warranties and statements contained in this Agreement) made by, nor upon any analysis of, the other in connection with the transactions contemplated hereunder, (b) it has made its own investment analysis and decision to purchase or sell (as the case may be) the Shares based upon such information as it has deemed appropriate, and (c) it is voluntarily assuming all risks associated with the purchase or sale (as the case may be) of the Shares hereunder resulting from the failure to receive any such representations, warranties, statements or confidential information 7.11 Relationship to Other Series B Purchase Agreements. The parties acknowledge that, in connection with the Series B Offer, Purchaser has entered into or proposes to enter into agreements with the other holders of Presley-Del. Series B 10 11 Common Stock to purchase from such holders additional shares of Presley-Del. Common Stock (such other agreements are attached hereto as Exhibit B and are being referred to herein as the "Other Series B Agreements"). Purchaser agrees that such Other Series B Agreements are to be identical in form and substance to this Agreement, with only such differences as relate to the identity of the seller and the number of shares of Presley-Del. Common Stock to be purchased and sold thereunder (it being understood that in the case of Foothill Capital Corporation, such number is 710,574 shares of Presley-Del. Series B Common Stock, and in the case of each of the other Series B stockholders, such number is that number of Series B shares as is necessary to reduce the total number of shares of Presley-Del. Common Stock (including any Presley-Del. Series A shares) owned by such Series B stockholder to below 5% of the total number of shares of Presley-Del. Common Stock outstanding). If the terms and conditions contained in any of the Other Series B Agreements are modified from the terms or conditions contained in this Agreement in any respect which is more advantageous to the seller or sellers party thereto, Purchaser and Seller agree that (a) Purchaser shall deliver to Seller prompt written notice of such modification (including the text thereof), (b) this Agreement shall be deemed to be amended to reflect such more advantageous terms or conditions (unless Seller notifies Purchaser to the contrary in writing), and (c) Purchaser and Seller, upon request, will promptly execute such agreements or instruments as may be necessary to evidence such amendment. 7.12 Increase in Series A Offering Price. In the event that the purchase price paid by Purchaser in the Series A Offer is increased above $0.655 per share in cash, then the purchase price to be paid by Purchaser under this Agreement for each of the Shares shall be increased by the same incremental amount above $0.655 per share. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase and Sale Agreement as of the day and year first above written. "PURCHASER" WILLIAM LYON HOMES, INC. By: /s/ William Lyon ------------------------------------ William Lyon Chairman, President and CEO "SELLER" THE CHASE MANHATTAN BANK, AS TRUSTEE OF FIRST PLAZA GROUP TRUST By: /s/ John F. Weeda ------------------------------------ John F. Weeda Vice President 12 13 SCHEDULE 3.4 SHARE OWNERSHIP
Series A Shares Series B Shares First Plaza Group Trust 1,697,325 5,099,206 GS Credit Partners, L.P. --- 5,920,362 ING (U.S.) Capital LLC (as nominee of ING Equity Partners, L.P. I) --- 4,547,269 Foothill Capital Corporation --- 1,836,109
14 STOCK PURCHASE AND SALE AGREEMENT THIS STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into as of this 6th day of July, 1999 by and among William Lyon Homes, Inc., a California corporation ("Purchaser"), and GS Credit Partners, L.P., ("Seller"). RECITALS: WHEREAS, Purchaser, The Presley Companies, a Delaware corporation ("Presley-Del."), and Presley Homes, a California corporation ("Presley-Cal."), are parties to a letter of intent dated May 3, 1999 attached hereto as Exhibit A (the "Letter of Intent") which sets forth such parties' mutual, preliminary understanding with respect to Presley-Cal.'s proposed acquisition of substantially all of the assets of Purchaser (the "Acquisition") and Purchaser's proposal to acquire a portion of the outstanding shares of Common Stock of Presley-Del.; and WHEREAS, the Letter of Intent contemplates that Purchaser will make offers to the holders of Presley-Del. Series B Common Stock (the "Series B Offer") and a tender offer to the holders of the Presley Del. Series A Common Stock (the "Series A Offer") to purchase, for a cash purchase price of $0.655 per share, an aggregate number of shares of the Presley Del. Common Stock which, when added to the number of shares of Presley-Del Common Stock already owned by Purchaser and its affiliates (and after giving effect to dispositions of Presley-Del. Common Stock held by Purchaser and its affiliates as contemplated in the Letter of Intent), will cause Purchaser and its affiliates to own an aggregate of approximately 49% (but in no event more than 49.9%) of the shares of Presley-Del. Common Stock outstanding; and WHEREAS, Seller owns shares of Presley-Del. Series B Common Stock and, as part of the Series B Offer, Seller and Purchaser desire to enter into this Agreement to provide for the sale by Seller to Purchaser of 3,310,579 shares (subject to adjustment as provided herein) of such Series B Common Stock on the terms and subject to the conditions set forth herein. AGREEMENT NOW THEREFORE, in consideration of the foregoing and the representations, warranties and covenants set forth in this Agreement, the parties agree as follows: ARTICLE I PURCHASE AND SALE 1.1 Purchase and Sale of Shares. At the Closing (as defined in Section 1.3 of this Agreement), and on the terms and subject to the conditions set forth in 1 15 this Agreement, Seller agrees to sell, transfer and deliver to Purchaser, and Purchaser hereby agrees to purchase and acquire from Seller, 3,310,579 shares of Presley-Del. Series B Common Stock (the "Shares") for a cash price of $0.655 per share, or an aggregate purchase price of $2,168,429.25 (the "Purchase Price"). The number of Shares of Presley-Del. Series B Common Stock to be purchased and sold hereunder, and the aggregate Purchase Price to be paid therefor, shall be subject to adjustment as provided in Section 4.1 and Section 7.12 of this Agreement. 1.2 Deliveries at Closing. At the Closing, Seller shall deliver to Purchaser the certificate or certificates representing the Shares, duly endorsed for transfer to, or accompanied by duly executed stock powers in favor of, Purchaser or its nominee, and otherwise in a form acceptable for transfer on the books of Presley-Del., against payment by Purchaser of the Purchase Price by wire transfer of immediately available funds to the account specified on Schedule 1.2 attached hereto. 1.3 Closing. Unless otherwise agreed by the parties hereto, the closing of the transaction contemplated in this Article I (the "Closing") shall take place at the offices of Purchaser at 9:00 a.m. Pacific time on the second business day following the delivery by Purchaser to Seller of written notice to the effect that the conditions set forth in Sections 5.3(c), 5.3(d) and 5.3(e) of this Agreement have been satisfied or waived. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." ARTICLE II REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as of the date of this Agreement and as of the Closing Date as follows (it being understood and agreed that Purchaser makes no representations or warranties in connection with the purchase and sale of the Shares hereunder other than as set forth in this Article II and in Section 7.10 hereof): 2.1 Due Incorporation; Authority. Purchaser has been duly incorporated and is validly existing in good standing under the laws of the State of California. Purchaser has the corporate power and corporate authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, and the performance of Purchaser's obligations hereunder, have been duly authorized by all necessary corporate action on the part of Purchaser. 2.2 Binding Obligation. This Agreement has been duly executed and delivered by Purchaser, and constitutes the legal, valid and binding obligation of Purchaser, enforceable in accordance with its terms against Purchaser, except that (a) such enforcement may be limited by the effect of applicable bankruptcy, reorganization, insolvency, moratorium or similar laws relating to or affecting creditors rights generally; and (b) such enforcement may be limited by general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the 2 16 possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. 2.3 No Conflict or Violation. Purchaser's execution and delivery of, and performance of its obligations under, this Agreement do not (a) violate Purchaser's articles of incorporation or bylaws, (b) constitute a material breach or default under any existing obligation of or restriction on Purchaser under any other agreement to which Purchaser is a party, or (c) breach or otherwise violate any law, statute, rule, regulation, order or decree applicable to Purchaser. No consent, order, permit or approval of any person or governmental authority is required on the part of Purchaser for the execution and delivery of, and performance of its obligations under, this Agreement. 2.4 Investment Intent. Purchaser is purchasing the Shares for its own account and not with a view to distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser is an "accredited investor," as such term is defined in Rule 501(a) under the Securities Act, which, by reason of its business and financial experience, has such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the investment in the Shares. Purchaser understands that (a) the Shares have not been registered under the Securities Act and may not be offered or sold unless the Shares are registered under the Securities Act or an exemption from the registration requirements of the Securities Act is available, (b) if any transfer of the Shares is to be made in reliance on an exemption under the Securities Act, Presley-Del. may require an opinion of counsel satisfactory to it that such transfer may be made pursuant to such exemption, and (c) so long as deemed appropriate by Presley-Del., the Shares may bear a legend to the effect of clauses (a) and (b) of this paragraph. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Purchaser as of the date of this Agreement and as of the Closing Date as follows (it being understood and agreed that Seller makes no representations or warranties in connection with the purchase and sale of the Shares hereunder other than as set forth in this Article III and in Section 7.10 hereof): 3.1 Organization and Good Standing; Authority. Seller has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization. Seller has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, and the performance of Seller's obligations hereunder, have been duly authorized by all necessary corporate, partnership or trust action (as the case may be) on the part of Seller. 3.2 Binding Obligation. This Agreement has been duly executed and delivered by Seller, and constitutes the legal, valid and binding obligation of Seller, enforceable in accordance with its terms against Seller, except that (a) such enforcement 3 17 may be limited by the effect of applicable bankruptcy, reorganization, insolvency, moratorium or similar laws relating to or affecting creditors rights generally; and (b) such enforcement may be limited by general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. 3.3 No Conflict or Violation. Seller's execution and delivery of, and performance of its obligations under, this Agreement do not (a) violate Seller's charter or other organizational documents, (b) to Seller's knowledge, constitute a material breach or default under any existing obligation of or restriction on Seller under any other agreement to which Seller is a party, or (c) breach or otherwise violate any law, statute, rule, regulation, order or decree applicable to Seller. No consent, order, permit or approval of any person or governmental authority is required on the part of Seller for the execution and delivery of, and performance of its obligations under, this Agreement. 3.4 Share Ownership. Seller's record and beneficial ownership of Presley-Del. equity securities is correctly set forth on Schedule 3.4 attached hereto. Seller owns all of the Shares of record and beneficially, free and clear of any charge, claim, property interest, right of first refusal, condition, lien, option, pledge, security interest or other adverse claim or interest of any kind (collectively, "Encumbrances"). At the Closing, Seller will transfer to Purchaser good title to the Shares, free and clear of all Encumbrances except for such Encumbrances as may be imposed by applicable securities laws or as may be otherwise expressly provided herein. ARTICLE IV ADDITIONAL AGREEMENTS 4.1 Purchase and Sale of Additional Series B Shares. (a) Seller acknowledges that it is Purchaser's objective, following the Closing of the Series A Offer and the Series B Offer, to own (together with Purchaser's affiliates) an aggregate of approximately 49% (but in no event more than 49.9%) of Presley-Del.'s outstanding Common Stock. In the event that the Series A shareholders do not tender a sufficient number of shares of Series A Common Stock in response to the Series A Offer to enable Purchaser and its affiliates (after taking into account the Series B shares to be acquired pursuant to the Series B Offer and after giving effect to the possible disposition by Purchaser and its affiliates of up to 8% of the outstanding shares of Presley-Del. Common Stock as contemplated in the Letter of Intent) to achieve the desired ownership target, Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Seller, at a price of $0.655 per share in cash, an additional number of shares of Series B Common Stock owned by Seller so as to enable Purchaser and its affiliates to reach the desired ownership target. The number of additional shares of Series B Common Stock to be sold by Seller pursuant to this Section 4.1 shall be determined in accordance with the following formula: 4 18 Number of Additional Shares = A x B --- C Where A = Total number of additional shares of Presley-Del. Common Stock necessary to enable Purchaser and its affiliates to achieve the desired ownership target; B = Total number of shares of Presley-Del. Common Stock owned by Seller (after giving effect to the sale of the Shares specified in Section 1.1 of this Agreement); and C = Total number of shares of Presley-Del. Common Stock owned by each of the Series B shareholders identified on Schedule 3.4 attached hereto (after giving effect to the sale of the Shares specified in Section 1.1 of this Agreement and in Section 1.1 of each of the agreements entered into with the other Series B Shareholders in connection with the Series B Offer). (b) The number of additional shares of Series B Common Stock to be purchased pursuant to this Section 4.1 (if any) shall be set forth in the notice delivered by Purchaser to Seller in accordance with Section 1.3 of this Agreement. The purchase and sale of any additional shares of Series B Common Stock pursuant to this Section 4.1 shall occur in the same manner and at the same time as the transaction provided for in Article I of this Agreement. The term "Shares," as used in this Agreement, shall refer equally to any additional shares of Series B Common Stock purchased and sold pursuant to this Section 4.1. 4.2 Agreements Not to Tender, Transfer or Acquire Shares. Seller hereby agrees that, prior to the Closing, Seller will not: (a) transfer or dispose of any interest in, tender (pursuant to the Series A Offer or otherwise), or pledge or otherwise create (or allow to exist) any Encumbrance on, any shares of Presley-Del. Common Stock which it owns (except as contemplated in this Agreement); (b) convert any Series B shares which it owns into Series A shares; or (c) acquire any beneficial interest in shares of Presley-Del. Common Stock or any options, warrants or other rights to acquire shares of Presley-Del. Common Stock. Notwithstanding anything herein to the contrary, Goldman, Sachs & Co. and its affiliates may, in the ordinary course of its and its affiliates' business, engage in brokerage, investment advisory, investment company, financial advisory, anti-raid advisory, financing, asset management, trading, market making, arbitrage and other similar 5 19 activities with respect to shares of Presley-Del. Common Stock and options, warrants or other rights to acquire shares of Presley-Del. Common Stock. 4.3 Restriction on Sales of Presley-Del Common Stock by Purchaser. Purchaser hereby agrees that during the period from the Closing Date through and including the third anniversary of the Closing Date, Purchaser and its affiliates will not sell or otherwise transfer for value any shares of Presley-Del. Common Stock (other than the 7,939,589 shares of Series A Common Stock which are currently owned by Purchaser and its affiliates) unless such sale takes place in connection with a transaction in which all other holders of Presley-Del. Common Stock are afforded an opportunity to participate pro rata (based on ownership of Presley-Del. Common Stock) and on the same terms and conditions as Purchaser and its affiliates. Notwithstanding the foregoing, nothing contained in this Section 4.3 shall prohibit any transfer of Presley-Del. Common Stock by Purchaser or any of its affiliates to (a) any other affiliate of Purchaser, (b) William Lyon, his spouse or any of his lineal descendants, (c) any person who acquires such shares under the terms of a will or by the laws of descent and distribution, or (d) any trustee of any trust, the beneficiaries of which consist only of William Lyon, his spouse or lineal descendants, or any charitable organization as defined in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, provided that any such permitted transferee first agrees in writing to be bound by this Section 4.3 to the same extent as Purchaser and its affiliates. 4.4 Consent to Transactions; Agreement to Vote in Favor of Presley-Del. Charter Amendments. Seller hereby approves of and consents to the transactions contemplated in the Letter of Intent, a copy of which has previously been provided to Seller. Subject to the condition set forth in the next sentence, Seller hereby agrees to vote all shares of Presley-Del. Common Stock which it (or any of its affiliates) owns in favor of the transactions contemplated by such Letter of Intent which are submitted for a vote of Presley-Del. stockholders and for which approval has been recommended by the Presley-Del. Board of Directors. In particular, but conditioned upon the understanding that such provisions will not be effective until after the closing of the Series A Offer, the Series B Offer and the Acquisition, Seller agrees to vote all shares of Presley-Del. Common Stock which it (or any of its affiliates) owns in favor of certain provisions proposed to be added to Presley-Del.'s certificate of incorporation (whether by amendment, merger or otherwise) which would restrict the transfer of Presley-Del shares by holders of 5% or more of its outstanding shares so as to avoid triggering certain tax law provisions which could result in the loss of Presley-Del.'s net operating losses for tax purposes. ARTICLE V CONDITIONS TO CLOSING The obligation of Purchaser and Seller to effect the Closing shall be subject to the following conditions: 6 20 5.1 Conditions Precedent to Purchaser's and Seller's Obligations. Purchaser's and Seller's respective obligations to consummate the purchase and sale of the Shares hereunder and to take the other actions required to be taken at the Closing are subject to the satisfaction as of the Closing Date of the condition that the purchase and sale of the Shares as contemplated in this Agreement shall not violate or contravene any applicable law, statute, rule, regulation, order or decree of any governmental authority. 5.2 Conditions Precedent to Seller's Obligation to Close. Seller's obligations to sell the Shares and to take the other actions required to be taken by Seller at the Closing are subject to the satisfaction as of the Closing Date of each of the following conditions (each of which may be waived by Seller, in whole or in part): (a) the representations and warranties of Purchaser contained in this Agreement must have been true and correct in all respects on the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made on the Closing Date; and (b) Purchaser shall have performed all of the covenants and obligations that Purchaser is required to perform or to comply with at or prior to the Closing pursuant to this Agreement. 5.3 Conditions Precedent to Purchaser's Obligation to Close. Purchaser's obligations to purchase the Shares and to take the other actions required to be taken by Purchaser at the Closing are subject to the satisfaction as of the Closing Date of each of the following conditions (each of which may be waived by Purchaser, in whole or in part): (a) The representations and warranties of Seller contained in this Agreement must have been true and correct in all respects on the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made on the Closing Date; (b) Seller shall have performed all of the covenants and obligations that Seller is required to perform or to comply with at or prior to the Closing pursuant to this Agreement; (c) The stockholders of Presley-Del., by a vote sufficient under applicable law, shall have approved certain provisions which are proposed to be added to Presley-Del.'s certificate of incorporation and/or bylaws to restrict transfers of shares of Presley-Del. Common Stock by holders of 5% or more of the outstanding Common Stock so as to avoid triggering the change-in-control tax provisions which could result in a loss of Presley-Del.'s net operating losses for tax purposes, and Presley-Del. shall have notified Purchaser in writing of its intention to effect such provisions (by filing with the Delaware Secretary of State a certificate of amendment or certificate of merger) following and conditioned only upon the closing of the Series A Offer and the Series B Offer; 7 21 (d) Presley-Cal. and Purchaser shall have closed the Acquisition; (e) Purchaser shall have purchased (or have the legally enforceable right to purchase) shares of Presley-Del. Common Stock pursuant to the Series A Offer and/or the Series B Offer such that the number of shares so purchased, when added to the number of shares of Presley-Del. Common Stock then owned by Purchaser and its affiliates, causes Purchaser and its affiliates to own at least 49% (but not more than 49.9%) of the outstanding shares of Presley-Del. Common Stock; and (f) upon the closing of the Series B Offer, no person (other than Purchaser and its affiliates) shall own beneficially 5% or more of the outstanding Common Stock of Presley-Del. ARTICLE VI TERMINATION 6.1 Termination Events. This Agreement may, by written notice delivered prior to the Closing, be terminated: (a) by mutual consent of Purchaser and Seller; (b) by Purchaser or Seller (if such party is not itself then in breach), if a material breach of this Agreement has been committed by the other party, and such breach has not been waived or cured within 10 calendar days of the date written notice of such breach is delivered to the breaching party; (c) by Purchaser or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before November 15, 1999, or such later date as the parties may agree upon in writing; (d) (i) by Purchaser, if any of the conditions in Section 5.3 of this Agreement has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Purchaser to perform its obligations under this Agreement), or (ii) by Seller, if any of the conditions in Section 5.2 of this Agreement has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to perform its obligations under this Agreement); or (e) by Purchaser or Seller, if Purchaser, Presley-Del. and Presley-Cal. terminate the Letter of Intent (or any definitive agreement entered into with respect to the transactions contemplated by the Letter of Intent), or the Letter of Intent (or any such definitive agreement) expires in accordance with its terms prior to the Closing Date. 8 22 6.2 Effect of Termination. If this Agreement is terminated pursuant to Section 6.1 hereof, all further obligations of the parties under this Agreement shall terminate; provided, however, that a termination of this Agreement shall not relieve any party of any liability it may have for breach of any representation or warranty or nonperformance of any covenant or obligation hereunder, or constitute a waiver of any available remedy (including specific performance, if available) for any such breach or nonperformance. ARTICLE VII GENERAL PROVISIONS 7.1 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. 7.2 Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of California applicable to agreements made and to be performed wholly within the State of California, without regard to conflict of laws principles. 7.3 Entire Agreement. This Agreement contains all of the agreements between the parties with respect to the matters contained herein and supersedes all prior written or oral and all contemporaneous oral agreements or understandings between the parties pertaining to any such matters. No provision of this Agreement may be amended or added to except by an agreement in writing signed by the parties to this Agreement or their respective successors in interest and expressly stating that it is an amendment of this Agreement. 7.4 Further Assurances. The parties agree to do such further acts and things and to execute and deliver such additional agreements and instruments as any other party may reasonably require to consummate, evidence or confirm the agreements contained herein in the manner contemplated hereby. 7.5 Assignment. This Agreement and the rights, duties, and obligations hereunder may not be assigned by any party prior to the Closing without the prior written consent of the other party, and any attempted assignment is void. Notwithstanding the foregoing, either Purchaser or Seller may assign its rights and delegate its obligations under this Agreement to one or more of their respective affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), provided that, in each case, (a) the assignee first agrees in writing to be bound by the terms of this Agreement, and (b) any such assignment and delegation shall not relieve Purchaser or Seller of any of its obligations hereunder. 7.6 Successors and Assigns. Subject to Section 7.5 hereof, this Agreement shall be binding upon each of the parties to it and their respective successors and permitted assigns. 9 23 7.7 Severability. In the event any provision of this Agreement shall finally be determined to be unlawful, such provision shall be deemed to be severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 7.8 Expenses. Each party shall bear its own expenses in connection with the transactions contemplated hereunder. Each party further represents and warrants that it has not engaged or authorized any broker, finder or similar agent who would be entitled to a commission or other fee in respect of the transactions contemplated thereunder. 7.9 Applicability in the Event of Conversion, Reclassification or Exchange of Series B Common Stock. In the event that shares of Presley-Del. Series B Common Stock are converted, reclassified or split into, or otherwise exchanged for, other securities of the same or different issuer, the terms and provisions of this Agreement shall be deemed to apply to such other securities with the same force and effect (with such adjustments to the number of securities and the purchase price thereof as may be necessary or appropriate to give effect to the parties' intent and the transactions contemplated hereunder). 7.10 Acknowledgement. Purchaser and Seller acknowledge that each of them may be deemed to be an affiliate of Presley-Del. (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). Purchaser and Seller further acknowledge that each of them may have confidential information concerning Presley-Del.'s business and affairs which is not public and may be considered material. Recognizing the foregoing, neither Purchaser nor Seller has requested, desires or requires the other to disclose any confidential information relating to Presley-Del. or otherwise. Each of Purchaser and Seller has conducted its own investigation, to the extent it has determined necessary or desirable, in connection with the purchase and sale of the Shares hereunder and expressly further acknowledges that (a) it has not relied upon any representation, warranty or statement (other than the limited representations, warranties and statements contained in this Agreement) made by, nor upon any analysis of, the other in connection with the transactions contemplated hereunder, (b) it has made its own investment analysis and decision to purchase or sell (as the case may be) the Shares based upon such information as it has deemed appropriate, and (c) it is voluntarily assuming all risks associated with the purchase or sale (as the case may be) of the Shares hereunder resulting from the failure to receive any such representations, warranties, statements or confidential information. 7.11 Relationship to Other Series B Purchase Agreements. The parties acknowledge that, in connection with the Series B Offer, Purchaser has entered into or proposes to enter into agreements with the other holders of Presley-Del. Series B Common Stock to purchase from such holders additional shares of Presley-Del. Common Stock (such other agreements are attached hereto as Exhibit B and are referred to herein as the "Other Series B Agreements"). Purchaser agrees that such Other Series B Agreements are to be identical in form and substance to this Agreement, with only such 10 24 differences as relate to the identity of the seller and the number of shares of Presley-Del. Common Stock to be purchased and sold thereunder (it being understood that in the case of Foothill Capital Corporation, such number is 710,574 shares of Presley-Del. Series B Common Stock, and in the case of each of the other Series B stockholders, such number is that number of Series B shares as is necessary to reduce the total number of shares of Presley-Del. Common Stock (including any Presley-Del. Series A shares) owned by such Series B stockholder to below 5% of the total number of shares of Presley-Del. Common Stock outstanding). If the terms and conditions contained in any of the Other Series B Agreements are modified from the terms or conditions contained in this Agreement in any respect which is more advantageous to the seller or sellers party thereto, Purchaser and Seller agree that (a) Purchaser shall deliver to Seller prompt written notice of such modification (including the text thereof), (b) this Agreement shall be deemed to be amended to reflect such more advantageous terms or conditions (unless Seller notifies Purchaser to the contrary in writing), and (c) Purchaser and Seller, upon request, will promptly execute such agreements or instruments as may be necessary to evidence such amendment. 7.12 Increase in Series A Offering Price. In the event that the purchase price paid by Purchaser in the Series A Offer is increased above $0.655 per share in cash, then the purchase price to be paid by Purchaser under this Agreement for each of the Shares shall be increased by the same incremental amount above $0.655 per share. 11 25 IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase and Sale Agreement as of the day and year first above written. "PURCHASER" WILLIAM LYON HOMES, INC. By: /s/ William Lyon ------------------------------------ William Lyon Chairman, President and CEO "SELLER" GS CREDIT PARTNERS, L.P. By: /s/ Robert O'Shea ------------------------------------ Robert O'Shea Managing Director 12 26 SCHEDULE 3.4 SHARE OWNERSHIP
Series A Shares Series B Shares First Plaza Group Trust 1,697,325 5,099,206 GS Credit Partners, L.P. -- 5,920,362 ING (U.S.) Capital LLC (as nominee of ING Equity Partners, L.P. I) -- 4,547,269 Foothill Capital Corporation -- 1,836,109
27 STOCK PURCHASE AND SALE AGREEMENT THIS STOCK PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into as of this 6th day of July, 1999 by and among William Lyon Homes, Inc., a California corporation ("Purchaser"), and ING (U.S.) Capital, LLC, formerly known as ING (U.S.) Capital Corporation ("Seller"). RECITALS: WHEREAS, Purchaser, The Presley Companies, a Delaware corporation ("Presley-Del."), and Presley Homes, a California corporation ("Presley-Cal."), are parties to a letter of intent dated May 3, 1999 attached hereto as Exhibit A (the "Letter of Intent") which sets forth such parties' mutual, preliminary understanding with respect to Presley-Cal.'s proposed acquisition of substantially all of the assets of Purchaser (the "Acquisition") and Purchaser's proposal to acquire a portion of the outstanding shares of Common Stock of Presley-Del.; and WHEREAS, the Letter of Intent contemplates that Purchaser will make offers to the holders of Presley-Del. Series B Common Stock (the "Series B Offer") and a tender offer to the holders of the Presley Del. Series A Common Stock (the "Series A Offer") to purchase, for a cash purchase price of $0.655 per share, an aggregate number of shares of the Presley Del. Common Stock which, when added to the number of shares of Presley-Del Common Stock already owned by Purchaser and its affiliates (and after giving effect to dispositions of Presley-Del. Common Stock held by Purchaser and its affiliates as contemplated in the Letter of Intent), will cause Purchaser and its affiliates to own an aggregate of approximately 49% (but in no event more than 49.9%) of the shares of Presley-Del. Common Stock outstanding; and WHEREAS, Seller owns shares of Presley-Del. Series B Common Stock and, as part of the Series B Offer, Seller and Purchaser desire to enter into this Agreement to provide for the sale by Seller to Purchaser of 1,937,486 shares (subject to adjustment as provided herein) of such Series B Common Stock on the terms and subject to the conditions set forth herein. AGREEMENT NOW THEREFORE, in consideration of the foregoing and the representations, warranties and covenants set forth in this Agreement, the parties agree as follows: 1 28 ARTICLE I PURCHASE AND SALE 1.1 Purchase and Sale of Shares. At the Closing (as defined in Section 1.3 of this Agreement), and on the terms and subject to the conditions set forth in this Agreement, Seller agrees to sell, transfer and deliver to Purchaser, and Purchaser hereby agrees to purchase and acquire from Seller, 1,937,486 shares of Presley-Del. Series B Common Stock (the "Shares") for a cash price of $0.655 per share, or an aggregate purchase price of $1,269,053.33 (the "Purchase Price"). The number of Shares of Presley-Del. Series B Common Stock to be purchased and sold hereunder, and the aggregate Purchase Price to be paid therefor, shall be subject to adjustment as provided in Section 4.1 and Section 7.12 of this Agreement. 1.2 Deliveries at Closing. At the Closing, Seller shall deliver to Purchaser the certificate or certificates representing the Shares, duly endorsed for transfer to, or accompanied by duly executed stock powers in favor of, Purchaser or its nominee, and otherwise in a form acceptable for transfer on the books of Presley-Del., against payment by Purchaser of the Purchase Price by wire transfer of immediately available funds to the account specified on Schedule 1.2 attached hereto. 1.3 Closing. Unless otherwise agreed by the parties hereto, the closing of the transaction contemplated in this Article I (the "Closing") shall take place at the offices of Purchaser at 9:00 a.m. Pacific time on the second business day following the delivery by Purchaser to Seller of written notice to the effect that the conditions set forth in Sections 5.3(c), 5.3(d) and 5.3(e) of this Agreement have been satisfied or waived. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." ARTICLE II REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as of the date of this Agreement and as of the Closing Date as follows (it being understood and agreed that Purchaser makes no representations or warranties in connection with the purchase and sale of the Shares hereunder other than as set forth in this Article II and in Section 7.10 hereof): 2.1 Due Incorporation; Authority. Purchaser has been duly incorporated and is validly existing in good standing under the laws of the State of California. Purchaser has the corporate power and corporate authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, and the performance of Purchaser's obligations hereunder, have been duly authorized by all necessary corporate action on the part of Purchaser. 2.2 Binding Obligation. This Agreement has been duly executed and delivered by Purchaser, and constitutes the legal, valid and binding obligation of 2 29 Purchaser, enforceable in accordance with its terms against Purchaser, except that (a) such enforcement may be limited by the effect of applicable bankruptcy, reorganization, insolvency, moratorium or similar laws relating to or affecting creditors rights generally; and (b) such enforcement may be limited by general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. 2.3 No Conflict or Violation. Purchaser's execution and delivery of, and performance of its obligations under, this Agreement do not (a) violate Purchaser's articles of incorporation or bylaws, (b) constitute a material breach or default under any existing obligation of or restriction on Purchaser under any other agreement to which Purchaser is a party, or (c) breach or otherwise violate any law, statute, rule, regulation, order or decree applicable to Purchaser. No consent, order, permit or approval of any person or governmental authority is required on the part of Purchaser for the execution and delivery of, and performance of its obligations under, this Agreement. 2.4 Investment Intent. Purchaser is purchasing the Shares for its own account and not with a view to distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser is an "accredited investor," as such term is defined in Rule 501(a) under the Securities Act, which, by reason of its business and financial experience, has such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the investment in the Shares. Purchaser understands that (a) the Shares have not been registered under the Securities Act and may not be offered or sold unless the Shares are registered under the Securities Act or an exemption from the registration requirements of the Securities Act is available, (b) if any transfer of the Shares is to be made in reliance on an exemption under the Securities Act, Presley-Del. may require an opinion of counsel satisfactory to it that such transfer may be made pursuant to such exemption, and (c) so long as deemed appropriate by Presley-Del., the Shares may bear a legend to the effect of clauses (a) and (b) of this paragraph. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Purchaser as of the date of this Agreement and as of the Closing Date as follows (it being understood and agreed that Seller makes no representations or warranties in connection with the purchase and sale of the Shares hereunder other than as set forth in this Article III and in Section 7.10 hereof): 3.1 Organization and Good Standing; Authority. Seller has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization. Seller has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement, and the performance of Seller's obligations hereunder, have been duly authorized by all 3 30 necessary corporate, partnership, limited liability company or trust action (as the case may be) on the part of Seller. 3.2 Binding Obligation. This Agreement has been duly executed and delivered by Seller, and constitutes the legal, valid and binding obligation of Seller, enforceable in accordance with its terms against Seller, except that (a) such enforcement may be limited by the effect of applicable bankruptcy, reorganization, insolvency, moratorium or similar laws relating to or affecting creditors rights generally; and (b) such enforcement may be limited by general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. 3.3 No Conflict or Violation. Seller's execution and delivery of, and performance of its obligations under, this Agreement do not (a) violate Seller's charter or other organizational documents, (b) to Seller's knowledge, constitute a material breach or default under any existing obligation of or restriction on Seller under any other agreement to which Seller is a party, or (c) breach or otherwise violate any law, statute, rule, regulation, order or decree applicable to Seller. No consent, order, permit or approval of any person or governmental authority is required on the part of Seller for the execution and delivery of, and performance of its obligations under, this Agreement. 3.4 Share Ownership. Seller's record and beneficial ownership of Presley-Del. equity securities is correctly set forth on Schedule 3.4 attached hereto. Seller owns all of the Shares of record and beneficially, free and clear of any charge, claim, property interest, right of first refusal, condition, lien, option, pledge, security interest or other adverse claim or interest of any kind (collectively, "Encumbrances"). At the Closing, Seller will transfer to Purchaser good and title to the Shares, free and clear of all Encumbrances except for such Encumbrances as may be imposed by applicable securities laws or as may be otherwise expressly provided herein. ARTICLE IV ADDITIONAL AGREEMENTS 4.1 Purchase and Sale of Additional Series B Shares. (a) Seller acknowledges that it is Purchaser's objective, following the Closing of the Series A Offer and the Series B Offer, to own (together with Purchaser's affiliates) an aggregate of approximately 49% (but in no event more than 49.9%) of Presley-Del.'s outstanding Common Stock. In the event that the Series A shareholders do not tender a sufficient number of shares of Series A Common Stock in response to the Series A Offer to enable Purchaser and its affiliates (after taking into account the Series B shares to be acquired pursuant to the Series B Offer and after giving effect to the possible disposition by Purchaser and its affiliates of up to 8% of the outstanding shares of Presley-Del. Common Stock as contemplated in the Letter of Intent) to achieve the desired 4 31 ownership target, Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Seller, at a price of $0.655 per share in cash, an additional number of shares of Series B Common Stock owned by Seller so as to enable Purchaser and its affiliates to reach the desired ownership target. The number of additional shares of Series B Common Stock to be sold by Seller pursuant to this Section 4.1 shall be determined in accordance with the following formula: Number of Additional Shares = A x B --- C Where A = Total number of additional shares of Presley-Del. Common Stock necessary to enable Purchaser and its affiliates to achieve the desired ownership target; B = Total number of shares of Presley-Del. Common Stock owned by Seller (after giving effect to the sale of the Shares specified in Section 1.1 of this Agreement); and C = Total number of shares of Presley-Del. Common Stock owned by each of the Series B shareholders identified on Schedule 3.4 attached hereto (after giving effect to the sale of the Shares specified in Section 1.1 of this Agreement and in Section 1.1 of each of the agreements entered into with the other Series B Shareholders in connection with the Series B Offer). (b) The number of additional shares of Series B Common Stock to be purchased pursuant to this Section 4.1 (if any) shall be set forth in the notice delivered by Purchaser to Seller in accordance with Section 1.3 of this Agreement. The purchase and sale of any additional shares of Series B Common Stock pursuant to this Section 4.1 shall occur in the same manner and at the same time as the transaction provided for in Article I of this Agreement. The term "Shares," as used in this Agreement, shall refer equally to any additional shares of Series B Common Stock purchased and sold pursuant to this Section 4.1. 4.2 Agreements Not to Tender, Transfer or Acquire Shares. Seller hereby agrees that, prior to the Closing, Seller will not: (a) transfer or dispose of any interest in, tender (pursuant to the Series A Offer or otherwise), or pledge or otherwise create (or allow to exist) any Encumbrance on, any shares of Presley-Del. Common Stock which it owns (except as contemplated in this Agreement); (b) convert any Series B shares which it owns into Series A shares; or 5 32 (c) acquire any beneficial interest in shares of Presley-Del. Common Stock or any options, warrants or other rights to acquire shares of Presley-Del. Common Stock. Notwithstanding anything herein to the contrary, any affiliate of Seller which, in the ordinary course of its business, engages in any of the following activities may engage in such activities (other than for its own account) with respect to shares of Presley-Del. Common Stock and options, warrants or other rights to acquire shares of Presley-Del. Common Stock: brokerage, investment advisory, investment company, financial advisory, anti-raid advisory, financing, asset management, trading, market making, arbitrage and other similar activities. 4.3 Restriction on Sales of Presley-Del Common Stock by Purchaser. Purchaser hereby agrees that during the period from the Closing Date through and including the third anniversary of the Closing Date, Purchaser and its affiliates will not sell or otherwise transfer for value any shares of Presley-Del. Common Stock (other than the 7,939,589 shares of Series A Common Stock which are currently owned by Purchaser and its affiliates) unless such sale takes place in connection with a transaction in which all other holders of Presley-Del. Common Stock are afforded an opportunity to participate pro rata (based on ownership of Presley-Del. Common Stock) and on the same terms and conditions as Purchaser and its affiliates. Notwithstanding the foregoing, nothing contained in this Section 4.3 shall prohibit any transfer of Presley-Del. Common Stock by Purchaser or any of its affiliates to (a) any other affiliate of Purchaser, (b) William Lyon, his spouse or any of his lineal descendants, (c) any person who acquires such shares under the terms of a will or by the laws of descent and distribution, or (d) any trustee of any trust, the beneficiaries of which consist only of William Lyon, his spouse or lineal descendants, or any charitable organization as defined in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, provided that any such permitted transferee first agrees in writing to be bound by this Section 4.3 to the same extent as Purchaser and its affiliates. 4.4 Consent to Transactions; Agreement to Vote in Favor of Presley-Del. Charter Amendments. Seller hereby approves of and consents to the transactions contemplated in the Letter of Intent, a copy of which has previously been provided to Seller. Subject to the condition set forth in the next sentence, Seller hereby agrees to vote all shares of Presley-Del. Common Stock which it (or any of its affiliates) owns in favor the transactions contemplated by such Letter of Intent which are submitted for a vote of Presley-Del. stockholders and for which approval has been recommended by the Presley-Del. Board of Directors. In particular, but conditioned upon the understanding that such provisions will not be effective until after the closing of the Series A Offer, the Series B Offer and the Acquisition, Seller agrees to vote all shares of Presley-Del. Common Stock which it (or any of its affiliates) owns in favor of certain provisions proposed to be added to Presley-Del.'s certificate of incorporation (whether by amendment, merger or otherwise) which would restrict the transfer of Presley-Del shares by holders of 5% or 6 33 more of its outstanding shares so as to avoid triggering certain tax law provisions which could result in the loss of Presley-Del.'s net operating losses for tax purposes. ARTICLE V CONDITIONS TO CLOSING The obligation of Purchaser and Seller to effect the Closing shall be subject to the following conditions: 5.1 Conditions Precedent to Purchaser's and Seller's Obligations. Purchaser's and Seller's respective obligations to consummate the purchase and sale of the Shares hereunder and to take the other actions required to be taken at the Closing are subject to the satisfaction as of the Closing Date of the condition that the purchase and sale of the Shares as contemplated in this Agreement shall not violate or contravene any applicable law, statute, rule, regulation, order or decree of any governmental authority. 5.2 Conditions Precedent to Seller's Obligation to Close. Seller's obligations to sell the Shares and to take the other actions required to be taken by Seller at the Closing are subject to the satisfaction as of the Closing Date of each of the following conditions (each of which may be waived by Seller, in whole or in part): (a) the representations and warranties of Purchaser contained in this Agreement must have been true and correct in all respects on the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made on the Closing Date; and (b) Purchaser shall have performed all of the covenants and obligations that Purchaser is required to perform or to comply with at or prior to the Closing pursuant to this Agreement. 5.3 Conditions Precedent to Purchaser's Obligation to Close. Purchaser's obligations to purchase the Shares and to take the other actions required to be taken by Purchaser at the Closing are subject to the satisfaction as of the Closing Date of each of the following conditions (each of which may be waived by Purchaser, in whole or in part): (a) The representations and warranties of Seller contained in this Agreement must have been true and correct in all respects on the date of this Agreement and shall be true and correct in all respects as of the Closing Date as if made on the Closing Date; (b) Seller shall have performed all of the covenants and obligations that Seller is required to perform or to comply with at or prior to the Closing pursuant to this Agreement; 7 34 (c) The stockholders of Presley-Del., by a vote sufficient under applicable law, shall have approved certain provisions which are proposed to be added to Presley-Del.'s certificate of incorporation and/or bylaws to restrict transfers of shares of Presley-Del. Common Stock by holders of 5% or more of the outstanding Common Stock so as to avoid triggering the change-in-control tax provisions which could result in a loss of Presley-Del.'s net operating losses for tax purposes, and Presley-Del. shall have notified Purchaser in writing of its intention to effect such provisions (by filing with the Delaware Secretary of State a certificate of amendment or certificate of merger) following and conditioned only upon the closing of the Series A Offer and the Series B Offer; (d) Presley-Cal. and Purchaser shall have closed the Acquisition; (e) Purchaser shall have purchased (or have the legally enforceable right to purchase) shares of Presley-Del. Common Stock pursuant to the Series A Offer and/or the Series B Offer such that the number of shares so purchased, when added to the number of shares of Presley-Del. Common Stock then owned by Purchaser and its affiliates, causes Purchaser and its affiliates to own at least 49% (but not more than 49.9%) of the outstanding shares of Presley-Del. Common Stock; and (f) upon the closing of the Series B Offer, no person (other than Purchaser and its affiliates) shall own beneficially 5% or more of the outstanding Common Stock of Presley-Del. ARTICLE VI TERMINATION 6.1 Termination Events. This Agreement may, by written notice delivered prior to the Closing, be terminated: (a) by mutual consent of Purchaser and Seller; (b) by Purchaser or Seller (if such party is not itself then in breach), if a material breach of this Agreement has been committed by the other party, and such breach has not been waived or cured within 10 calendar days of the date written notice of such breach is delivered to the breaching party; (c) by Purchaser or Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before November 15, 1999, or such later date as the parties may agree upon in writing; (d) (i) by Purchaser, if any of the conditions in Section 5.3 of this Agreement has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of 8 35 Purchaser to perform its obligations under this Agreement), or (ii) by Seller, if any of the conditions in Section 5.2 of this Agreement has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Seller to perform its obligations under this Agreement); or (e) by Purchaser or Seller, if Purchaser, Presley-Del. and Presley-Cal. terminate the Letter of Intent (or any definitive agreement entered into with respect to the transactions contemplated by the Letter of Intent), or the Letter of Intent (or any such definitive agreement) expires in accordance with its terms prior to the Closing Date. 6.2 Effect of Termination. If this Agreement is terminated pursuant to Section 6.1 hereof, all further obligations of the parties under this Agreement shall terminate; provided, however, that a termination of this Agreement shall not relieve any party of any liability it may have for breach of any representation or warranty or nonperformance of any covenant or obligation hereunder, or constitute a waiver of any available remedy (including specific performance, if available) for any such breach or nonperformance. ARTICLE VII GENERAL PROVISIONS 7.1 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. 7.2 Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of California applicable to agreements made and to be performed wholly within the State of California, without regard to conflict of laws principles. 7.3 Entire Agreement. This Agreement contains all of the agreements between the parties with respect to the matters contained herein and supersedes all prior written or oral and all contemporaneous oral agreements or understandings between the parties pertaining to any such matters. No provision of this Agreement may be amended or added to except by an agreement in writing signed by the parties to this Agreement or their respective successors in interest and expressly stating that it is an amendment of this Agreement. 7.4 Further Assurances. The parties agree to do such further acts and things and to execute and deliver such additional agreements and instruments as any other party may reasonably require to consummate, evidence or confirm the agreements contained herein in the manner contemplated hereby. 9 36 7.5 Assignment. This Agreement and the rights, duties, and obligations hereunder may not be assigned by any party prior to the Closing without the prior written consent of the other party, and any attempted assignment is void. Notwithstanding the foregoing, either Purchaser or Seller may assign its rights and delegate its obligations under this Agreement to one or more of their respective affiliates (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), provided that, in each case, (a) the assignee first agrees in writing to be bound by the terms of this Agreement, and (b) any such assignment and delegation shall not relieve Purchaser or Seller of any of its obligations hereunder. 7.6 Successors and Assigns. Subject to Section 7.5 hereof, this Agreement shall be binding upon each of the parties to it and their respective successors and permitted assigns. 7.7 Severability. In the event any provision of this Agreement shall finally be determined to be unlawful, such provision shall be deemed to be severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 7.8 Expenses. Each party shall bear its own expenses in connection with the transactions contemplated hereunder. Each party further represents and warrants that it has not engaged or authorized any broker, finder or similar agent who would be entitled to a commission or other fee in respect of the transactions contemplated hereunder. 7.9 Applicability in the Event of Conversion, Reclassification or Exchange of Series B Common Stock. In the event that shares of Presley-Del. Series B Common Stock are converted, reclassified or split into, or otherwise exchanged for, other securities of the same or different issuer, the terms and provisions of this Agreement shall be deemed to apply to such other securities with the same force and effect (with such adjustments to the number of securities and the purchase price thereof as may be necessary or appropriate to give effect to the parties' intent and the transactions contemplated hereunder). 7.10 Acknowledgement. Purchaser and Seller acknowledge that each of them has a representative who is a director of Presley-Del. and that each of Purchaser and Seller may be deemed to be an affiliate of Presley-Del. (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). Purchaser and Seller further acknowledge that each of them may have confidential information concerning Presley-Del.'s business and affairs which is not public and may be considered material. Recognizing the foregoing, neither Purchaser nor Seller has requested, desires or requires the other to disclose any confidential information relating to Presley-Del. or otherwise. Each of Purchaser and Seller has conducted its own investigation, to the extent it has determined necessary or desirable, in connection with the purchase and sale of the Shares hereunder and expressly further acknowledges that (a) it has not relied upon any representation, warranty or statement (other than the limited representations, warranties and statements contained in this Agreement) made by, nor upon any analysis 10 37 of, the other in connection with the transactions contemplated hereunder, (b) it has made its own investment analysis and decision to purchase or sell (as the case may be) the Shares based upon such information as it has deemed appropriate, and (c) it is voluntarily assuming all risks associated with the purchase or sale (as the case may be) of the Shares hereunder resulting from the failure to receive any such representations, warranties, statements or confidential information. 7.11 Relationship to Other Series B Purchase Agreements. The parties acknowledge that, in connection with the Series B Offer, Purchaser has entered into or proposes to enter into agreements with the other holders of Presley-Del. Series B Common Stock to purchase from such holders additional shares of Presley-Del. Common Stock (such other agreements are attached hereto as Exhibit B and referred to herein as the "Other Series B Agreements"). Purchaser agrees that such Other Series B Agreements are to be identical in form and substance to this Agreement, with only such differences as relate to the identity of the seller and the number of shares of Presley-Del. Common Stock to be purchased and sold thereunder (it being understood that in the case of Foothill Capital Corporation, such number is 710,574 shares of Presley-Del. Series B Common Stock, and in the case of each of the other Series B stockholders, such number is that number of Series B shares as is necessary to reduce the total number of shares of Presley-Del. Common Stock (including any Presley-Del. Series A shares) owned by such Series B stockholder to below 5% of the total number of shares of Presley-Del. Common Stock outstanding). If the terms and conditions contained in any of the Other Series B Agreements are modified from the terms or conditions contained in this Agreement in any respect which is more advantageous to the seller or sellers party thereto, Purchaser and Seller agree that (a) Purchaser shall deliver to Seller prompt written notice of such modification (including the text thereof), (b) this Agreement shall be deemed to be amended to reflect such more advantageous terms or conditions (unless Seller notifies Purchaser to the contrary in writing), and (c) Purchaser and Seller, upon request, will promptly execute such agreements or instruments as may be necessary to evidence such amendment. 7.12 Increase in Series A Offering Price. In the event that the purchase price paid by Purchaser in the Series A Offer is increased above $0.655 per share in cash, then the purchase price to be paid by Purchaser under this Agreement for each of the Shares shall be increased by the same incremental amount above $0.655 per share. 11 38 IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase and Sale Agreement as of the day and year first above written. "PURCHASER" WILLIAM LYON HOMES, INC. By: /s/ William Lyon ------------------------------------ William Lyon Chairman, President and CEO "SELLER" ING (U.S.) CAPITAL LLC By: /s/ Fred Assenheimer ------------------------------------ Fred Assenheimer Senior Vice President 12 39 SCHEDULE 3.4 SHARE OWNERSHIP
Series A Shares Series B Shares First Plaza Group Trust 1,697,325 5,099,206 GS Credit Partners, L.P. -- 5,920,362 ING (U.S.) Capital LLC (as nominee of ING Equity Partners, L.P. I) -- 4,547,269 Foothill Capital Corporation -- 1,836,109
EX-3.(C) 11 OPTION AGREEMENT 1 EXHIBIT (C)(3) NONQUALIFIED STOCK OPTION AGREEMENT (Consultant) This NONQUALIFIED STOCK OPTION AGREEMENT is made as of this 20th day of May, 1994, between THE PRESLEY COMPANIES, a Delaware corporation (the "COMPANY"), and WILLIAM LYON ("OPTIONEE"). All capitalized terms not specifically defined herein shall have the meanings set forth in the Company's Amended and Restated 1991 Stock Option Plan (the "PLAN"). R E C I T A L S A. The Plan provides for the granting to key employees, directors (other than members of the hereafter defined Committee), consultants and advisers of the Company or of its subsidiary corporations (as defined in the Plan) as the Committee may from time to time select, of options to purchase shares of Series A Common Stock of the Company. B. Optionee is a key consultant to The Presley Companies, a California corporation ("CALIFORNIA PRESLEY"), a subsidiary of the Company. C. Pursuant to the Plan, the Committee has determined that it is to the advantage and best interests of the Company and its stockholders to grant a nonqualified stock option to Optionee covering 750,000 shares of the Company's Series A Common Stock (or any class of stock into which such Series A Common Stock is converted or reclassified as provided in Section 15 of the Plan) (each herein sometimes referred to as "COMMON STOCK") as an inducement to remain in the service of the Company and as an incentive for increased effort during such service, and has approved the execution of this Nonqualified Stock Option Agreement between the Company and Optionee. D. The option granted hereby is not intended to qualify as an "INCENTIVE STOCK OPTION" under Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. The Company grants to Optionee the right and option ("OPTION") to purchase on the terms and conditions hereinafter set forth, all or any part of an aggregate of 750,000 shares of the Common Stock at the purchase price of $2.875 per share, which price is equal to the fair market value of such stock (as determined pursuant to Section 4) on the date of this Agreement. The Option shall be exercisable from time to time in accordance with the provisions of this Agreement or earlier in accordance with Section 5. 2 2. Vesting. Optionee may not purchase any shares by exercise of this Option between the date of this Agreement and the first anniversary date of this Agreement. On and for a period of five years after the following anniversary dates of this Agreement, this Option may be exercised up to the indicated percentage of shares covered by this Option (the shares as to which the Option vests herein sometime called "VESTED OPTION SHARES"), subject to Section 5 below:
Cumulative Percentage of Percentage of Originally Originally Covered Shares Covered Shares as to Which Anniversary as to Which Option is Date Option Vests Exercisable ---- ------------ ----------- First 33 1/3% 33 1/3% Second 33 1/3% 66 2/3% Third 33 1/3% 100%
Subject to earlier termination under Section 5, at any time after shares covered by this Agreement become Vested Option Shares, but no later than the fifth anniversary date of the date shares become Vested Option Shares (the "EXPIRATION DATE" with respect to such Shares), Optionee may purchase all or any part of the Vested Option Shares which Optionee theretofore failed to purchase. In each case the number of shares which may be purchased shall be calculated to the nearest full share. Unless Optionee indicates otherwise in writing when it exercises this Option, Optionee shall be deemed to exercise Vested Option Shares in the order in which they vested. Notwithstanding the foregoing provisions or the provisions of Section 5 of this Agreement to the contrary, upon the occurrence of a Change of Control all shares of Common Stock covered hereby which have not yet become Vested Option Shares shall thereupon become Vested Option Shares, and from and after the occurrence of such Change of Control and until the Expiration Date for each Vested Option Share, the Optionee shall be entitled to exercise his rights under this Agreement with respect to such Vested Option Share. For the purposes of this Agreement, a "CHANGE OF CONTROL" shall be deemed to have occurred if a Change of Control has occurred for the purposes of Exhibit A hereto. 3. Manner of Exercise. Each exercise of this Option shall be by means of a written notice of exercise delivered to the Company, specifying the number of shares to be purchased and accompanied by payment to the Company of the full purchase price of the shares to be purchased solely (i) in cash or by check payable to the order of the Company, (ii) by delivery of shares of Common Stock of the Company already owned by, and in the possession of the Optionee, or (iii) by delivery to a 2 3 broker of a copy of the notice of exercise, specifying the number of shares with respect to which this Option is to be exercised and instructing the broker to sell the shares issuable upon exercise of the Option and to deliver to the Company from the sale proceeds of such shares an amount equal to the exercise price of the Option, or any combination thereof. Shares of common Stock used to satisfy the exercise price of this Option shall be valued at their fair market value determined (in accordance with Section 4 on the date of exercise (or if such date is not a business day, as of the close of the business day immediately preceding such date). This Option may not be exercised for a fraction of a share and no partial exercise of this Option may be for less than one hundred (100) shares. This Option may be exercised (i) during the lifetime of Optionee only by Optionee; (ii) to the extent permitted by the Committee or by the terms of this Agreement, Optionee's spouse if such spouse obtained the Option pursuant to a qualified domestic relations order as defined by the Code or Title I of ERISA, or the rules thereunder ("QUALIFIED DOMESTIC RELATIONS ORDER"); and (iii) after Optionee's death by his or her transferees by will or the laws of descent or distribution. 4. Fair Market Value of Common Stock. The fair market value of a share of Common Stock of the Company shall be determined for purposes of the Plan by reference to the closing price on the principal stock exchange on which such shares are then listed or, if such shares are not then listed on a stock exchange, by reference to the closing price (if approved for quotation on the NASDAQ National Market System) or the mean between the bid and asked price (if other over-the-counter issue) of a share as supplied by the National Association of Securities Dealers, Inc. through NASDAQ (or its successor in function), in each case as reported by The Wall Street Journal, for the business day immediately preceding the date on which the option is exercised (or, if for any reason no such price is available, in such other manner as the Committee may deem appropriate to reflect the then fair market value thereof). 5. Death or Permanent Disability. If prior to a Change of Control, Optionee dies or becomes "PERMANENTLY DISABLED," the Option shall expire with respect to each of the shares covered hereby which are not Vested Option Shares at such date, and the Option shall expire with respect to each of the Vested Option Shares on the earlier of (i) the Expiration Date applicable to such Shares, or (ii) a date twelve months after the date of such death or "permanent disability," to the extent exercisable on the date of death or "permanent disability," and shall thereafter expire and be void and of no further force or effect. During such period after death, the Option may, to the extent that it remained unexercised (but 3 4 exercisable by Optionee according to the Option's terms) on the date of such death, be exercised by the person or persons to whom Optionee's rights under the Option shall pass by Optionee's will or by the laws of descent and distribution or by Optionee's spouse who obtained the Option pursuant to a Qualified Domestic Relations Order. For the purposes of this Agreement, "permanent disability" shall be determined in accordance with Section 22(e)(3) of the Code. 6. Shares to be Issued in Compliance with Federal Securities Laws and Exchange Rules. By accepting the Option, Optionee represents and agrees, for Optionee and his or her legal successors (by will or the laws of descent and distribution or through a Qualified Domestic Relations Order), that none of the shares purchased upon exercise of the option will be acquired with a view to any sale, transfer or distribution of said shares in violation of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder, or any applicable state "blue sky" laws. If required by the Committee at the time the Option is exercised, Optionee or any other person entitled to exercise the Option shall furnish evidence satisfactory to the Company (including a written and signed representation) to such effect in form and substance satisfactory to the Company, including an indemnification of the Company in the event of any violation of the Securities Act or state blue sky laws by such person. 7. Withholding of Taxes. Upon the exercise of this Option, the Company shall have the right to require Optionee or Optionee's legal successor to pay the Company the amount of any taxes which the Company may be required to withhold with respect to such shares. 8. No Assignment. This Option and all other rights and privileges granted hereby shall not be transferred, either voluntarily or by operation of law otherwise than by will or the laws of descent and distribution or pursuant to a Qualified Domestic Relations Order. Upon any attempt to so transfer or otherwise dispose of this Option or any other right or privileges granted hereby contrary to the provisions hereof, this Option and all rights and privileges contained herein shall immediately become null and void and of no further force or effect. 9. Adjustment for Reorganizations, Stock Splits, etc. If the outstanding shares of Common Stock (or any other class of shares or securities which shall have become issuable upon the exercise of this Option pursuant to this sentence) are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and 4 5 proportionate adjustment shall be made in the maximum number and kind of shares receivable upon the exercise of this Option, without change in the total price applicable to the unexercised portion of this Option, but with a corresponding adjustment in the price for each share or other unit of any security covered by this option. Upon the occurrence of (i) the dissolution or liquidation of the Company, (ii) a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation or as a result of which it is the surviving corporation and its outstanding voting securities are converted to or reclassified as cash, securities of another corporation or other property (unless the principal purpose of such transaction is to change the state of the Company's incorporation), or (iii) a sale of assets of the Company or its subsidiaries having a fair market value equal to more than eighty percent (80%) of the total fair market value of the Company's assets to an entity which is not controlling, controlled by or under common control with the Company, then, subject to the following sentence, this Option shall terminate. Notwithstanding the foregoing, the Committee shall provide in writing in connection with any such transaction for any or all of the following alternatives (separately or in combination) which shall, as nearly as practicable, preserve the benefits of outstanding options which have accrued to the holders thereof (or if such transaction is being entered into after a Change of Control, Optionee may elect the following alternative (d) if the Committee has provided for any other of the following alternatives, such election to be made by Optionee in writing delivered to the Company no later than two (2) business days before the date of the transaction); (a) for this Options to become immediately exercisable as to all shares covered hereby, if all such shares are not then Vested Option Shares; (b) for the assumption by the successor corporation of this Option or the substitution by such corporation for this Option of new options covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (c) for the continuance of the Plan by such successor corporation in which event the Plan and the options theretofore granted shall continue in the manner and under the terms so provided; or (d) for the payment in cash or stock in lieu of and in complete satisfaction of this Option. Adjustments under this Section 9 shall be made by the Board or the Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of stock shall be issued under this Option on any such adjustment. 10. No Rights as a Stockholder Until Issuance of Stock Certificate. Neither Optionee nor any other person legally 5 6 entitled to exercise this Option shall be entitled to any of the rights or privileges of a stockholder of the Company in respect of any shares issuable upon any exercise of this Option unless and until a certificate or certificates representing such shares shall have been actually issued and delivered to Optionee. 11. Agreement Subject to Stock Option Plan. The Option hereby granted is subject to, and the Company and Optionee agree to be bound by, all of the terms and conditions of the Plan, as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect Optionee's rights under this Option without the prior written consent of Optionee. 12. Execution. The interpretation, performance and enforcement of this Agreement shall be governed by the internal substantive laws of the State of California. THE PRESLEY COMPANIES, a Delaware Corporation By: /s/ WADE H. CABLE -------------------------------- Wade H. Cable Title: President ------------------------- OPTIONEE /s/ WILLIAM LYON ----------------------------------- William Lyon 6 7 By her signature below, the spouse of Optionee agrees to be bound by all of the terms and conditions of the foregoing Agreement. OPTIONEE'S SPOUSE /s/ WILLA DEAN LYON -------------------------------- Willa Dean Lyon 7 8 EXHIBIT A Change of Control "Change of Control" means the occurrence of any of the following: (i) Delaware Presley shall cease to own the number of outstanding shares of California Presley's capital stock necessary to elect a majority of the Board of Directors of California Presley; (ii) the sale, lease, exchange or transfer, in one or a series of transactions, (any such sale, lease, exchange or transfer herein a "Disposition") of all or substantially all of the Employer's assets to any "person" or "group" of persons (as such terms are used for the purposes of Section 13(d) and Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations thereunder) such that any person or group (other than a group of which 70% or more of the voting power of the voting stock referred to below held by such group is owned beneficially by one or more Permitted Holders or their Related Parties if the person or persons to which the Disposition is made assume this Agreement) owns, controls or acquires a direct or indirect interest in more than 50% of the voting power of the voting stock of the person or persons that acquire such assets by a Disposition, (iii) the acquisition by any person or group (as defined above) (other than a group of which 70% or more of the voting power of the voting stock of Delaware Presley held by such group is owned beneficially by one or more Permitted Holders or their Related Parties) of a direct or indirect beneficial interest in more than 50% of the voting power of the voting stock of Delaware Presley by way of merger or consolidation or otherwise, (iv) the consummation of any transaction the result of which is that any person or group (as defined above) (other than a group of which 70% or more of the voting power of the voting stock of the Company held by such group is owned beneficially by one or more Permitted Holders or their Related Parties) owns, directly or indirectly, more than 50% of the voting power of the voting stock of Delaware Presley, or (v) if at any time during any period of up to 24 consecutive months, commencing after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of Delaware Presley cease for any reason to constitute a majority of the Board of Directors of Delaware Presley unless the persons replacing such individuals were nominated by a majority of the Board of Directors of Delaware Presley. "Permitted Holders" means either of (a) William Lyon, or (b) any of Foothill Capital Corporation, Pearl Street, L.P., International Nederlanden (U.S.) Capital Corporation, First Plaza Group Trust, and Whippoorwill/Presley Obligation Trust - 1994. "Related Party" means with respect to any Permitted Holder (A) any person (as defined above in Change of Control) 8 9 which owns, directly or indirectly, more than 80% of the securities entitled to elect a majority of the board of directors, or other comparable governing group, of the Permitted Holder; any corporation, association or other business entity of which more than 80% of the securities entitled to elect a majority of the board of directors, or other comparable governing group of such entity, is owned, directly or indirectly, by a Permitted Holder; or in the case of an individual, any spouse or immediate family member of such Permitted Holder; or (B) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or persons beneficially holding 80% or more controlling interest of which consist of such Permitted Holder and/or such other persons referred to in the immediately preceding clause (A). 9 EX-4.(C) 12 CONFIDENTIALITY AGREEMENTS 1 EXHIBIT (C)(4) November 17, 1998 General James E. Dalton Chairman The Special Committee of the Board of Directors The Presley Companies 19 Corporate Plaza Newport Beach, California 92660 Dear Jim: In connection with your consideration (the "Evaluation") of a possible transaction (the "Transaction") with William Lyon Homes, Inc. (the "Company"), you have requested access to certain information which is either non-public or proprietary in nature. In consideration for and as a condition to furnishing such information to you, you agree to treat any Evaluation Material (defined below) in accordance with the provisions set forth below, acknowledging the confidential and proprietary nature of such Evaluation Material. As used herein, the term "Evaluation Material" shall mean any and all financial, technical, commercial or other information concerning the business and affairs of the Company or its affiliates that has been or may hereafter be provided or shown to you or your representatives in connection with the Transaction, which shall include without limitation employees, officers, directors, representatives, or agents or controlling persons and potential financing sources, which shall collectively be referred to as "Representatives," irrespective of the form of the communication by the Company or by its representatives or agents (including attorneys), and all notes, analyses, compilations, studies or other material prepared by you or your Representatives containing or based in whole or in part on any information provided or shown by the Company or by its representatives or agents. The term "Evaluation Material" does not include information which (i) was or becomes generally available to the public other than as a result of a disclosure by you or your Representatives in violation of this Agreement, (ii) was available to you on a non-confidential basis prior to its disclosure to you by the Company or its representatives or agents, provided that, to your knowledge after reasonable inquiry, the source of such information does not have a contractual or fiduciary confidentiality obligation to the Company, or (iii) becomes 2 General James E. Dalton November 17, 1998 Page 2 available to you on a non-confidential basis from a source other than the Company or its representatives or agents, provided that, to your knowledge after reasonable inquiry, such source is not subject to a contractual or fiduciary confidentiality obligation to the Company. It is understood that you may disclose any of the Evaluation Material only to those of your Representatives who require such material for the purpose of evaluating a possible Transaction, provided that Representatives shall be informed by you of the confidential nature of the Evaluation Material and shall treat the Evaluation Material confidentially in accordance with the conditions hereof and be bound by the terms hereof and that you shall be responsible for any breach of this letter agreement by any Representatives. You agree that the Evaluation Material will be kept confidential by you and your Representatives and, except with the specific prior written consent of the Company or as expressly otherwise permitted by the terms hereof, will not be disclosed by you or your Representatives. You further agree that you and your Representatives will not use any of the Evaluation Material for any reason or purpose other than to evaluate a possible Transaction. Without the prior written consent of the Company, you and your Representatives will not disclose to any person (i) the fact that the Evaluation Material has been made available to you or that you inspected any portion of the Evaluation Material, or (ii) the fact that any discussions or negotiations are taking place concerning a possible Transaction, including the status thereof and the knoll-edge that the Company may be considering a Transaction, unless, in the opinion of counsel, such disclosure is required under the United States securities laws, in which case you may disclose the fact of such negotiations and discussions to the extent required by the United States securities laws, subject to the following sentence. You hereby agree that in the event that you, in the opinion of counsel, determine that such disclosure is required, no such disclosures shall be made unless and until you consult with the Company or use reasonable efforts to consult with the Company regarding the necessity and form of any such disclosure. In the event that you or any of your Representatives are requested or become legally compelled under the terms of a subpoena or order issued by a court of competent jurisdiction or by a governmental body to make any disclosure which is prohibited or otherwise constrained by this letter agreement, you agree that you or such Representative, as the case may be, will, at the Company's expense, (i) immediately provide the Company with written notice of the existence, terms and circumstances surrounding such request(s) so that it may seek an appropriate protective order or other 3 General James E. Dalton November 17, 1998 Page 3 appropriate remedy, (ii) cooperate with the Company in its efforts to decline, resist or narrow such requests and (iii) if disclosure of such information is required in the opinion of counsel, exercise your best efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to such disclosed information. If you determine that you do not wish to proceed with the Transaction, you will promptly advise us of that decision. In that case, or in the event that we, in our sole discretion, so request or the Transaction is not consummated by you, you will promptly deliver to us all Evaluation Material, including all copies, reproductions, summaries, analyses or extracts thereof or based thereon in your possession or in the possession of any Representative of yours, or in the case of summaries, analyses or extracts prepared by you which include Evaluation Material, promptly destroy (or cause the destruction of) such materials. You acknowledge that none of the Company, its Representatives and none of the respective employees, officers, directors, representatives, agents or controlling persons of its Representatives make any express or implied representations or warranty as to the accuracy or completeness of any Evaluation Material, and you agree that none of such persons shall have any liability to you or any of your Representatives relating to or arising from your or their use of any Evaluation Material or for any errors therein or omissions therefrom. You also agree that you are not entitled to rely on the accuracy or completeness of any Evaluation Material and that you shall be entitled to rely solely on such representations and warranties as may be provided to you in any definitive agreement relating to the Transaction, subject to the terms and conditions of such agreement. You agree that until a definitive agreement regarding the Transaction has been executed by you and the Company, neither the Company nor any of its Representatives are under any legal obligation nor shall have any liability to you of any nature whatsoever with respect to the Transaction by virtue of this letter agreement. It is understood and agreed that no failure or delay by the Company in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. The validity or unenforceability of any provision of this letter agree-ment shall not affect the validity or enforceability of any other provisions of this letter agreement, which shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 4 General James E. Dalton November 17, 1998 Page 4 You hereby acknowledge that money damages are an inadequate remedy for breach or anticipated breach of this letter agreement because of the difficulty of ascertaining the amount of damage that will be suffered in the event that this agreement is breached. Therefore, in the event of a breach or anticipated breach of this letter agreement by you or your Representatives, the Company may, in addition to the remedies available to it, obtain specific performance of this letter agreement and/or a restraining order and/or injunction to prohibit such violation. In addition, you hereby waive any requirement for the securing or posting of any bond in connection with such remedy. The parties herein acknowledge and agree that an injunction is a proper, but not exclusive, remedy available to the Company and that the harm from any violation of the covenants set forth herein would be irreparable and immediate. This letter agreement shall be governed by, and construed in accordance with, the internal laws of the State of California. If you are in agreement with the foregoing, please sign and return one copy of this letter agreement, which thereupon will constitute our agreement with respect to the subject matter hereof. Very truly yours, WILLIAM LYON HOMES, INC. By: /s/ William Lyon -------------------------------- Name: William Lyon Title: Agreed and Accepted by: THE PRESLEY COMPANIES By: /s/ James E. Dalton ------------------- Name: James E. Dalton Title: Chairman, Special Committee of the Board of Directors EX-99.1 13 JOINT FILING AGREEMENT 1 EXHIBIT 99.1 JOINT FILING AGREEMENT In accordance with Rule 13d-1(k)(1) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of a Statement on Schedule 13D and a Tender Offer Statement on Schedule 14D-1 (including, in each case, amendments thereto) with respect to the Series A Common Stock, par value $0.01 per share, of The Presley Companies, and further agree that this Joint Filing Agreement be included as an exhibit to such joint filing. In evidence thereof, the undersigned hereby execute this Joint Filing Agreement as of October 7, 1999 /s/ William Lyon -------------------------------- William Lyon /s/ William H. Lyon -------------------------------- William H. Lyon -----END PRIVACY-ENHANCED MESSAGE-----