<PAGE>   1
                                                                    EXHIBIT 10.1




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                           FIFTH AMENDED AND RESTATED

                                 LOAN AGREEMENT

                            Dated as of July 6, 1998

                                     between

                                 PRESLEY HOMES,

                                as the Borrower,

                            THE LENDERS NAMED HEREIN,

                                       and

                          FOOTHILL CAPITAL CORPORATION,

                                  as the Agent.


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<PAGE>   2

                                TABLE OF CONTENTS

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ARTICLE 1
        DEFINITIONS AND ACCOUNTING TERMS..............................................1
                      1.1    Defined Terms............................................1
                      1.2    Use of Defined Terms....................................23
                      1.3    Accounting Terms........................................23
                      1.4    Exhibits and Schedules..................................24
                      1.5    Miscellaneous Terms.....................................24

ARTICLE 2
        CLOSING......................................................................24
                      2.1    Conditions to Closing...................................24
                      2.2    Effect of Fulfillment of Conditions.....................26

ARTICLE 3
        [DELETED]....................................................................27

ARTICLE 4
        REVOLVING ADVANCES AND LETTERS OF CREDIT.....................................27
                      4.1    Revolving Advances......................................27
                      4.2    Making the Revolving Advances...........................27
                      4.3    Reference Rate Loans....................................29
                      4.4    Offshore Rate Loans.....................................29
                      4.5    Redesignation of Loans..................................29
                      4.6    Letters of Credit and Set-Aside Letters.................31
                      4.7    Reduction of the Revolving Commitments..................37
                      4.8    Determination, Adjustment and Modification of the
                             Borrowing Base..........................................37
                      4.9    [Deleted................................................43
                      4.10   [Deleted]...............................................43
                      4.11   Defaulting Lenders......................................43

ARTICLE 5
        PAYMENTS AND FEES............................................................46
                      5.1    Principal and Interest..................................46
                      5.2    Prepayments.............................................47
                                    (a)     Optional.................................47
                                    (b)     Mandatory................................48
                      5.3    Unused Line Fee and Special Commitment Costs............48
                      5.4    Administrative Fee......................................49
                      5.5    Offshore Rate Loan Fees and Costs.......................49
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                      5.6    Letter of Credit and Set-Aside Letter Fees and Costs....53
                      5.7    Late Payments and Default Interest......................56
                      5.8    Computation of Interest and Fees........................56
                      5.9    Non-Banking Days........................................56
                      5.10   Manner and Treatment of Payments........................56
                      5.11   Funding Sources.........................................58
                      5.12   Failure to Charge Not Subsequent Waiver.................58
                      5.13   Agent's Right to Assume Payments Will be Made
                             by Borrower.............................................58
                      5.14   Survivability...........................................59
                      5.15   Payment of Penalty or Fee Upon Acceleration.............59

ARTICLE 6
        REPRESENTATIONS AND WARRANTIES...............................................59
                      6.1    Existence and Qualification; Power; Compliance
                             With Laws...............................................59
                      6.2    Authority; Compliance With Other Agreements and
                             Instruments and Government Regulations..................61
                      6.3    No Governmental Approvals Required......................62
                      6.4    Financial Statements....................................62
                      6.5    No Other Liabilities; No Material Adverse Changes.......63
                      6.6    Title to and Location of Property.......................63
                      6.7    Intangible Assets.......................................63
                      6.8    Public Utility Holding Company Act......................63
                      6.9    Litigation..............................................63
                      6.10   Binding Obligations.....................................64
                      6.11   No Default..............................................64
                      6.12   ERISA...................................................64
                      6.13   Regulations T, U and X; Investment Company Act..........65
                      6.14   Disclosure..............................................65
                      6.15   Tax Liability...........................................66
                      6.16   [Deleted]...............................................66
                      6.17   Fiscal Year.............................................66
                      6.18   Employee Matters........................................66
                      6.19   Environmental Matters...................................66
                      6.20   Partnerships, Joint Ventures and Limited Liability
                             Companies...............................................68
                      6.21   Outstanding Advances and Letters of Credit..............68

ARTICLE 7
        AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND
        REPORTING REQUIREMENTS)......................................................68
                      7.1    Payment of Taxes and Other Potential Liens..............68
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                      7.2    Preservation of Existence...............................69
                      7.3    Maintenance of Properties...............................69
                      7.4    Maintenance of Insurance................................69
                      7.5    Compliance With Laws....................................70
                      7.6    Inspection Rights.......................................71
                      7.7    Keeping of Records and Books of Account.................71
                      7.8    Compliance With Agreements, Duties and Obligations......71
                      7.9    Additional Guaranties, Collateral and Collateral
                             Documents...............................................71
                      7.10   Priority of Liens.......................................72
                      7.11   Deposit Accounts........................................72
                      7.12   Environmental Laws......................................73
                      7.13   Environmental Notices...................................74
                      7.14   Forward Commitment Protection...........................74
                      7.15   Appraisals..............................................74
                      7.16   Legal Fees..............................................75

ARTICLE 8
        NEGATIVE COVENANTS...........................................................75
                      8.1    Transactions with Affiliates............................75
                      8.2    Mergers.................................................75
                      8.3    [Deleted]...............................................75
                      8.4    Sales and Leasebacks; Sales, Etc., of Assets............75
                      8.5    Redemption, Dividends and Distributions.................76
                      8.6    ERISA...................................................76
                      8.7    Change in Nature of Business............................77
                      8.8    Indebtedness, Guarantees and Liens......................77
                      8.9    Change in Fiscal Year...................................80
                      8.10   [Deleted]...............................................80
                      8.11   [Deleted]...............................................80
                      8.12   [Deleted]...............................................80
                      8.13   [Deleted]...............................................80
                      8.14   Presley Delaware's Ownership of Borrower................80
                      8.15   New Land Purchases......................................80
                      8.16   Cash Flow...............................................82
                      8.17   Consolidated Fixed Charge Coverage Ratio................82

ARTICLE 9
        INFORMATION AND REPORTING REQUIREMENTS.......................................82
                      9.1    Financial and Business Information......................82
                      9.2    Compliance Certificates.................................86
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ARTICLE 10
        CONDITIONS TO ADVANCES.......................................................86
                      10.1   Any Increasing Advance or Issuance of Letter of Credit..86
                      10.2   Any Advance.............................................87

ARTICLE 11
        EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT.........................88
                      11.1   Events of Default.......................................88
                      11.2   Remedies Upon Event of Default..........................91

ARTICLE 12
        THE AGENT....................................................................94
                      12.1   Appointment and Authorization...........................94
                      12.2   Delegation of Duties....................................94
                      12.3   Liability of Agent......................................94
                      12.4   Reliance by Agent.......................................95
                      12.5   Notice of Default.......................................95
                      12.6   Credit Decision.........................................96
                      12.7   Indemnification.........................................96
                      12.8   Agent and Other Lenders in Individual Capacity..........97
                      12.9   Successor Agent.........................................98
                      12.10  Collateral Matters......................................98

ARTICLE 13
        MISCELLANEOUS...............................................................101
                      13.1   Cumulative Remedies; No Waiver.........................101
                      13.2   Amendments; Consents...................................101
                      13.3   Costs, Expenses and Taxes..............................102
                      13.4   Survival of Representations and Warranties.............103
                      13.5   Notices................................................103
                      13.6   Execution of Loan Documents............................104
                      13.7   Binding Effect; Assignment.............................104
                      13.8   Lien on Deposits and Property in Possession of any
                             Lender.................................................107
                      13.9   Indemnity by Borrower..................................108
                      13.10  Nonliability of Lenders................................109
                      13.11  No Third Parties Benefitted............................110
                      13.12  Confidentiality........................................110
                      13.13  Further Assurances.....................................110
                      13.14  Integration............................................110
                      13.15  Governing Law..........................................111
                      13.16  Severability of Provisions.............................111
                      13.17  Headings...............................................111
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                      13.18  Time of the Essence....................................111
                      13.19  Sharing of Setoffs.....................................111
                      13.20  Nature of the Lenders' Obligations.....................112
                      13.21  Waiver of Jury Trial...................................112
                      13.22  Jurisdiction...........................................112
                      13.23  Exercise of Discretion.................................113
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                                    SCHEDULES

               1.1(a)        Description of Class A Stock
               1.1(b)        Description of Class B Stock
               1.1(g)        Initial Commitments
               6.2           Necessary Consents
               6.3           Necessary Governmental Authorizations
               6.5           Liabilities and Contingent Liabilities
               6.9           Pending Litigation
               6.12          Pension Plans and Multiemployer Plans
               6.19          Environmental Matters
               6.20          Partnerships, Joint Ventures and Limited Liability
                             Companies


                                    EXHIBITS

        A      --     Form of Assignment and Acceptance
        B      --     Form of Borrowing Base Certificate
        C      --     Form of Borrowing Certificate
        D      --     Form of Request for Letter of Credit
        E      --     Form of Request for Loan
        F      --     Form of Request for Redesignation of Loan
        G      --     Form of Revolving Note
        H      --     [Deleted]
        I      --     [Deleted]
        J      --     Form of Amended and Restated Guaranty
        K      --     Form of Amended and Restated Security Agreement
        L      --     Form of Indemnity Agreement
        M      --     Form of Pledge Agreement (Borrower)
        N      --     Form of Amended and Restated Pledge Agreement



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<PAGE>   7
                           FIFTH AMENDED AND RESTATED

                                 LOAN AGREEMENT

                            Dated as of July 6, 1998


               This FIFTH AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is
entered into by and among (i) PRESLEY HOMES (f/k/a The Presley Companies), a
California corporation, as the borrower (the "Borrower"), (ii) the lenders
listed on Schedule 1.1(g) hereto (collectively, the "Lenders"), as the lenders,
and (iii) Foothill, as the Agent (in such capacity, the "Agent") for the
Lenders, the Issuing Banks (other than any Third Party Issuer) and the LC
Guarantor under the Loan Documents (such terms and all other capitalized terms
used in the Preliminary Statements having the respective meanings set forth
below).

                             PRELIMINARY STATEMENTS

               (1) The Borrower, the Initial Lenders and the Agent are parties
to a Fourth Amended and Restated Loan Agreement dated as of March 25, 1994 (as
amended to the Closing Date, the "Existing Loan Agreement").

               (2) The parties hereto desire to amend and restate the Existing
Loan Agreement on the terms and conditions set forth herein.

               NOW THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree that, effective on
and as of the Closing Date, the Existing Loan Agreement is amended and restated
in its entirety as follows:

                                    ARTICLE 1
                        DEFINITIONS AND ACCOUNTING TERMS

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

                      "Affiliate" means, as to any Person, any other Person
        which directly or indirectly controls, or is under common control with,
        or is controlled by, such Person. As used in this definition, "control"
        (and its correlative meanings, "controlled by" and "under common control
        with") shall mean possession, directly or indirectly, of power to direct
        or cause the direction of management or policies (whether through
        ownership of securities or partnership or other ownership interests, by
        contract or otherwise), provided that, in any event, any Person that
        owns, directly or indirectly, 50% or more of the securities having
        ordinary voting power for the election of directors or other governing
        body of a corporation (other



                                        

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        than securities having such power only by reason of the happening of a
        contingency), or 50% or more of the partnership or other ownership
        interests of any other Person (other than as a limited partner of such
        other Person), will be deemed to control such corporation or other
        Person.

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

                      "Agent-Related Persons" means Foothill and any successor
        agent arising under Section 12.9, together with their respective
        Affiliates, and the officers, directors, employees, agents and
        attorneys-in-fact of such Persons and Affiliates.

                      "Agent's Account" means account no. [323266193] maintained
        by the Agent with [The Chase Manhattan Bank, 4 New York Plaza, New York,
        New York 10004], or such other account as the Agent may specify from
        time to time by written notice to the Borrower and the Lenders.

                      "Agent's Office" means the Agent's address as set forth on
        the signature pages of this Agreement, or such other address in the
        United States of America as the Agent hereafter may designate by written
        notice to the Borrower and the Lenders.

                      "Aggregate Cost Components" has the meaning specified in
        Section 4.8(a).

                      "Agreement" means this Fifth Amended and Restated Loan
        Agreement, either as originally executed or as it may from time to time
        be supplemented, modified, amended, restated or extended.

                      "Amended and Restated Guaranty" means the Amended and
        Restated Guaranty, dated as of the Original Closing Date, made by
        Presley Delaware in favor of the Lenders, the Issuing Banks (other than
        any Third Party Issuer), the LC Guarantor and the Agent, in the form of
        Exhibit J hereto, either as originally executed or as it may from time
        to time be supplemented, modified, amended, restated or extended.

                      "Amended and Restated Pledge Agreement" means the Amended
        and Restated Pledge Agreement, dated as of the Original Closing Date,
        made by Presley Delaware in favor of the Agent for the benefit of the
        Lenders, the Issuing Banks (other than any Third Party Issuer) and the
        LC Guarantor in the form of Exhibit N hereto, either as originally
        executed or as it may from time to time be supplemented, modified,
        amended, restated or extended.



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                      "Amended and Restated Security Agreement" means the
        Amended and Restated Security Agreement, dated as of the Original
        Closing Date, made by the Borrower in favor of the Agent, the Lenders,
        the Issuing Banks (other than any Third Party Issuer) and the LC
        Guarantor in the form of Exhibit K hereto, either as originally executed
        or as it may from time to time be supplemented, modified, amended,
        restated or extended.

                      "Assignee" means an assignee of any rights and obligations
        of any Lender hereunder which assignee, in the case of any such rights
        and obligations with respect to any Revolving Commitment or Revolving
        Advance, is an Eligible Assignee.

                      "Assignment and Acceptance" means an assignment and
        acceptance entered into by a Lender and an Assignee, and accepted by the
        Agent, in accordance with Section 13.7 and in substantially the form of
        Exhibit A hereto.

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

                      "Banking Day" means any day other than Saturday, Sunday or
        other day on which banks are required or authorized by law to close in
        the City of New York, the City of Los Angeles, the City of San Francisco
        or the City of Chicago and, if the applicable Banking Day relates to any
        Offshore Rate Loan, means such a day on which dealings are carried on in
        the applicable offshore dollar interbank market.

                      "Borrower" means Presley Homes, formerly known as The
        Presley Companies, a California corporation, and its successors and
        permitted assigns.

                      "Borrower Partnership" means a partnership, joint venture
        or limited liability company of which the Borrower is a general partner,
        joint venturer or member.

                      "Borrowing Base" has the meaning specified in Section
        4.8(a).

                      "Borrowing Base Certificate" means the certificate,
        substantially in the form of Exhibit B, signed by the Chief Financial
        Officer, the Vice President/Controller or the President of the Borrower,
        delivered to the Agent and the Lenders in connection with each
        determination of the Borrowing Base pursuant to Section 4.8.

                      "Borrowing Certificate" means the certificate,
        substantially in the form of Exhibit C, signed by the Chief Financial
        Officer, the Vice



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        President/Corporate Controller, the Vice President/Finance, Vice
        President/Financial Operations or the President of the Borrower,
        delivered to the Agent and the Lenders in connection with each Request
        for Loan pursuant to Section 4.2(a).

                      "Cash" means, when used in connection with any Person, all
        monetary and non-monetary items belonging to such Person that are
        treated as cash in accordance with GAAP, consistently applied.

                      "Cash Equivalents" means, when used in connection with any
        Person, such Person's Investments in:

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

                      (b) certificates of deposit issued by, bank deposits in,
        bankers' acceptances of, and repurchase agreements covering Government
        Securities executed by, any bank doing business in and incorporated
        under the Laws of the United States of America or any state thereof and
        having on the date of such Investment combined capital, surplus and
        undivided profits of at least $500,000,000, in each case due within one
        year after the date of the making of the Investment; and/or

                      (c) readily marketable commercial paper of corporations
        doing business in and incorporated under the Laws of the United States
        of America or any state thereof given on the date of such Investment the
        highest credit rating by NCO/Moody's Commercial Paper Division of
        Moody's Investors Service, Inc. or Standard & Poor's Corporation, in
        each case due within six months after the date of the making of the
        Investment.

                      "CERCLA" means the Comprehensive Environmental Response,
        Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections
        9601 et seq.

                      "Certificate of a Responsible Official" means a
        certificate signed by a Responsible Official of the Person providing the
        certificate.

                      "Change of Control" means, and shall be deemed to have
        occurred if either, (a) Presley Delaware shall cease to own 100% of the
        Borrower's outstanding capital stock free and clear of any Liens (other
        than the Liens created by the Amended and Restated Pledge Agreement), or
        (b) after the Closing Date (i) any Person acquires, or two or more
        Persons acting in concert acquire, beneficial ownership (within the
        meaning of Rule 13d-3 of the Securities and Exchange Commission under
        the Securities Exchange Act of 1934), directly or indirectly, of
        securities of Presley Delaware (or other securities convertible into



                                        4

<PAGE>   11
        such securities) representing 50% or more of the combined voting power
        of all securities of Presley Delaware entitled to vote in the election
        of Series A Directors, unless such ownership results from the
        convertibility or conversion of Series B Stock to Series A Stock; or
        (ii) during any period of up to 24 consecutive months, commencing with
        the Original Closing Date, individuals who at the beginning of such
        24-month period were directors of Presley Delaware cease for any reason
        to constitute a majority of the Board of Directors of Presley Delaware
        unless the Persons replacing such individuals were nominated by the
        Board of Directors of Presley Delaware; provided, however, that, for the
        purposes of clause (i) above, any acquisition of such voting securities
        of Presley Delaware by an employee stock ownership plan or related
        trust, within the meaning of Section 4975 of ERISA, sponsored or
        contributed to by Presley Delaware or its Subsidiaries (an "ESOP") shall
        not, so long as such ESOP is not acting in concert with any other Person
        (whether before or after such acquisition by such ESOP), be deemed a
        Change of Control within the meaning of clause (i) above unless the
        number of voting securities acquired, controlled or held by such ESOP
        exceeds 50% of the combined voting power of all securities of Presley
        Delaware entitled to vote in the election of directors, other than
        securities having such power only by reason of the happening of a
        contingency.

                      "Closing" has the meaning specified in Section 2.1.

                      "Closing Date" has the meaning specified in Section 2.1.

                      "CMR" means Carmel Mountain Ranch, a California general
        partnership.

                      "Collateral" means, collectively, all Property on or in
        which the Agent or any Lender or Issuing Bank (other than any Third
        Party Issuer) or LC Guarantor now or hereafter obtains or may obtain a
        Lien pursuant to this Agreement or any other Loan Document.

                      "Collateral Documents" means any and all security
        agreements (including the Amended and Restated Security Agreement),
        deeds of trust, mortgages, assignments, pledge agreements (including the
        Amended and Restated Pledge Agreement and the Pledge Agreement
        (Borrower)), financing statements, landlord waivers, consents and other
        documents now or hereafter granting Liens to the Agent and/or the
        Lenders and/or the Issuing Banks (other than any Third Party Issuer)
        and/or the LC Guarantor to secure any Obligations owing to the Agent or
        any of the Lenders, the Issuing Banks (other than any Third Party
        Issuer) or the LC Guarantor under the Loan Documents, or perfecting,
        effecting, facilitating, consenting to, providing notice of or otherwise
        evidencing such Liens.



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<PAGE>   12
                      "Consolidated Cash Flow Available for Fixed Charges" of
        the Borrower means for any period the sum of the amounts for such period
        of (i) consolidated net income, plus (ii) consolidated income tax
        expense, plus (iii) consolidated interest expense, plus (iv)
        amortization of non-cash costs to cost of sales of real Property, plus
        (v) other non-cash items reducing consolidated net income minus
        consolidated interest income, all as determined on a consolidated basis
        for Presley Delaware in accordance with GAAP.

                      "Consolidated Fixed Charge Coverage Ratio" of the Borrower
        means, with respect to any determination date, the ratio of (i)
        Consolidated Cash Flow Available for Fixed Charges of Presley Delaware
        for the prior four full fiscal quarters for which financial results have
        been reported immediately preceding the determination date, to (ii) the
        aggregate consolidated interest incurred of Presley Delaware reasonably
        anticipated in good faith by Presley Delaware to become due at any time
        during the fiscal quarter in which the determination date occurs and the
        three fiscal quarters immediately subsequent to such fiscal quarter;
        provided, however, that in any calculation of the Borrower's
        Consolidated Fixed Charge Coverage Ratio (a) the interest on any
        indebtedness (whether existing or being incurred) bearing a floating
        interest rate shall be computed as if the rate in effect on the
        determination date had been the applicable rate for the entire period,
        (b) no adjustment shall be made with respect to the intended use of
        proceeds of any asset sale if such asset sale has not taken place prior
        to the determination date, and (c) no adjustment shall be made with
        respect to any intended repayment or refinancing of indebtedness (other
        than (i) a repayment or refinancing of indebtedness out of the proceeds
        of the incurrence of indebtedness giving rise to the determination date,
        or (ii) anticipated repayments of indebtedness in the ordinary course of
        business provided that the aggregate amount of indebtedness assumed to
        be outstanding during the period for which consolidated interest
        incurred is to be determined shall not be less than the aggregate amount
        of indebtedness outstanding at the determination date) that has not
        taken place prior to the determination date.

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

                      "Defaulted Advance" means, with respect to any Lender at
        any time, the amount of any Revolving Advance required to be made by
        such Lender to the Borrower pursuant to Section 4.1 at or prior to such
        time which has not been so made as of such time; provided, however, any
        Revolving Advance made by the Agent for the account of such Lender
        pursuant to Section 4.2(f) shall not be considered a Defaulted Advance
        even if, at such time, such Lender shall not have reimbursed the Agent
        therefor as provided in Section 4.2(f), except to the extent the
        Borrower shall have paid to the Agent the amount required by the Agent
        pursuant to the third sentence of Section 4.2(f). In the event that a
        portion



                                        6

<PAGE>   13
        of a Defaulted Advance shall be deemed made pursuant to Section 4.11(a),
        the remaining portion of such Defaulted Advance shall be considered a
        Defaulted Advance originally required to be made pursuant to Section 4.1
        on the same date as the Defaulted Advance so deemed made in part.

                      "Defaulted Amount" means, with respect to any Lender at
        any time, any amount required to be paid by such Lender to the Agent,
        any Issuing Bank, the LC Guarantor or any other Lender hereunder or
        under any other Loan Document at or prior to such time which has not
        been so paid as of such time, including, without limitation, any amount
        required to be paid by such Lender to (a) any Issuing Bank or the LC
        Guarantor pursuant to Section 4.6(c) or (e) to reimburse such Issuing
        Bank or the LC Guarantor for such Lender's pro rata share of any payment
        made by such Issuing Bank or the LC Guarantor under any Letter of
        Credit, Set-Aside Letter or LC Guaranty which has not been reimbursed by
        the Borrower, (b) the Agent pursuant to Section 4.2(f) to reimburse the
        Agent for the amount of any Revolving Advance made by the Agent for the
        account of such Lender, (c) any other Lender pursuant to Section 13.19
        to purchase any participation in Advances owing to such other Lender,
        and (d) the Agent pursuant to Section 12.7 to reimburse the Agent for
        such Lender's ratable share of any amount required to be paid by the
        Lenders to the Agent as provided therein. In the event that a portion of
        a Defaulted Amount shall be deemed paid pursuant to Section 4.11(b), the
        remaining portion of such Defaulted Amount shall be considered a
        Defaulted Amount originally required to be paid hereunder or under any
        other Loan Document on the same date as the Defaulted Amount so deemed
        paid in part.

                      "Defaulting Lender" means, at any time, any Lender that,
        at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b)
        shall take or be the subject of any action or proceeding of a type
        described in Section 11.1(h).

                      "Disposition" means the sale, transfer or other
        disposition of the Borrower or of any asset of the Borrower with a value
        or for consideration in excess of $1,000,000.

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

                      "Eligible Assignee" means (a) a commercial bank organized
        under the laws of the United States of America, or any state thereof,
        and having a net worth in excess of $100,000,000; (b) a savings and loan
        association or savings bank organized under the laws of the United
        States of America, or any state thereof, and having a net worth in
        excess of $100,000,000; (c) a commercial bank organized under the laws
        of any other country that is a member of the Organization for Economic
        Cooperation and Development, or a political subdivision of any such
        country, and having a net worth in excess of



                                        7

<PAGE>   14
        $100,000,000, so long as such bank is acting through a branch or agency
        located in the United States of America; (d) the central bank of any
        country that is a member of the Organization for Economic Cooperation
        and Development; (e) a finance company, insurance company or other
        financial institution or fund (whether a corporation, partnership, trust
        or other entity) that is engaged in making, purchasing or otherwise
        investing in commercial loans in the ordinary course of its business and
        having a net worth in excess of $100,000,000; and (f) any Affiliate of
        any Lender which Affiliate (other than in the case of any assignment by
        such Lender of any obligations from which such Lender will not be
        released) has a net worth in excess of $100,000,000; provided in each
        case of clauses (a) through (f) that such entity (i) is an "accredited
        investor" as defined in Rule 501(a) of Regulation D under the Securities
        Act of 1933, as amended; (ii) is entitled to receive all payments and
        distributions to be made to it hereunder and under the other Loan
        Documents without the withholding of any tax; (iii) is not (and by
        virtue of its becoming a Lender no Loan will be) subject to Title 11
        (including but not limited to any appraisal requirements contained
        therein or in the regulations issued pursuant thereto) of the Financial
        Institutions Reform, Recovery and Enforcement Act of 1989, as amended;
        and (iv) in the case of any assignment of all or part of any Revolving
        Commitment to such entity, has a net worth at least five times greater
        than the amount of such Revolving Commitment being so assigned;
        provided, further, however, that an Affiliate of the Borrower shall not
        qualify as an Eligible Assignee under this definition.

                      "Environmental Indemnity" means the Indemnity Agreement,
        dated as of the Original Closing Date, made by the Borrower in favor of
        the Agent, the Lenders, the Issuing Banks (other than any Third Party
        Issuer) and the LC Guarantor in the form of Exhibit L hereto, either as
        originally executed or as it may from time to time be supplemented,
        modified, amended, restated or extended.

                      "Environmental Laws" means any and all laws, statutes,
        ordinances, rules, regulations, orders, or determinations of any
        Governmental Agency pertaining to health or the environment in effect in
        any and all jurisdictions in which the Borrower or any of its
        Subsidiaries or any Borrower Partnership is or at any time may be doing
        business, or where the real Property of the Borrower or any of its
        Subsidiaries or any Borrower Partnership is located, including, without
        limitation, the Clean Air Act, 42 U.S.C. Sections 7401 et seq., as
        amended, the Clean Water Act, 33 U.S.C. Sections 1251 et seq., as
        amended, CERCLA, RCRA, the Hazardous Materials Transportation Act, 49
        U.S.C. Sections 1801 et seq., as amended, the Federal Water
        Pollution Control Act Amendments, the Occupational Safety and Health Act
        of 1970, as amended, the Safe Drinking Water Act, as amended, California
        Health and Safety Code Sections 25100 et seq., California Water
        Code Sections 313000 et seq., and the Toxic Substances Control
        Act, as amended.



                                              8

<PAGE>   15
                      "ERISA" means the Employee Retirement Income Security Act
        of 1974, and any regulations issued pursuant thereto, as amended or
        replaced and as in effect from time to time.

                      "ERISA Affiliate" of any Person means any other Person
        that for purposes of Title IV of ERISA is a member of such Person's
        controlled group, or under common control with such Person, within the
        meaning of Section 414 of the Internal Revenue Code.

                      "ERISA Event" with respect to any Person means (a) the
        occurrence of a reportable event, within the meaning of Section 4043 of
        ERISA, with respect to any Plan of such Person or any of its ERISA
        Affiliates, unless the 30-day notice requirement with respect to such
        event has been waived by the PBGC; (b) the provision by the
        administrator of any Plan of such Person or any of its ERISA Affiliates
        of a notice of intent to terminate such Plan, pursuant to Section
        4041(a)(2) of ERISA (including any such notice with respect to a plan
        amendment referred to in Section 4041(e) of ERISA); (c) the cessation of
        operations at a facility of such Person or any of its ERISA Affiliates
        in the circumstances described in Section 4062(e) of ERISA; (d) the
        withdrawal by such Person or any of its ERISA Affiliates from a Multiple
        Employer Plan during a plan year for which it was a substantial
        employer, as defined in Section 4001(a)(2) of ERISA; (e) the failure by
        such Person or any of its ERISA Affiliates to make a payment to a Plan
        required under Section 302(f)(1) of ERISA; (f) the adoption of an
        amendment to a Plan of such Person or any of its ERISA Affiliates
        requiring the provision of security to such Plan, pursuant to Section
        307 of ERISA; or (g) the institution by the PBGC of proceedings to
        terminate a Plan of such Person or any of its ERISA Affiliates, pursuant
        to Section 4042 of ERISA, or the occurrence of any event or condition
        described in Section 4042 of ERISA that could constitute grounds for the
        termination of, or the appointment of a trustee to administer, such
        Plan.

                      "ESOP" has the meaning specified in the definition of
        Change of Control set forth in this Section 1.1.

                      "Event of Default" shall have the meaning provided in
        Section 11.1.

                      "Existing LC Guaranties" has the meaning specified in
        Section 4.6(e).

                      "Existing Letters of Credit" has the meaning specified in
        Section 2.2(b) hereof.

                      "Existing Loan Agreement" has the meaning specified in
        Preliminary Statement (1).



                                        9

<PAGE>   16
                      "Existing Loans" means all "Outstanding Loans" under the
        Existing Loan Agreement as of the Closing Date.

                      "Existing Set-Aside Letters" has the meaning specified in
        Section 2.2(c) hereof.

                      "GAAP" means generally accepted accounting principles set
        forth from time to time in the opinions and pronouncements of the
        Accounting Principles Board and the American Institute of Certified
        Public Accountants and statements and pronouncements of the Financial
        Accounting Standards Board (or agencies with similar functions of
        comparable stature and authority within the accounting profession), or
        in such other statements by such other entity as may be in general use
        by significant segments of the U.S. accounting profession, which are
        applicable to the circumstances as of the date of determination.

                      "Good faith" means subjective honesty in fact.

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

                      "Governmental Agency" means (a) any international,
        foreign, federal, state, county or municipal government, or political
        subdivision thereof, (b) any governmental or quasi-governmental agency,
        assessment district, authority, board, bureau, commission, department,
        instrumentality or public body, or (c) any court, administrative
        tribunal or public utility.

                      "Guaranteed Letter of Credit" means a Letter of Credit
        issued by a Third Party Issuer which is covered by an LC Guaranty
        provided by the LC Guarantor.

                      "High Yield Securities" means Presley Delaware's 12 1/2%
        Senior Notes due 2001.

                      "Housing" means real Property of the Borrower that is held
        for investment, development and/or sale that has reached sufficient
        stage of development that it has ceased to be Improved Land. In general,
        Improved Land shall be deemed to have reached the stage of development
        that it ceases to be Improved Land and becomes Housing when trenching
        for the foundation of a house or other residential unit to be built on
        such real Property has begun. Notwithstanding anything to the contrary
        herein, if there is any dispute or uncertainty as to whether any Real
        Estate Inventory of the Borrower constitutes Improved Land or Housing
        within the meaning of the definition referred to above,



                                       10

<PAGE>   17
        the Agent's determination of such question shall be binding and
        conclusive upon the parties hereto, unless determined otherwise by the
        Majority Lenders.

                      "Housing Cost Component" shall have the meaning provided
        in Section 4.8(f).

                      "Improved Land" means real Property of the Borrower that
        is held for investment, development and/or sale, that either (i) has
        reached a sufficient stage of development that it has ceased to be Raw
        Land but has yet to reach a sufficient stage of development to be
        Housing, or (ii) has been included in the Borrowing Base as Improved
        Land at the sole discretion of the Agent, or (iii) has been acquired by
        the Borrower pursuant to Section 8.15. In general, Raw Land shall be
        deemed to have reached the stage of development that it ceases to be Raw
        Land and becomes Improved Land when each of the following (to the extent
        applicable) has occurred: (a) to the extent that earth-moving and/or
        rough grading is required, such earth-moving and/or rough grading shall
        have been substantially completed; (b) to the extent that any surveys,
        maps or governmental approvals are required to be filed, recorded or
        approved in order legally to subdivide the Property for its intended
        use, all of the same shall have been completed and the Property shall
        have been legally subdivided as required for its intended use; and (c)
        to the extent that any governmental authorizations, approvals, permits,
        entitlements or the like are required to be obtained from any
        Governmental Agency to permit earth-moving and/or rough grading to
        begin, all of the same shall have been obtained. Notwithstanding
        anything to the contrary herein, if there is any dispute or uncertainty
        as to whether any Real Estate Inventory of the Borrower constitutes Raw
        Land or Improved Land within the meaning of the above definition, the
        Agent's determination of such question shall be binding and conclusive
        upon the parties hereto, unless otherwise determined by the Majority
        Lenders.

                      "Improved Land Cost Component" shall have the meaning
        provided in Section 4.8(e).

                      "Increased Letter of Credit Costs" means, with respect to
        any Letter of Credit, the additional or incremental costs (including,
        without limitation, capital maintenance costs, reserve maintenance costs
        and other similar costs), if any, incurred by the Issuing Bank of such
        Letter of Credit or by the LC Guarantor as a consequence of the issuance
        of a Letter of Credit in the full amount requested by the Borrower, in
        which (or in the LC Guaranty of which in which) the other Lenders are
        deemed to purchase pro rata participations, over and above the costs
        that would have been incurred by such Issuing Bank or the LC Guarantor
        if each of the Lenders (including such Issuing Bank or the LC Guarantor)
        had issued their own letters of credit in face amounts limited to their
        respective percentages of the full amount of the requested Letter of
        Credit, in the manner of



                                       11

<PAGE>   18
        a syndicated facility rather than a participated facility, to the extent
        that such additional costs, if any, are not recovered from the Borrower
        pursuant to Section 5.6(b), and as reasonably determined by the Issuing
        Bank or the LC Guarantor using reasonable averaging and attribution
        methods. Increased Letter of Credit Costs shall include any costs or
        fees incurred by the LC Guarantor in causing a Third Party Issuer to
        issue a Guaranteed Letter of Credit.

                      "Indemnitees" shall have the meaning set forth in Section
        13.9 of this Agreement.

                      "Initial Lenders" means the lenders which were "Lenders"
        under and as defined in the Existing Loan Agreement prior to the Closing
        Date pursuant to Section 13.7 thereof.

                      "Insufficiency" means, with respect to any Plan, the
        amount, if any, of its unfunded benefit liabilities, as defined in
        Section 4001(a)(18) of ERISA.

                      "Intangible Assets" means assets that are considered
        intangible assets under GAAP, consistently applied, including, without
        limitation, goodwill, organization expense, patents, trademarks, trade
        names, copyrights and other intangible Property.

                      "Interest Differential" means, with respect to any
        prepayment, redesignation or conversion of an Offshore Rate Advance on a
        day other than the last day of the applicable Interest Period, (a) the
        applicable Offshore Rate payable with respect to the Offshore Rate
        Advance as of the date of the prepayment, redesignation or conversion,
        minus (b) the average per annum yield to maturity, based upon the bid
        prices, on the day of prepayment, redesignation or conversion, of
        Government Securities maturing on the last day of the applicable
        Interest Period, in an amount approximately equal to such Offshore Rate
        Advance. The determination of the Interest Differential by the Agent
        shall be conclusive in the absence of manifest error.

                      "Interest Period" means, with respect to any Offshore Rate
        Loan, the period commencing on the Banking Day the Loan is disbursed or
        continued or on the date on which the Loan is converted to an Offshore
        Rate Loan pursuant to Section 4.5(a) and ending on the date one, two or
        three months thereafter, as selected by the Borrower in its Request for
        Loan or Request for Redesignation of Loan, provided that:

                             (i) each Interest Period shall begin on the first
               day of a calendar month and shall end on the first day of the
               next succeeding calendar month, or of the second next succeeding
               calendar month or the



                                       12

<PAGE>   19
                third next succeeding calendar month, as applicable to such
                Interest Period; and

                             (ii) no Interest Period shall extend beyond the
               Termination Date.

                      "Interest Type" refers to the distinction between the
        Reference Rate Loans and Offshore Rate Loans.

                      "Investment" means, when used in connection with any
        Person, any investment by or of that Person, whether by means of
        purchase or other acquisition of stock or other securities or by means
        of loan, advance, capital contribution, guaranty or other debt or equity
        participation or interest in any other Person, or otherwise, and
        includes, without limitation, any partnership and joint venture
        interests of such Person.

                      "Issuing Bank" means, (a) with respect to any Letter of
        Credit, (i) Foothill, as the issuer of such Letter of Credit, (ii) any
        other Lender designated by the Borrower (with the consent of that Lender
        and with prior written notice to the Agent) as the issuer of such Letter
        of Credit, and (iii) any other bank designated by the Borrower (with the
        consent of that bank and with prior written notice to the Agent) as the
        issuer of such Letter of Credit, provided in each case of this clause
        (iii) that the obligations of the Borrower to such bank under or in
        connection with such Letter of Credit have been guaranteed by the LC
        Guarantor in its sole discretion pursuant to an LC Guaranty (any such
        bank being a "Third Party Issuer"); and (b) with respect to any
        Set-Aside Letter, the Agent.

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

                      "LC Guarantor" means Foothill, in its capacity as
        guarantor of the obligations of the Borrower under or in connection with
        any Letter of Credit issued for the account of the Borrower by a Third
        Party Issuer.

                      "LC Guaranty" means a guaranty by Foothill of the
        obligations of the Borrower to any Third Party Issuer under or in
        connection with any Letter of Credit.

                      "Lenders" means the lenders listed on Schedule 1.1(g)
        hereto and each Eligible Assignee that becomes a party hereto pursuant
        to Section 13.7.

                      "Letter of Credit" means any letter of credit, whether
        standby or commercial, issued by an Issuing Bank pursuant to Section 4.6
        or which are



                                       13

<PAGE>   20
        Existing Letters of Credit, in the standard form for letters of credit
        of such Issuing Bank, either as originally issued or as the same may
        from time to time be supplemented, modified, amended, renewed or
        extended.

                      "Letter of Credit Reserve" means, as of any date of
        determination in connection with the determination of the Borrowing
        Base, an amount equal to the sum of (a) ten percent (10%) of the
        aggregate face amount of all Letters of Credit issued hereunder to
        support any bond issued by any bonding company of the Borrower
        acceptable to the Majority Lenders or issued for the benefit of any
        Governmental Agency in lieu of such a bond in connection with any
        project of the Borrower that constitutes Collateral hereunder, to the
        extent that the purpose of such bond and/or Letter of Credit is to
        ensure the performance or completion of improvements relating to or
        benefitting such Collateral, plus (b) one hundred percent (100%) of the
        aggregate face amount of all other Letters of Credit issued hereunder
        for the account of the Borrower.

                      "LIBOR" means the rate of interest per annum determined by
        the Agent as the rate at which dollar deposits in the approximate amount
        of the applicable Offshore Rate Loan and having a maturity comparable to
        such Interest Period are offered by major banks in the London interbank
        market at approximately 11:00 a.m. (New York City time) two Banking Days
        prior to the commencement of such Interest Period, as determined by the
        Agent by reference at such time to the display designated on page "3750"
        on the Telerate Service (or such other page as may replace the 3750 page
        on that service or such service or services as may be nominated by the
        British Bankers' Association for the purpose of displaying London
        interbank offered rates for dollar deposits).

                      "Lien" means any mortgage, deed of trust, pledge,
        hypothecation, security interest, encumbrance, lien or charge of any
        kind, whether voluntarily incurred or arising by operation of Law or
        otherwise, affecting any Property, including any agreement to give any
        of the foregoing, any conditional sale or other title retention
        agreement, any lease in the nature thereof, and/or the filing of or
        agreement to give any financing statement under the Uniform Commercial
        Code or comparable Law of any jurisdiction with respect to any Property.

                      "Loan Documents" means, collectively, this Agreement, the
        Revolving Notes, the Letters of Credit, any applications or
        reimbursement agreements executed in connection with any Letters of
        Credit other than Guaranteed Letters of Credit, the Collateral
        Documents, the Amended and Restated Guaranty, the Environmental
        Indemnity, the LC Guaranty, and any other certificates, instruments,
        documents or agreements of any type or nature heretofore or hereafter
        executed or delivered by the Borrower and/or any Affiliate of the
        Borrower to the Agent, any Lender, any Issuing Bank (other than any
        Third



                                       14

<PAGE>   21
        Party Issuer) or the LC Guarantor in any way relating to or in
        furtherance of this Agreement, in each case either as originally
        executed or as the same may from time to time be supplemented, modified,
        amended, restated or extended, excluding, however, the High Yield
        Securities held by any Lender or assignee of a Lender.

                      "Majority Lenders" means, at any time, Lenders holding at
        least 66 2/3% of the sum of the aggregate amount of the Revolving
        Commitments; provided, however, if any Lender shall be a Defaulting
        Lender at such time, there shall be excluded from the determination of
        Majority Lenders at such time, the amount of the Revolving Commitment of
        such Lender at such time.

                      "Maximum Advance Rate" means (a) in the case of the Raw
        Land Cost Component, 50%, (b) in the case of the Improved Land Cost
        Component, 75%, (c) in the case of the Housing Cost Component, 85%, and
        (d) in the case of the Notes Receivable Component, 70%.

                      "Maximum Letter of Credit Amount" means $10,000,000, which
        may be increased to $15,000,000 with the written approval of the
        Majority Lenders.

                      "Maximum Revolving Loan Amount" means, as of any date of
        determination, the lesser of (a) the Borrowing Base, and (b) the
        aggregate Revolving Commitments minus Outstanding Letters of Credit.

                      "Multiemployer Plan" of any Person means a multiemployer
        plan, as defined in Section 4001(a)(3) of ERISA to which such Person or
        any of its ERISA Affiliates is making or accruing an obligation to make
        contributions, or has within any of the preceding five plan years made
        or accrued an obligation to make contributions.

                      "Multiple Employer Plan" of any Person means a single
        employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is
        maintained for employees of such Person or any of its ERISA Affiliates
        and at least one Person other than such Person and its ERISA Affiliates
        or (b) was so maintained and in respect of which such Person or any of
        its ERISA Affiliates could have liability under Section 4064 or 4069 of
        ERISA in the event such plan has been or were to be terminated.

                      "Non-Recourse" means, with respect to any indebtedness of
        any Person, any such indebtedness which may not, pursuant to the express
        terms of the instrument evidencing or otherwise governing such
        indebtedness or by law, be enforced personally against such Person or
        any other Person but only against



                                       15

<PAGE>   22
        specified assets or property acquired in connection with the financing
        or refinancing giving rise to such indebtedness.

                      "Notes Receivable" means promissory notes payable to the
        order of the Borrower, or endorsed to the order of the Borrower,
        received by the Borrower or a predecessor of the Borrower in connection
        with the sale of real Property by the Borrower or a predecessor of the
        Borrower, and secured by a perfected first priority Lien in favor of the
        Borrower or a predecessor of the Borrower on the real Property so sold.

                      "Notes Receivable Component" shall have the meaning
        provided in Section 4.8(g).

                      "Obligations" means all present and future obligations of
        every kind or nature of the Borrower or any Party at any time and from
        time to time owed to the Lenders, the Issuing Banks (other than any
        Third Party Issuer), the LC Guarantor and the Agent, or any one or more
        of them under any one or more of the Loan Documents, whether due or to
        become due, matured or unmatured, liquidated or unliquidated, or
        contingent or noncontingent, including obligations of performance as
        well as obligations of payment, and including interest that accrues
        after the commencement of any bankruptcy or insolvency proceeding by or
        against the Borrower or any Affiliate of the Borrower.

                      "Offshore Rate" means, for each Interest Period in respect
        of Offshore Rate Advances comprising part of the same Loan, an interest
        rate per annum (rounded upward to the nearest 1/16th of 1%) equal to
        LIBOR.

                      "Offshore Rate Advance" means a Revolving Advance made
        hereunder and designated or redesignated as an Offshore Rate Advance in
        accordance with Article 4.

                      "Offshore Rate Lending Office" means, as to each Lender,
        its office or branch so designated by written notice to Borrower and the
        Agent as its Offshore Rate Lending Office. If no Offshore Rate Lending
        Office separately is designated by a Lender, its Offshore Rate Lending
        Office shall be its office designated as its address for purposes of
        notices hereunder.

                      "Offshore Rate Loan" means a Revolving Loan made hereunder
        and designated or redesignated as an Offshore Rate Loan in accordance
        with Article 4.

                      "144A Securities" means notes or debentures of the
        Borrower which may be resold by the holders thereof to qualified
        institutional buyers pursuant to Rule 144A under the Securities Act of
        1933, as amended, without



                                       16

<PAGE>   23
        compliance with the registration requirements of Section 5 of the
        Securities Act of 1933, as amended, which notes or debentures shall be
        secured by the Collateral and shall contain such terms, conditions and
        covenants as are required by said Rule 144A, and such other terms,
        conditions and covenants as shall be required by the Majority Lenders.

                      "Operating Account" means a deposit account to be
        maintained by the Borrower, and approved by the Agent, in which the
        Agent shall have a perfected security interest for the ratable benefit
        of the Lenders, the Issuing Banks (other than any Third Party Issuer)
        and the LC Guarantor.

                      "Opinion of Counsel" means the favorable written legal
        opinion of Irell & Manella LLP, counsel to the Borrower and Presley
        Delaware, in form and substance satisfactory to the Majority Lenders,
        together with copies of all factual certificates and legal opinions upon
        which such counsel has relied.

                      "Original Closing Date" means May 20, 1994.

                      "Outstanding Advances" means, as of any date of
        determination, all outstanding Revolving Advances on that date.

                      "Outstanding Letters of Credit" means, as of any date of
        determination, the aggregate face amount of all Letters of Credit and
        Set-Aside Letters issued hereunder and outstanding on that date minus
        the aggregate amount, if any, paid in Cash by the Issuing Bank(s) under
        such Letters of Credit and Set-Aside Letters that has been reimbursed by
        the Borrower.

                      "Outstanding Loans" means, as of any date of
        determination, all outstanding Revolving Loans on that date.

                      "Party" means the Borrower and/or any Affiliate of the
        Borrower that is a party to any Loan Document.

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

                      "Pension Plan" means any "employee pension benefit plan"
        (as such term is defined in ERISA) which is subject to ERISA.

                      "Permitted Sales" means a sale of assets by the Borrower
        to a partnership, limited liability company or joint venture in which
        the Borrower is a partner (general or limited) or member which satisfies
        the following conditions:



                                       17

<PAGE>   24
                             (i) such sale occurs within 30 days of the
                      acquisition by the Borrower of the assets to be sold;

                             (ii) the purchase price is to be paid in cash and
                      is in an amount not less than the fair market value of the
                      assets to be sold; and

                             (iii) no Default or Event of Default shall exist or
                      shall result from such sale.

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

                      "Plan" means a Single Employer Plan or a Multiple Employer
        Plan.

                      "Pledge Agreement (Borrower)" means the Pledge Agreement
        (Borrower), dated as of the Closing Date, made by the Borrower in favor
        of the Agent for the benefit of the Lenders, the Issuing Banks (other
        than any Third Party Issuer) and the LC Guarantor in the form of Exhibit
        M hereto, either as originally executed or as it may from time to time
        be supplemented, modified, amended, restated, or extended.

                      "Pledged Shares" means all outstanding shares of capital
        stock of the Borrower.

                      "Presley Delaware" means The Presley Companies, a Delaware
        corporation.

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

                      "Raw Land" means real Property of the Borrower that is
        held for investment, development and/or sale, and that has not yet
        reached the stage of development to become Improved Land. Reference is
        made to the definition of "Improved Land" for a description of the
        general conditions that govern when Raw Land ceases to be Raw Land and
        becomes Improved Land. Notwithstanding anything to the contrary herein,
        if there is any dispute or uncertainty as to whether any Real Estate
        Inventory of the Borrower constitutes Raw Land or Improved Land within
        the meaning of the definition referred to above, the Agent's
        determination of such question shall be binding and conclusive upon the
        parties hereto, unless determined otherwise by the Majority Lenders.



                                       18

<PAGE>   25
                      "Raw Land Cost Component" shall have the meaning provided
        in Section 4.8(d).

                      "RCRA" means the Resource Conservation and Recovery Act of
        1970, as amended, 42 U.S.C. Sections 6901 et seq. and the regulations
        thereto, 40 CFR Part 261.

                      "Real Estate Inventory" shall mean the Raw Land, the
        Improved Land and the Housing of the Borrower.

                      "Reference Rate" means the floating commercial loan rate
        of The Chase Manhattan Bank, announced from time to time as its
        "reference rate" (or, if at the time of determination The Chase
        Manhattan Bank does not so announce its, or does not have a, "reference
        rate", the floating commercial loan rate so announced by any other bank
        as shall have been selected by the Agent as notified to the Borrower).
        Each change in the Reference Rate shall be effective as of 12:01 a.m. on
        the Banking Day on which the change in the Reference Rate is announced,
        unless otherwise specified in such announcement, in which case the
        change shall be effective as so specified.

                      "Reference Rate Advance" means a Revolving Advance
        designated or redesignated as a Reference Rate Advance in accordance
        with Article 4, or converted or redesignated to a Reference Rate Advance
        in accordance with Section 4.5.

                      "Reference Rate Loan" means a Revolving Loan made
        hereunder and designated or redesignated as a Reference Rate Loan in
        accordance with Article 4, or converted or redesignated to a Reference
        Rate Loan in accordance with Section 4.5.

                      "Register" has the meaning specified in Section 13.7(c).

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

                      "Request for Letter of Credit" means a written request for
        the issuance of a Letter of Credit substantially in the form of Exhibit
        D, signed by a Responsible Official of the Borrower and properly
        completed to provide all information required by the Agent or the
        Issuing Bank of such Letter of Credit (or, in the case of a Guaranteed
        Letter of Credit, the LC Guarantor thereof) to be included therein.



                                       19

<PAGE>   26
                      "Request for Loan" means a written request for a Revolving
        Loan substantially in the form of Exhibit E, signed by a Responsible
        Official of the Borrower and properly completed to provide all
        information required by the Agent to be included therein.

                      "Request for Redesignation of Loan" means a written
        request for redesignation of Revolving Loans substantially in the form
        of Exhibit F, signed by a Responsible Official of the Borrower and
        properly completed to provide all information required by the Agent to
        be included therein.

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

                      "Revolving Advances" means advances made pursuant to the
        Revolving Commitments of the Lenders (which shall include the principal
        of the Existing Loans to the extent converted to Revolving Loans
        pursuant to Section 2.2(a)).

                      "Revolving Commitment" means, with respect to any Lender
        at any time, the amount set forth opposite such Lender's name on
        Schedule 1.1(g) hereto under the heading "Revolving Commitments" or, if
        such Lender has entered into one or more Assignments and Acceptances,
        set forth for such Lender in the Register maintained by the Agent
        pursuant to Section 13.7(c) as such Lender's "Revolving Commitment," as
        such amount may be reduced at or prior to such time pursuant to Section
        4.7.

                      "Revolving Facility" means the aggregate of the Revolving
        Commitments.

                      "Revolving Loans" means the aggregate Revolving Advances
        made or to be made by the Lenders to the Borrower pursuant to this
        Agreement (which shall include the principal of the Existing Loans to
        the extent converted to Revolving Loans pursuant to Section 2.2(a)).
        Each Revolving Loan made on or after the Closing Date shall consist of
        the group of Revolving Advances made at any one time by the Lenders in
        accordance with Article 4, including groups of Revolving Advances made
        as new advances, and also including groups of



                                       20

<PAGE>   27
        Revolving Advances made by converting or redesignating existing
        Revolving Advances in accordance with Article 4. In connection with each
        Revolving Loan, the amount of each Revolving Advance by each Lender
        shall be determined according to that Lender's percentage share of the
        aggregate amount of the Revolving Commitments.

                      "Revolving Note" means a promissory note, substantially in
        the form of Exhibit G hereto, executed by the Borrower in favor of a
        Lender to evidence the Revolving Advances made by such Lender, in each
        case as amended from time to time.

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

                      "Series A Directors" are the members of the Board of
        Directors of Presley Delaware elected by the Series A Stock.

                      "Series A Stock" means the common stock of Presley
        Delaware described in Schedule 1.1(a) hereof.

                      "Series B Stock" means the restricted voting convertible
        common stock of Presley Delaware described in Schedule 1.1(b) hereof.

                      "Set-Aside Letter" means (a) a letter from the Issuing
        Bank to a surety setting forth the Issuing Bank's undertaking to fund
        specified project costs for construction of improvements to be bonded by
        the surety in connection with the Borrower's development of a project
        included in the Borrowing Base, or (b) a letter from the Issuing Bank to
        a Governmental Agency setting forth the Issuing Bank's undertaking to
        fund specified project costs for construction of improvements in
        connection with the Borrower's development of a project included in the
        Borrowing Base.

                      "Set-Aside Letter Request" means a written request for a
        Set Aside Letter in the form approved by the Issuing Bank.

                      "Single Employer Plan" of any Person means a single
        employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is
        maintained for employees of such Person or any of its ERISA Affiliates
        and no Person other than such Person and its ERISA Affiliates or (b) was
        so maintained and in respect of which such Person or any of its ERISA
        Affiliates could have liability



                                       21

<PAGE>   28
        under Section 4069 of ERISA in the event such plan has been or were to
        be terminated.

                      "Special Letter of Credit Circumstance" means the
        application or adoption of any Law or interpretation, or any change
        therein or thereof, or any change in the interpretation or
        administration thereof by any Governmental Agency, central bank or
        comparable authority, or the existence or occurrence of circumstances
        affecting letters of credit (including, without limitation, any Law or
        interpretation regarding capital maintenance or capital adequacy)
        generally that are beyond the reasonable control of the Lenders, any
        Issuing Bank or the Agent.

                      "Special Offshore Rate Circumstance" means the application
        or adoption of any Law or interpretation, or any change therein or
        thereof, or any change in the interpretation or administration thereof
        by any Governmental Agency, central bank or comparable authority charged
        with the interpretation or administration thereof, or compliance by the
        Agent or any Lender or its Offshore Rate Lending Office (if applicable)
        with any request or directive (whether or not having the force of Law)
        of any such Governmental Agency, central bank or comparable authority,
        or the existence or occurrence of circumstances affecting the applicable
        offshore dollar interbank market for the determination of the Offshore
        Rate, generally that are beyond the reasonable control of the Agent or
        the Lenders.

                      "Subsidiary" means, as of any date of determination and
        with respect to any Person, any corporation, partnership, joint venture
        or limited liability company, whether now existing or hereafter
        organized or acquired: (a) in the case of a corporation, of which a
        majority of the securities having ordinary voting power for the election
        of directors or other governing body (other than securities having such
        power only by reason of the happening of a contingency) are at the time
        beneficially owned by such Person and/or one or more Subsidiaries of
        such Person, or (b) in the case of a partnership, joint venture or
        limited liability company, the assets and liabilities of which would, in
        accordance with GAAP consistently applied, be consolidated with the
        assets and liabilities of such Person in the preparation of consolidated
        financial statements of such Person and its Subsidiaries.

                      "Tangible Effective Net Worth" means, as of any date of
        determination thereof and with respect to any Person, the total assets
        of such Person as of such date determined in accordance with GAAP,
        consistently applied, minus Intangible Assets of such Person as of such
        date and minus Total Liabilities of such Person as of such date.

                      "Termination Date" means May 20, 2001.



                                       22

<PAGE>   29
                      "Third Party Issuer" has the meaning specified in the
        definition of Issuing Bank in this Section 1.1.

                      "to the best knowledge of" means, when modifying a
        representation, warranty or other statement of any Person, that the fact
        or situation described therein is known by the Person (or, in the case
        of a Person other than a natural Person, known by a Responsible Official
        of that Person) making the representation, warranty or other statement,
        or with the exercise of reasonable due diligence under the circumstances
        (in accordance with the standard of what a reasonable Person in similar
        circumstances would have done) should have been known by the Person (or,
        in the case of a Person other than a natural Person, should have been
        known by a Responsible Official of that Person).

                      "Total Liabilities" means, as of any date of determination
        and with respect to any Person, each item that should be reflected as a
        liability on a balance sheet of such Person on such date prepared in
        accordance with GAAP, consistently applied, and, to the extent not
        already included above, liabilities with respect to capitalized leases;
        provided, however, that for the purposes of the Loan Documents,
        Non-Recourse indebtedness shall not be considered as an indebtedness or
        other liability of such Person or of any partner of such Person.

                      "Total Outstandings" means, as of any date of
        determination, the sum of (a) Outstanding Loans and (b) Outstanding
        Letters of Credit.

                      "Unused Line Fee" has the meaning specified in Section
        5.3(a).

                      "Withdrawal Liability" has the meaning specified in Part I
        of Subtitle E of Title IV of ERISA.

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

               1.3 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial statements required to be submitted by this Agreement shall be
prepared in conformity with, GAAP applied on a consistent basis, except as
otherwise specifically prescribed herein. In the event that GAAP shall change
during the term of this Agreement such that the financial covenants contained in
Article 8 would then be calculated in a different manner or with different
components, the Borrower and Lenders agree to amend this Agreement in such
respects as are necessary to conform those covenants, as criteria for evaluating
the Borrower's financial condition, to substantially the same criteria as were
effective prior to such change in GAAP.



                                       23

<PAGE>   30
               1.4 Exhibits and Schedules. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference.

               1.5 Miscellaneous Terms. The term "or" is disjunctive; the term
"and" is conjunctive. The term "shall" is mandatory; the term "may" is
permissive. Masculine terms also apply to females; feminine terms also apply to
males. The term "including" is by way of example and not limitation.

                                    ARTICLE 2
                                     CLOSING

               2.1 Conditions to Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place on the date (the
"Closing Date") on which each of the following conditions is satisfied:

                      (a) The Agent shall have received all of the following,
        each of which shall be an original unless otherwise specified, each
        properly executed by a Responsible Official of each party thereto, and,
        where appropriate, acknowledged, each dated as of the Closing Date and
        each in form and substance satisfactory to the Agent and its legal
        counsel (unless otherwise specified or, in the case of the date of any
        of the following, unless the Agent otherwise agrees or directs):

                             (1) seven counterparts of this Agreement executed
               by the Borrower and the Lenders;

                             (2) a Revolving Note to be payable to the order of
               each Lender, each in a principal amount equal to such Lender's
               Revolving Commitment (each such Revolving Note to be distributed
               by the Agent to the appropriate Lender; such Revolving Note to
               replace the "Revolving Note" issued to such Lender in connection
               with the Existing Loan Agreement, such replaced note to be
               returned to the Borrower by the Lender holding same marked
               "canceled" promptly after the Closing Date);

                             (3) with respect to each of the Borrower and
               Presley Delaware, such documentation as the Agent may require to
               establish the due organization, valid existence and good standing
               of the Borrower or Presley Delaware, its qualification to engage
               in business in each jurisdiction in which it is engaged in
               business or required to be so qualified and where the failure to
               be so qualified would be materially adverse to the Borrower or
               Presley Delaware; its authority to execute, deliver and perform
               each of the Loan Documents to which it is a Party and the



                                       24

<PAGE>   31
               identity, authority and capacity of each Responsible Official
               thereof authorized to act on its behalf, including, without
               limitation, certified copies of articles of incorporation and
               amendments thereto, bylaws and amendments thereto, certificates
               of good standing and/or qualification to engage in business, tax
               clearance certificates, certificates of corporate and shareholder
               resolutions and approvals, incumbency certificates, Certificates
               of Responsible Officials, and the like;

                             (4) (x) such amendments or confirmations (as the
               Agent or the Majority Lenders may require) of the Collateral
               Documents existing as of the Closing Date, (y) such other
               Collateral Documents as the Agent or the Majority Lenders may
               require granting Liens on the Property of the Borrower which is
               to be Collateral, together with such related financing statements
               or other documents as the Agent may request to perfect, effect,
               facilitate, consent to, give notice of or otherwise evidence such
               Liens and (z) an amendment and restatement of the Amended and
               Restated Guaranty in form and substance satisfactory to the
               Agent;

                             (5) the Opinion of Counsel;

                             (6) a Certificate of a Responsible Official of the
               Borrower certifying to the best of such Official's knowledge that
               the conditions specified in this Section 2.1 have been satisfied;

                             (7) evidence of personal Property Lien searches
               showing the absence of Liens and Rights of Others on or in the
               personal Property of the Borrower (other than such Liens and
               Rights of Others as are permitted by Section 8.8), and other
               evidence that all Liens or Rights of Others on or in the Property
               of the Borrower (other than such Liens and Rights of Others as
               are permitted by Section 8.8) have been terminated or discharged;
               and

                             (8) such other assurances, certificates, documents,
               consents or opinions as are required under this Agreement or as
               the Agent reasonably may require.

                      (b) The representations and warranties of the Borrower
        contained in Article 6 shall be true and correct in all material
        respects.

                      (c) The Borrower and any other Parties shall be in
        compliance in all material respects with all the terms and provisions of
        the Loan Documents, and no Default shall have occurred and be
        continuing.



                                       25

<PAGE>   32
                      (d) No material adverse change has occurred in the
        business, condition (financial or otherwise), operations, performance,
        properties or prospects of the Borrower or Presley Delaware since the
        date of the most recent financial statements delivered to the Agent and
        the Lenders prior to the Closing Date.

                      (e) Duly executed amendments to financing statements and
        deeds of trust with respect to the Collateral shall have been delivered
        for filing and/or recordation with such Governmental Agencies, and in
        such jurisdictions and locales, as the Agent may specify, and duly
        executed agreements with depository institutions relating to the Liens
        on the Borrower's deposit accounts contemplated by Section 13.8, in form
        and substance satisfactory to the Agent and the Majority Lenders.

                      (f) The issuer of each title policy currently insuring any
        Lien in favor of the Lenders against any real Property (or interest
        therein) of the Borrower shall have committed to issue such amendments,
        modifications or endorsements to such title policy as the Majority
        Lenders may require to insure the continued validity and priority of
        each such Lien, or, if required by the Agent, new policies of title
        insurance shall have been obtained with respect to such of the real
        Property (or interests therein) of the Borrower as the Agent may
        require, in each instance with such insurers and with such coverages and
        endorsements, and subject to only such exceptions, as the Majority
        Lenders may require to insure the continued validity and priority of
        each such Lien.

                      (g) The Borrower shall have paid interest accrued on the
        Existing Loans to the Closing Date.

If any of the conditions specified in this Section 2.1 is not fulfilled on or
before July 6, 1998, this Agreement shall terminate and be of no further force
or effect.

               2.2 Effect of Fulfillment of Conditions. Subject to the
fulfillment of the conditions specified in Section 2.1 on or before July 6 ,
1998, effective as of the Closing Date:

                      (a) the balance of the principal of the Existing Loans of
        the Initial Lenders shall be deemed to have been converted (ratably in
        accordance with the amount of such Lenders' respective Revolving
        Commitments) to Revolving Loans, and shall be evidenced by the Revolving
        Notes;

                      (b) all "Letters of Credit" (as defined in the Existing
        Loan Agreement, and referred to herein as "Existing Letters of Credit")
        outstanding on the Closing Date shall be deemed to be Letters of Credit
        issued hereunder; and



                                       26

<PAGE>   33
                      (c) all "Set-Aside Letters" (as defined in the Existing
        Loan Agreement, and referred to herein as "Existing Set-Aside Letters")
        outstanding on the Closing Date shall be deemed to be Set-Aside Letters
        issued hereunder.
 .

                                    ARTICLE 3
                                    [DELETED]


                                    ARTICLE 4
                    REVOLVING ADVANCES AND LETTERS OF CREDIT

               4.1 Revolving Advances. Each Lender severally agrees, subject to
and on the terms and conditions hereinafter set forth, to make Revolving
Advances to the Borrower at any time and from time to time from the Closing Date
through the Banking Day immediately preceding the Termination Date, in an
aggregate amount not to exceed at any time outstanding such Lender's Revolving
Commitment less such Revolving Lender's pro rata share of the aggregate
Outstanding Letters of Credit; provided that no Lender shall be obligated to
make a Revolving Advance under this Section 4.1 if, after giving effect to all
Revolving Advances to be made by the Lenders, Outstanding Advances would exceed
the Maximum Revolving Loan Amount. Unless the Majority Lenders otherwise
consent, each Revolving Loan under this Section 4.1 shall be in the aggregate
amount of not less than $1,000,000, and shall consist of Revolving Advances of
the same Interest Type made on the same day by the Lenders ratably according to
their respective Revolving Commitments. Within the limits of each Lender's
Revolving Commitments and the Borrowing Base, the Borrower may borrow under this
Section 4.1, prepay pursuant to Section 5.2 and reborrow under this Section 4.1.

               4.2 Making the Revolving Advances.

                      (a) Each Revolving Loan made after the Closing Date shall
        consist of Revolving Advances of the same Interest Type and shall be
        made pursuant to a written Request for Loan received by the Agent at the
        Agent's Office (i) not later than 9:00 a.m., Los Angeles time, at least
        two Banking Days prior to the date that a proposed Revolving Loan is to
        be made in the case of Reference Rate Loans and (ii) not later than 9:00
        a.m., Los Angeles time, at least three Banking Days prior to the date
        that a proposed Revolving Loan is to be made in the case of Offshore
        Rate Loans. Each Request for Loan shall be accompanied by the Borrowing
        Certificate relating to such Request for Loan and shall specify therein
        the requested (1) date and Interest Type of such Revolving Loan, (2)
        aggregate amount of such Revolving Loan, and (3) in the case of an
        Offshore Rate Loan, initial Interest Period for such Revolving Loan.
        Unless the



                                       27

<PAGE>   34
        Majority Lenders otherwise consent, no more than two Requests for Loan
        may be delivered by the Borrower in any calendar month.

                      (b) Promptly following receipt of a Request for Loan, the
        Agent shall notify each Lender by telephone, telecopier or telex of the
        date of the Revolving Loan, the applicable Interest Period (in the case
        of an Offshore Rate Loan) and that Lender's pro rata portion of the
        Revolving Loan. Not later than 11:00 a.m., Los Angeles time, on the date
        specified for any Revolving Loan, each Lender shall make its ratable
        portion of the Revolving Loan in immediately available funds available
        to the Agent by deposit of such amount in the Agent's Account. Upon
        fulfillment of the applicable conditions set forth in Article 10, the
        proceeds of each Revolving Loan shall be credited in immediately
        available funds to the Operating Account.

                      (c) The amount of each Revolving Loan made after the
        Closing Date may not be more than the then applicable Maximum Revolving
        Loan Amount less the Outstanding Loans.

                      (d) [Deleted]

                      (e) Each Request for Loan shall be irrevocable and binding
        on the Borrower upon receipt by the Agent. In the case of any Revolving
        Loan which the related Request for Loan specifies is to be comprised of
        Offshore Rate Advances, the Borrower shall indemnify each Lender against
        any reasonable loss, cost or expense incurred by such Lender as a result
        of any failure to fulfill on or before the date specified in such
        Request for Loan, the applicable conditions set forth in Article 10
        hereof, including, without limitation, any loss, cost or expense
        incurred by reason of the liquidation or reemployment of deposits or
        other funds acquired by any Lender to fund the Revolving Advance to be
        made by such Lender as part of such Loan when such Loan, as a result of
        such failure, is not made on such date.

                      (f) Unless the Agent shall have been notified by telephone
        (confirmed immediately by telecopier) by any Lender at least twenty-four
        hours prior to the funding by the Agent of any Revolving Loan that such
        Lender will not make available to the Agent such Lender's ratable
        portion of the total amount of such Revolving Loan, the Agent may assume
        that such Lender has made such portion available to the Agent on the
        date of the Revolving Loan in accordance with Section 4.2(b) and the
        Agent may, in reliance upon such assumption, make available to the
        Borrower on such date a corresponding amount. If and to the extent that
        such Lender shall not have so made such ratable portion available to the
        Agent, the Agent shall be entitled to recover such corresponding amount
        on demand from such Lender, which demand shall be made in a reasonably
        prompt manner. If such Lender does not pay such corresponding amount
        forthwith upon



                                       28

<PAGE>   35
        the Agent's demand therefor, the Agent promptly shall notify the
        Borrower and the Borrower shall pay such corresponding amount to the
        Agent within three Banking Days. The Agent also shall be entitled to
        recover from such Lender or the Borrower, as the case may be, interest
        on such corresponding amount in respect of each day from the date such
        corresponding amount was made available by the Agent to the Borrower to
        the date such corresponding amount is recovered by the Agent, at a rate
        per annum equal to the rate of interest charged to the Borrower on the
        Revolving Loan composed in part of the corresponding amount. Nothing
        herein shall be deemed to relieve any Lender from its obligation, if
        any, hereunder to make its Revolving Advance on the date of such
        Revolving Loan or to prejudice any right which the Agent or the Borrower
        may have against any Lender as a result of any such default (whether or
        not the Borrower has paid the corresponding amount to the Agent), but no
        Lender shall be responsible for the failure of any other Lender to make
        the Revolving Advance to be made by such other Lender on the date of any
        Revolving Loan.

                      (g) The Revolving Advances of each Lender shall be
        evidenced by that Lender's Revolving Note.

               4.3 Reference Rate Loans. All Revolving Loans shall constitute
Reference Rate Loans unless properly designated or redesignated as Offshore Rate
Loans pursuant to Sections 4.2, 4.4 or 4.5.

               4.4 Offshore Rate Loans.

                      (a) At or about 8:00 a.m., Los Angeles time, two Banking
        Days prior to the commencement of the applicable Interest Period for any
        Offshore Rate Loan, the Agent shall determine the applicable Offshore
        Rate (which determination shall be conclusive in the absence of manifest
        error) and promptly shall give notice of the same to the Borrower and
        the Lenders by telephone, telecopier or telex.

                      (b) Upon fulfillment of the applicable conditions set
        forth in Article 10, an Offshore Rate Loan shall become effective on the
        first day of the applicable Interest Period.

                      (c) Unless the Majority Lenders otherwise consent, no more
        than eight Offshore Rate Loans shall be outstanding at any one time.

                      (d) Nothing contained in this Agreement shall require any
        Lender to fund any Offshore Rate Advance in the applicable offshore
        dollar interbank market.

               4.5 Redesignation of Loans.



                                       29

<PAGE>   36
                      (a) Subject to Section 10.2, if any Offshore Rate Loan is
        not repaid on, or redesignated as an Offshore Rate Loan prior to, the
        last day of the applicable Interest Period, such Loan automatically
        shall be redesignated as a Reference Rate Loan on such date. Any
        Offshore Rate Loan that is not repaid, redesignated or automatically
        redesignated on the last day of the applicable Interest Period shall
        bear interest at the rate specified in clause (i) of Section 5.7.

                      (b) Subject to the terms and conditions set forth in this
        Agreement, at any time and from time to time from the Closing Date until
        the thirtieth day preceding the Termination Date, the Borrower may
        request that all or a portion of outstanding Reference Rate Loans be
        redesignated as an Offshore Rate Loan.

                      (c) Each redesignation of all or a portion of outstanding
        Reference Rate Loans or Offshore Rate Loans as an Offshore Rate Loan
        shall be made pursuant to a written Request for Redesignation of Loans.
        Not later than 9:00 a.m., Los Angeles time, three Banking Days prior to
        the first Banking Day of the applicable requested Interest Period, the
        Agent shall have received, at the Agent's Office, a properly completed
        Request for Redesignation of Loans specifying the requested (i) date of
        redesignation, (ii) amount of Reference Rate Loans or Offshore Rate
        Loans to be redesignated as an Offshore Rate Loan, and (iii) applicable
        Interest Period. The Agent may, in its sole and absolute discretion,
        permit a Request for Redesignation of Loans to be made by telephone
        (confirmed immediately by telecopier), telecopier or telex by a
        Responsible Official of the Borrower, in which case the Borrower shall
        confirm same by mailing a written Request for Redesignation of Loans to
        the Agent within 48 hours following the date of redesignation.

                      (d) Unless the Majority Lenders otherwise consent, the
        amount of Reference Rate Loans to be redesignated as an Offshore Rate
        Loan shall be at least $1,000,000 and an integral multiple of $100,000
        for amounts in excess thereof.

                      (e) With respect to any redesignation of Reference Rate
        Loans as an Offshore Rate Loan, at or about 8:00 a.m., Los Angeles time,
        two Banking Days prior to the commencement of the applicable Interest
        Period, the Agent shall determine the applicable Offshore Rate (which
        determination shall be conclusive in the absence of manifest error) and
        promptly shall give notice of the same to Borrower and the Lenders by
        telephone, telecopier or telex.

                      (f) Upon fulfillment of the applicable conditions set
        forth in Article 10, the redesignation of all or a portion of
        outstanding Reference Rate



                                       30

<PAGE>   37
        Loans as an Offshore Rate Loan shall become effective on the first day
        of the applicable Interest Period.

                      (g) Nothing contained herein shall require any Lender to
        fund any Offshore Rate Advance resulting from redesignation of all or a
        portion of any of its Reference Rate Advances in the applicable offshore
        dollar interbank market.

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

               4.6 Letters of Credit and Set-Aside Letters.

                      (a) Subject to the written approval of the Agent (which
        shall be in the Agent's sole discretion) and the other terms and
        conditions hereof, at any time and from time to time from the Closing
        Date through the Banking Day immediately preceding the Termination Date,
        the Borrower and the Lenders agree that any Issuing Bank may issue such
        Letters of Credit or Set-Aside Letters under the Revolving Facility as
        the Borrower may request by a Request for Letter of Credit, provided
        that (i) the specific wording of each Letter of Credit and Set-Aside
        Letter shall be subject to the approval of the Issuing Bank thereof and,
        if such Letter of Credit is a Guaranteed Letter of Credit, the LC
        Guarantor, (ii) no Letter of Credit or Set-Aside Letter shall be issued
        for a project unless such project is included in the Borrowing Base, and
        (iii) upon giving effect to any Letter of Credit or Set-Aside Letter to
        be issued hereunder, (A) Total Outstandings shall not exceed the
        aggregate Revolving Commitments, (B) Outstanding Letters of Credit shall
        not exceed the Maximum Letter of Credit Amount, (C) Outstanding Loans
        shall not exceed the Maximum Revolving Loan Amount (as adjusted to
        reflect the issuance of such Letter of Credit or Set-Aside Letter), and
        (D) Outstanding Letters of Credit issued by Third Party Issuers, the
        Borrower's obligations in connection with which are secured by Cash
        and/or Cash Equivalents, shall not exceed $5,000,000; provided, however,
        that any Issuing Bank may issue Letters of Credit or Set-Aside Letters
        that would cause the Outstanding Letters of Credit to exceed the Maximum
        Letter of Credit Amount, but that would not cause Total Outstandings to
        exceed the aggregate Revolving Commitments, with the written approval of
        the Majority Lenders. Other than in the case of any Letter of Credit
        issued for the benefit of a governmental authority, the term of any
        Letter of Credit shall not exceed twelve months and no Letter of Credit
        shall provide for any automatic extensions thereof. The Issuing Bank
        shall not issue any Set-Aside Letter that extends beyond the Termination
        Date or without a fixed expiration date without the written approval of
        the Majority Lenders. Not later than five Banking Days before the
        Termination Date, the Borrower shall (x) provide to the Agent an
        irrevocable, unconditional standby letter of credit issued by a bank
        satisfactory to the Agent



                                       31

<PAGE>   38
        and the Majority Lenders in form and substance satisfactory to the
        Majority Lenders in favor of the Lenders in a face amount equal to
        Outstanding Letters of Credit on that date, or (y) if such standby
        letter of credit is not available, make other provisions satisfactory to
        the Agent, the Issuing Banks (and, in the case of any Guaranteed Letters
        of Credit, the LC Guarantor thereof) and the Majority Lenders for the
        settlement of such Outstanding Letters of Credit.

                      (b) Each Request for Letter of Credit shall specify the
        type of Letter of Credit requested (i.e., standby or commercial), shall
        contain all other information required to be provided thereby, and shall
        be submitted to the Issuing Bank thereof and, if such Letter of Credit
        is to be a Guaranteed Letter of Credit, the LC Guarantor, with a copy to
        the Agent, not later than 11:00 a.m., Los Angeles time, at least five
        Banking Days prior to the date upon which the requested Letter of Credit
        is to be issued. Each request for the issuance of a Set-Aside Letter
        shall contain such information as may be required by the Issuing Bank
        and shall be submitted to the Issuing Bank, with a copy to the Agent,
        not later than 11:00 a.m., Los Angeles time, ten Banking Days prior to
        the date on which the requested Set-Aside Letter is to be issued. Upon
        issuance of a Letter of Credit or Set-Aside Letter, the Issuing Bank
        thereof (or, if such Letter of Credit is a Guaranteed Letter of Credit,
        the LC Guarantor) promptly shall notify the Agent and the Lenders of the
        amount and terms thereof and deliver a copy of the Letter of Credit or
        Set-Aside Letter, as applicable, to the Agent and each Lender. Such
        Issuing Bank (or, if such Letter of Credit is a Guaranteed Letter of
        Credit, the LC Guarantor) shall notify the Agent promptly and upon such
        notification, the Agent shall promptly notify the Lenders of payments,
        reimbursements, expirations, negotiations, transfers and other activity
        during that month with respect to outstanding Letters of Credit and
        Set-Aside Letters.

                      (c) Upon the issuance of a Letter of Credit (unless issued
        by a Third Party Issuer) or Set-Aside Letter, each Lender shall be
        deemed to have purchased a pro rata risk participation therein from the
        Issuing Bank thereof in an amount equal to that Lender's share,
        according to its percentage of the aggregate Revolving Commitments, of
        the face amount of such Letter of Credit or Set-Aside Letter. Without
        limiting the scope and nature of each Lender's participation in any such
        Letter of Credit or Set-Aside Letter, to the extent that the Issuing
        Bank thereof has not been reimbursed by the Borrower, through the Agent,
        for any payment required to be made by such Issuing Bank under any such
        Letter of Credit or Set-Aside Letter, such Issuing Bank shall give
        notice thereof to the Agent and, upon notice from the Agent to each
        Lender, each such Lender shall, pro rata according to its participation
        and through the Agent, reimburse such Issuing Bank promptly upon demand
        for the amount of such payment, together with interest on such amount in
        respect of each day from the date of payment by such Issuing Bank to the
        date such amount is recovered by such Issuing Bank, at a rate per annum
        equal to the actual cost to such Issuing



                                       32

<PAGE>   39
        Bank of making such payment as notified by such Issuing Bank to such
        Lenders. The obligation of each Lender to so reimburse the Agent for the
        benefit of such Issuing Bank shall be absolute and unconditional and
        shall not be affected by the occurrence of any Default or any other
        occurrence or event (other than the issuance by such Issuing Bank of a
        Letter of Credit or Set-Aside Letter in violation of the terms hereof).
        Any such reimbursement shall not relieve or otherwise impair the
        obligation of the Borrower to reimburse such Issuing Bank for the amount
        of any payment made by such Issuing Bank under any Letter of Credit or
        Set-Aside Letter together with interest as hereinafter provided. For
        purposes of this Section 4.6(c), the Existing Letters of Credit and the
        Existing Set-Aside Letters shall be deemed to have been issued on and as
        of the Closing Date.

                      (d) In the event that any Issuing Bank (other than a Third
        Party Issuer) makes any payment under any Letter of Credit or Set-Aside
        Letter, such Issuing Bank shall promptly notify the Agent thereof and
        the Agent shall notify the Lenders and the Borrower of the making of
        such payment and the relevant facts related thereto, and shall demand
        reimbursement from the Borrower, in each case within one Banking Day
        following the making of such payment. The Borrower promises to pay to
        each such Issuing Bank, at its office designated as its address for
        notices pursuant to this Agreement, or at such other payment location as
        such Issuing Bank shall have specified in writing to the Agent and the
        Borrower, with respect to each such Letter of Credit or Set-Aside
        Letter, within three Banking Days after demand therefor (or such earlier
        time as the Borrower may have agreed with such Issuing Bank), a
        principal amount equal to any payment made by such Issuing Bank under
        that Letter of Credit or Set-Aside Letter, together with interest on
        such amount from the date of any payment made by such Issuing Bank to
        and, in the case of any such payment made after 10:00 a.m. (Los Angeles
        time), including the date of payment by the Borrower at the rate
        applicable to Reference Rate Advances (or, in the case of any Guaranteed
        Letter of Credit, at the rate agreed with the Third Party Issuer
        thereof). Should the Borrower fail to reimburse such Issuing Bank,
        through the Agent (or, in the case of any Guaranteed Letter of Credit,
        as directed by the Third Party Issuer thereof), for any amount due under
        this Section 4.6(d) within three Banking Days after demand therefor, the
        Agent may disburse such amount to such Issuing Bank as a Reference Rate
        Loan to the extent of availability under the aggregate Revolving
        Commitments, provided, however, that the Agent shall not disburse such a
        Reference Rate Loan, if, after giving effect to such Reference Rate
        Loan, such disbursements would cause Total Outstandings to exceed the
        amount of such Revolving Commitments. Should the Borrower fail to
        reimburse such Issuing Bank for any amount under this Section 4.6(d)
        within three Banking Days after demand therefor, and should the Agent
        elect not to disburse such amount as a Reference Rate Loan (or be
        precluded by the terms of this Agreement from so doing), such amount (if
        payable to the Agent any



                                       33

<PAGE>   40
        Lender) shall thereafter bear interest at the rate set forth in clause
        (ii)(B)of Section 5.7 to the fullest extent permitted by applicable Law.
        The principal amount of any payment made by the Borrower to the Agent,
        for the benefit of such Issuing Bank (or any payment made to such
        Issuing Bank by means of a Reference Rate Loan) pursuant to this Section
        4.6(d) shall be used to reimburse such Issuing Bank for the payment made
        by it under the Letter of Credit or Set-Aside Letter. Each Lender that
        has made an advance for purposes of reimbursing such Issuing Bank
        pursuant to Section 4.6(c) for its pro rata share of any payment made by
        such Issuing Bank under a Letter of Credit or Set-Aside Letter thereupon
        shall acquire a pro rata participation, to the extent of such
        reimbursement, in the claim of such Issuing Bank against the Borrower
        under this Section 4.6(d).

                      (e) The Borrower and the Lenders acknowledge that the LC
        Guarantor has previously executed one or more LC Guaranties (the
        "Existing LC Guaranties") with respect to Letters of Credit that
        constitute Guaranteed Letters of Credit hereunder, and agree that the LC
        Guarantor may hereafter in its sole and absolute discretion execute and
        deliver to one or more Third Party Issuers one or more additional LC
        Guaranties with respect to any Letters of Credit that are to be
        Guaranteed Letters of Credit and may be issued or outstanding hereunder.
        Upon the effectiveness of any LC Guaranty executed by the LC Guarantor
        with respect to any such Letter of Credit issued or to be issued
        hereunder, each Lender shall be deemed to have purchased a pro rata risk
        participation therein from the LC Guarantor in an amount equal to that
        Lender's share, according to its percentage of the aggregate Revolving
        Commitments, of the obligation of the LC Guarantor under the LC Guaranty
        with respect to such Letter of Credit. Without limiting the scope and
        nature of each Lender's participation in any LC Guaranty with respect to
        any Guaranteed Letter of Credit, to the extent that the LC Guarantor has
        not been reimbursed by the Borrower, through the Agent, for any payment
        required to be made by the LC Guarantor under the LC Guaranty with
        respect to any Guaranteed Letter of Credit, the LC Guarantor shall give
        notice thereof to the Agent and, upon notice from the Agent to each
        Lender, each Lender shall, pro rata according to its participation and
        through the Agent, reimburse the LC Guarantor promptly upon demand for
        the amount of such payment, together with interest on such amount in
        respect of each day from the date of payment by the LC Guarantor to the
        date such amount is recovered by the LC Guarantor, at a rate per annum
        equal to the actual cost to the LC Guarantor of making such payment as
        notified by the LC Guarantor to the Lenders. The obligation of each
        Lender to so reimburse the Agent for the benefit of the LC Guarantor
        shall be absolute and unconditional and shall not be affected by the
        occurrence of any Default or any other occurrence or event. Any such
        reimbursement shall not relieve or otherwise impair the obligation of
        the Borrower to reimburse the LC Guarantor for the amount of any payment
        made by the LC Guarantor under the LC Guaranty together with interest as
        hereinafter



                                       34

<PAGE>   41
        provided. For purposes of this Section 4.6(e), the Existing LC
        Guaranties shall be deemed to have been executed and delivered by the LC
        Guarantor (and shall be deemed to have become effective with respect to
        the Existing Letters of Credit covered thereby) on and as of the Closing
        Date.

                      (f) In the event that the LC Guarantor makes any payment
        under any LC Guaranty, the LC Guarantor shall promptly notify the Agent
        thereof and the Agent shall notify the Lenders and the Borrower of the
        making of such payment and the relevant facts related thereto, and shall
        demand reimbursement from the Borrower within one Banking Day following
        the making of such payment. The Borrower promises to pay to the LC
        Guarantor, at its office designated as its address for notices pursuant
        to this Agreement, or at such other payment location as the LC Guarantor
        shall have specified in writing to the Agent and the Borrower, with
        respect to any LC Guaranty, within three Banking Days after demand
        therefor, a principal amount equal to any payment made by the LC
        Guarantor under such LC Guaranty, together with interest on such amount
        from the date of any payment made by the LC Guarantor to and, in the
        case of any such payment made after 10:00 a.m. (Los Angeles time),
        including the date of payment by the Borrower at the rate applicable to
        Reference Rate Advances. Should the Borrower fail to reimburse the LC
        Guarantor, through the Agent, for any amount due under this Section
        4.6(f) with respect to any Guaranteed Letter of Credit issued hereunder
        within three Banking Days after demand therefor, the Agent may disburse
        such amount to the LC Guarantor as a Reference Rate Loan to the extent
        of availability under the aggregate Revolving Commitments, provided,
        however, that the Agent shall not disburse such a Reference Rate Loan,
        if, after giving effect to such Reference Rate Loan, such disbursements
        would cause Total Outstandings to exceed the aggregate Revolving
        Commitments. Should the Borrower fail to reimburse the LC Guarantor for
        any amount under this Section 4.6(f) within three Banking Days after
        demand therefor, and should the Agent elect not to disburse such amount
        as a Reference Rate Loan (or be precluded by the terms of this Agreement
        from so doing), such amount shall thereafter bear interest at the rate
        set forth in clause (ii)(B) of Section 5.7 below to the fullest extent
        permitted by applicable Law. The principal amount of any payment made by
        the Borrower to the Agent, for the benefit of the LC Guarantor (or any
        payment made to the LC Guarantor by means of a Reference Rate Loan)
        pursuant to this Section 4.6(f) shall be used to reimburse the LC
        Guarantor for any payment made by it under the LC Guaranty. Each Lender
        that has made an advance for purposes of reimbursing the LC Guarantor
        pursuant to Section 4.6(e) for its pro rata share of any payment made by
        the LC Guarantor under the LC Guaranty thereupon shall acquire a pro
        rata participation, to the extent of such reimbursement, in the claim of
        the LC Guarantor against the Borrower under this Section 4.6(f).



                                       35

<PAGE>   42
                      (g) The obligation of the Borrower to pay to the LC
        Guarantor the amount of any payment made by the LC Guarantor under any
        LC Guaranty shall be absolute, unconditional and irrevocable, and shall
        be an Obligation of the Borrower under the Loan Documents secured by the
        Collateral Documents.

                      (h) The issuance of any supplement, modification,
        amendment, renewal or extension to or of any Letter of Credit or
        Set-Aside Letter shall be treated in all respects the same as the
        issuance of a new Letter of Credit or Set-Aside Letter.

                      (i) The obligation of the Borrower to pay to (A) each
        Issuing Bank (other than any Third Party Issuer) the amount of any
        payment made by such Issuing Bank under any Letter of Credit or
        Set-Aside Letter, and (B) the LC Guarantor the amount of any payment
        made by the LC Guarantor under any LC Guaranty, shall be absolute,
        unconditional and irrevocable. Without limiting the foregoing, such
        obligation of the Borrower shall not be affected by any of the following
        circumstances:

                      (i) any lack of validity or enforceability of any Letter
               of Credit or Set-Aside Letter, any Loan Document, or any other
               agreement or instrument relating thereto;

                      (ii) any amendment or waiver of or any consent to
               departure from any Letter of Credit or Set-Aside Letter, any Loan
               Document, or any other agreement or instrument relating thereto;

                      (iii) the existence of any claim, setoff, defense or other
               rights which the Borrower may have at any time against the Agent,
               any Issuing Bank, the LC Guarantor or any Lender, any beneficiary
               of any Letter of Credit or Set-Aside Letter (or any Persons or
               entities for whom any such beneficiary may be acting) or any
               other Person, whether in connection with any Letter of Credit or
               Set-Aside Letter, this Agreement, any other Loan Documents or any
               other agreement or instrument relating thereto, or any unrelated
               transactions;

                      (iv) any demand, statement or any other document presented
               under any Letter of Credit or Set-Aside Letter proving to be
               forged, fraudulent, invalid or insufficient in any respect or any
               statement therein being untrue or inaccurate in any respect
               whatsoever;

                      (v) payment by any Issuing Bank under any Letter of Credit
               against presentation of a draft or any accompanying document
               which does not strictly comply with the terms of such Letter of
               Credit;



                                       36

<PAGE>   43
                      (vi) the existence, character, quality, quantity,
               condition, packing, value or delivery of any Property purported
               to be represented by documents presented in connection with any
               Letter of Credit or any difference between any such Property and
               the character, quality, quantity, condition or value of such
               Property as described in such documents;

                      (vii) the time, place, manner, order or contents of
               shipments or deliveries of property as described in documents
               presented in connection with any Letter of Credit or the
               existence, nature and extent of any insurance relating thereto;

                      (viii) the solvency (or insolvency) or financial
               responsibility (or lack thereof) of any party issuing any
               documents in connection with any Letter of Credit;

                      (ix) any failure or delay in notice of shipment or arrival
               of any Property;

                      (x) any error in the transmission of any message relating
               to any Letter of Credit not caused by the Issuing Bank thereof,
               or any delay or interruption in any such message; and/or

                      (xi) any error, neglect or default of any correspondent of
               any Issuing Bank in connection with any Letter of Credit.

               4.7 Reduction of the Revolving Commitments. The Borrower shall
have the right, at any time and from time to time prior to the Termination Date,
without penalty or charge, upon at least five Banking Days prior written notice
to the Agent, to voluntarily terminate in whole or reduce ratably in part,
permanently and irrevocably, the then undisbursed portion of the Revolving
Commitments of the Lenders, provided that any such partial reduction shall be in
a positive integral multiple of $1,000,000, and provided further that any such
reduction or termination shall be accompanied by all accrued and unpaid fees
with respect to the portion of the Revolving Commitments being reduced or
terminated, and provided further that the aggregate Revolving Commitments shall
not be reduced to an amount less than the amount of Total Outstandings.

               4.8 Determination, Adjustment and Modification of the Borrowing
Base.

                      (a) Subject to adjustment and modification as set forth
        below, and except as otherwise provided below, the Borrowing Base, as of
        any date of determination, shall consist of the Aggregate Cost
        Components minus the Letter of Credit Reserve, in each case as of such
        date of determination (the "Borrowing Base"). The Aggregate Cost
        Components shall consist of the sum of the



                                       37

<PAGE>   44
        following four components, as the same may be determined by the Agent
        from time to time: (i) the Raw Land Cost Component; (ii) the Improved
        Land Cost Component; (iii) the Housing Cost Component; and (iv) the
        Notes Receivable Component (the "Aggregate Cost Components"). On or
        before February 15, March 8 and the last day of each month (other than
        January and February of each calendar year), the Borrower shall provide
        the Agent with (1) the Borrower's calculations of the components and
        reserves identified in the foregoing sentences, in each case as of the
        last day of the immediately preceding month (except that the Borrower's
        calculations delivered on or before February 15 shall be as of the
        immediately preceding December 31 and the Borrower's calculations
        delivered on or before March 8 shall be as of the immediately preceding
        January 31), and (2) such data supporting such calculations as the Agent
        or the Majority Lenders may require, together with a duly completed and
        executed Borrowing Base Certificate. Based upon such calculations and
        supporting data, and with the Borrower's assistance and cooperation, the
        Agent shall determine the components and reserves of the Borrowing Base
        as of the last day of the applicable month, and more often if the Agent
        or the Majority Lenders reasonably so require.

                      (b) Promptly upon determining the Borrowing Base on any
        occasion, and at least once a month, the Agent shall notify in writing
        the Borrower and the Lenders of the amount of the Borrowing Base as
        determined by the Agent, and the effective date thereof (which shall be
        the last day of the applicable month), and such amount shall thereupon
        and thereafter constitute the Borrowing Base which shall remain in
        effect until such time as the Agent redetermines a new Borrowing Base
        and gives notice of same in like fashion. Upon each determination of the
        Borrowing Base, the Agent shall deliver a copy of the applicable
        Borrowing Base Certificate and supporting documentation and data to each
        Lender.

                      (c) Each determination of any Borrowing Base by the Agent
        shall be binding and conclusive upon the parties hereto, and the Agent
        is not bound to rely on information and figures provided by the Borrower
        if the Agent determines in good faith that it would be inappropriate to
        do so. Without limiting the generality of the foregoing, the Agent may
        reduce (but without any obligation to do so) the carrying value or the
        percentage rate of advance with respect to any particular item or items
        included in the Borrowing Base if the Agent in good faith deems it
        appropriate to do so based on a material environmental problem or
        noncompliance with any Environmental Law.

                      (d) Except as otherwise provided herein, the Raw Land Cost
        Component of the Borrowing Base (the "Raw Land Cost Component") shall
        consist of the dollar amount equal to the product of (i) the value of
        the Raw Land of the Borrower which is in the Borrowing Base, as such
        value is reflected by the



                                       38

<PAGE>   45
        books and records of the Borrower, based upon the costs incurred by the
        Borrower with respect to such Raw Land, and (ii) the then applicable
        Maximum Advance Rate. Eligible Raw Land of the Borrower shall consist of
        Raw Land of the Borrower which meets each of the following conditions:
        (A) such Raw Land is located within the continental United States; (B)
        such Raw Land is owned in fee simple absolute by the Borrower; (C) such
        Raw Land is subject to a perfected first priority Lien in favor of the
        Agent, the Lenders, the Issuing Banks (other than any Third Party
        Issuer) and the LC Guarantor and is subject to no other Liens or Rights
        of Others except such as may be permitted by the Loan Documents; (D) no
        Event of Default shall have occurred and be continuing with respect to
        any representations, warranties or covenants contained in the Loan
        Documents with respect to or which concern such Raw Land, including,
        without limitation, on the generality of the foregoing, any
        representations, warranties or covenants that relate to environmental
        matters or compliance with Environmental Laws; (E) the Lenders or the
        Agent (or their respective predecessors with respect to the Revolving
        Loans and the Revolving Commitments) shall have received a hazardous
        waste report with respect to such Raw Land, in form and content
        acceptable to the Lenders; and (F) such Raw Land is permitted to be
        acquired by the Borrower in accordance with this Agreement.

                      (e) Except as otherwise provided herein, the Improved Land
        Cost Component of the Borrowing Base (the "Improved Land Cost
        Component") shall consist of the dollar amount equal to the product of
        (i) the value of the Improved Land of the Borrower which is in the
        Borrowing Base, as reflected by the books and records of the Borrower,
        based upon the costs incurred by the Borrower with respect to such
        Improved Land (including costs incurred during prior periods when such
        Improved Land consisted of Raw Land), and (ii) the then applicable
        Maximum Advance Rate. In determining the Improved Land Cost Component as
        it relates to projects of the Borrower where units have been completed
        and sold, or other dispositions have been made, appropriate deductions
        (calculated on the basis of costs incurred in acquiring and constructing
        the sold or disposed units) shall be made to subtract the value
        attributable to the units or other property that has been sold or
        disposed of. Eligible Improved Land of the Borrower shall consist of
        Improved Land of the Borrower which meets each of the following
        conditions: (A) such Improved Land is located within the continental
        United States; (B) such Improved Land is owned in fee simple absolute by
        the Borrower; (C) such Improved Land is subject to a perfected first
        priority Lien in favor of the Agent, the Lenders, the Issuing Banks
        (other than any Third Party Issuer) and the LC Guarantor and is subject
        to no other Liens or Rights of Others except such as may be permitted by
        the Loan Documents; (D) no Event of Default shall have occurred and be
        continuing with respect to any representations, warranties or covenants
        contained in the Loan Documents with respect to or which concern such
        Improved Land, including, without limitation, on the generality of the
        foregoing, any representations,



                                       39

<PAGE>   46
        warranties or covenants that relate to environmental matters or
        compliance with Environmental Laws; and (E) the Lenders (or their
        respective predecessors with respect to the Revolving Loans and the
        Revolving Commitments) shall have received a hazardous waste report with
        respect to such Improved Land (either in its present state or, to the
        extent previously taken into account in computing the Borrowing Base, at
        such time as such Improved Land was included as a part of the Raw Land
        Cost Component of the Borrowing Base), in form and content acceptable to
        the Lenders.

                      (f) Except as otherwise provided herein, the Housing Cost
        Component of the Borrowing Base (the "Housing Cost Component") shall
        consist of the dollar amount equal to the product of (i) the value of
        Housing of the Borrower which is in the Borrowing Base, reflected by the
        books and records of the Borrower, based upon the costs incurred by the
        Borrower with respect to such Housing (including costs incurred during
        prior periods when such Housing consisted of Raw Land or Improved Land),
        and (ii) the then applicable Maximum Advance Rate. In determining the
        Housing Cost Component as it relates to projects of the Borrower where
        units have been completed and sold, or other dispositions have been
        made, appropriate deductions (calculated on the basis of the costs
        incurred in acquiring and constructing the sold or disposed units) shall
        be made to subtract the value attributable to the units or other
        property that has been sold or disposed of. Eligible Housing of the
        Borrower shall consist of Housing of the Borrower which meets each of
        the following conditions: (A) such Housing is located within the
        continental United States; (B) such Housing is owned in fee simple
        absolute by the Borrower; (C) such Housing is subject to a perfected
        first priority Lien in favor of the Agent, the Lenders, the Issuing
        Banks (other than any Third Party Issuer) and the LC Guarantor and is
        subject to no other Liens or Rights of Others except such as may be
        permitted by the Loan Documents; (D) no Event of Default shall have
        occurred and be continuing with respect to any representations,
        warranties or covenants contained in the Loan Documents with respect to
        or which concern such Housing, including, without limitation, on the
        generality of the foregoing, any representations, warranties or
        covenants that relate to environmental matters or compliance with
        Environmental Laws; and (E) the Lenders or the Agent (or their
        respective predecessors with respect to the Revolving Loans and the
        Revolving Commitments) shall have received a hazardous waste report with
        respect to such Housing (either in its present state or, to the extent
        previously taken into account in computing the Borrowing Base, at such
        time as such Housing was included as a part of the Raw Land Cost
        Component or the Improved Land Cost Component of the Borrowing Base), in
        form and content acceptable to the Lenders. In addition to the
        foregoing, subject to the Agent's receipt and approval of a full budget
        for a new phase which is included in the Borrowing Base as Improved Land
        but which the Borrower desires to have included in the Borrowing Base as
        Housing, such new phase may be included in the Borrowing Base as Housing
        at the Agent's



                                       40

<PAGE>   47
        discretion provided that the following conditions are met: (1) the
        aggregate unsold units of Housing under construction or completed in the
        project in which such phase is included do not exceed an amount to be
        absorbed within nine months on a per product basis; and (2) if requested
        by the Majority Lenders, completion of cost reviews by the Agent's
        construction services group (or other Person designated by the Agent)
        for each new product and new plan, including new models for existing
        projects.

                      (g) Except as otherwise provided herein, the Notes
        Receivable Component of the Borrowing Base (the "Notes Receivable
        Component") shall consist of the dollar amount equal to the lower of (i)
        the product of (A) the applicable Maximum Advance Rate and (B) the
        outstanding principal due under all eligible Notes Receivable of the
        Borrower, as reflected by the books and records of the Borrower and (ii)
        the amount at which the asset securing such Note Receivable was included
        in the Borrowing Base at the time of sale. In no event may the Notes
        Receivable Component exceed $50,000,000. Eligible Notes Receivable of
        the Borrower shall consist of those Notes Receivable of the Borrower
        which meet each of the following conditions: (i) such Note Receivable is
        a bona fide note acquired by the Borrower (or a predecessor in interest
        of the Borrower) in connection with an arms'-length sale of real
        Property located within the continental United States by the Borrower
        (or a predecessor in interest of the Borrower) to a purchaser that is
        not an Affiliate of the Borrower, which sale involved the making of a
        down payment (in Cash or Cash Equivalents) by the purchaser of at least
        twenty percent of the purchase price; (ii) such Note Receivable is
        secured by a perfected first priority Lien on the real Property to which
        it relates; (iii) if requested by the Majority Lenders in the case of
        any Note Receivable the principal due under which exceeds $1,000,000,
        the Agent shall have obtained, at the expense of the Borrower, an
        appraisal of the real property encumbered to secure such Note
        Receivable, which appraisal is in form and content acceptable to the
        Agent; (iv) the original maturity (including permitted extensions) of
        such Note Receivable does not exceed five years, the rate of interest
        payable on such Note Receivable as of the time of origination (whether
        fixed or floating) was not less than the Reference Rate plus 1% per
        annum as of such date, and such Note Receivable does not contain
        provisions permitting or requiring reduction of the rate of interest
        payable thereon following the date of origination (except as the direct
        result of fluctuations in the chosen index if such Note Receivable is a
        floating rate note); (v) such Note Receivable shall provide for the
        payment of accrued interest at least once each calendar quarter; (vi)
        such Note Receivable shall not be more than sixty days delinquent, and
        the obligor on such Note Receivable shall not have disputed his or her
        liability thereon, or raised defenses, offsets or counterclaims with
        respect to the payment thereof; and (vii) such Note Receivable and the
        underlying security therefor (including any mortgage or deed of trust
        securing same) shall be subject to a perfected first priority pledge in
        favor of the Agent, the Lenders, the Issuing Banks (other than



                                       41

<PAGE>   48
        any Third Party Issuer) and the LC Guarantor documented in form and
        substance satisfactory to the Agent. Notwithstanding the foregoing: (1)
        the Agent agrees to consider in good faith requests by the Borrower to
        permit specified ineligible Notes Receivable nevertheless to be included
        in the Borrowing Base at the specified rate or at such lower rates of
        advance as may be approved by the Majority Lenders in their sole
        discretion; and (2) in the case of any Note Receivable the principal due
        under which exceeds $1,000,000, at any time, and from time to time, in
        its discretion or upon the request of the Majority Lenders, the Agent
        may, at the expense of the Borrower, cause a new appraisal to be made of
        the real Property that secures such Note Receivable and, if the
        appraised value of such real Property (as determined by the Agent on the
        basis of such appraisal) is less than the outstanding principal amount
        due under such Note Receivable, then the portion of the Borrowing Base
        attributable to such Note Receivable shall equal the lesser of (x) the
        principal outstanding under such Note Receivable, or (y) the applicable
        Maximum Advance Rate times such new appraised value. The Borrower may
        request that the Agent, at the Borrower's expense, obtain a new
        appraisal of the real Property encumbered to secure any such Note
        Receivable, which new appraisal (after any adjustments required by the
        Agent or the Majority Lenders) shall replace the appraisal referenced in
        clause (iii) of the second sentence of this subparagraph (g).

                      (h) Notwithstanding anything to the contrary set forth
        above, the Agent acting on its own or upon the instructions of the
        Majority Lenders (i) need not rely solely upon the information and
        figures provided by the Borrower, and may cause whatever inspections,
        appraisals (subject to the provisions of Section 7.15 hereof), surveys,
        evaluations or reviews of accounting records that it reasonably deems
        appropriate to be made of any of the items included in the Borrowing
        Base, and (ii) may cause the Borrower to calculate the components and
        reserves of the Borrowing Base at any time the Agent reasonably deems
        appropriate, in each case at any time and from time to time, in each
        case at the Borrower's sole cost and expense. If, based on any of the
        foregoing, the Majority Lenders in good faith determine that an
        adjustment should be made to the Borrowing Base, then the Majority
        Lenders may adjust the Borrowing Base in the manner that the Majority
        Lenders deem appropriate.

                      (i) The Borrowing Base shall not include any Property
        subject to outside seller financing, unless the Majority Lenders
        otherwise agree in their sole discretion on a case-by-case basis. In
        addition, except as set forth in Section 4.8(f) with respect to the
        inclusion of new phases in the Housing Cost Component, and other than in
        the case of any Real Estate Inventory acquired by the Borrower pursuant
        to Section 8.15, the Borrowing Base shall not include any Real Estate
        Inventory that did not previously constitute part of a component of the
        Borrowing Base (whether as part of the Raw Land Cost Component, the
        Improved Land Cost Components or the Housing Cost Component) unless the



                                       42

<PAGE>   49
        Majority Lenders (taking into account the other provisions of this
        Section 4.8) shall have directed the Agent to include such Real Estate
        Inventory as part of a component of the Borrowing Base.

                      (j) within five Banking Days following each and any
        Disposition, the Borrower shall deliver to the Agent a Certificate of a
        Responsible Official of the Borrower which sets forth a recalculation of
        the Borrowing Base, as adjusted to delete any assets disposed of by the
        Disposition.

                      (k) The Agent shall confer and consult, as practicable,
        with the other Lenders in making the various discretionary judgments,
        determinations and computations related to any Borrowing Base that the
        Agent may from time to time be called upon to make. If at any time the
        Majority Lenders disagree with any such judgment, determination or
        computation made by the Agent, the Agent shall, on a prospective basis,
        use its best efforts to make appropriate adjustments to the Borrowing
        Base as directed by the Majority Lenders, so long as the Agent may do so
        without incurring any liability or breaching any binding agreement with
        the Borrower.

                      (l) Anything contained in this Section 4.8 to the contrary
        notwithstanding, the costs that are taken into account in determining
        the Raw Land Cost Component, the Improved Land Cost Component, and the
        Housing Cost Component shall be determined in accordance with GAAP.

               4.9  [Deleted]

               4.10 [Deleted]

               4.11 Defaulting Lenders.

                      (a) In the event that, at any one time, (i) any Lender
        shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a
        Defaulted Advance to the Borrower and (iii) the Borrower shall be
        required to make any payment hereunder or under any other Loan Document
        to or for the account of such Defaulting Lender, then the Borrower may,
        so long as no Default shall occur or be continuing at such time and to
        the fullest extent permitted by applicable law, set off and otherwise
        apply the obligation of the Borrower to make such payment to or for the
        account of such Defaulting Lender against the obligation of such
        Defaulting Lender to make such Defaulted Advance. In the event that the
        Borrower shall so set off and otherwise apply the obligation of the
        Borrower to make any such payment against the obligation of such
        Defaulting Lender to make any such Defaulted Advance on any date, the
        amount so set off and otherwise applied by the Borrower shall constitute
        for all purposes of this Agreement and the other Loan Documents a
        Revolving Advance by such



                                       43

<PAGE>   50
        Defaulting Lender made on such date was originally required to have been
        made pursuant to Section 4.1. Such Revolving Advance shall be a
        Reference Rate Advance and shall be considered, for all purposes of this
        Agreement, to comprise part of the Revolving Loan in connection with
        which such Defaulted Advance was originally required to have been made
        pursuant to Section 4.1, even if the other Revolving Advances comprising
        such Revolving Loan shall be Offshore Rate Advances on the date such
        Revolving Advance is deemed to be made pursuant to this subsection (a).
        The Borrower shall notify the Agent at any time the Borrower reduces the
        amount of the obligation of the Borrower to make any payment otherwise
        required to be made by it hereunder or under any other Loan Document as
        a result of the exercise by the Borrower of its right set forth in this
        subsection (a) and shall set forth in such notice (A) the name of the
        Defaulting Lender and the Defaulted Advance required to be made by such
        Defaulting Lender and (B) the amount set off and otherwise applied in
        respect of such Defaulted Advance pursuant to this subsection (a). Any
        portion of such payment otherwise required to be made by the Borrower to
        or for the account of such Defaulting Lender which is paid by the
        Borrower, after giving effect to the amount set off and otherwise
        applied by the Borrower pursuant to this subsection (a), shall be
        applied by the Agent as specified in subsection (b) or (c) of this
        Section 4.11.

                      (b) In the event that, at any one time, (i) any Lender
        shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a
        Defaulted Amount to the Agent or any of the other Lenders and (iii) the
        Borrower shall make any payment hereunder or under any other Loan
        Document to the Agent for the account of such Defaulting Lender, then
        the Agent may, on its behalf or on behalf of such other Lenders and to
        the fullest extent permitted by applicable law, apply at such time the
        amount so paid by the Borrower to or for the account of such Defaulting
        Lender to the payment of each such Defaulted Amount to the extent
        required to pay such Defaulted Amount. In the event that the Agent shall
        so apply any such amount to the payment of any such Defaulted Amount on
        any date, the amount so applied by the Agent shall constitute for all
        purposes of this Agreement and the other Loan Documents payment, to such
        extent, of such Defaulted Amount on such date. Any such amount so
        applied by the Agent shall be retained by the Agent or distributed by
        the Agent to such other Lenders, ratably in accordance with the
        respective portions of such Defaulted Amounts payable at such time to
        the Agent and such other Lenders and, if the amount of such payment made
        by the Borrower shall at such time be insufficient to pay all Defaulted
        Amounts owing at such time to the Agent and the other Lenders, in the
        following order of priority:

                      (i) first, to the Agent for any Defaulted Amount then
               owing to the Agent; and



                                       44

<PAGE>   51
                      (ii) second, to any other Lenders for any Defaulted
               Amounts then owing to such other Lenders, ratably in accordance
               with such respective Defaulted Amounts then owing to such other
               Lenders.

               Any portion of such amount paid by the Borrower for the account
               of such Defaulting Lender remaining, after giving effect to the
               amount applied by the Agent pursuant to this subsection (b),
               shall be applied by the Agent as specified in subsection (c) of
               this Section 4.11.

                      (c) In the event that, at any one time, (i) any Lender
        shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe
        a Defaulted Advance or a Defaulted Amount and (iii) the Borrower, the
        Agent or any other Lender shall be required to pay or distribute any
        amount hereunder or under any other Loan Document to or for the account
        of such Defaulting Lender, then the Borrower or such other Lender shall
        pay such amount to the Agent to be held by the Agent, to the fullest
        extent permitted by applicable law, in escrow or the Agent shall, to the
        fullest extent permitted by applicable law, hold in escrow such amount
        otherwise held by it. Any funds held by the Agent in escrow under this
        subsection (c) shall be deposited by the Agent in an account with The
        Chase Manhattan Bank or such other bank as shall have been selected by
        the Agent and notified to the Borrower, in the name and under the
        control of the Agent, but subject to the provisions of this subsection
        (c). The terms applicable to such account, including the rate of
        interest payable with respect to the credit balance of such account from
        time to time, shall be The Chase Manhattan Bank's (or such other bank's)
        standard terms applicable to escrow accounts maintained with it. Any
        interest credited to such account from time to time shall be held by the
        Agent in escrow under, and applied by the Agent from time to time in
        accordance with the provisions of, this subsection (c). The Agent shall,
        to the fullest extent permitted by applicable law, apply all funds so
        held in escrow from time to time to the extent necessary to make any
        Revolving Advances required to be made by such Defaulting Lender and to
        pay any amount payable by such Defaulting Lender hereunder and under the
        other Loan Documents to the Agent or any other Lender, as and when such
        Revolving Advances or amounts are required to be made or paid and, if
        the amount so held in escrow shall at any time be insufficient to make
        and pay all such Revolving Advances and amounts required to be made or
        paid at such time, in the following order of priority:

                      (i) first, to the Agent for any amount then due and
               payable by such Defaulting Lender to the Agent hereunder;

                      (ii) second, to any other Lenders for any amount then due
               and payable by such Defaulting Lender to such other Lenders
               hereunder, ratably in accordance with such respective amounts
               then due and payable to such other Lenders; and



                                       45

<PAGE>   52
                      (iii) third, to the Borrower for any Revolving Advance
               then required to be made by such Defaulting Lender.

               In the event that such Defaulting Lender shall, at any time,
               cease to be a Defaulting Lender, any funds held by the Agent in
               escrow at such time with respect to such Defaulting Lender shall
               be distributed by the Agent to such Defaulting Lender and applied
               by such Defaulting Lender to the obligations owing to such Lender
               at such time under this Agreement and the other Loan Documents
               ratably in accordance with the respective amounts of such
               obligations outstanding at such time.

                      (d) The rights and remedies against a Defaulting Lender
        under this Section 4.11 are in addition to other rights and remedies
        which the Borrower may have against such Defaulting Lender with respect
        to any Defaulted Advance and which the Agent or any Lender may have
        against such Defaulting Lender with respect to any Defaulted Amount.

                                    ARTICLE 5
                                PAYMENTS AND FEES

               5.1 Principal and Interest.

                      (a) Except as otherwise provided in Section 5.7, the
        unpaid principal amount of any (i) Reference Rate Loan shall bear
        interest at a fluctuating rate per annum equal to the Reference Rate
        plus 2% per annum, and (ii) Offshore Rate Loan shall bear interest at a
        rate per annum equal to the greater of (A) 8% per annum and (B) the
        Offshore Rate applicable to such Offshore Rate Loan plus 4.44% per
        annum.

                      (b) Interest shall be payable by the Borrower on the
        outstanding daily unpaid principal amount of each Revolving Loan and
        shall accrue and be payable at the rates set forth herein both before
        and after default and before and after maturity and judgment, with
        interest on overdue interest and principal to bear interest at the rate
        set forth in Section 5.7 to the fullest extent permitted by applicable
        Law.

                      (c) Except as provided in Section 5.1(b), interest accrued
        on each Revolving Loan through the end of each calendar month shall be
        due and payable by the Borrower on the second Banking Day of the next
        succeeding calendar month, commencing the second Banking Day of the
        first calendar month following the Closing Date. The Agent shall attempt
        to notify the Borrower of the amount of interest payable on each
        Offshore Rate Loan prior to each interest payment date, but failure of
        the Agent to do so shall not excuse payment



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<PAGE>   53
        of such interest when payable. If and so long as any Reference Rate Loan
        is outstanding, the Agent shall notify the Borrower of any change in the
        Reference Rate from time to time no later than two Business Days
        following the Agent's obtaining knowledge of such change, but failure of
        the Agent to do so shall not excuse payment of such interest when
        payable.

                      (d) The Agent shall, when any interest payment on any
        Outstanding Loan is due, disburse such amount to the Lenders as a
        Reference Rate Loan, in each case to the extent of availability under
        the aggregate Revolving Commitments; provided, however, that the Agent
        shall not disburse such a Revolving Loan if, after giving effect to such
        Loan, such disbursement would cause Outstanding Advances to exceed the
        Maximum Revolving Loan Amount. Alternatively, if the Agent is unable to
        disburse an interest payment to the Lenders as provided in the
        immediately preceding sentence, the Borrower hereby authorizes the Agent
        to cause such interest payable on the Outstanding Loans to be deducted
        automatically from the Operating Account on or after the first Banking
        Day of each such calendar month, and the Borrower shall maintain
        sufficient funds on deposit in the Operating Account to cover such
        interest payments. The Agent shall notify the Borrower of the amount of
        interest payable hereunder on the Outstanding Loans as soon as
        practicable on or following each interest payment date.

                      (e) If not sooner paid, the outstanding principal
        indebtedness evidenced by the Revolving Notes shall be payable as
        follows:

                      (i) the amount, if any, by which the outstanding principal
               indebtedness evidenced by the Revolving Notes at any time exceeds
               the Maximum Revolving Loan Amount shall be payable immediately
               upon demand by the Agent;

                      (ii) the outstanding principal amount of each Reference
               Rate Loan shall be payable on the Termination Date; and

                      (iii) subject to the applicable provisions of this
               Agreement providing for redesignation or automatic redesignation
               of Offshore Rate Loans upon compliance with Section 10.2, the
               outstanding principal amount of each Offshore Rate Loan shall be
               payable on the last day of the Interest Period for such Revolving
               Loan, or if earlier, the Termination Date.

               5.2  Prepayments.

                      (a) Optional. The Revolving Loans, or any of them, may, at
        any time and from time to time, be paid or prepaid in whole or in part
        without



                                       47

<PAGE>   54
        premium or penalty, except that (i) any partial prepayment shall be a
        positive integral multiple of $100,000, (ii) unless greater notice is
        required below, the Agent shall have received written notice of any
        prepayment at least one Banking Day before the date of prepayment, which
        notice shall identify the date and amount of the prepayment and Interest
        Type of Revolving Loan(s) being prepaid, and (iii) except as required by
        Section 5.1(e)(i) above, no Offshore Rate Loan may be paid or prepaid in
        whole or in part prior to the last day of the applicable Interest Period
        without the prior consent of the Majority Lenders, and, notwithstanding
        such required prepayment or such consent, any payment or prepayment of
        all or any part of any Offshore Rate Loan on a day other than the last
        day of the applicable Interest Period shall be made on a Banking Day and
        shall be preceded by at least three Banking Days' written notice to the
        Agent of the date and amount of such payment or prepayment, and shall be
        subject to Section 5.5(d).

                      (b) Mandatory. The Borrower shall prepay an aggregate
        principal amount of the Revolving Advances in an amount equal to and to
        the extent of: (i) the amount by which the sum of the Outstanding
        Advances and Outstanding Letters of Credit exceeds the then-existing
        Revolving Commitments; (ii) the amount by which Outstanding Advances
        exceed the Borrowing Base, if required by the Agent; (iii) all funds in
        the Operating Account in excess of $20,000,000 whenever the book balance
        of the Operating Account exceeds $20,100,000; and (iv) the amount of
        cash proceeds received from any Permitted Sale to the extent such sale
        results in Outstanding Advances exceeding the Borrowing Base. Any
        prepayment of any Revolving Advances shall be applied first to those
        Revolving Advances that are Reference Rate Advances, and then to those
        that are Offshore Rate Advances.

               5.3 Unused Line Fee and Special Commitment Costs.

                      (a) The Borrower shall pay each Lender, through the Agent,
        (i) on the second Banking Day of each month commencing August 4, 1998,
        (ii) on the date of any reduction of the Revolving Facility pursuant to
        this Agreement and (iii) on the Termination Date, in immediately
        available funds, an unused line fee (the "Unused Line Fee") equal to
        0.25% on the average daily unused (treating Outstanding Letters of
        Credit as usage) amount of the Revolving Commitment of such Lender,
        during the month (or shorter period commencing with the date hereof or
        ending with the Termination Date) ending on such date. The Unused Line
        Fee due to each Lender under this Section 5.3(a) shall commence to
        accrue on the Closing Date and cease to accrue on the earlier of (i) the
        Termination Date and (ii) the termination of the Revolving Commitment of
        such Lender pursuant to this Agreement.



                                       48

<PAGE>   55
                      (b) Upon notice from any Lender (with a copy to the
        Agent), the Borrower forthwith shall reimburse such Lender for any
        increase in the costs of such Lender relating to any fees, charges,
        capital maintenance, capital adequacy and/or reserve requirements
        imposed by any Governmental Agency against credit commitments of such
        Lender that is attributed by such Lender, using any reasonable
        attribution method, from time to time, to its pro rata share of the
        undisbursed portion of the Revolving Commitments hereunder.

               5.4 Administrative Fee. The Borrower shall pay to the Agent, for
the account of the Agent, a non-refundable administrative fee in the amount of
$100,000 on the Closing Date and on each anniversary thereof, which fee shall be
deemed to be fully earned when paid. All administrative fees shall be deemed to
be fully earned by the Agent as of their respective due dates, and the Borrower
shall not be entitled to any refund or reduction of any administrative fee for
any reason whatsoever; provided, however, that if any successor Agent is
appointed pursuant to Section 12.9, such successor Agent shall be entitled to
receive from the retiring Agent the portion of any administrative fee allocable
to the remaining portion of the applicable calendar quarter. All administrative
fees shall be for the sole benefit of the Agent, and the Agent shall not be
required to share such administrative fees with any other Lender.

               5.5 Offshore Rate Loan Fees and Costs.

                      (a) If, after the date hereof, the existence or occurrence
        of any Special Offshore Rate Circumstance:

                      (i) shall subject any Lender or its Offshore Rate Lending
               Office to any tax, duty or other charge or cost with respect to
               any Offshore Rate Advance, its Revolving Notes or its obligation
               to make Offshore Rate Advances, or shall change the basis of
               taxation of payments to any Lender of the principal of or
               interest on any Offshore Rate Advance or any other amounts due
               under this Agreement in respect of any Offshore Rate Advance, its
               Revolving Notes or its obligation to make Offshore Rate Advances
               (except for changes in the rate of tax on the overall net income,
               net worth, gross income or gross receipts of such Lender or its
               Offshore Rate Lending Office, or taxes in lieu of such enumerated
               taxes, imposed by the jurisdiction in which such Lender's
               principal executive office or Offshore Rate Lending Office is
               located);

                      (ii) shall impose, modify or deem applicable any reserve
               (including, without limitation, any reserve imposed by the Board
               of Governors of the Federal Reserve System and any reserve
               required under regulations of the Federal Reserve Board with
               respect to liabilities or assets consisting of or including
               Eurocurrency funds or deposits (currently known as "Eurocurrency
               liabilities")), special deposit, capital



                                       49

<PAGE>   56
               maintenance, capital adequacy or similar requirements not already
               fully taken into account by the Offshore Rate against assets of,
               deposits with or for the account of, or credit extended by, any
               Lender or its Offshore Rate Lending Office; or

                      (iii) shall impose on any Lender or its Offshore Rate
               Lending Office or the applicable offshore dollar interbank market
               any other condition affecting any Offshore Rate Advance, its
               Revolving Notes, its obligation to make Offshore Rate Advances or
               this Agreement, or shall otherwise affect any of the same;

        and the result of any of the foregoing, as determined by such Lender,
        increases the cost to such Lender or its Offshore Rate Lending Office of
        making or maintaining any Offshore Rate Advance or in respect of any
        Offshore Rate Advance, its Revolving Notes or its obligation to make
        Offshore Rate Advances or reduces the amount of any sum received or
        receivable by such Lender or its Offshore Rate Lending Office with
        respect to any Offshore Rate Advance, its Revolving Notes or its
        obligation to make Offshore Rate Advances (assuming such Lender's
        Offshore Rate Lending Office or such Lender had funded 100% of its
        Offshore Rate Advance in the applicable offshore dollar interbank
        market) then, upon demand by such Lender (with a copy to the Agent), the
        Borrower shall pay to such Lender such additional amount or amounts as
        will compensate such Lender for such increased cost or reduction
        (determined as though such Lender's Offshore Rate Lending Office or such
        Lender had funded 100% of its Offshore Rate Advance in the applicable
        offshore dollar interbank market). The Borrower hereby indemnifies each
        Lender against, and agrees to hold each Lender harmless from and
        reimburse each Lender on demand for, all costs, expenses, claims,
        penalties, liabilities, losses, legal fees and damages incurred or
        sustained by such Lender in connection with this Agreement, or any of
        the rights, obligations or transactions provided for or contemplated
        herein, as a result of the existence or occurrence of any Special
        Offshore Rate Circumstance. A statement of any Lender claiming
        compensation under this Section and setting forth the additional amount
        or amounts to be paid to it hereunder shall be conclusive in the absence
        of manifest error. Each Lender agrees to endeavor promptly to notify the
        Borrower of any event of which it has actual knowledge, occurring after
        the Closing Date, which will entitle such Lender to compensation
        pursuant to this Section 5.5(a) (and, if applicable, agrees to designate
        a different Offshore Rate Lending Office if such designation will avoid
        the need for or reduce the amount of such compensation and will not, in
        the judgment of such Lender, otherwise be disadvantageous to such
        Lender). If any Lender claims compensation under this Section 5.5(a),
        the Borrower may at any time, upon at least four Banking Days' prior
        notice to the Agent and such Lender and upon payment in full of the
        amounts provided for in this Section 5.5(a) plus any



                                       50

<PAGE>   57
        prepayment fee required by Section 5.5(d), request that such Offshore
        Rate Advances be converted to Reference Rate Advances.

                      (b) If, after the date hereof, the existence or occurrence
        of any Special Offshore Rate Circumstance shall, in the opinion of any
        Lender, make it unlawful, impossible or impracticable for such Lender or
        its Offshore Rate Lending Office to make, maintain or fund its portion
        of any Offshore Rate Loan, or materially restrict the authority of such
        Lender to purchase or sell, or to take deposits of, dollars in the
        applicable offshore dollar interbank market, or to determine or charge
        interest rates based upon the applicable Offshore Rate, and such Lender
        shall so notify the Agent, then such Lender's obligation to make
        Offshore Rate Advances shall be suspended for the duration of such
        illegality, impossibility or impracticability and the Agent forthwith
        shall give notice thereof to the other Lenders and the Borrower. Upon
        receipt of such notice, the outstanding principal amount of such
        Lender's Offshore Rate Advances, together with accrued interest thereon,
        automatically shall be converted to Reference Rate Advances on either
        (i) the last day of the Interest Period(s) applicable to such Offshore
        Rate Advances if such Lender may lawfully continue to maintain and fund
        such Offshore Rate Advances to such day(s) or (ii) immediately if such
        Lender may not lawfully continue to fund and maintain such Offshore Rate
        Advances to such day(s), provided that in such event the conversion
        shall not be subject to payment of a prepayment fee under Section
        5.5(d). In the event that any Lender is unable, for the reasons set
        forth above, to make, maintain or fund its portion of any Offshore Rate
        Loan, such Lender shall fund such amount as a Reference Rate Advance,
        and such amount shall be treated in all respects as a Reference Rate
        Advance.

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

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

                      (ii) the Majority Lenders advise the Agent that the
               Offshore Rate as determined by the Agent (A) does not represent
               the effective pricing to such Lenders for deposits in dollars in
               the applicable offshore dollar interbank market for the
               applicable Interest Period, or (B) will not adequately and fairly
               reflect the cost to such Lenders of making the applicable
               Offshore Rate Advances;

        then the Agent forthwith shall give notice thereof to the Borrower and
        the Lenders, whereupon until the Agent notifies the Borrower that the
        circumstances



                                       51

<PAGE>   58
        giving rise to such suspension no longer exist, the obligation of the
        Lenders to make any future Offshore Rate Advances shall be suspended.

                      (d) The Borrower agrees to reimburse each Lender and the
        Agent and to hold each Lender and the Agent harmless, upon demand of
        such Lender or the Agent, from any loss or expense which the Lender or
        the Agent may sustain or incur as a consequence of:

                      (i) the failure of the Borrower to make any payment or
               prepayment of principal of any Offshore Rate Loan (including
               payments made after any acceleration thereof);

                      (ii) the failure of the Borrower to borrow, continue or
               redesignate a Revolving Loan after the Borrower has given (or is
               deemed to have given) a Request for Loan or Request for
               Redesignation of Loans;

                      (iii) the failure of the Borrower to make any prepayment
               after the Borrower has given a notice thereof in accordance with
               Section 5.2(a);

                      (iv) the payment or prepayment (including pursuant to
               Section 5.2(b)) of an Offshore Rate Loan on a day which is not
               the last day of the Interest Period with respect thereto (whether
               voluntary, involuntary, by reason of acceleration or otherwise);
               or

                      (v) the redesignation or conversion pursuant to Section
               4.5 of any Offshore Rate Loan to a Reference Rate Loan on a day
               that is not the last day of the respective Interest Period;

        including (A) any such loss or expense arising from the liquidation or
        reemployment of funds obtained by it to maintain its Offshore Rate Loans
        hereunder or from fees payable to terminate the deposits from which such
        funds were obtained and (B) all out-of-pocket costs and expenses
        incurred by any Lender or the Agent that are reasonably attributable to
        any of the events described in subparagraphs (i) through (v) above;
        provided that the amount payable by the Borrower pursuant to clause (iv)
        or (v) above shall be payable by the Borrower on the second Banking Day
        of the first calendar month following such prepayment, redesignation or
        conversion (or, if such prepayment, redesignation or conversion occurred
        on the first Banking Day of any calendar month, such amount shall be
        payable on the second Banking Day of such calendar month), and shall be
        equal to (1) the principal amount of such Offshore Rate Loan times
        number of days between the date of prepayment, redesignation or
        conversion and the last day in the applicable Interest Period, divided
        by 360, times the applicable Interest Differential; plus (2) all
        out-of-pocket expenses incurred by such Lender and reasonably
        attributable to such prepayment,



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<PAGE>   59
        redesignation or conversion; provided, further that no prepayment fee
        shall be payable (and no credit or rebate shall be required) if the
        product of the foregoing formula is not positive. Solely for purposes of
        calculating amounts payable by the Borrower to the Lenders under this
        Section 5.5(d), each Offshore Rate Loan made by a Lender (and each
        related reserve, special deposit or similar requirement) shall be
        conclusively deemed to have been funded at the LIBOR used in determining
        the Offshore Rate for such Offshore Rate Loan by a matching deposit or
        other borrowing in the applicable interbank eurodollar market for a
        comparable amount and for a comparable period, whether or not such
        Offshore Rate Loan is in fact so funded. Each Lender's and the Agent's
        determination of any amount payable under this Section 5.5(d) shall be
        conclusive absent manifest error.

                      (e) The Borrower shall pay to each Lender, as long as such
        Lender shall be required under regulations of the Federal Reserve Board
        to maintain reserves with respect to liabilities or assets consisting of
        or including Eurocurrency funds or deposits (currently known as
        "Eurocurrency Liabilities"), additional costs on the unpaid principal
        amount of each Offshore Rate Loan equal to actual costs of such reserves
        allocated to such Loan by the Lender (as determined by the Lender in
        good faith, which determination shall be conclusive absent manifest
        error), payable on each date on which interest is payable on such Loan,
        provided the Borrower shall have received at least fifteen days' prior
        written notice (with a copy to the Agent) of such additional interest
        from the Lender. If a Lender fails to give notice fifteen days prior to
        the relevant interest payment date, such additional interest shall be
        payable fifteen days from receipt of such notice. This covenant shall
        survive payment of all other obligations. Each Lender's and the Agent's
        determination of amounts payable under this Section 5.5(e) shall be
        conclusive absent manifest error.

                      (f) Any Lender requesting any payment from the Borrower
        under this Section 5.5 shall, at the request of the Borrower, provide
        reasonable detail to the Borrower regarding the manner in which the
        amount of any such payment has been determined.

               5.6 Letter of Credit and Set-Aside Letter Fees and Costs.

                      (a) In connection with the issuance of each and any Letter
        of Credit or Set-Aside Letter, the Borrower shall pay or cause to be
        paid to the Agent, for the account of the Issuing Bank (other than any
        Third Party Issuer) thereof and, in the case of any Guaranteed Letter of
        Credit, the LC Guarantor, (i) such Issuing Bank's (or LC Guarantor's)
        normal and customary letter of credit issuance or processing fee, and
        any fee or cost directly or indirectly incurred by the LC Guarantor in
        causing a Third Party Issuer to issue a Guaranteed Letter of Credit, and
        (ii) in the case of a Letter of Credit, a letter of credit fee equal to
        the



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<PAGE>   60
        face amount of the Letter of Credit being issued times (A) 2.0% in the
        case of any Letter of Credit other than Letters of Credit issued in
        connection with performance bonds or (B) 1.5% in the case of Letters of
        Credit issued in connection with performance bonds times that fraction
        the numerator of which is equal to the number of days from the date of
        issuance of the Letter of Credit to and including the expiry date of
        such Letter of Credit, and the denominator of which is 360. The fee
        payable in connection with each Set-Aside Letter shall be as agreed
        among the Borrower, the Agent and the Majority Lenders at the time of
        such issuance. The letter of credit issuance fee with respect to each
        Letter of Credit shall be due on the date the Letter of Credit is issued
        and shall be for the sole account of the Issuing Bank thereof (or, in
        the case of any Guaranteed Letter of Credit, the LC Guarantor), which
        shall not be required to share such letter of credit issuance fee with
        any other Lender. The letter of credit fee with respect to each Letter
        of Credit shall be due in advance on the date the Letter of Credit is
        issued, and shall be paid to the Agent and divided among the Lenders and
        the Issuing Bank thereof as follows: To the extent that such Issuing
        Bank or the LC Guarantor incurs any Increased Letter of Credit Costs
        with respect to such Letter of Credit, such Increased Letter of Credit
        Costs, if any, shall be first deducted from the letter of credit fee and
        retained by such Issuing Bank or the LC Guarantor, as the case may be,
        for its sole account; and the balance, if positive, of such letter of
        credit fee shall be divided pro rata among the Lenders in such fashion
        that the percentage of such balance received by each Lender equals such
        Lender's percentage of the aggregate Revolving Commitments. The letter
        of credit issuance fee and letter of credit fee paid in respect of any
        Letter of Credit shall each be non-refundable. The Borrower shall pay
        the letter of credit issuance and processing fees and other letter of
        credit fees, if any, owed to Third Party Issuers directly to such Third
        Party Issuers.

                      (b) If, after the date hereof, the existence or occurrence
        of any Special Letter of Credit Circumstance:

                      (i) shall subject any Issuing Bank, the LC Guarantor or
               any Lender to any tax, duty or other charge with respect to this
               Agreement or any Letter of Credit, or its obligation to maintain,
               guarantee or confirm any Letter of Credit, or shall change the
               basis of taxation of payments to any Issuing Bank, the LC
               Guarantor or any Lender of any amounts due under this Agreement
               or with respect to any Letter of Credit or such obligation
               (except for changes in the rate of tax on the overall net income,
               net worth, gross income or gross receipts of such Issuing Bank,
               LC Guarantor or such Lender, or taxes in lieu of such enumerated
               taxes, imposed by the jurisdiction in which such Issuing Bank's,
               the LC Guarantor's or such Lender's principal executive office is
               located); or



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<PAGE>   61
                      (ii) shall impose, modify or deem applicable any reserve
               (including, without limitation, any imposed by the Board of
               Governors of the Federal Reserve System), special deposit,
               capital maintenance, capital adequacy or similar requirement
               against assets of, deposits with or for the account of, credit
               extended by, or letters of credit issued or maintained,
               guaranteed or confirmed by, any Issuing Bank, the LC Guarantor or
               any Lender; or

                      (iii) shall impose on any Issuing Bank, such LC Guarantor
               or any Lender any other condition affecting any Letter of Credit
               or LC Guaranty, its obligation to issue or make payments with
               respect to any Letter of Credit or LC Guaranty or this Agreement,
               or shall otherwise affect any of the same;

        and the result of any of the foregoing, as determined by such Issuing
        Bank, the LC Guarantor or such Lender, increases the cost to or imposes
        a cost on such Issuing Bank, the LC Guarantor or such Lender of
        confirming or maintaining any Letter of Credit or LC Guaranty or of
        being a party to this Agreement, or reduces the amount of any sum
        received or receivable by such Issuing Bank, the LC Guarantor or such
        Lender with respect to any Letter of Credit or (in the case of any such
        capital adequacy requirement) reduces the rate of return on such Issuing
        Bank's, the LC Guarantor's or such Lender's capital as a consequence of
        its obligations under this Agreement or any Letter of Credit or LC
        Guaranty to a level below that which such Issuing Bank, the LC Guarantor
        or such Lender could have received but for the imposition of such
        requirement (taking into consideration such Issuing Bank's, the LC
        Guarantor's or such Lender's capital adequacy policies), then, upon
        demand by such Issuing Bank, the LC Guarantor or such Lender, the
        Borrower shall pay to such Issuing Bank, the LC Guarantor or such Lender
        such additional amount or amounts as will compensate such Issuing Bank,
        the LC Guarantor or such Lender for such increased cost or reduction.
        The Borrower hereby indemnifies each Issuing Bank, the LC Guarantor and
        each Lender against, and agrees to hold each Issuing Bank, the LC
        Guarantor and each Lender harmless from and reimburse such Issuing Bank,
        the LC Guarantor and such Lender on demand for, all reasonable costs,
        expenses, claims, penalties, liabilities, losses, reasonable legal fees
        and damages incurred or sustained by such Issuing Bank, the LC Guarantor
        and such Lender in connection with this Agreement, or any of the rights,
        obligations or transactions provided for or contemplated herein, as a
        result of the existence or occurrence of any Special Letter of Credit
        Circumstance. A statement of any Issuing Bank, the LC Guarantor or any
        Lender claiming compensation under this Section 5.6(b) and setting forth
        the additional amount or amounts to be paid to it hereunder shall be
        conclusive in the absence of manifest error. In determining such amount,
        such Issuing Bank, the LC Guarantor or such Lender may use any
        reasonable averaging and attribution methods. Each Issuing Bank, the LC



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<PAGE>   62
        Guarantor and each Lender agrees to endeavor promptly to notify the
        Borrower of any event of which it has knowledge, occurring after the
        Closing Date, which will entitle such Issuing Bank, the LC Guarantor or
        such Lender to compensation pursuant to this Section 5.6(b).

                      (c) Any Lender, the LC Guarantor or any Issuing Bank
        requesting payment from the Borrower under Section 5.6(b) shall, at the
        request of the Borrower, provide reasonable detail to the Borrower
        regarding the manner in which the amount of any such payment has been
        determined.

               5.7 Late Payments and Default Interest. Upon the occurrence and
during the continuance of an Event of Default, and as contemplated by Section
4.5(a), the Borrower shall pay interest at a rate per annum equal at all times
to the sum of the Reference Rate in effect from time to time plus 3% per annum
(to the fullest extent permitted by applicable Law) on (i) the unpaid principal
amount of each Advance owing to each Lender, payable in arrears on the dates
referred to in Sections 5.1(b) and (c), and (ii) the amount of any interest, fee
or other amount (other than any amount of a Revolving Advance) payable hereunder
which is not paid when due, from the date such amount shall be due until such
amount shall be paid in full, payable in arrears on demand and on the date such
amount shall be paid in full. Accrued and unpaid interest on past due amounts
(including, without limitation, interest on past due interest) shall be
compounded monthly, on the last day of each calendar month, to the fullest
extent permitted by applicable Law.

               5.8 Computation of Interest and Fees. All computations of
interest and fees under any Loan Document shall be calculated on the basis of a
year of 360 days and the actual number of days elapsed. The Borrower
acknowledges that such calculation method will result in a higher yield to the
Lenders than a method based on a year of 365 or 366 days.

               5.9 Non-Banking Days. If any payment to be made by the Borrower
or any other Party under any Loan Document shall come due on a day other than a
Banking Day, such payment shall be due on the next succeeding Banking Day, and,
except for regular monthly payments of interest, the extension of time shall be
reflected in computing interest.

               5.10 Manner and Treatment of Payments.

                      (a) Except as specifically provided in Section 4.6, each
        payment hereunder or on the Revolving Notes or under any other Loan
        Document shall be made to the Agent, at the Agent's Office, for the
        account of each of the Lenders or each of the Issuing Banks (other than
        any Third Party Issuer) or the LC Guarantor or the Agent, as the case
        may be, in immediately available funds, not later than 10:00 a.m., Los
        Angeles time, on the day such payment is required to



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<PAGE>   63
        be made (which must be a Banking Day). All payments received after 10:00
        a.m., Los Angeles time, on any Banking Day, shall be deemed received on
        the next succeeding Banking Day. The amount of all payments received by
        the Agent for the account of each Lender, such Issuing Bank or the LC
        Guarantor shall be promptly paid by the Agent to the applicable Lender,
        such Issuing Bank or the LC Guarantor in immediately available funds.
        All payments shall be made in lawful money of the United States of
        America. Upon the Agent's acceptance of an Assignment and Acceptance and
        recording of the information contained therein in the Register pursuant
        to Section 13.7(d), from and after the effective date of such Assignment
        and Acceptance, the Agent shall make all payments hereunder and on the
        Revolving Notes and under any other Loan Documents in respect of the
        interest assigned thereby to the Assignee thereunder, and the parties to
        such Assignment and Acceptance shall make all appropriate adjustments in
        such payments for periods prior to such effective date directly between
        themselves.

                      (b) Each payment or prepayment shall be made and applied
        pro rata according to the outstanding Advances held by each Lender. If
        the Agent receives funds for application to the Obligations under the
        Loan Documents under circumstances for which the Loan Documents do not
        specify, or the manner in which, such funds are to be applied, the Agent
        shall first, apply such funds as payments against the principal of the
        Revolving Advances, and then ratably to all other Obligations; provided
        that following the occurrence of any Event of Default and during any
        time that the maturity of the Obligations has been accelerated, all
        proceeds of any Collateral shall be applied first to the payment of
        costs and expenses of the Agent and the Lenders as provided in Section
        11.2(d).

                      (c) Each Lender and the Agent shall use its best efforts
        to keep a record of Revolving Advances made by it and payments received
        by it with respect to each Revolving Note and, absent manifest error,
        such record shall be presumptive evidence of the amounts owing.
        Notwithstanding the foregoing sentence, neither the Agent nor any Lender
        shall be liable to any Party for any failure to keep such a record.

                      (d) Each payment of any amount payable by the Borrower
        and/or any other Party under this Agreement and/or any other Loan
        Document shall be made free and clear of, and without reduction by
        reason of, any taxes, assessments or other charges imposed by any
        Governmental Agency, central bank or comparable authority (other than
        taxes on income, gross receipts or net worth, or taxes imposed in lieu
        of such income, gross receipts or net worth taxes) applicable to the
        Lenders, the Issuing Banks or the LC Guarantor or any participant of the
        Lenders.



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<PAGE>   64
                      (e) The Register maintained by the Agent pursuant to
        Section 13.7(c) shall include a control account, and a subsidiary
        account for each Lender, in which accounts (taken together) shall be
        recorded (i) the date and amount of each Revolving Loan made and Letter
        of Credit issued hereunder, and Interest Type of Revolving Advances
        comprising such Revolving Loan and any Interest Period applicable
        thereto, (ii) the terms of each Assignment and Acceptance delivered to
        and accepted by it, (iii) the amount of any principal or interest due
        and payable or to become due and payable from the Borrower to each
        Lender hereunder, and (iv) the amount of any sum received by the Agent
        from the Borrower hereunder and each Lender's share thereof. The entries
        made in the Register shall be conclusive and binding for all purposes,
        absent manifest error.

               5.11 Funding Sources. Nothing in this Agreement shall be deemed
to obligate the Lenders to obtain the funds for any Revolving Loan or Revolving
Advance in any particular place or manner or to constitute a representation by
the Agent or any Lender that it has obtained or will obtain the funds for any
Revolving Loan or Revolving Advance in any particular place or manner.

               5.12 Failure to Charge Not Subsequent Waiver. Any decision by the
Agent or any Lender or Issuing Bank or the LC Guarantor not to require payment
of any interest (including interest arising under Section 5.7), fee, cost or
other amount payable under any Loan Document, or to calculate any amount payable
by a particular method, on any occasion shall in no way limit or be deemed a
waiver of the Agent's or such Lender's or Issuing Bank's or the LC Guarantor's
right to require full payment of any interest (including interest arising under
Section 5.7), fee, cost or other amount payable under any Loan Document, or to
calculate an amount payable by another method, on any other or subsequent
occasion.

               5.13 Agent's Right to Assume Payments Will be Made by Borrower.
Unless the Agent shall have been notified by the Borrower prior to the date on
which any payment to be made by the Borrower hereunder is due that the Borrower
does not intend to remit such payment, the Agent may, in its discretion, assume
that the Borrower has remitted such payment when so due and the Agent may, in
its discretion and in reliance upon such assumption, make available to each
Lender or Issuing Bank or the LC Guarantor, as the case may be, on such payment
date an amount equal to such Lender's or Issuing Bank's or the LC Guarantor's
share of such assumed payment. If the Borrower has not in fact remitted such
payment to the Agent, each Lender or Issuing Bank or the LC Guarantor, as the
case may be, shall forthwith on demand repay to the Agent the amount of such
assumed payment made available to such Lender or Issuing Bank or the LC
Guarantor, together with interest thereon in respect of each day from and
including the date such amount was made available by the Agent to such Lender or
Issuing Bank or the LC Guarantor, as the case may be, to the date such amount is
repaid to the Agent at a rate per annum equal to the actual



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<PAGE>   65
cost to the Agent of funding such amount as notified by the Agent to such Lender
or Issuing Bank or the LC Guarantor, as the case may be.

               5.14 Survivability. All of the Borrower's obligations under this
Article 5 shall survive for one year following the date on which all Revolving
Loans hereunder were fully paid, provided that, following such payment in full,
such surviving obligations shall not constitute "Obligations" as defined herein.

               5.15 Payment of Penalty or Fee Upon Acceleration. The Borrower
expressly agrees that, in the event the Agent or the Lenders, the Issuing Banks
or the LC Guarantor exercise any right they may have to accelerate the
Obligations following the conveyance of any right, title or interest in any
Property, the Borrower shall pay any penalty or fee payable under the terms of
the Loan Documents (if any) as a result of such acceleration, and the Borrower
hereby expressly waives any protection or defense to such payment afforded by
California Civil Code Section 2954.10. The Borrower affirms its agreement to
make any such payment by placing its initials in the margin to the right of this
Section. The Borrower acknowledges that its concurrence with this Section is a
material inducement to the Lenders in making the Revolving Loans and issuing the
Letters of Credit contemplated to be made and issued hereunder. The Borrower and
the Lenders acknowledge and agree that, of the consideration given by the
Lenders with respect to the Loan Documents, a specific portion thereof supports
the enforcement of this Section 5.15.


                                                                     -----------
                                                                     initials

                                    ARTICLE 6
                         REPRESENTATIONS AND WARRANTIES

               The Borrower represents and warrants to the Agent, the Issuing
Banks, the LC Guarantor and the Lenders, and each of them, as follows:

               6.1 Existence and Qualification; Power; Compliance With Laws.

                      (a) The Borrower is a corporation duly formed, validly
        existing and in good standing under the Laws of California. The chief
        executive offices of the Borrower are in Orange County, California. The
        Borrower is duly qualified or registered to transact business and is in
        good standing in California and each other jurisdiction in which the
        conduct of its business or the ownership or leasing of its Properties
        makes such qualification or registration necessary, except where the
        failure so to qualify or register and to be in good standing would not
        have a material adverse effect on the business, operations or condition
        (financial or otherwise) of the Borrower. The Borrower has all requisite
        corporate power and



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<PAGE>   66
        authority to conduct its business, to own and lease its Properties and
        to execute, deliver and perform all of its Obligations, under the Loan
        Documents. The authorized capital stock of the Borrower consists of
        1,000,000 shares of common stock, no par value, 115,875 of which have
        been issued and are owned beneficially and of record by Presley
        Delaware. The Borrower has no authority to issue any other capital stock
        or equity security other than common stock. All outstanding shares of
        common stock of the Borrower are duly authorized, validly issued, fully
        paid, non-assessable and issued in compliance with all applicable state
        and federal securities and other Laws. The Borrower is in compliance
        with all Laws and other legal requirements applicable to its business,
        has obtained all authorizations, consents, approvals, orders, licenses
        and permits from, and has accomplished all filings, registrations and
        qualifications with, or obtained exemptions from any of the foregoing
        from, any Governmental Agency that are necessary for the transaction of
        its business, except where the failure so to comply, or to obtain
        authorizations, consents, approvals, orders, licenses or permits, or
        file, register, qualify or obtain exemptions would not have a material
        adverse effect on the business, operations or condition (financial or
        otherwise) of the Borrower.

                      (b) Presley Delaware is a corporation duly formed, validly
        existing and in good standing under the Laws of Delaware. Presley
        Delaware is duly qualified or registered to transact business and is in
        good standing in each jurisdiction in which the conduct of its business
        or the ownership or leasing of its Properties makes such qualification
        or registration necessary, except where the failure so to qualify or
        register and to be in good standing would not have a material adverse
        effect on the business, operations or condition (financial or otherwise)
        of Presley Delaware. Presley Delaware has all requisite corporate power
        and authority to conduct its business, to own and lease its Properties
        and to execute, deliver and perform all of its Obligations, under the
        Loan Documents.

                      (c) At the Closing Date, the authorized capital stock of
        Presley Delaware will consist of 100,000,000 shares of Series A Stock,
        par value $.01 per share, 50,000,000 shares of Series B Stock, par value
        $.01 per share, and 25,000,000 shares of preferred stock, par value $.01
        per share. As of the Closing Date, Presley Delaware will have no
        outstanding subscriptions, options, warrants, calls, contracts, demands,
        commitments, convertible securities or other instruments, agreements or
        arrangements of any character or nature whatsoever under which Presley
        Delaware is or may be obligated to issue common stock, preferred stock,
        or other securities of any kind which would constitute or otherwise
        cause the occurrence of a Default hereunder or under any other Loan
        Document. Presley Delaware has no other authorized capital stock. As of
        the Closing Date, 34,792,732 shares of Series A Stock and 17,402,946
        shares of Series B Stock will have been issued by Presley Delaware, and
        no shares of preferred stock will have been issued. All outstanding
        shares of common stock



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<PAGE>   67
        of Presley Delaware are duly authorized, validly issued, fully paid,
        non-assessable and issued in compliance with all applicable state and
        federal securities and other Laws. Presley Delaware meets each of the
        requirements listed in Section 25117(a)(2)(A) of the California
        Corporations Code.

                      (d) Presley Delaware is in compliance with all Laws and
        other legal requirements applicable to its business, has obtained all
        authorizations, consents, approvals, orders, licenses and permits from,
        and has accomplished all filings, registrations and qualifications with,
        or obtained exemptions from any of the foregoing from, any Governmental
        Agency that are necessary for the transaction of its business, except
        where the failure so to comply, or to obtain authorizations, consents,
        approvals, orders, licenses or permits, or file, register, qualify or
        obtain exemptions would not have a material adverse effect on the
        business, operations or condition (financial or otherwise) of Presley
        Delaware.

                      (e) Presley Delaware has no Subsidiary or Subsidiaries
        other than the Borrower, Presley Mortgage Company, a California
        corporation, PH Ventures - San Jose, a California corporation, PH-LP
        Ventures, a California corporation, PH Institutional Ventures, a
        California corporation, HSP, Inc., a California corporation, Presley
        Southwest, Inc., an Arizona corporation, The Presley Companies, a
        California corporation, Presley CMR, Inc., and CMR, and the Borrower has
        no Subsidiary or Subsidiaries other than PH Ventures - San Jose, a
        California corporation, PH-LP Ventures, a California corporation, PH
        Institutional Ventures, a California corporation, HSP, Inc., a
        California corporation, Presley Southwest, Inc., an Arizona corporation,
        Presley CMR, Inc., The Presley Companies, a California corporation and
        CMR.

               6.2 Authority; Compliance With Other Agreements and Instruments
and Government Regulations. Except as set forth in Schedule 6.2, the execution,
delivery and performance of each Loan Document by each Party, to the extent such
Party is a party thereto, have been duly authorized by all necessary action, and
do not and will not:

                      (a) Require any consent or approval not heretofore
        obtained of any partner, director, stockholder, security holder or
        creditor;

                      (b) Violate or conflict with any provision of such Party's
        partnership agreement, certificate of limited partnership, charter,
        articles of incorporation or bylaws, or amendments thereto, as
        applicable;

                      (c) Result in or require the creation or imposition of any
        Lien or Right of Others (other than as permitted under the Loan
        Documents) upon or with respect to any Property now owned or leased or
        hereafter acquired by such Party;



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<PAGE>   68
                      (d) Constitute a "transfer of an interest" or an
        "obligation incurred" that is avoidable by a trustee under Section 548
        of the Bankruptcy Code of 1978, as amended, or constitutes a "fraudulent
        transfer" or "fraudulent obligation" within the meaning of the Uniform
        Fraudulent Transfer Act as enacted in any jurisdiction or any analogous
        Law;

                      (e) Violate any provision of any Law (including, without
        limitation, Regulations T, U and/or X of the Board of Governors of the
        Federal Reserve System or the usury laws of any jurisdiction), order,
        writ, judgment, injunction, decree, determination or award presently in
        effect and having applicability to such Party; or

                      (f) Result in a breach of or constitute a default under,
        or cause or permit the acceleration of any obligation owed under, any
        indenture or loan or credit agreement or any other material agreement,
        lease or instrument to which such Party is a party or by which such
        Party or any of its Property is bound or affected; and neither the
        Borrower nor Presley Delaware is in default under any Law, order, writ,
        judgment, injunction, decree, determination or award, or any indenture,
        agreement, lease or instrument described in Schedule 6.2 as contemplated
        above in this subsection (f), in any respect that is materially adverse
        to the interests of the Agent, the Issuing Banks, the LC Guarantor or
        the Lenders or that would have any material adverse effect on the
        business, operations or condition (financial or otherwise) of the
        Borrower or Presley Delaware.

               6.3 No Governmental Approvals Required. Except as set forth in
Schedule 6.3, no authorization, consent, approval, order, license or permit
from, or filing, registration or qualification with, or exemption from any of
the foregoing from, any Governmental Agency is or will be required to authorize
or permit under applicable Law the execution, delivery and performance by any
Party of the Loan Documents. As to those matters set forth in Schedule 6.3, the
Borrower has obtained such authorizations, consents, approvals, orders, licenses
and permits required to authorize or permit under any applicable Law the
execution, delivery and performance by any Party of the Loan Documents, except
as otherwise indicated on said Schedule.

               6.4 Financial Statements. The Borrower has furnished to the Agent
and the Lenders (i) the audited consolidated balance sheet of Presley Delaware
as at December 31, 1997, and the related audited consolidated statement of
operations of Presley Delaware for the period then ended and (ii) the unaudited
interim consolidated balance sheet of Presley Delaware as of April 30, 1998 and
the related unaudited interim consolidated statement of operations for the four
months ended April 30, 1998. Such financial statements fairly present the
financial condition and results of operations of Presley Delaware as at such
dates and for such periods, in conformity with GAAP,



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consistently applied, except that the unaudited interim financial statements do
not include all of the information and footnotes required by GAAP for complete
financial statements.

               6.5 No Other Liabilities; No Material Adverse Changes. Except as
disclosed in Schedule 6.5 and Schedule 6.9, and except for changes in amounts
outstanding under this Agreement prior to the date hereof, the Borrower does not
have any material liability or material contingent liability not reflected or
disclosed in the audited or unaudited balance sheets or notes thereto described
in Section 6.4. There has been no material adverse change in the business,
prospects, operations or condition (financial or otherwise) of Presley Delaware
and the Borrower since April 30, 1998.

               6.6 Title to and Location of Property. The Borrower has good and
valid title to all the Property reflected in the balance sheets described in
Section 6.4, other than Property subsequently sold or disposed of in the
ordinary course of business or as permitted under Section 8.4, free and clear of
all Liens and Rights of Others other than Liens or Rights of Others permitted
pursuant to Section 8.8. All tangible personal Property owned or held by the
Borrower is located within the States of California, Arizona, New Mexico, Nevada
and/or Illinois.

               6.7 Intangible Assets. The Borrower owns, or possesses the right
to use to the extent necessary in its business, all trademarks, trade names,
copyrights, patents, patent rights, licenses and other Intangible Assets that
are used in any material respect in the conduct of its business as now operated,
and no such Intangible Asset, to the best knowledge of the Borrower, conflicts
with the valid trademark, trade name, copyright, patent, patent right or
Intangible Asset of any other Person to the extent that such conflict would have
a material adverse effect on the business, operations or condition (financial or
otherwise) of the Borrower.

               6.8 Public Utility Holding Company Act. The Borrower is not a
"holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

               6.9 Litigation. Except as set forth in Schedule 6.9, there are no
actions, suits or proceedings pending or, to the best knowledge of the Borrower,
threatened against or affecting the Borrower, any of its Subsidiaries, Presley
Delaware or any Property of the Borrower or any such Subsidiary or Presley
Delaware in any court of Law or before any Governmental Agency (i) where the
amount in controversy is $1,000,000 or more, (ii) which involve claims under the
Racketeer Influenced and Corrupt Organization Act of 1970, 18 U.S.C.
Sections 1961-1968, or any other federal or state law for which the
forfeiture of assets is a potential penalty, or (iii) which, if determined
adversely to the Borrower or such Subsidiary or Presley Delaware, as applicable,
would



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have a material adverse effect on the condition or operations of the Borrower or
Presley Delaware, financial or otherwise, or which material adverse effect may
affect the legality, validity or enforceability of the Loan Documents.

               6.10 Binding Obligations. Subject to the exceptions set forth in
the Opinion of Counsel addressed to the Agent and the Lenders and dated as of
the Closing Date, each of the Loan Documents will, when executed and delivered
by the Borrower or Presley Delaware, constitute the legal, valid and binding
obligation of the Borrower or Presley Delaware, as applicable, enforceable
against the Borrower or Presley Delaware, as applicable, in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar Laws relating to or
affecting creditors' rights generally or equitable principles relating to the
granting of specific performance and other equitable remedies as a matter of
judicial discretion.

               6.11 No Default. No event has occurred and is continuing that is
a Default.

               6.12 ERISA.

                      (a) Except, in the case of the Borrower, as disclosed in
        Schedule 6.12, neither the Borrower or Presley Delaware maintains or
        contributes, nor is the Borrower or Presley Delaware required to
        contribute, to any Pension Plan.

                      (b) With respect to each Pension Plan disclosed in
        Schedule 6.12:

                      (i) the Borrower is in compliance in all material respects
               with any applicable provisions of ERISA and the regulations and
               published interpretations thereunder with respect to all Pension
               Plans and Multiemployer Plans. With respect to each of the
               Borrower's Pension Plans, the Borrower (A) has fulfilled in all
               material respects its obligations under the minimum funding
               standards of ERISA, (B) has not incurred any material and past
               due liability to the PBGC, and (C) has not had asserted against
               it any penalty for failure to meet its minimum funding
               requirements under ERISA, and each Pension Plan is able to pay
               benefits thereunder when due;

                      (ii) vested liabilities under all Pension Plans (with
               assets less than vested liabilities) administered by the Borrower
               or any administrator designated by the Borrower do not exceed the
               assets thereunder by more than the greater of: (a) Five Hundred
               Thousand Dollars ($500,000); or (b) five percent (5%) of the
               Borrower's Tangible Effective Net Worth;



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                      (iii) no "reportable event" (as defined in Section 4043 of
               ERISA) has occurred that could reasonably be expected to result
               in the termination or disqualification of such Pension Plan;

                      (iv) the Borrower has not engaged in any non-exempt
               "prohibited transaction" (as defined in Section 4975 of the
               Internal Revenue Code of 1986);

                      (v) the Borrower has not incurred or reasonably expects to
               incur any withdrawal liability under ERISA to any Multiemployer
               Plan; and

                      (vi) to the extent that any such Pension Plan (which is a
               "welfare plan" under Section 3(l) of ERISA) is insured, the
               Borrower has paid all premiums required to be paid for all
               periods through and including the Closing Date. To the extent
               that any such Pension Plan (which is a "welfare plan" as defined
               above) is not or has not been funded with insurance, the Borrower
               has made all contributions required to be paid for all periods
               through and including the Closing Date and that all such Pension
               Plans, to the extent that their funding is based on actuarial
               principles, are actuarially sound as at the Closing Date.

                      (c) To the best knowledge of the Borrower, except as
        disclosed in Schedule 6.12, the Borrower is not and has never been a
        party to or has or has had any employees who are covered by any
        Multiemployer Plan to which the Borrower is required to make
        contributions.

                      (d) the Borrower is in compliance with each covenant
        contained in Section 8.6.

               6.13 Regulations T, U and X; Investment Company Act. The Borrower
is not engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" or "margin security" within the meanings of Regulations T, U or
X, respectively, of the Board of Governors of the Federal Reserve System. No
part of the proceeds of any Revolving Loan hereunder will be used to purchase or
carry any such "margin security" or "margin stock" or to extend credit to others
for the purpose of purchasing or carrying any such "margin security" or "margin
stock" in violation of Regulations T, U or X of said Board of Governors. The
Borrower is not required to be registered under the Investment Company Act of
1940.

               6.14 Disclosure. No written statement made by or on behalf of the
Borrower or Presley Delaware to the Agent or any Lender in connection with this
Agreement, or in connection with any Revolving Loan, when taken in context with
all



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other such statements, contains any untrue statement of a material fact or omits
a material fact necessary to make the statement made not misleading in light of
all of the circumstances existing at the time the statement was made, including,
without limitation, matters disclosed to the Agent and the Lenders in any
Schedules to this Agreement or in any other written statement previously
delivered to the Agent and the Lenders pursuant to this Agreement. To the best
knowledge of the Borrower, there is no fact (except for general economic
conditions) which the Borrower has not disclosed to the Agent and the Lenders in
writing which materially and adversely affects nor, so far as the Borrower can
now reasonably foresee, can reasonably be expected to affect materially and
adversely the business, operations, Properties, prospects, profits or condition
(financial or otherwise) of the Borrower or Presley Delaware, or the ability of
either the Borrower or Presley Delaware to perform its Obligations under the
Loan Documents.

               6.15 Tax Liability. The Borrower, each of its Subsidiaries and
Presley Delaware have filed all federal and state income tax returns, and all
material tax returns other than federal and state income tax returns, that are
required (subject to any extensions obtained pursuant to applicable Law) to be
filed, and have paid, or made provision for the payment of, all taxes payable by
the Borrower or such Subsidiary or Presley Delaware with respect to the periods,
Property or transactions covered by said returns, or pursuant to any assessment
received by the Borrower or such Subsidiary or Presley Delaware, except such
taxes, if any, as are being contested in good faith by appropriate proceedings
and as to which adequate reserves have been established and maintained.

               6.16 [Deleted]

               6.17 Fiscal Year. The Borrower operates on a fiscal year ending
on December 31, with four fiscal quarters of thirteen weeks ending on or about
March 31, June 30, September 30 and December 31.

               6.18 Employee Matters. There is no strike, work stoppage or labor
dispute with any union or group of employees pending or overtly threatened
involving the Borrower which could have a material adverse effect on the
business, operations or condition (financial or otherwise) of the Borrower.

               6.19 Environmental Matters. Except as disclosed on Schedule 6.19,
(a) the real Property of the Borrower, each of its Subsidiaries and each
Borrower Partnership and the operations conducted thereon do not violate any
applicable Law, statute, ordinance, rule, regulation, order or determination of
any governmental authority or any restrictive covenant or deed restriction
(recorded or otherwise), including, without limitation, all applicable zoning
ordinances and building codes, flood disaster Laws and Environmental Laws and
regulations, in any respect which could have a material adverse effect on the
business, operations or condition (financial or



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otherwise) of the Borrower; (b) without limitation of clause (a) above, the
Borrower's and each of its Subsidiaries' and each Borrower Partnership's real
Property and the operations conducted by the Borrower or any current owner or
operator of such real Property or operation, are not in violation of or subject
to any existing, pending or threatened action, suit, investigation, inquiry or
proceeding by any governmental authority or to any remedial obligations under
any Environmental Laws which, if determined adversely to the Borrower or such
Subsidiary or such Borrower Partnership, could have a material adverse effect on
the business, operations or condition (financial or otherwise) of the Borrower;
(c) all notices, permits, licenses or similar authorizations, if any, required
to be obtained or filed in connection with the operation or use of the real
Property of the Borrower, each of its Subsidiaries and each Borrower
Partnership, including, without limitation, past or present treatment, storage,
disposal or release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed, except where the failure to
obtain or file same would not have a material adverse effect on the business,
operations or condition (financial or otherwise) of the Borrower; (d) all
significant amounts of hazardous substances or solid waste generated at the real
Property of the Borrower, each of its Subsidiaries and each Borrower Partnership
have in the past been and shall continue to be transported, treated and disposed
of only by carriers maintaining valid permits under RCRA and any other
Environmental Laws and only at treatment, storage and disposal facilities
maintaining valid permits under RCRA and any other Environmental Law, which
carriers and facilities have been and are, to the best of the Borrower's
knowledge, operating in compliance with such permits; (e) the Borrower has no
actual or constructive knowledge of the disposal or other release of any
hazardous substance or solid waste, or the threatened release of hazardous
substances, on or to the real Property of the Borrower, any of its Subsidiaries
or any Borrower Partnership except in compliance in all material respects with
Environmental Laws, and that it has not been notified of same by any
Governmental Agency; (f) the Borrower has no material contingent liability in
connection with any release or threatened release of any hazardous substance or
solid waste into the environment; and (g) the use which the Borrower, each of
its Subsidiaries and each Borrower Partnership makes or intends to make of the
Borrower's, each of its Subsidiaries' and each Borrower Partnership's real
Property will not result in the unlawful or unauthorized disposal or other
release of any hazardous substance or solid waste on or to the real Property of
the Borrower, any of its Subsidiaries or any Borrower Partnership in any
material respect. The terms "hazardous substance," "release" and "threatened
release" have the meanings specified in CERCLA, and the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA; provided,
however, in the event either CERCLA or RCRA is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall apply subsequent
to the effective date of such amendment, and provided further that, to the
extent the laws of any state in which any of the real Property of the Borrower,
any of its Subsidiaries or any Borrower Partnership is located establish a
meaning for "hazardous substance," "release," "solid waste" or "disposal" which
is broader than that specified in either CERCLA or RCRA, such broader meaning
shall apply with regard to the real Property of the Borrower, each



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of its Subsidiaries and any Borrower Partnership located in such state. The
Borrower acknowledges that this Agreement constitutes a "written request for
information" by the Agent and the Lenders, and it is the Borrower's intention
that the matters disclosed in Schedule 6.19 constitute "written disclosure",
required pursuant to California Code of Civil Procedure Section 726.5(d)(2).

               6.20 Partnerships, Joint Ventures and Limited Liability
Companies. Schedule 6.20 is a complete and accurate description of all
partnerships, joint ventures and limited liability companies of which the
Borrower or a Subsidiary of the Borrower is a partner, a joint venturer or a
member and the jurisdiction of formation of each such partnership, joint venture
and limited liability company. Except as disclosed on Schedule 6.20, neither the
Borrower or any Subsidiary of the Borrower is a partner, joint venturer or
member of any other partnership, joint venture or limited liability company.
Each partnership, joint venture and limited liability company listed on Schedule
6.20 is validly existing and in good standing under the laws of its jurisdiction
of formation and in each jurisdiction in which it conducts its business.

               6.21 Outstanding Advances and Letters of Credit. As of the date
hereof, "Outstanding Advances" under the Existing Loan Agreement are
$56,000,000, and "Outstanding Letters of Credit" under the Existing Loan
Agreement were $1,500,000, and such Outstanding Advances and the Borrower's
reimbursement obligations in respect of such Outstanding Letters of Credit
constitute legal, valid and binding obligations of the Borrower for which the
Borrower has no valid defenses.

                                    ARTICLE 7
                              AFFIRMATIVE COVENANTS
                           (OTHER THAN INFORMATION AND
                             REPORTING REQUIREMENTS)

               So long as any Revolving Loan remains unpaid or Letter of Credit
or Set-Aside Letter remains outstanding, or any other Obligation remains unpaid
or unperformed (other than any contingent indemnity obligations under any of the
Loan Documents), or any portion of the Revolving Commitments remains
outstanding, the Borrower shall, unless the Majority Lenders otherwise consent
in writing:

               7.1 Payment of Taxes and Other Potential Liens. Pay and discharge
promptly, and cause each of its Subsidiaries to pay and discharge promptly, all
taxes, assessments and governmental charges or levies imposed upon the Borrower
or such Subsidiary or its Property or any part thereof, upon the Borrower's or
such Subsidiary's income or profits or any part thereof or, subject to the
provisions of Section 13.7 of this Agreement, upon any right or interest of the
Agent, any Issuing Bank, the LC Guarantor or any Lender under any Loan Document,
except that neither the Borrower nor any such Subsidiary shall be required to
pay or cause to be paid (a) any income, net worth or gross receipts tax, or any
tax imposed in lieu of such income, gross receipts or net



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worth taxes, applicable to any Lender or any participant of any Lender, or (b)
any tax, assessment, charge or levy that is not yet delinquent, or is being
contested in good faith by appropriate proceedings, so long as the Borrower or
such Subsidiary has established and maintains adequate reserves for the payment
of the same and by reason of such nonpayment and contest no material item or
portion of Property of the Borrower or such Subsidiary is in jeopardy of being
seized, levied upon or forfeited.

               7.2 Preservation of Existence. Preserve and maintain, and cause
each of its Subsidiaries to preserve and maintain, its existence, and all
material licenses, rights, franchises and privileges in the jurisdiction of its
formation and all authorizations, consents, approvals, orders, licenses,
permits, or exemptions from, or registrations with, any Governmental Agency that
are necessary for the transaction of its business, including, without
limitation, all notices, permits or licenses, if any, filed or obtained with
regard to compliance with Environmental Laws, and qualify and remain qualified,
and cause each such Subsidiary to qualify and remain qualified, to transact
business in each jurisdiction in which such qualification is necessary in view
of its business or the ownership or leasing of its Properties.

               7.3 Maintenance of Properties. Maintain, preserve and protect,
and cause each of its Subsidiaries to maintain, preserve and protect, all of its
depreciable Properties and equipment in good order and condition, subject to
wear and tear in the ordinary course of business, and not permit any waste
(other than developmental waste) of its Properties, except that the failure to
maintain, preserve and protect a particular item of depreciable Property or
equipment that is not of significant value, either intrinsically or to the
operations of the Borrower or such Subsidiary, shall not constitute a violation
of this covenant.

               7.4 Maintenance of Insurance.

                      (a) Maintain, and cause each of its Subsidiaries to
        maintain, liability and casualty insurance with responsible insurance
        companies in such amounts and against such risks as is usually carried
        by responsible companies engaged in similar businesses and owning
        similar Properties in the general areas in which the Borrower or such
        Subsidiary operates, including, without limitation, not less than
        $10,000,000 of general liability coverage or such greater amount as is
        prudent.

                      (b) All policies of insurance required hereunder,
        including endorsements thereto, must be reasonably satisfactory to the
        Agent as to amounts, forms, risk coverages, deductibles, expiration
        dates, and loss payable and cancellation provisions; provided, however,
        that neither the Borrower nor any such Subsidiary shall be required to
        obtain policies of insurance in amounts and containing provisions that
        are not typically obtained by responsible companies engaged in similar
        businesses and owning similar Properties in the



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        general area in which the Borrower or such Subsidiary operates. Without
        limiting the foregoing, each required property insurance policy shall
        contain a Lender's Loss Payable Endorsement (Form 438 BFU) in favor of
        the Agent, as agent for the Lenders, the Issuing Banks (other than a
        Third Party Issuer) and the LC Guarantor, as their respective interests
        may appear, and shall provide that all proceeds in respect of any
        casualty loss in excess of $250,000 be payable to the Agent, who shall
        in turn distribute them to the Lenders, such Issuing Banks and the LC
        Guarantor to the extent of their respective interests. An approval by
        the Agent or the Majority Lenders is not, and shall not be deemed to be,
        a representation of the solvency of any insurer or the sufficiency of
        any amount of insurance.

                      (c) Each policy of insurance required hereunder shall
        provide that it may not be modified or canceled without at least thirty
        days' prior written notice (except that cancellation for non-payment of
        premiums may be on ten days' prior written notice) to the Agent. The
        Borrower shall use its best efforts to furnish the Agent no later than
        ten days prior to the expiration of any required insurance, and in any
        event within one day prior to the expiration of any required insurance,
        with proof satisfactory to the Agent that such new policy has been
        issued, continuing in force the insurance covered by the policy which
        expired. At the same time, the Borrower shall also furnish the Agent
        with evidence satisfactory to the Agent that all premiums for any such
        new policy have been or will be paid in accordance with the terms of
        such policy. If the Borrower shall not be able to provide the Agent with
        such proof or evidence ten days prior to the expiration of any required
        insurance, the Borrower shall promptly notify the Agent of such fact and
        when the Borrower expects to be able to furnish the Agent with such
        proof or evidence. If, on the date a required policy expires, the
        Borrower has not complied with this Section 7.4(c), the Agent, acting at
        the direction of the Majority Lenders in their sole discretion, may
        procure a new policy, and the Majority Lenders may advance funds to pay
        the premiums for it. The Borrower shall pay the Agent, for the account
        of the Lenders, the Issuing Banks (other than any Third Party Issuer)
        and the LC Guarantor, immediately on demand for any advance for such
        premiums, which shall be considered to be an additional Loan to the
        Borrower.

               7.5 Compliance With Laws. Comply, and cause each of its
Subsidiaries to comply, in all material respects with the requirements of all
applicable Laws and orders of any Governmental Agency, including all applicable
provisions of ERISA, except that neither the Borrower nor such Subsidiary need
comply with a requirement then being contested by it in good faith by
appropriate proceedings so long as no interest of the Agent or any Lender or
Issuing Bank or the LC Guarantor would be materially impaired thereby.



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               7.6 Inspection Rights. At any time during regular business hours
and as often as requested, permit, and cause each of its Subsidiaries to permit,
the Agent or any other Lender, or any employee, agent or representative thereof,
(a) to examine, audit and make copies and abstracts from the records and books
of account of, and to visit and inspect the Properties of, the Borrower, such
Subsidiary and Presley Delaware and to discuss the affairs, finances and
accounts of the Borrower, such Subsidiary and Presley Delaware with any of its
officers and key employees, customers or vendors, and/or (b) to inspect the real
Property of the Borrower and such Subsidiary, and any books, records, journals,
orders, receipts, correspondence, notices, permits or licenses of the Borrower,
such Subsidiary and Presley Delaware, with regard to compliance with
Environmental Laws, and, upon request, furnish promptly to the Agent or any
other Lender true copies of all financial information and all information
pertaining to the Borrower's and such Subsidiary's compliance with Environmental
Laws made available to the senior management of the Borrower or such Subsidiary.

               7.7 Keeping of Records and Books of Account. Keep, and cause each
of its Subsidiaries to keep, adequate records and books of account reflecting
all financial transactions in conformity with GAAP, consistently applied, and in
material conformity with all applicable requirements of any Governmental Agency
having regulatory jurisdiction over the Borrower or such Subsidiary.

               7.8 Compliance With Agreements, Duties and Obligations. Promptly
and fully comply, and cause each of its Subsidiaries to promptly and fully
comply, with all of its agreements, duties and obligations under the Loan
Documents, and under any other material agreements, indentures, leases and/or
instruments to which it is a party, whether such other agreements, indentures,
leases or instruments are with the Agent, any Lender or any other Person, except
that neither the Borrower nor such Subsidiary need comply with any such other
agreements, indentures, leases or instruments then being contested by it in good
faith by appropriate proceedings or if the failure to comply with such other
agreements, indentures, leases or instruments would not have a material adverse
effect on the Borrower, in either case so long as no material interest of the
Agent or any Lender or Issuing Bank or the LC Guarantor would be materially
impaired thereby.

               7.9 Additional Guaranties, Collateral and Collateral Documents.
At any time and from time to time upon the request of the Agent or the Majority
Lenders, forthwith, and in any event within five Banking Days after such
request, (a) cause any Subsidiaries (other than CMR and CMR, Inc.) of the
Borrower designated by the Agent or the Majority Lenders to execute and deliver
to the Agent guaranties of the Obligations of the Borrower, in form and
substance satisfactory to the Agent and the Majority Lenders, and (b) execute
and deliver or cause to be executed and delivered to the Agent such Collateral
Documents as may be requested by the Agent or the Majority Lenders, in the form
furnished to the Borrower by the Agent in connection with such request, covering
any or all of the Property of the Borrower or any of its Subsidiaries



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(other than Property of CMR and CMR, Inc.) as requested, to secure payment and
performance of the Obligations of such Person, or such portion thereof as may be
specified by the Agent or the Majority Lenders. In addition, at any time and
from time to time, the Borrower forthwith shall deliver or cause to be delivered
to the Agent at the Borrower's sole expense such surveys, and policies of title
insurance and endorsements thereto relating to any or all of the Property of the
Borrower or any of its Subsidiaries as the Agent or the Majority Lenders may
request. Further, the Borrower shall pledge, pursuant to the applicable
Collateral Documents, all equity and debt interests held by the Borrower in
partnerships, joint ventures and limited liability companies except for CMR.
Anything contained herein to the contrary notwithstanding, (i) the Borrower
shall not be required to execute Collateral Documents, or to cause any of its
Subsidiaries to execute any guaranties or Collateral Documents, with respect to
real Property, and personal Property related to such real Property, which
secures or will secure other indebtedness of the Borrower or such Subsidiary to
the extent such indebtedness of the Borrower or such Subsidiary is permitted by
this Agreement and the terms of such indebtedness prohibit the execution of such
guaranties or Collateral Documents, (ii) the Borrower shall not be required to
cause any of its Subsidiaries to execute any such Guaranties or any Collateral
Documents with respect to any Property to the extent prohibited by other equity
holders in such Subsidiaries, and (iii) the Borrower shall not be required to
cause any partnerships or joint venturers or limited liability companies in
which it is a partner (general or limited) or member, as the case may be, to
execute any such Guaranties or any Collateral Documents with respect to any
Property owned by such Person.

               7.10 Priority of Liens. Use its best efforts to provide the Agent
with any and all releases, consents, certificates, policies of title insurance,
endorsements thereto, assignments, subordination agreements, landlord or
mortgagee consents to removal of personal property, waivers and other documents
as the Agent may request to ensure that the Lenders' Liens upon the Property of
the Borrower and any of its Subsidiaries are fully perfected and of first
priority, except as otherwise expressly permitted by the Loan Documents. To the
extent that the Borrower fails to obtain any such release, consent, certificate,
policy, endorsement, assignment, subordination agreement, or comparable document
as requested, the Agent may, in its sole and absolute discretion, exclude any
affected asset or category of assets from the determination of the Borrowing
Base or appropriately reduce the carrying value of or percentage rate of advance
against any asset or category of assets included in the Borrowing Base, unless
the Majority Lenders, in their sole and absolute discretion, determine
otherwise.

               7.11 Deposit Accounts. Maintain the Operating Account with a bank
acceptable to the Agent, which shall be subject to a perfected security interest
in favor of the Agent, the Lenders, the Issuing Banks (other than any Third
Party Issuer) and the LC Guarantor, and cause all of the Cash and Cash
Equivalents of the Borrower, its Subsidiaries (other than CMR) and Presley
Delaware to be deposited into the Operating



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Account, unless otherwise agreed by the Majority Lenders, other than (i) up to
$200,000 held in operating accounts maintained with banks acceptable to the
Agent for the Borrower's Arizona, Nevada and New Mexico homebuilding divisions,
(ii) up to $250,000 in the aggregate held in divisional operating accounts
maintained with banks acceptable to the Agent for the Borrower's California
homebuilding operations, (iii) up to $300,000 in the aggregate held in accounts
maintained by the Borrower with banks acceptable to the Agent in connection with
the Borrower's project amenities, (iv) up to $200,000 in the aggregate held in
accounts maintained by the Borrower with banks acceptable to the Agent in
connection with the Borrower's design center operations, (v) up to $200,000 in
the aggregate held in accounts maintained by the Borrower with banks acceptable
to the Agent in connection with Presley Mortgage Company and (vi) up to
$5,000,000, or such greater amount as shall be required under CMR's loan
agreements (provided that any amount in excess of $5,000,000 in the aggregate
shall have been generated from the operations of such partnership), held in
accounts maintained by the Borrower or CMR in connection with CMR, provided
that, in the case of all such permitted operating accounts, the Agent, the
Lenders, such Issuing Banks and the LC Guarantor shall have a perfected security
interest in such operating accounts other than of the type referred to in
clauses (i), to the extent such accounts are subject to Liens in favor of
lenders providing secured financing to such divisions, and (vi) above and
provided that perfection of such security interest does not involve Agent
obtaining domain and control of any such deposit account.

               7.12 Environmental Laws. The Borrower shall, and shall use its
best efforts to cause each of its Subsidiaries and each Borrower Partnership and
any and all lessees, contractors, subcontractors, employees, agents or other
operators of the real Property of the Borrower or any such Subsidiary or any
Borrower Partnership to, conduct its or their business so as to comply in all
material respects with all Environmental Laws; provided, however, that nothing
contained in this Section 7.12 shall prevent the Borrower or any such Subsidiary
or any Borrower Partnership from contesting, in good faith and by appropriate
legal proceedings, any such Law, regulation or interpretation or application
thereof; provided, further, that the Borrower and each such Subsidiary and each
Borrower Partnership shall comply with the order of any court or other
governmental body of applicable jurisdiction relating to such Environmental Laws
unless the Borrower or such Subsidiary or Borrower Partnership shall currently
be prosecuting an appeal or proceedings for review and shall have secured a stay
of enforcement or execution or other arrangement postponing enforcement or
execution pending such appeal or proceedings for review. The Borrower shall and
shall use its best efforts to cause each such Subsidiary and each Borrower
Partnership and all lessees or other operators of the real Property of the
Borrower or any such Subsidiary or any Borrower Partnership to dispose of any
and all hazardous substances or solid waste generated at such real Property only
at facilities and by carriers maintaining, and, to the best of the Borrower's
knowledge, operating in compliance with valid permits under RCRA and any other
Environmental Law, and shall



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use its best efforts to obtain certificates of disposal from all contractors
employed in connection with the transport or disposal of such hazardous
substances or solid waste.

               7.13 Environmental Notices. If the Borrower or any of its
Subsidiaries or any Borrower Partnership shall receive:

                      (i) notice that any violation of any Environmental Law may
               have been committed or is about to be committed by the Borrower
               or any such Subsidiary or any Borrower Partnership,

                      (ii) notice that any administrative or judicial complaint
               or order has been filed or is about to be filed against the
               Borrower or any such Subsidiary or any Borrower Partnership
               alleging violations of any Environmental Law or requiring the
               Borrower or any such Subsidiary or any Borrower Partnership to
               take any action in connection with the release or threatened
               release of hazardous substances or solid waste into the
               environment, or

                      (iii) any notice from a federal, state, or local
               governmental agency or private party alleging that the Borrower
               or any such Subsidiary or any Borrower Partnership may be liable
               or responsible for costs associated with a response to or cleanup
               of a release or disposal of a hazardous substance or solid waste
               into the environment or any damages caused thereby, including,
               without limitation, any notice that the Borrower or any such
               Subsidiary or any Borrower Partnership is a "potentially
               responsible party" as defined by CERCLA,

the Borrower shall provide the Agent and each Lender with a copy of such notice
within ten (10) days of the Borrower's or any such Subsidiary's or any Borrower
Partnership's receipt thereof. The Borrower shall provide each Lender with
notice of the enactment or promulgation of any Environmental Law which may
result in a material adverse change in the business, financial condition, or
operations of the Borrower or any such Subsidiary or any Borrower Partnership
within fifteen days after the Borrower obtains knowledge thereof.

               7.14 Forward Commitment Protection. The Borrower will acquire,
within 60 days of the Agent's request therefor, forward commitment protection
for its home buyers consistent with the policies of the Borrower in existence as
of the Original Closing Date.

               7.15 Appraisals. From time to time the Agent may request, and the
Borrower shall deliver, appraisals with respect to real Property for which
appraisals had not been delivered to the Agent during the 12 months prior to
such request.



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<PAGE>   81
               7.16 Legal Fees. The Borrower shall pay all outstanding invoices
of Kaye, Scholer, Fierman, Hays & Handler, LLP, as counsel for the Agent, for
services rendered in connection with the preparation and delivery of this
Agreement within 10 Banking Days of the delivery of such invoices to the
Borrower.

                                    ARTICLE 8
                               NEGATIVE COVENANTS

               So long as any Revolving Loan remains unpaid or any Letter of
Credit or Set-Aside Letter remains outstanding, or any other Obligation remains
unpaid or unperformed (other than any contingent indemnity obligations under any
of the Loan Documents), or any portion of the Revolving Commitments remains
outstanding, the Borrower shall not, unless the Majority Lenders (or, if
otherwise indicated below, all of the Lenders (other than any Lender which is,
at such time, a Defaulting Lender)) otherwise consent in writing:

               8.1 Transactions with Affiliates. Enter, or permit any of its
Subsidiaries to enter, into any transaction of any kind with any Affiliate of
the Borrower other than arms'-length transactions with Affiliates that are
permitted with non-Affiliates pursuant to Sections 8.8 and/or 8.15; provided,
however, that (a) the Borrower may enter, and permit each of its Subsidiaries to
enter, into arms'-length transactions with Affiliates that (i) are permitted
with non-Affiliates pursuant to Section 8.4(ii)(B) and are approved by the Board
of Directors of the Borrower or such Subsidiary, as applicable, or (ii) consist
of purchases of Property for not more than fair market value, which purchases
shall have been approved by the Board of Directors of the Borrower or such
Subsidiary, as applicable and (b) the Borrower may enter into Permitted Sales.

               8.2 Mergers. Without the approval of the Majority Lenders, merge,
consolidate or amalgamate with or into, or permit any of its Subsidiaries to
merge, consolidate or amalgamate with or into, any Person, except that any of
such Subsidiaries may merge, consolidate or amalgamate with or into any other
such Subsidiary.

               8.3 [Deleted]

               8.4 Sales and Leasebacks; Sales, Etc., of Assets. (i) Engage, or
permit any of its Subsidiaries to engage, in any sale and leaseback transactions
with any member of the Board of Directors of the Borrower or Affiliates of such
members or Affiliate of the Borrower or any such Subsidiary or Presley Delaware
or (ii) sell, lease, transfer or otherwise dispose of any of its Properties,
whether now owned or hereafter acquired, or grant any option or other right to
purchase, lease or otherwise acquire any of such Properties, or permit the same
of any of its Subsidiaries, (A) to any member of the Board of Directors of the
Borrower or Affiliates of such members or Affiliate of the Borrower or any such
Subsidiary or Presley Delaware, or (B) to any Person other than



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<PAGE>   82
any member of the Board of Directors of the Borrower or Affiliates of such
members or Affiliate of the Borrower or any such Subsidiary or Presley Delaware
if the fair market value of such Property is greater than $5,000,000 unless in
any event the purchase price paid to the Borrower for such Property is at least
100% of such fair market value and the Borrower shall have notified the Agent
and the Lenders in writing of such sale prior to such sale; provided, however,
that the Borrower may (A) enter into Permitted Sales and (B) engage in any of
the activities described herein with members of the Board of Directors of the
Borrower and Affiliates of such members and Affiliates of the Borrower provided
that such sale is approved by the Borrower's Board of Directors, the purchase
price paid to the Borrower is at least 100% of the fair market value of the
Property to be sold and the purchase price is to be paid in cash.

               8.5 Redemption, Dividends and Distributions. Directly or
indirectly redeem or repurchase capital stock or partnership interests, declare
or pay any dividends or make any other distribution, whether of capital, income
or otherwise, and whether in Cash or other Property, with respect to capital
stock, or permit any of its Subsidiaries to-do so, except that (i) so long as no
Default has occurred and is continuing, the Borrower or such Subsidiary may make
distributions to Presley Delaware to the limited extent necessary to cover the
federal and individual state taxes payable by the Borrower or such Subsidiary
and Presley Delaware with respect to their consolidated federal and individual
state tax returns; and (ii) so long as no Default has occurred and is
continuing, the Borrower or such Subsidiary may make distributions to Presley
Delaware to fund (A) corporate expenses payable by Presley Delaware, provided
that such distributions do not exceed $100,000 in the aggregate during any
fiscal year, or, to the extent that any such distribution would cause such
distributions to exceed $100,000 in the aggregate for any fiscal year, the
Borrower or such Subsidiary has first obtained the Majority Lenders' prior
written consent to the making of such distribution, which consent the Majority
Lenders shall not unreasonably withhold, and (B) payments required to be made by
Presley Delaware pursuant to the High Yield Securities and the indenture issued
in respect of the same and any refinancing thereof; and (iii) so long as no
Default has occurred and is continuing, the Borrower may declare and pay cash
dividends from time to time to the extent that such dividends would not result
in a breach by Borrower of the covenants set forth in this Agreement.

               8.6 ERISA.

                      (a) At any time, maintain, or be or become obligated to
        contribute on behalf of its employees to, any Pension Plan, or permit
        any of its Subsidiaries to do so, other than those Pension Plans
        disclosed in Schedule 6.12.

                      (b) At any time, permit, or permit any of its Subsidiaries
        to permit, any Pension Plan disclosed in Schedule 6.12 to:



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<PAGE>   83
                      (i) engage in any non-exempt "prohibited transaction", as
               such term is defined in Section 4975 of the Internal Revenue Code
               of 1986, as amended;

                      (ii) incur any material "accumulated funding deficiency",
               as that term is defined in Section 302 of ERISA; or

                      (iii) terminate in a manner which could result in
               liability of the Borrower or such Subsidiary to the Pension Plan
               or to the PBGC which, when added to any such liability
               theretofore incurred with respect to all such terminations, would
               exceed $100,000 or result in the imposition of a Lien securing an
               obligation in excess of $100,000 on the property of the Borrower
               or such Subsidiary pursuant to Section 4068 of ERISA.

                      (c) At any time, assume any obligation to contribute to
        any Multiemployer Plan not disclosed in Schedule 6.12, nor shall the
        Borrower or any such Subsidiary acquire any Person or assets of any
        Person which has, or has had at any time from and after January 2, 1974,
        an obligation to contribute to any Multiemployer Plan.

                      (d) Fail immediately to notify the Agent of the occurrence
        of any "reportable event" (as defined in Section 4043 of ERISA) or of
        any non-exempt "prohibited transaction" (as defined in Section 4975 of
        the Internal Revenue Code of 1986) with respect to any Pension Plan or
        any trust created thereunder. Upon request by the Agent or any Lender,
        the Borrower promptly shall furnish to the Agent or such Lender copies
        of any reports or other documents filed by the Borrower or any such
        Subsidiary with the United States Secretary of Labor, the PBGC and/or
        the Internal Revenue Service, with respect to any Pension Plan.

                      (e) At any time, permit an Pension Plan to fail to comply
        with ERISA or other applicable Law in any material respect.

               8.7 Change in Nature of Business. Make any material change in the
nature of the business of the Borrower, as conducted and presently proposed to
be conducted.

               8.8 Indebtedness, Guarantees and Liens. Create, incur, assume or
suffer to exist any Lien of any nature upon or with respect to any of its
Properties, whether now owned or hereafter acquired; create, incur or assume any
indebtedness for borrowed money or in connection with the purchase of Property
or any liability to the issuer of any letter of credit; guaranty the
indebtedness or obligations of any other Person or provide to a creditor of any
other Person any agreement to maintain net worth of liquidity of the Person or
any other analogous agreement designed to provide



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<PAGE>   84
credit assurance to such creditor; or incur any lease obligation that is
required to be capitalized under GAAP; or, in each case, permit any Subsidiary
to do so, except:

                      (a) Liens securing taxes, assessments or governmental
        charges or levies (including those related to Mello Roos assessment
        districts and 1911, 1913 and 1915 assessment districts), or in
        connection with workers' compensation, unemployment insurance or social
        security obligations, or the claims or demands of materialmen,
        mechanics, carriers, warehousemen, landlords and other like Persons not
        yet delinquent or which are being contested in good faith by appropriate
        proceedings with adequate reserves set aside;

                      (b) Attachment, judgment or other similar Liens arising in
        connection with court proceedings that do not, in the aggregate,
        materially detract from the value of the Borrower's or such Subsidiary's
        property or materially impair the use thereof in the operation of the
        Borrower's or such Subsidiary's business (unless in the case of such
        Subsidiary such detraction or impairment does not materially adversely
        affect the Borrower), or materially impair the Borrower's or such
        Subsidiary's ability to perform its Obligations, and (i) that are
        discharged or stayed within thirty days of attachment or levy, or (ii)
        payment of which is covered in full (subject to customary and reasonable
        deductibles) by insurance, surety bond or reserves;

                      (c) Easements, rights of ways, restrictions and other
        similar charges or encumbrances on real Property that do not interfere
        with the orderly development and/or sale of the affected real Property;

                      (d) Minor defects and irregularities in the title of real
        Properties that do not materially detract from the value or impair the
        use of such Properties for the purposes for which they are held;

                      (e) Liens existing or arising by virtue of the leasing or
        rental of Property to the extent leases and rentals are permitted by
        this Agreement, whether the same are capital leases or operating leases
        or rentals;

                      (f) Indebtedness, liabilities, guarantees or Liens in
        favor of the Agent or the Lenders, the Issuing Banks or the LC Guarantor
        under this Agreement, the Revolving Notes and the other Loan Documents;

                      (g) Unsecured indebtedness incurred to vendors in the
        ordinary course of business;

                      (h) [Deleted];



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<PAGE>   85
                      (i) Indebtedness incurred in connection with land
        development loans, infrastructure loans, construction loans (and, in the
        case of clause (ii) of this paragraph (i), land acquisition loans) made
        (i) CMR for the Carmel Mountain Ranch project (for which the Borrower is
        indirectly liable in its capacity as a partner or joint venturer) and
        (ii) in connection with any of the Borrower's projects located in New
        Mexico or Arizona, and Liens on the Properties of such partnerships and
        on the Borrower's New Mexico or Arizona projects; provided that the
        aggregate amount of indebtedness with respect to the New Mexico and
        Arizona projects does not exceed an aggregate of $5,000,000;

                      (j) Indebtedness evidenced by 144A Securities issued by
        the Borrower and outstanding on the Closing Date and the Liens securing
        such indebtedness;

                      (k) Unsecured debt which is subordinated to the
        Obligations, and to the other obligations referred to in subsection (b)
        above constituting indebtedness, if any, on terms acceptable to the
        Majority Lenders in their sole discretion;

                      (l) Guarantees arising from endorsement, in the ordinary
        course of collection, of negotiable instruments;

                      (m) Indebtedness to bonding companies incurred in
        connection with the bonding of the Borrower's or such Subsidiary's real
        estate projects in accordance with the Borrower's or such Subsidiary's
        past practice, and Liens granted to secure such indebtedness;

                      (n) Unsecured liabilities, and liabilities secured by Cash
        and/or Cash Equivalents, to reimburse issuing banks in connection with
        letters of credit (other than Letters of Credit issued hereunder) issued
        by banks other than the Lenders to support the bonding of the Borrower's
        real estate projects, the face amount of which shall not exceed, in the
        aggregate at any one time outstanding, $2,000,000;

                      (o) Rights of Others in favor of third party purchasers of
        units of Housing or real property (to the extent such sales are
        permitted by the terms of this Agreement) arising in connection with the
        execution and delivery of purchase contracts for such Housing units or
        real property by the Borrower in the ordinary course of business;

                      (p) Indebtedness that is Non-Recourse to the Borrower, and
        Liens securing the same; and



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<PAGE>   86
                      (q) Unsecured guarantees of the High Yield Securities,
        such unsecured guarantees to be on the same terms and conditions as the
        unsecured guarantees in effect on the Closing Date or otherwise in form
        and substance satisfactory to the Majority Lenders, and to the extent
        that the High Yield Securities are refinanced, unsecured guarantees
        provided by Borrower and/or Subsidiaries of the Borrower of such
        refinanced indebtedness (such unsecured guarantees to be on the same
        terms and conditions as the unsecured guarantees in effect on the
        Closing Date or otherwise in form and substance satisfactory to the
        Majority Lenders);

provided, however, that notwithstanding anything to the contrary contained in
this Section 8.8, each of the Borrower's Subsidiaries may create, incur and
assume indebtedness in connection with its acquisition, development or
improvement of real Property, provided that the recourse to the Borrower for
such indebtedness shall be limited to the Borrower's liability as a partner or
joint venturer or member of any such Subsidiary which is a partnership or joint
venture or limited liability company and, in the case of any such indebtedness
with such recourse to the Borrower, the Borrower's Board of Directors shall have
approved such indebtedness and recourse.

               8.9  Change in Fiscal Year. Change its fiscal year, or the 
fiscal thereof.

               8.10 [Deleted]

               8.11 [Deleted]

               8.12 [Deleted]

               8.13 [Deleted]

               8.14 Presley Delaware's Ownership of Borrower. Permit Presley
Delaware to own less than 100% of the issued and outstanding common stock of the
Borrower.

               8.15 New Land Purchases. Purchase, or permit any of its
Subsidiaries to purchase, any new Raw Land or Improved Land or Housing, provided
that (i) the Borrower or any Subsidiary may acquire any such Raw Land or
Improved Land or Housing with the prior written approval of the Majority
Lenders, (ii) the Borrower or any Subsidiary may enter into fee basis
development contracts so long as the Borrower or such Subsidiary does not incur
any indebtedness whatsoever in connection with any such transaction, (iii) the
Borrower or any Subsidiary may acquire new Improved Land without any approval
from the Majority Lenders or the Agent if (A) a tentative subdivision map has
been approved by all appropriate Governmental Agencies or a final subdivision
map for such new Improved Land has been recorded or a vesting



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<PAGE>   87
tentative map for such new Improved Land has been approved by all required
Governmental Agencies or such new Improved Land shall be subject to a
development agreement which provides substantially the same entitlement benefits
as a vesting tentative map, (B) the Borrower or such Subsidiary has received an
environmental toxic report indicating that there are no material environmental
toxic problems associated with such new Improved Land, (C) such new Improved
Land will not be subject to any Liens (other than Liens permitted pursuant to
Section 8.8 or required pursuant to clause (D) below) after the acquisition of
such new Improved Land by the Borrower or such Subsidiary, (D) upon the
Borrower's or such Subsidiary's acquisition of such new Improved Land, such land
will be subject to a first priority Lien in favor of the Agent (except for Liens
permitted under paragraphs (a), (c), (d), (j), (m), (o) and (p) of Section 8.8)
to secure the Obligations, and the Agent shall have received a title insurance
policy in form satisfactory to the Agent and the Majority Lenders insuring the
validity and priority of such Lien, (E) the purchase price shall not be greater
than that set forth in an appraisal of such Improved Land from an appraiser
acceptable to the Agent, or the acquisition is otherwise approved by the
Majority Lenders, or the Borrower commits to Agent to obtain an appraisal within
sixty (60) days after such property is purchased (in which case (i) such
Improved Land shall not be included in the Borrowing Base until such appraisal
is delivered to the Agent, and (ii) notwithstanding any provision of Section 4.8
to the contrary, the value of such Improved Property for purposes of determining
its Improved Land Cost Component shall not exceed the amount set forth as the
appraised value for such Improved Land in the appraisal (it being understood
that costs incurred thereafter by Borrower or such Subsidiary in developing and
improving such Improved Land will be included in determining its value for the
purposes of the relevant provisions of Section 4.8 hereof), (F) such Improved
Land is located within the continental United States, and (G) no more than 300
lots of such new Improved Land shall be in any one location, and (iv) the
Borrower or any Subsidiary may acquire any such Raw Land or Improved Land or
Housing in New Mexico and Arizona provided that the aggregate book value of such
Raw Land, Improved Land and Housing does not exceed $6,500,000 and the
indebtedness incurred by the Borrower or such Subsidiary in connection therewith
is permitted under Section 8.8(i); provided, however, each of the Borrower's
Subsidiaries may acquire any Raw Land or Improved Land or Housing provided that
such acquisition complies with the requirements set forth in clause (iii) above
(other than clauses (C) and (D), if the Lien contemplated by clause (D) is
prohibited by any other lenders of such Subsidiary in respect of other
indebtedness permitted hereunder or by any equity partners of such Subsidiary,
and (G)) and is approved by the Board of Directors of the Borrower; and
provided, further, however, that in any such case of this Section 8.15, the
Borrower shall not acquire, or permit any of its Subsidiaries or any Borrower
Partnership to acquire, any real Property unless the Borrower has received an
environmental toxic report indicating that there are no material environmental
toxic problems associated with such Property.



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<PAGE>   88
               8.16 Cash Flow. The cash flow of the Borrower, calculated as of
the last day of each quarter for the four-quarter period ending on such last
day, commencing June 30, 1998, shall be positive, before land acquisition costs,
land improvement and land development costs, interest, and all loan fees and
other costs payable by the Borrower hereunder.

               8.17 Consolidated Fixed Charge Coverage Ratio. The Consolidated
Fixed Charge Coverage Ratio of the Borrower, calculated as of the last day of
each quarter for the four-quarter period ending on such last day, commencing
June 30, 1998, will be at least 1.5:1.

                                    ARTICLE 9
                     INFORMATION AND REPORTING REQUIREMENTS

               9.1 Financial and Business Information. So long as any Revolving
Loan remains unpaid or Letter of Credit or Set-Aside Letter remains outstanding,
or any other Obligation remains unpaid or unperformed (other than any contingent
indemnity obligations under any of the Loan Documents) or any portion of the
Revolving Commitments remains outstanding, the Borrower shall, unless the
Majority Lenders otherwise consent in writing, deliver to the Agent and each
Lender, at the Borrower's sole expense:

                      (a) As soon as practicable, and in any event within 30
        days after the end of each fiscal month of the Borrower other than
        December and January, within 45 days after the end of each December, and
        within 36-days after the end of each January, (i) a consolidated balance
        sheet of Presley Delaware as at the end of such month, setting forth in
        comparative form the corresponding figures as at the end of the
        preceding month and (ii) a consolidated statement of operations of
        Presley Delaware for such month and for the portion of its fiscal year
        ended with such month, setting forth in comparative form the
        corresponding figures for the preceding month, all in reasonable detail.
        The preceding financial statements shall include, on a
        project-by-project basis, a breakdown of Real Estate Inventory costs. In
        addition, the preceding financial statements shall be certified by a
        Responsible Official of the Borrower as fairly presenting the financial
        condition and results of operations of Presley Delaware in accordance
        with GAAP, consistently applied as at such date and for such periods,
        subject only to normal year-end audit adjustments, provided that such
        financial statements need not contain all footnotes and disclosures
        required by generally accepted accounting principles;

                      (b) As soon as practicable, and in any event within 120
        days after the close of each fiscal year of the Borrower, (i) a
        consolidated balance sheet of Presley Delaware as at the end of such
        fiscal year, and (ii) a consolidated statement of operations and of
        changes in financial position of



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<PAGE>   89
        Presley Delaware for such fiscal year, all in reasonable detail. Such
        balance sheet and statements shall be prepared in accordance with GAAP,
        consistently applied and shall be accompanied by a report and opinion of
        Ernst & Young LLP or other independent public accountants of recognized
        standing selected by the Borrower and reasonably satisfactory to the
        Majority Lenders, which report and opinion shall be prepared in
        accordance with generally accepted auditing standards as at such date,
        and shall not be subject to any qualifications or limitations except as
        approved by the Majority Lenders, which approval shall not be
        unreasonably withheld. Such accountants' report and opinion shall be
        accompanied by a separate report stating that, during their examination
        of the financial statements of Presley Delaware, nothing came to the
        attention of such accountants that would give them knowledge of the
        existence of any Default hereunder, or, if, in the opinion of such
        accountants, any such Default shall exist, stating the nature and status
        of such Default, and setting forth the financial calculations under
        Section 8.17 as of the date of the balance sheet;

                      (c) As soon as practicable, and in any event within 60
        days after the end of each of the Borrower's second and fourth fiscal
        quarters, commencing June 30, 1998, a quarterly budget for the then
        started twelve month period, including, without limiting the generality
        of the foregoing, quarterly projected statements of operations of the
        Borrower and quarterly projected cash flow statements of the Borrower,
        all in reasonable detail;

                      (d) After the request of the Agent or any Lender, with
        respect to any or all projects of the Borrower as specifically
        requested, a detailed variance report that includes, without limitation,
        original and current estimates of budget costs, line item budget
        information, selling prices, gross margins, percentage of completion and
        estimated completion date, and a narrative explanation of indicated
        budget variances;

                      (e) As soon as practicable, and in any event within five
        Banking Days after the end of each week, a weekly sales report of the
        Borrower for the week most recently ended in form and substance
        reasonably satisfactory to the Majority Lenders;

                      (f) As soon as practicable, and in any event within 30
        days after the end of each quarter, a quarterly cash flow report of the
        Borrower for the quarter most recently ended;

                      (g) As soon as practicable, and in any event within 30
        days after the end of each fiscal month of the Borrower other than
        December and January, within 45 days after the end of each December, and
        within 36 days after the end of each January, a Borrowing Base
        Certificate for the Borrowing Base (together with supporting
        documentation and data) as of the last day of the immediately



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<PAGE>   90
        preceding month, duly executed by the Vice President/Controller, the
        Chief Financial Officer or the President of the Borrower;

                      (h) As soon as practicable, and in any event within 45
        days after the commencement of each fiscal quarter of the Borrower, a
        Certificate of Responsible Official (i) stating that the Borrower is in
        compliance with Section 7.14 (if applicable) and setting forth the
        amount of forward commitments from acceptable lending institutions
        maintained by the Borrower as at the beginning of such fiscal quarter of
        the Borrower and (ii) setting forth computations showing, in detail
        satisfactory to the Majority Lenders, whether the Borrower was in
        compliance with its obligations pursuant to Sections 8.16 and 8.17;

                      (i) Promptly after request by the Agent, copies of any
        detailed audit reports or recommendations submitted to the Borrower or
        any of its Subsidiaries by independent accountants in connection with
        the accounts or books of the Borrower or such Subsidiary or any audit of
        any of them;

                      (j) Promptly after request by the Agent, copies of any
        report or other document filed by the Borrower or any of its
        Subsidiaries with any Governmental Agency;

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

                      (l) Promptly (but in any event within five Banking Days)
        upon any of the President, the Chief Financial Officer, the Vice
        President/Finance, the Vice President/Controller or the General Counsel
        (or any officers holding similar positions) becoming aware of the
        existence of any condition or event which constitutes a Default, a
        written notice specifying the nature and period of existence thereof and
        what action the Borrower is taking or proposes to take with respect
        thereto;

                      (m) Promptly upon any corporate officer of the Borrower
        becoming aware that (i) any Person commenced a legal proceeding with
        respect to a claim against the Borrower or any of its Subsidiaries in
        excess of $1,000,000 not arising under a contract that is not fully
        covered by insurance or (ii) any creditor or lessor under a written
        credit agreement or material lease has asserted a default thereunder on
        the part of the Borrower or any of its Subsidiaries or (iii) any Person
        commenced a legal proceeding with respect to a claim against the



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<PAGE>   91
        Borrower or any of its Subsidiaries under a contract that is not a
        credit agreement or material lease in excess of $500,000 or which
        otherwise may reasonably be expected to result in a material adverse
        effect on the Borrower or such Subsidiary, a written notice describing
        the pertinent facts relating thereto and what action the Borrower or
        such Subsidiary is taking or proposes to take with respect thereto;

                      (n) Promptly (but in any event within five Banking Days)
        upon becoming aware of any strike or other material labor dispute or
        that work has ceased on any project of the Borrower or any of its
        Subsidiaries for more than thirty consecutive days, written notice of
        such strike or dispute or such cessation and of the pertinent facts
        relating thereto and what action the Borrower or such Subsidiary is
        taking or proposes to take with respect to the commencement of such
        work; and promptly (but in any event within ten days) upon becoming
        aware of the termination of employment of the President or any Senior
        Vice President of the Borrower (or any future officers of the Borrower
        who have substantially similar responsibilities as such officers),
        written notice of such termination and what action the Borrower is
        taking in response thereto;

                      (o) Promptly (but in any event within five Banking Days)
        upon becoming aware of any casualty loss affecting any Property of the
        Borrower or any of its Subsidiaries in excess of $500,000, or any other
        event that may have a material adverse effect on the financial condition
        or operations of the Borrower, written notice of the same and the
        pertinent facts relating thereto;

                      (p) Not later than ten Banking Days prior to the issuance
        of any Set-Aside Letter hereunder, a detailed budget for the
        improvements covered by such Set-Aside Letter; not later than seven
        Banking Days prior to the disbursement of any Revolving Loan the
        proceeds of which are intended, in part, to fund costs incurred in
        connection with the construction of such improvements, a detailed report
        regarding the status of the construction of such improvements; and not
        later than three Banking Days prior to the disbursement of any such
        Revolving Loan, a detailed summary of the costs incurred in connection
        with the construction of such improvements;

                      (q) [deleted];

                      (r) As soon as practicable, but in no event less than
        thirty Banking Days' written notice to the Agent of the Borrower's or
        any of its Subsidiaries' acquisition of any new Improved Land, Raw Land
        or Housing;

                      (s) Such other reports and information, on at least a
        monthly basis (or at such other intervals as the Agent may deem
        appropriate), as the



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        Agent may require to assist the Agent in its computation of the
        Borrowing Base; and

                      (t) Such other data and information as from time to time
        may be reasonably requested by the Agent or the Majority Lenders.

               9.2 Compliance Certificates. So long as any Revolving Loan
remains unpaid or any Letter of Credit or Set-Aside Letter remains outstanding,
or any other Obligation remains unpaid or unperformed (other than any contingent
indemnity obligations under any Loan Document) or any portion of the Revolving
Commitments remains outstanding, the Borrower shall, unless the Majority Lenders
otherwise consent in writing, deliver to each Lender, at the Borrower's sole
expense, not later than the date financial statements are required to be
delivered by the Borrower pursuant to Section 9.1(a), a Certificate of a
Responsible Official of the Borrower (a) stating that a review of the activities
of the Borrower during such fiscal period has been made under supervision of the
certifying Responsible Official with a view to determining whether during such
fiscal period the Borrower performed and observed all its respective Obligations
under the Loan Documents, and either (i) stating that, to the best knowledge of
the certifying Responsible Official, during such fiscal period, the Borrower
performed and observed each covenant and condition of the Loan Documents and
that no Default has occurred and is continuing or (ii) if the Borrower has not
performed and observed such covenants and conditions or if a Default exists and
is then continuing, specifying all such Defaults and their nature and status and
the actions the Borrower is taking or proposes to take with respect thereto; and
(b) stating that to the best knowledge of such Official the Properties of the
Borrower are being maintained and are in reasonable working order and condition,
ordinary wear and tear excepted.

                                   ARTICLE 10
                             CONDITIONS TO ADVANCES

               10.1 Any Increasing Advance or Issuance of Letter of Credit. In
addition to any applicable conditions precedent set forth elsewhere in this
Article 10, the obligation of each Lender to make any Revolving Advance that
would increase Total Outstandings, and the agreement of each Issuing Bank to
issue any Letter of Credit or Set-Aside Letter (and of the LC Bank to issue any
LC Guaranty), are subject to the following conditions precedent:

                      (a) The representations and warranties contained in
        Article 6, other than Sections 6.1(c), 6.1(e), 6.4 and 6.5, the last
        sentence of Section 6.6, and Sections 6.9, 6.12(a) and 6.20, shall be
        true and correct in all material respects, and shall be deemed made, on
        and as of the date of the Revolving Advance or issuance as though made
        on and as of that date; there shall be no actions, suits or proceedings
        pending against or affecting the Borrower, any of its Subsidiaries or
        Presley Delaware or any Property of the Borrower, any of its



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        Subsidiaries or Presley Delaware in any court of Law or before any
        Governmental Agency which might reasonably be expected to materially and
        adversely affect the business, operations or condition (financial or
        otherwise) of the Borrower; no material adverse change shall have
        occurred in the business, operations or condition (financial or
        otherwise) of the Borrower, since the Closing Date which, in the
        judgment of the Majority Lenders, is materially adverse to the interests
        of the Agent, the Lenders, the Issuing Banks or the LC Guarantor; no
        Default shall have occurred and be continuing; the Agent shall have
        timely received a properly completed Request for Loan, Request for
        Redesignation of Loans or Request for Letter of Credit, as the case may
        be, in compliance with all applicable provisions of Article 4; and the
        Agent and such Issuing Bank or the LC Guarantor, as the case may be,
        shall have received, dated as of the date of the Revolving Advance or
        redesignation or issuance, a Certificate of a Responsible Official of
        the Borrower to the effect that, to the best knowledge of the
        Responsible Official, all of the above conditions have been satisfied,
        with any material changes or exceptions thereto being described in a
        schedule attached to such certificate and with such changes or
        exceptions being subject to the approval of the Majority Lenders;

                      (b) the Agent shall have received from the Borrower a duly
        executed Borrowing Certificate and Request for Loan in accordance with
        Section 4.2(a), or in the case of the issuance of a Letter of Credit, a
        duly executed Request for Letter of Credit in accordance with Section
        4.6(b); and

                      (c) The Agent and such Issuing Bank or the LC Guarantor,
        as the case may be, shall have received, in form and substance
        satisfactory to the Agent and such Issuing Bank or the LC Guarantor, as
        the case may be, such other assurances, certificates, documents,
        consents or opinions as the Agent and such Issuing Bank or the LC
        Guarantor, as the case may be, reasonably may require.

               10.2 Any Advance. In addition to any applicable conditions
precedent set forth elsewhere in this Article 10, the obligation of each Lender
to make or redesignate any Revolving Advance is subject to the conditions
precedent that:

                      (a) the representations and warranties contained in
        Article 6, other than Sections 6.1(c), 6.1(e), 6.4 and 6.5, the last
        sentence of Section 6.6, and Sections 6.9, 6.12(a), 6.19 and 6.20 shall
        be true and correct in all material respects on and as of the date of
        such Revolving Advance as though made on and as of that date;

                      (b) there shall not have occurred any Default that is then
        continuing or will result from such Revolving Advance or redesignation;
        and



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                      (c) the Agent shall have received from the Borrower a duly
        executed Request for Loan in accordance with Section 4.2(a) or a Request
        for Redesignation of Loan in accordance with Section 4.5(c).

                                   ARTICLE 11
              EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT

               11.1 Events of Default. The existence or occurrence of any one or
more of the following events, whatever the reason therefor, shall constitute an
Event of Default:

                      (a) The Borrower (i) fails to pay any installment of
        principal or interest of any indebtedness on any of the Revolving Notes
        or any portion thereof, to pay the Unused Line Fee or letter of credit
        fee or to reimburse any Issuing Bank for any payment under any Letter of
        Credit or Set-Aside Letter (or the LC Guarantor for any payment under
        any LC Guaranty), or to pay any administrative fee due the Agent
        pursuant to Section 5.4, on or before the date when due or (ii) fails to
        pay any other fee or other amount due to the Agent, any Issuing Bank or
        any Lender under any Loan Document within thirty days after receipt of
        an invoice or statement for such fee or other amount by the Borrower; or

                      (b) Any material failure to comply with Section 9.1(1); or

                      (c) The Borrower or any other Party fails to perform or
        observe any other material term, covenant or agreement contained in any
        Loan Document on its part to be performed or observed within 20 days
        after the giving of notice by the Agent or the Majority Lenders of such
        Default, unless such failure is of such a nature that it is capable of
        cure and it cannot be cured within such 20-day period, and the Borrower
        commences action to cure such failure within such 20-day period and
        thereafter diligently and continuously prosecutes such action to
        completion within a reasonable period of time; or

                      (d) Any representation or warranty made in any Loan
        Document or in any certificate, agreement, instrument or other document
        made or delivered by any Party pursuant to or in connection with any
        Loan Document proves to have been incorrect when made in any respect
        that is materially adverse to the interests of the Agent, the Issuing
        Banks, the LC Guarantor or the Lenders; or

                      (e) The Borrower or any of its Subsidiaries or Presley
        Delaware (i) fails to pay the principal, or any principal installment,
        of any present or future indebtedness for borrowed money (other than the
        Revolving Loans) of $1,000,000 (or in the case of CMR, $5,000,000.00,
        provided, however, that such amount shall be the amount of indebtedness
        of CMR on the date hereof until the



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        earlier of July 31, 1998 or the date on which the holder of such
        indebtedness demands full payment thereof) or more, or any guaranty of
        present or future indebtedness for borrowed money of $1,000,000 (or in
        the case of CMR, $5,000,000.00, provided, however, that such amount
        shall be the amount of indebtedness of CMR on the date hereof until the
        earlier of July 31, 1998 or the date on which the holder of such
        indebtedness demands full payment thereof) or more, on its part to be
        paid, when due (or within any stated grace period), whether at the
        stated maturity, upon acceleration, by reason of required prepayment or
        otherwise, or (ii) fails to perform or observe any other term, covenant
        or agreement on its part to be performed or observed in connection with
        any present or future indebtedness for borrowed money (other than the
        Revolving Loans) of $1,000,000 (or in the case of CMR, $5,000,000.00,
        provided, however, that such amount shall be the amount of indebtedness
        of CMR on the date hereof until the earlier of July 31, 1998 or the date
        on which the holder of such indebtedness demands full payment thereof)
        or more, or of any guaranty of present or future indebtedness for
        borrowed money of $1,000,000 (or in the case of CMR, $5,000,000.00,
        provided, however, that such amount shall be the amount of indebtedness
        of CMR on the date hereof until the earlier of July 31, 1998 or the date
        on which the holder of such indebtedness demands full payment thereof)
        or more, if as a result of such failure to perform any holder or holders
        thereof (or an agent or trustee on its or their behalf) has declared
        such indebtedness due before the date on which it otherwise would become
        due; or


                      (f) Any Loan Document, at any time after its execution and
        delivery and for any reason other than the agreement of the Agent or the
        Lenders or the Issuing Banks (other than any Third Party Issuer) or the
        LC Guarantor, as applicable, or satisfaction in full of all the
        Obligations, ceases to be in full force and effect or is declared by a
        court of competent jurisdiction to be null and void, invalid or
        unenforceable in any respect which, in the reasonable opinion of the
        Majority Lenders, is materially adverse to the interests of the Lenders
        or such Issuing Banks or the LC Guarantor; or any Party thereto denies
        that it has any or further liability or obligation under any Loan
        Document, or purports to revoke, terminate or rescind same; or

                      (g) A final judgment against the Borrower or any of its
        Subsidiaries or Presley Delaware is entered for the payment of money in
        excess of $1,000,000 and such judgment remains unsatisfied without
        procurement of a stay of execution within thirty calendar days after the
        date of entry of judgment, or in any event later than five days prior to
        the date of any proposed sale thereunder; or any action, suit or
        proceeding under the Racketeer Influenced and Corrupt Organization Act
        of 1970, 18 U.S.C. Sections 1961-1968, or any other federal or
        state law for which forfeiture of a material amount of assets is a
        potential penalty shall be filed by any Governmental Agency against the
        Borrower or any



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        of its Subsidiaries or Presley Delaware and such action, suit or
        proceeding is not dismissed within 180 days after the filing thereof; or

                      (h) The Borrower or any of its Subsidiaries or Presley
        Delaware is the subject of an order for relief in a bankruptcy case, or
        is unable or admits in writing its inability to pay its debts as they
        mature, or makes a general assignment for the benefit of creditors; or
        applies for or consents to the appointment of any receiver, trustee,
        custodian, conservator, liquidator, rehabilitator or similar officer for
        it or for any substantial part of its Property; or any receiver,
        trustee, custodian, conservator, liquidator, rehabilitator or similar
        officer is appointed for any substantial part of its Property without
        the application or consent of the Borrower or any such Subsidiary or
        Presley Delaware, as applicable, and the appointment continues
        undischarged or unstayed for forty-five calendar days; or institutes or
        consents to any bankruptcy, insolvency, reorganization, arrangement,
        readjustment of debt, dissolution, custodianship, conservatorship,
        liquidation, rehabilitation or similar case or proceedings relating to
        it or to all or any part of its Property under the Laws of any
        jurisdiction; or any similar case or proceeding is instituted without
        the consent of the Borrower or any such Subsidiary or Presley Delaware,
        as applicable, and continues undismissed or unstayed for forty-five
        calendar days; or any judgment, writ, warrant of attachment or execution
        or similar process is issued or levied against all or any material part
        of the Property of the Borrower or any such Subsidiary or Presley
        Delaware and is not released, vacated or fully bonded within forty-five
        calendar days after its issue or levy; or

                      (i) Except as otherwise expressly permitted by any Loan
        Document or agreed to by the Agent or the Majority Lenders, any Lien
        created by any Collateral Document, at any time after that Collateral
        Document becomes effective and for any reason other than satisfaction in
        full of all Obligations, ceases or fails to constitute a valid,
        perfected and subsisting Lien on the Collateral purported to be covered
        thereby, unless such cessation or failure is solely the result of the
        conduct, or failure to take action, of the Agent or any Lender; or

                      (j) The Borrower or any of its Subsidiaries or Presley
        Delaware is dissolved or liquidated or all or substantially all of the
        assets of the Borrower or any of its Subsidiaries or Presley Delaware
        are sold or otherwise transferred without the written consent of the
        Majority Lenders other than any such dissolution or liquidation of any
        such Subsidiary, or any such sale of all or substantially all of such
        Subsidiary's assets, in the ordinary course of the Borrower's or such
        Subsidiary's business; or

                      (k) The Borrower or any of its Subsidiaries fails to
        perform any of its material obligations under any joint venture or
        partnership agreement and



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        such failure constitutes a default or an event of default under such
        joint venture or partnership agreement and, in the reasonable opinion of
        the Majority Lenders, will have a material adverse effect on the
        financial condition or operations of the Borrower, and the cure period,
        if any, under such joint venture or partnership agreement has elapsed;
        or

                      (l) There shall be a material adverse change in the
        financial condition or operations of the Borrower or Presley Delaware of
        which the Agent, at the direction of the Majority Lenders, gives ten
        days' written notice to the Borrower, and which, if curable, remains
        uncured thirty days after any such notice; or

                      (m) A Change of Control of the Borrower or Presley
        Delaware shall occur; or

                      (n) Any ERISA Event shall have occurred with respect to a
        Plan of the Borrower or any of its ERISA Affiliates and the sum
        (determined as of the date of occurrence of such ERISA Event) of the
        Insufficiency of such Plan and the Insufficiency of any and all other
        Plans of the Borrower and its ERISA Affiliates with respect to which an
        ERISA Event shall have occurred and then exist (or the liability of the
        Borrower and its ERISA Affiliates related to such ERISA Event) exceeds
        $1,000,000; or

                      (o) The Borrower or any of its ERISA Affiliates shall have
        been notified by the sponsor of a Multiemployer Plan of the Borrower or
        any of its ERISA Affiliates that it has incurred Withdrawal Liability to
        such Multiemployer Plan in an amount that, when aggregated with all
        other amounts required to be paid to Multiemployer Plans by the Borrower
        and its ERISA Affiliates as Withdrawal Liability (determined as of the
        date of such notification), exceeds $1,000,000 or requires payments
        exceeding $1,000,000 per annum; or

                      (p) The Borrower or any of its ERISA Affiliates shall have
        been notified by the sponsor of a Multiemployer Plan of the Borrower,
        the Company or any of their ERISA Affiliates that such Multiemployer
        Plan is in reorganization or is being terminated, within the meaning of
        Title IV of ERISA, and as a result of such reorganization or termination
        the aggregate annual contributions of the Borrower and its ERISA
        Affiliates to all Multiemployer Plans that are then in reorganization or
        being terminated have been or will be increased over the amounts
        contributed to such Multiemployer Plans for the plan years of such
        Multiemployer Plans immediately preceding the plan year in which such
        reorganization or termination occurs by an amount exceeding $1,000,000.

               11.2 Remedies Upon Event of Default. Without limiting any other
rights or remedies of the Agent, the Lenders, the Issuing Banks or the LC
Guarantor provided



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for elsewhere in this Agreement, or the Loan Documents, or by applicable Law, or
in equity, or otherwise (except to the extent that the exercise of any right or
remedy hereunder requires the action of the Majority Lenders or each of the
Lenders):

                      (a) Upon the occurrence and during the continuance of any
        Event of Default other than an Event of Default described in Section
        11.1(h):

                      (i) The commitments to make Revolving Advances and to
               issue Letters of Credit and all other obligations of the Agent,
               the Issuing Banks, the LC Guarantor or the Lenders and all rights
               of the Borrower and any other Parties under the Loan Documents
               shall terminate without notice to or demand upon the Borrower,
               which are expressly waived by the Borrower, except that, subject
               to paragraph (b) of Section 11.2, the Majority Lenders may waive
               the Event of Default or, without waiving, determine, upon terms
               and conditions satisfactory to the Majority Lenders, to reinstate
               the commitments and make further Revolving Advances and issue
               further Letters of Credit, which waiver shall apply equally to,
               and shall be binding upon, all the Lenders, the Issuing Banks and
               the LC Guarantor; and

                      (ii) The Majority Lenders may request the Agent to, and
               the Agent thereupon shall, declare all or any part of the unpaid
               principal of the Revolving Notes, all interest accrued and unpaid
               thereon and all other amounts payable under the Loan Documents to
               be forthwith due and payable, whereupon the same shall become and
               be forthwith due and payable, without protest, presentment,
               notice of dishonor, demand or further notice of any kind, all of
               which are expressly waived by the Borrower;

                      (b) Upon the occurrence of any Event of Default described
        in Section 11.1(h):

                      (i) The commitments to make Revolving Advances and to
               issue Letters of Credit and all other obligations of the Agent,
               the Issuing Banks, the LC Guarantor or the Lenders and all rights
               of the Borrower and any other Parties under the Loan Documents
               shall terminate without notice to or demand upon the Borrower,
               which are expressly waived by the Borrower, except that all
               Lenders may waive the Event of Default or, without waiving,
               determine, upon terms and conditions satisfactory to all Lenders,
               to make further Revolving Advances, which determination shall
               apply equally to and binding upon, all Lenders; and

                      (ii) The unpaid principal of the Revolving Notes, all
               interest accrued and unpaid thereon and all other amounts payable
               under the



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               Loan Documents shall be forthwith due and payable, without
               protest, presentment, notice of dishonor, demand or further
               notice of any kind, all of which are expressly waived by the
               Borrower.

                      (c) Upon the occurrence and during the continuance of any
        Event of Default, the Agent, the Lenders, the Issuing Banks (other than
        any Third Party Issuer) and the LC Guarantor, or any of them, without
        notice to or demand upon the Borrower, which are hereby expressly waived
        by the Borrower, may proceed (but only with the consent of the Majority
        Lenders) to protect, exercise and enforce their rights and remedies
        under the Loan Documents against the Borrower and such other rights and
        remedies as are provided by Law or equity, provided that no Lender,
        Issuing Bank or LC Guarantor shall exercise remedies on an individual
        basis without the prior written consent of the Majority Lenders.

                      (d) The order and manner in which the Lenders', the
        Issuing Banks' (other than any Third Party Issuer) and the LC
        Guarantor's rights and remedies are to be exercised shall be determined
        by the Majority Lenders in their sole discretion, and all payments
        received by the Agent and the Lenders, such Issuing Banks and the LC
        Guarantor shall be applied first to the costs and expenses (including
        attorneys' fees and disbursements) of the Agent, acting as Agent, and of
        the Lenders, such Issuing Banks and the LC Guarantor, and thereafter
        paid pro rata to the Lenders, such Issuing Banks and the LC Guarantor in
        the same proportions that the aggregate Obligations owed to each Lender,
        each such Issuing Bank and the LC Guarantor under the Loan Documents
        bear to the aggregate Obligations owed under the Loan Documents to all
        of the Lenders, such Issuing Banks and the LC Guarantor, without
        priority or preference among Lenders, such Issuing Banks and the LC
        Guarantor, except as otherwise provided in Section 5.10(b). Regardless
        of how each Lender, each such Issuing Bank and the LC Guarantor may
        treat payments for the purpose of its own accounting, for the purpose of
        computing the Borrower's Obligations hereunder, under the Revolving
        Notes, and under the Letters of Credit, payments shall be applied,
        first, to the costs and expenses of the Agent, acting as the Agent, and
        the Lenders, such Issuing Banks and the LC Guarantor, as set forth
        above, second, to the payment of accrued and unpaid interest due under
        any Loan Documents to and including the date of such application
        (ratably, and without duplication, according to the accrued and unpaid
        interest due under each of the Loan Documents), third, to the ratable
        payment of all unpaid principal amounts due under any Loan Documents
        (including, for the purposes hereof, principal due under the Revolving
        Notes and reimbursement due for payments made under Letters of Credit),
        and fourth, to the ratable payment of all other amounts (including fees)
        then owing to the Agent or the Lenders, such Issuing Banks or the LC
        Guarantor under the Loan Documents. No application of payments will cure
        any Event of Default, or prevent acceleration, or continued
        acceleration, of amounts payable under the Loan Documents, or prevent
        the



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        exercise, or continued exercise, of rights or remedies of the Lenders
        hereunder or thereunder or at Law or in equity.

                      (e) Upon the occurrence of any event that would be an
        Event of Default under Section 11.1(h) with the passage of time, the
        Agent or the Lenders, the Issuing Banks (other than any Third Party
        Issuer) or the LC Guarantor may take such action as the Majority Lenders
        deem necessary to protect the interests of the Lenders, such Issuing
        Banks and the LC Guarantor under the Loan Documents.

                                   ARTICLE 12
                                    THE AGENT

               12.1 Appointment and Authorization. Each Lender, each Issuing
Bank (other than any Third Party Issuer) and the LC Guarantor each hereby
irrevocably appoints Foothill as Agent, and designates and authorizes the Agent
to take such action on its behalf under the provisions of this Agreement and
each other Loan Document and to exercise such powers and perform such duties as
are expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Lender, any
Issuing Bank or the LC Guarantor, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.

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

               12.3 Liability of Agent. None of the Agent-Related Persons shall
(i) be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document (except for its
own gross negligence or willful misconduct), or (ii) be responsible in any
manner to any of the Lenders, any Issuing Bank or the LC Guarantor for any
recital, statement, representation or warranty made by the Borrower or any
Subsidiary or Affiliate of the Borrower, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
for the value of any Collateral or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any



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failure of the Borrower or any other party to any Loan Document to perform its
obligations hereunder or thereunder. No Agent-Related Person shall be under any
obligation to any Lender, any Issuing Bank or the LC Guarantor to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the Properties, books or records of the Borrower or any of the
Borrower's Subsidiaries or Affiliates. The Agent may treat the payee of any
Revolving Note as the holder thereof until the Agent receives and accepts an
Assignment and Acceptance entered into by such payee, as assignor, and an
Assignee as provided in Section 13.7.

               12.4 Reliance by Agent.

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

                      (b) For purposes of determining compliance with the
        conditions specified in Sections 2.1, 10.1 and 10.2, each Lender that
        has executed this Agreement or an Assignment and Acceptance pursuant to
        which it became a Lender shall be deemed to have consented to, approved
        or accepted or to be satisfied with each document or other matter either
        sent by the Agent to such Lender for consent, approval, acceptance or
        satisfaction, or required thereunder to be consented to or approved by
        or acceptable or satisfactory to such Lender, unless an officer of the
        Agent responsible for the transactions contemplated by the Loan
        Documents shall have received notice from such Lender prior to the
        Closing Date specifying its objection thereto and such objection shall
        not have been withdrawn by notice to the Agent to that effect.

               12.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default, except in the case of the
Agent



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with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders, the Issuing Banks or the
LC Guarantor, unless the Agent shall have received written notice from a Lender,
an Issuing Bank, the LC Guarantor or the Borrower referring to this Agreement,
describing such Default and stating that such notice is a "notice of default" or
otherwise shall have actual knowledge of such default. In the event that the
Agent receives such a notice, the Agent shall give notice thereof to the
Lenders. The Agent shall take such action with respect to such Default as shall
be requested by the Majority Lenders in accordance with Article 11; provided,
however, that unless the Agent is expressly required to act or refrain from
acting under the terms of any Loan Documents, or unless and until the Agent
shall have received any such request, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable or in the best interest of the Lenders.

               12.6 Credit Decision. Without altering or waiving any of the
Agent's obligations under this Agreement, each Lender expressly acknowledges
that none of the Agent-Related Persons has made any representation or warranty
to such Lender regarding the business, prospects, operations, property,
financial or other conditions of the Borrower or Presley Delaware and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Borrower and its Subsidiaries, shall be deemed to constitute any such
representation or warranty by the Agent to any Lender, any Issuing Bank or the
LC Guarantor. Each Lender represents to the Agent that it has, independently and
without reliance upon the Agent and based on such documents and information as
it has deemed appropriate, made its own credit analysis of and investigation
into the business, prospects, operations, property, financial and other
condition and creditworthiness of the Borrower and its Subsidiaries, and all
applicable bank regulatory laws relating to the transactions contemplated
thereby, and made its own decision to enter into this Agreement and extend
credit to the Borrower hereunder. Each Lender also represents that it will,
independently and without reliance upon the Agent and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigations as it
deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrower.
Except for notices, reports and other documents expressly herein required to be
furnished to the Lenders by the Agent, the Agent shall not have any duty or
responsibility to provide any Lender, any Issuing Bank or the LC Guarantor with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of the Borrower
which may come into the possession of any of the Agent-Related Persons.

               12.7 Indemnification. Whether or not the transactions
contemplated hereby shall be consummated, the Lenders shall indemnify upon
demand the Agent-Related Persons (to the extent not reimbursed by or on behalf
of the Borrower and



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without limiting the obligation of the Borrower to do so), ratably from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind
whatsoever which may at any time (including at any time following the repayment
of the Revolving Loans and the termination or resignation of the Agent) be
imposed on, incurred by or asserted against any such Person in any way relating
to or arising out of this Agreement or any document contemplated by or referred
to herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by any such Person under or in connection with any of
the foregoing; provided, however, that no Lender shall be liable for the payment
to the Agent-Related Persons of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, and subject to the proviso to
the immediately preceding sentence, each Lender shall reimburse the Agent upon
demand for its ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Loan Document, or any document contemplated by or referred to herein to the
extent that the Agent, is not reimbursed for such expenses by or on behalf of
the Borrower. Without limiting the generality of the foregoing, if the Internal
Revenue Service or any other Governmental Agency of the United States or other
jurisdiction asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (whether as Lender or Issuing
Bank) (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify the Agent of a change in
circumstances which rendered the exception from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify the Agent
fully for all amounts paid, directly or indirectly, by the Agent as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to the Agent under this Section 12.7,
together with all costs and expenses (including Attorney Costs). The obligation
of the Lenders in this Section 12.7 shall survive the payment of all Obligations
hereunder.

               12.8 Agent and Other Lenders in Individual Capacity. The Agent
and each other Lender and their respective Affiliates may make loans to, issue
letters of credit for the account of, accept deposits from, acquire equity
interests in and generally engage in any kind of banking, trust, financial
advisory or other business with the Borrower and its Subsidiaries and Affiliates
as though Foothill were not the Agent hereunder and without notice to or consent
of the Lenders. With respect to its Loans, Foothill shall have the same rights
and powers under this Agreement as any other Lender and may exercise the same as
though it were not the Agent, and the terms "Lender" and "Lenders" shall include
Foothill in its individual capacity.



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               12.9 Successor Agent. The Agent may, and at the request of the
Majority Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If
the Agent shall resign as Agent under this Agreement, the Majority Lenders shall
appoint from among the Lenders a successor agent for the Lenders, the Issuing
Banks (other than any Third Party Issuer) and the LC Guarantor. If no successor
agent is appointed prior to the effective date of the resignation of the Agent,
the Agent may appoint, after consulting with the Lenders and the Borrower, a
successor agent from among the Lenders. Upon the acceptance of its appointment
as successor agent hereunder, such successor agent shall succeed to all the
rights, powers and duties of the retiring Agent and the term "Agent" shall mean
such successor agent and the retiring Agent's appointment, powers and duties as
Agent shall be terminated. After any retiring Agent's resignation hereunder, the
provisions of this Article 12 and Sections 13.3 and 13.9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor agent has accepted appointment as Agent by
the date which is 30 days following a retiring Agent's notice of resignation,
the retiring Agent's resignation shall nevertheless thereupon become effective
and the Lenders shall perform all of the duties of the Agent hereunder until
such time, if any, as the Majority Lenders appoint a successor agent as provided
for above, provided that either (i) the Agent shall have delivered to each of
the Lenders an opinion of counsel to the Agent (who shall be reasonably
acceptable to the Majority Lenders) addressed to the Lenders to the effect that
a potential conflict of interest exists for the Agent which will expose the
Agent to potential liability to the Lenders or other parties if it continues to
act as Agent under this Agreement and the other Loan Documents or (ii) the Agent
in its capacity as a Lender hereunder, shall have reduced its Revolving Advances
and Revolving Commitments hereunder, through assignments consummated in
accordance with the terms of Section 13.7, to less than 10% of the aggregate
Revolving Advances and Revolving Commitments then outstanding, or shall have
sold participations in accordance with the terms of Section 13.7 in more than
90% of its Revolving Advances and Revolving Commitments hereunder.

               12.10 Collateral Matters.

                      (a) The Agent is authorized on behalf of all the Lenders,
        the Issuing Banks (other than any Third Party Issuer) and the LC
        Guarantor, without the necessity of any notice to or further consent
        from the Lenders, such Issuing Banks or the LC Guarantor, from time to
        time to take any action with respect to any Collateral or the Collateral
        Documents which may be necessary to perfect and maintain perfected the
        security interest in and Liens upon the Collateral granted pursuant to
        the Collateral Documents.

                      (b) The Lenders, such Issuing Banks and the LC Guarantor
        irrevocably authorize the Agent to, and the Agent will, release any Lien
        granted to or held by the Agent upon any Collateral:



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                      (i) upon termination of the Revolving Commitments and
               payment in full of all Revolving Loans and all other Obligations
               payable under this Agreement and under any other Loan Document
               (other than any contingent indemnity obligations under any Loan
               Document);

                      (ii) in connection with the sale of such Collateral by the
               Borrower permitted under this Agreement, in each case subject to
               the following terms and conditions:

                             (1) if the Agent, acting at the direction of the
               Majority Lenders, so requires, the Borrower shall have delivered
               to the Agent such evidence as the Agent may request to the effect
               that such reconveyance, and the portions of the Property that
               will remain encumbered by any Collateral Document after giving
               effect to such reconveyance, comply in all material respects with
               all Laws;

                             (2) if the Agent, acting at the direction of the
               Majority Lenders, so requires, the Borrower shall have delivered
               to the Agent evidence that the portions of the Property that will
               remain encumbered by any Collateral Document after giving effect
               to such reconveyance will be taxed as one or more separate tax
               parcels, or, if the Borrower is unable to deliver such evidence,
               the Borrower shall protect, defend, indemnify and hold harmless
               the Agent, the Lenders, such Issuing Banks and the LC Guarantor
               from and against any loss, cost, expense, damage or liability
               (including, without limitation, reasonable attorneys' fees) the
               Agent and/or the Lenders and/or such Issuing Banks and/or the LC
               Guarantor may incur or sustain by reason of the portions of the
               Property that will remain encumbered by such Collateral Documents
               after giving effect to such reconveyance not being taxed as one
               or more separate tax parcels;

                             (3) if the Agent, acting at the direction of the
               Majority Lenders, so requires, the Borrower shall have delivered
               to the Agent, at no expense to the Agent, the Lenders, such
               Issuing Banks or the LC Guarantor, a CLTA 111 or other
               satisfactory endorsement to each title insurance policy insuring
               the Lien in favor of the Lenders, such Issuing Banks and the LC
               Guarantor from which a portion of the Property is to be
               reconveyed, insuring the Agent, for the benefit of the Lenders,
               such Issuing Banks and the LC Guarantor, that (x) such
               reconveyance shall not affect, impair or limit the obligations of
               the issuer of such policy, and (y) such Lien shall continue to be
               a first priority Lien (other than Liens permitted under
               paragraphs (a), (c), (d), (j), (o) and (p) of Section 8.8) upon
               the portion of the Property that will remain encumbered by such
               Lien after giving effect to such reconveyance;



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                             (4) the Borrower shall have paid to the Agent all
               expenses, including, without limitation, all reasonable
               attorneys' fees, title insurance premiums, escrow fees, closing
               fees and recording charges, incurred by the Agent or the Lenders
               or such Issuing Banks or the LC Guarantor in connection with such
               reconveyance;

                             (5) no Event of Default, in the case of any sale by
               the Borrower of a unit of Housing in the ordinary course of its
               business, or Default, in the case of any other sale, shall then
               exist or shall result from such sale; and

                             (6) if the Agent, acting at the direction of the
               Majority Lenders, so requires in the case of any such Collateral
               with a fair market value in excess of $1,000,000, the Borrower
               shall have delivered to the Agent a calculation of the components
               and reserves of the Borrowing Base giving effect to such sale;

                      (iii) constituting Property in which the Borrower or any
               Subsidiary of the Borrower owned no interest at the time the Lien
               was granted or at any time thereafter;

                      (iv) constituting Property leased to the Borrower or any
               Subsidiary of the Borrower under a lease which has expired or
               been terminated in a transaction permitted under this Agreement
               or is about to expire and which has not been, and is not intended
               by the Borrower or such Subsidiary to be, renewed or extended;

                      (v) consisting of an instrument evidencing debt, if the
               indebtedness evidenced thereby has been paid in full; or

                      (vi) if approved, authorized or ratified in writing by the
               Majority Lenders or all the Lenders (other than any Defaulting
               Lender), as the case may be, as provided in Section 13.2.

Upon request by the Agent at any time, the Lenders, such Issuing Banks and the
LC Guarantor will confirm in writing the Agent's authority to release particular
types of items of Collateral pursuant to this subsection 12.10(b).



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                                   ARTICLE 13
                                  MISCELLANEOUS

               13.1 Cumulative Remedies; No Waiver. The rights, powers,
privileges and remedies of the Agent, the Issuing Banks, the LC Guarantor and
the Lenders provided herein or in any Revolving Note or other Loan Document are
cumulative and not exclusive of any right, power, privilege or remedy provided
by Law or equity. No failure or delay on the part of the Agent, any Issuing
Bank, the LC Guarantor or any Lender in exercising any right, power, privilege
or remedy may be, or may be deemed to be, a waiver thereof; nor may any single
or partial exercise of any right, power, privilege or remedy preclude any other
or further exercise of the same or any other right, power, privilege or remedy.
The terms and conditions of Article 10 hereof are inserted for the sole benefit
of the Agent, the Issuing Banks, the LC Guarantor and the Lenders and the Agent
(acting with the consent of the Majority Lenders) or the Majority Lenders,
acting pursuant to the terms of this Agreement, and subject to Section 13.2
below, may waive them in whole or in part, with or without terms or conditions,
in respect of any Revolving Loan or Letter of Credit without prejudicing the
Agent's, the Issuing Banks', the LC Guarantor's and the Lenders' rights to
assert them in whole or in part in respect of any other Revolving Loan or Letter
of Credit.

               13.2 Amendments; Consents. No amendment, modification,
supplement, extension, termination or waiver of any provision of this Agreement
or any other Loan Document, no approval or consent thereunder, and no consent to
any departure by the Borrower or any other Party therefrom, may in any event be
effective unless in writing signed by the Agent with the approval in writing of
the Majority Lenders (and, in the case of amendments, modifications or
supplements of or to any Loan Document to which the Borrower is a Party, the
approval in writing of the Borrower), and then only in the specific instance and
for the specific purpose given; provided, however, that (a) no amendment, waiver
or consent shall, unless in writing and signed by all the Lenders (other than
any Lender which is, at such time, a Defaulting Lender), do any of the following
at any time: (i) change the percentage of the Revolving Commitments or of the
aggregate unpaid principal amount of the Revolving Notes, or the number of
Lenders, that shall be required for the Lenders or any of them to take any
action hereunder or under any other Loan Document, (ii) permit the creation,
incurrence, assumption or existence of any Lien on any item of Collateral to
secure any obligations other than Obligations owing to the Lenders, the Issuing
Banks (other than any Third Party Issuer), the LC Guarantor and the Agent under
the Loan Documents and other than indebtedness owing to any other Person,
provided that, in the case of any Lien on any item of Collateral to secure
indebtedness owing to any other Person, the Majority Lenders shall otherwise
permit the creation, incurrence, assumption or existence of such Lien and, to
the extent not otherwise permitted under Section 8.8, of such indebtedness, or
(iii) amend this Section 13.2, and (b) no amendment, waiver or consent shall,
unless in writing and signed by the Majority Lenders and each Lender affected by
such amendment, waiver or consent, (i) increase the Revolving



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Commitments of such Lender or subject such Lender to any additional obligations,
(ii) reduce the principal of, or interest on, the Revolving Notes held by such
Lender or any fees or other amounts payable hereunder or under any other Loan
Document to such Lender, (iii) postpone any date fixed for any payment of
principal of, or interest on, the Revolving Notes held by such Lender or any
fees or other amounts payable hereunder or under any other Loan Document to such
Lender, or (iv) change the order of application or amount of any prepayment set
forth in Section 5.2 in any manner that materially adversely affects such
Lender; provided further that no amendment, waiver or consent shall, unless in
writing and signed by each affected Issuing Bank or the LC Guarantor in addition
to the Lenders required above to take such action, affect the rights or
obligations of such Issuing Bank or the LC Guarantor, as the case may be, under
this Agreement or any other Loan Document; and provided further that no
amendment, waiver or consent shall, unless in writing and signed by the Agent in
addition to the Lenders required above to take such action, affect the rights or
duties of the Agent under this Agreement or any Revolving Note or other Loan
Document. Any amendment, modification, supplement, termination, waiver or
consent pursuant to this Section 13.2 shall apply equally to, and shall be
binding upon, all of the Lenders, the Issuing Banks, the LC Guarantor and the
Agent. Nothing contained in this Section 13.2 shall prohibit or prevent the
Majority Lenders from agreeing with the Borrower to forbear in the exercise of
remedies on account of any Default.

               13.3 Costs, Expenses and Taxes. The Borrower shall pay on demand
the reasonable costs and expenses of the Agent and the Lenders in connection
with the negotiation, preparation, execution, delivery and administration (to
the extent of the reasonable fees and out-of-pocket expenses of legal counsel to
the Lenders), of the Loan Documents (including, without limitation, the
Collateral Documents), and of the Agent, any Issuing Bank (other than any Third
Party Issuer), the LC Guarantor and the Lenders in connection with the
amendment, waiver, refinancing, restructuring, reorganization (including a
bankruptcy reorganization) and, in the case of a Default, enforcement or
attempted enforcement of the Loan Documents, and any matter related thereto,
including, without limitation, filing fees, recording fees, title insurance
fees, appraisal fees, search fees and other out-of-pocket expenses of the Agent,
any Issuing Bank (other than any Third Party Issuer), the LC Guarantor or any
Lender and the reasonable fees and out-of-pocket expenses of any legal counsel,
independent public accountants and other outside experts retained by the Agent,
any such Issuing Bank, the LC Guarantor or any Lender, and including, without
limitation, any costs, expenses or fees incurred or suffered by the Agent, any
such Issuing Bank, the LC Guarantor or any Lender in connection with or during
the course of any bankruptcy or insolvency proceedings of the Borrower or any
Affiliate of the Borrower; provided, however, that the Borrower shall not be
obligated to pay any legal fees and expenses in connection with the negotiation,
preparation, execution and delivery of the Loan Documents other than the fees
and expenses of Kaye, Scholer, Fierman, Hays & Handler, LLP, as counsel to the
Agent. The Borrower shall, subject to the limitations set forth in Section 13.7
of this Agreement, pay any and all documentary and other taxes (other



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than income, gross receipts or net worth taxes, or any tax imposed in lieu of
such income, gross receipts or net worth taxes, applicable to the Agent, any
Issuing Bank (other than any Third Party Issuer), the LC Guarantor or any Lender
or any participant of the Agent or any Lender) and all costs, expenses, fees and
charges payable or determined to be payable in connection with the filing or
recording of this Agreement, any other Loan Document or any other instrument or
writing to be delivered hereunder or thereunder, or in connection with any
transaction pursuant hereto or thereto, and shall reimburse, hold harmless and
indemnify the Agent, each such Issuing Bank, the LC Guarantor and each Lender
from and against any and all loss, liability or legal or other expense with
respect to or resulting from any delay in paying or failure to pay any tax,
cost, expense, fee or charge that the Agent, any Issuing Bank, the LC Guarantor
or any Lender may suffer or incur by reason of the failure of any Party to
perform any of its Obligations. Any amount payable to the Agent, any Issuing
Bank, the LC Guarantor or any Lender under this Section 13.3 shall bear interest
from the second Banking Day following the date of demand for payment at the rate
provided for in clause (ii) of Section 5.7. Despite the foregoing, in no event
shall the Borrower be obligated to pay any costs, fees or expenses incurred by
the Agent or any Lender solely by reason of the Agent's or such Lender's selling
a participation interest in its rights and obligations hereunder or assigning
any of its rights hereunder except to the extent set forth in Section 13.7(d).

               13.4 Survival of Representations and Warranties. All
representations and warranties contained herein or in any other Loan Document,
or in any certificate or other writing delivered by or on behalf of any one or
more of the Parties to any Loan Document, will survive the making and repayment
of the Revolving Loans hereunder and the execution and delivery of the Revolving
Notes, and have been or will be relied upon by the Agent, each Issuing Bank
(other than any Third Party Issuer), the LC Guarantor and each Lender
notwithstanding any investigation made by the Agent, any such Issuing Bank, the
LC Guarantor or any Lender.

               13.5 Notices. Except as otherwise expressly provided in the Loan
Documents: (a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must be
in writing and must be mailed, telegraphed, telecopied, delivered or sent by
telex or cable to the appropriate party at the address set forth on the
signature pages of this Agreement or other applicable Loan Document or, in the
case of any Lender not a party to this Agreement on the Closing Date, the
Assignment and Acceptance pursuant to which it became a Lender or, as to any
party to any Loan Document, at any other address (other than a post office box)
as may be designated by it in a written notice sent to all other parties to such
Loan Document in accordance with this Section; and (b) Any notice, request,
demand, direction or other communication given by telegram, telecopier, telex or
cable must be confirmed within 48 hours by letter mailed or delivered to the
appropriate party at its respective address. Except as otherwise expressly
provided in any Loan Document, if any notice, request, demand, direction or



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other communication required or permitted by any Loan Document is given by mail
it will be effective on the earlier of receipt or the third Banking Day after
deposit in the United States mail with first class or airmail postage prepaid;
if given by telegraph or cable, when delivered to the telegraph company with
charges prepaid; if given by telex or telecopier, when sent; or if given by
personal delivery, when delivered.

               13.6 Execution of Loan Documents. Unless the Agent otherwise
specifies with respect to any Loan Document, this Agreement and any other Loan
Document may be executed in any number of counterparts and any party hereto or
thereto may execute any counterpart, each of which when executed and delivered
will be deemed to be an original and all of which counterparts of this Agreement
or any other Loan Document, as the case may be, when taken together will be
deemed to be but one and the same instrument. The execution of this Agreement or
any other Loan Document by any party hereto or thereto will not become effective
until counterparts hereof or thereof, as the case may be, have been executed by
all the parties hereto or thereto.

               13.7 Binding Effect; Assignment.

                      (a) This Agreement and the other Loan Documents shall be
        binding upon and shall inure to the benefit of the parties hereto and
        thereto and their respective successors and assigns, provided that the
        Borrower may not assign its rights nor delegate its duties hereunder or
        thereunder without the prior written consent of all of the Lenders. Each
        Lender may assign to one or more banks or other entities all or a
        portion of its rights and obligations under this Agreement and the other
        Loan Documents (including, without limitation, all or a portion of its
        Revolving Commitments, the Revolving Advances owing to it and the
        Revolving Note held by it); provided, however, that (i) each such
        assignment shall be of a uniform, and not a varying, percentage of all
        rights and obligations under and in respect of the Revolving Facility,
        (ii) except in the case of an assignment of all of the assigning
        Lender's rights and obligations with respect to its Revolving
        Commitments and the related Revolving Advances, the amount of the
        Revolving Commitment of such Lender (and the Revolving Advances) being
        assigned pursuant to each such assignment (determined as of the date of
        the Assignment and Acceptance with respect to such assignment) shall be
        an integral multiple of $5,000,000 and, shall in no event be less than
        $10,000,000, (iii) the parties to each such assignment shall execute and
        deliver to the Agent, for its acceptance and recording in the Register,
        an Assignment and Acceptance, together with any Revolving Note subject
        to such assignment and a processing and recordation fee of $2,000, and
        the Assignee thereunder shall deliver to the Agent such forms,
        certifications, statements and other documents as the Agent may
        reasonably request from time to time to evidence such Assignee's
        exemption from the withholding of any tax imposed by any jurisdiction or
        to enable the Agent to comply with any applicable laws or regulations
        relating



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        thereto, and (iv) each such assignment shall be to an Eligible Assignee.
        Upon such execution, delivery, acceptance and recording, from and after
        the effective date specified in such Assignment and Acceptance, (x) the
        Assignee thereunder shall be a party hereto and, to the extent that
        rights and obligations hereunder have been assigned to it pursuant to
        such Assignment and Acceptance, have the rights and obligations of a
        Lender hereunder and under the other Loan Documents and (y) the Lender
        assignor thereunder shall, to the extent that rights and obligations
        hereunder and under the other Loan Documents have been assigned by it
        pursuant to such Assignment and Acceptance (and except as otherwise
        contemplated in clause (f) of the definition of the term "Eligible
        Assignee"), relinquish its rights and be released from its obligations
        under this Agreement and the other Loan Documents (and, in the case of
        an Assignment and Acceptance covering all or the remaining portion of an
        assigning Lender's rights and obligations under this Agreement, such
        Lender shall cease to be a party hereto). In the event any Lender does
        make a sale, assignment, pledge or transfer, the Borrower shall not be
        responsible for any increase in taxes that may arise by reason of such
        sale, assignment, pledge or transfer.

                      (b) By executing and delivering an Assignment and
        Acceptance, the Lender assignor thereunder and the Assignee thereunder
        confirm to and agree with each other and the other parties hereto as
        follows: (i) other than as provided in such Assignment and Acceptance,
        such assigning Lender makes no representation or warranty and assumes no
        responsibility with respect to any statements, warranties or
        representations made in or in connection with this Agreement, any other
        Loan Document or any other instrument or document furnished pursuant
        hereto or the execution, legality, validity, enforceability,
        genuineness, sufficiency or value of this Agreement, any other Loan
        Document or any other instrument or document furnished pursuant hereto;
        (ii) such assigning Lender makes no representation or warranty and
        assumes no responsibility with respect to the financial condition of any
        Party or the performance or observance by any Party of any of its
        obligations under this Agreement, any other Loan Document or any other
        instrument or document furnished pursuant hereto; (iii) such Assignee
        confirms that it has received a copy of this Agreement, together with
        copies of the financial statements referred to in Section 6.4 and such
        other documents and information as it has deemed appropriate to make its
        own credit analysis and decision to enter into such Assignment and
        Acceptance; (iv) such Assignee will, independently and without reliance
        upon the Agent, such assigning Lender or any other Lender or Issuing
        Bank and based on such documents and information as it shall deem
        appropriate at the time, continue to make its own credit decisions in
        taking or not taking action under this Agreement and the other Loan
        Documents; (v) such assignee confirms that it is an Eligible Assignee;
        (vi) such Assignee appoints and authorizes the Agent to take such action
        as agent on its behalf and to exercise such powers and discretion under
        this Agreement and the other Loan



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        Documents as are delegated to the Agent by the terms hereof and thereof,
        respectively, together with such powers and discretion as are reasonably
        incidental thereto; and (vii) such Assignee agrees that it will perform
        in accordance with their terms all of the obligations that by the terms
        of this Agreement or any other Loan Document are required to be
        performed by it as a Lender.

                      (c) The Agent shall maintain at the Agent's Office a copy
        of each Assignment and Acceptance delivered to and accepted by it and a
        register for the recordation of the names and addresses of the Lenders
        and the Revolving Commitment of, and principal amount of the Revolving
        Advances owing to, each Lender from time to time (the "Register"). The
        entries in the Register shall be conclusive and binding for all
        purposes, absent manifest error, and the Borrower, the Agent and the
        Lenders may treat each Person whose name is recorded in the Register as
        a Lender hereunder for all purposes of this Agreement and the other Loan
        Documents. The Register shall be available for inspection by the
        Borrower or any Lender at any reasonable time and from time to time upon
        reasonable prior notice.

                      (d) Upon its receipt of an Assignment and Acceptance
        executed by an assigning Lender and an Assignee, together with any
        Revolving Note subject to such assignment, the Agent shall, if such
        Assignment and Acceptance has been completed and is in substantially the
        form of Exhibit A hereto, (i) accept such Assignment and Acceptance,
        (ii) record the information contained therein in the Register and (iii)
        give prompt notice thereof to the Borrower. Within five Business Days
        after its receipt of such notice, the Borrower, at its own expense,
        shall execute and deliver to the Agent in exchange for the surrendered
        Revolving Note a new Revolving Note to the order of such Assignee in an
        amount equal to the Revolving Commitment assumed by it pursuant to such
        Assignment and Acceptance and, if the assigning Lender has retained a
        Revolving Commitment, hereunder, a new Revolving Note to the order of
        the assigning Lender in an amount equal to the Revolving Commitment
        retained by it hereunder. Such new Revolving Note or Notes shall be in
        an aggregate principal amount equal to the aggregate principal amount of
        such surrendered Note or Notes, shall be dated the effective date of
        such Assignment and Acceptance and shall otherwise be in substantially
        the form of the applicable Revolving Notes delivered pursuant to Section
        2.1 hereof.

                      (e) Each Lender may sell participations in or to all or a
        portion of its rights and obligations under this Agreement and the other
        Loan Documents (including, without limitation, all or a portion of its
        Revolving Commitments, the Revolving Advances owing to it and the
        Revolving Note held by it); provided, however, that (i) such Lender's
        obligations under this Agreement and the other Loan Documents
        (including, without limitation, its Revolving Commitment) shall



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        remain unchanged, (ii) such Lender shall remain solely responsible to
        the other parties hereto for the performance of such obligations, (iii)
        such Lender shall remain the holder of any such Revolving Note for all
        purposes of this Agreement, (iv) the Parties, the Agent and the other
        Lenders shall continue to deal solely and directly with such Lender in
        connection with such Lender's rights and obligations under this
        Agreement and the other Loan Documents and (v) no participant under any
        such participation shall have any right to approve any amendment,
        modification, supplementation, termination or waiver of this Agreement
        or any other provision of any Loan Document, or any consent to any
        departure by any Party therefrom, except to the extent that such
        amendment, modification, supplementation, termination, waiver or consent
        is described in the first or second proviso to Section 13.2, in each
        case to the extent subject to such participation.

                      (f) Any Lender may, in connection with any assignment
        participation or proposed assignment or participation pursuant to this
        Section 13.7, disclose to the assignee or participant or proposed
        assignee or participant, any information relating to the Parties
        furnished to such Lender by or on behalf of any Party, subject, however,
        to the requirements of Section 13.12.

                      (g) Notwithstanding any other provision set forth in this
        agreement or any other Loan Document, any Lender may at any time create
        a security interest in all or any portion of its rights under this
        Agreement and the other Loan Documents (including, without limitation,
        the Revolving Advances owing to it and the Revolving Note held by it) in
        favor of any Federal Reserve Bank in accordance with Regulation A of the
        Board of Governors of the Federal Reserve System.

               13.8 Lien on Deposits and Property in Possession of any Lender.
As security for the prompt payment and performance of all Obligations, the
Borrower hereby grants to the Agent, the Lenders, the Issuing Banks (other than
any Third Party Issuer) and the LC Guarantor a Lien on and a security interest
in all its right, title, and interest in and to any and all deposit accounts
(other than any such account that collateralizes any Letter of Credit issued by
a Third Party Issuer and operating accounts of the type referred to in clauses
(i), to the extent such accounts are subject to Liens in favor of lenders
providing secured financing to the divisions referred to therein, and (iv) of
Section 7.11) now or hereafter maintained with the Agent, any such Issuing Bank,
the LC Guarantor, any Lender, or any other Person and in and to any and all of
its Property and the proceeds thereof now or hereafter in the possession of the
Agent or any Lender, any such Issuing Bank or the LC Guarantor. If an Event of
Default has occurred and is continuing, the Agent or any Lender or Issuing Bank
(other than any Third Party Issuer) or the LC Guarantor may (but only with the
consent of the Majority Lenders) exercise its rights under Article 9 of the
Uniform Commercial Code and other applicable Laws and apply or cause the
application of any funds in any deposit account



                                       107

<PAGE>   114
maintained with it or with any other Person by the Borrower and/or any Property
of the Borrower in its possession against any Obligation owed to it by the
Borrower hereunder and/or under any other Loan Document.

               13.9 Indemnity by Borrower. The Borrower agrees to indemnify,
save and hold harmless the Agent, each Issuing Bank (other than any Third Party
Issuer), the LC Guarantor and each Lender and each of their directors, officers,
agents, attorneys and employees (collectively the "Indemnitees") from and
against: (a) any and all claims, demands, actions or causes of action that are
asserted against any Indemnitee by any Person (other than the Agent or a Lender)
if the claim, demand, action or cause of action directly or indirectly relates
to a claim, demand, action or cause of action that such Person asserts or may
assert against the Borrower or against any Affiliate of the Borrower or any
officer, director or shareholder of the Borrower or any Affiliate of the
Borrower, in its capacity as such Affiliate, officer, director or shareholder;
(b) any and all claims, demands, actions or causes of action if the claim,
demand, action or cause of action arises out of or relates to the Revolving
Commitments, the use of proceeds of any Revolving Loan, or the relationship of
the Borrower, or any Affiliate of the Borrower, and the Lenders under this
Agreement; (c) any and all claims, demands, actions or causes of action if the
claim, demand, action or cause of action arises out of or relates to the
Borrower's or any of its Affiliate's compliance or noncompliance with the
requirements of any Environmental Law; (d) any administrative or investigative
proceeding by any Governmental Agency arising out of or related to a claim,
demand, action or cause of action described in clauses (a), (b) or (c) above;
and (e) any and all liabilities, losses, costs or expenses (including attorneys'
fees and disbursements and other professional services) that any Indemnitee
suffers or incurs as a result of the assertion of any foregoing claim, demand,
action or cause of action; provided that no Indemnitee shall be entitled to
indemnification for any loss caused by its own gross negligence or willful
misconduct. If the Borrower does not diligently undertake and continue the good
faith defense of an Indemnitee with counsel reasonably acceptable to such
Indemnitee, such Indemnitee is authorized to employ counsel of its own choosing
in defending against any claim, demand, action or cause of action covered by
this Section 13.9; provided that each Indemnitee shall endeavor, in connection
with any matter covered by this Section 13.9 that also involves other
Indemnitees, to use reasonable efforts to avoid unnecessary duplication of
effort by counsel for all Indemnitees. Whenever practicable, upon obtaining
actual knowledge of any event that would entitle the Agent and/or any Lender,
and/or any such Issuing Bank and/or the LC Guarantor to be indemnified under
this Section 13.9, the Agent shall endeavor to provide notice to the Borrower of
such fact and the Agent and the Lenders shall cooperate with the Borrower to
endeavor to minimize the liabilities for which the Agent and/or any such Issuing
Bank and/or the LC Guarantor and/or any Lender is entitled to be indemnified.
Any obligation or liability of the Borrower to any Indemnitee under this Section
13.9 shall survive the expiration or termination of this Agreement and the
repayment of all Loans and the payment and performance of all other Obligations
owed to the Agent, such Issuing Banks, the LC Guarantor and the Lenders.



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<PAGE>   115
               13.10 Nonliability of Lenders. The Borrower acknowledges and
agrees that:

                      (a) Any inspections of any Collateral made by or through
        the Agent or the Lenders, the Issuing Banks or the LC Guarantor are for
        purposes of administration of the Revolving Loans only and the Borrower
        is not entitled to rely upon the same;

                      (b) By accepting or approving anything required to be
        observed, performed, fulfilled or given to the Agent or any Lender or
        Issuing Bank or the LC Guarantor pursuant to the Loan Documents, none of
        the Agent or any Lender or Issuing Bank or the LC Guarantor shall be
        deemed to have warranted or represented the sufficiency, legality,
        effectiveness or legal effect of the same, or of any term, provision or
        condition thereof, and such acceptance or approval thereof shall not
        constitute a warranty or representation to anyone with respect thereto
        by the Agent or any Lender or Issuing Bank or the LC Guarantor;

                      (c) The relationship between the Borrower and the Agent
        and the Lenders, the Issuing Banks (other than any Third Party Issuers)
        and the LC Guarantor is, and shall at all times remain, solely that of
        borrower and lenders (or, in the case of any Letter of Credit, debtor
        and creditor); none of the Agent or any Lender or Issuing Bank or the LC
        Guarantor shall under any circumstance be construed to be a partner or
        joint venturer of the Borrower or any of its Affiliates; none of the
        Agent or any Lender or Issuing Bank or the LC Guarantor shall under any
        circumstance be deemed to be in a relationship of confidence or trust or
        a fiduciary relationship with the Borrower or any of its Affiliates, or
        to owe any fiduciary duty to the Borrower or any of its Affiliates; none
        of the Agent or any Lender or Issuing Bank or the LC Guarantor
        undertakes or assumes any responsibility or duty to the Borrower or any
        of its Affiliates to select, review, inspect, supervise, pass judgment
        upon or inform the Borrower or any of its Affiliates of any matter in
        connection with their Property or the operations of the Borrower or any
        of its Affiliates; the Borrower and its Affiliates shall rely entirely
        upon their own judgment with respect to such matters; and any review,
        inspection, supervision, exercise of judgment or supply of information
        undertaken or assumed by the Agent or any Lender or any Issuing Bank or
        the LC Guarantor in connection with such matters is solely for the
        protection of the Agent and the Lenders, or such Issuing Bank or the LC
        Guarantor, respectively, and neither the Borrower nor any other Person
        is entitled to rely thereon; and

                      (d) The Agent and the Lenders, the Issuing Banks and the
        LC Guarantor shall not be responsible or liable to any Person for any
        loss, damage, liability or claim of any kind relating to injury or death
        to Persons or damage to Property caused by the actions, inaction or
        negligence of the Borrower and/or its



                                       109

<PAGE>   116
        Affiliates and the Borrower hereby indemnifies and holds each of the
        Agent and the Lenders, the Issuing Banks and the LC Guarantor harmless
        from any such loss, damage, liability or claim.

               13.11 No Third Parties Benefitted. This Agreement is made for the
purpose of defining and setting forth certain obligations, rights and duties of
the Borrower, the Agent, the Issuing Banks, the LC Guarantor and the Lenders in
connection with the Revolving Loans and Letters of Credit, and is made for the
sole protection of the Borrower, the Agent, the Issuing Banks, the LC Guarantor
and the Lenders, and the Agent's, the Issuing Banks', the LC Guarantor's and the
Lenders' successors and assigns. Except as provided in Section 13.9, no other
Person shall have any rights of any nature hereunder or by reason hereof.

               13.12 Confidentiality. Each Lender agrees to hold any
confidential information that it may receive from the Borrower pursuant to this
Agreement in confidence, except for disclosure: (a) to legal counsel,
accountants and other professional advisors to the Borrower or any Lender; (b)
to regulatory officials having jurisdiction over that Lender; (c) as required by
Law or legal process or in connection with any legal proceeding to which that
Lender is a party; (d) subject to Section 13.7, to any proposed Assignee or
participant in connection with a disposition or proposed disposition of all or
part of that Lender's interests hereunder, provided that such proposed assignee
or participant shall agree to be bound by the provisions of this Section; (e) to
prospective purchasers of Collateral in connection with any disposition thereof;
and (f) to other Lenders; provided that nothing in this Section shall be
construed to create or give rise to any fiduciary duty on the part of the Agent
or any Lender to the Borrower.

               13.13 Further Assurances. The Borrower and its Affiliates shall,
at their expense and without expense to the Agent or the Lenders, the Issuing
Banks or the LC Guarantor do, execute and deliver such further acts and
documents as the Agent or any Lender or Issuing Bank or the LC Guarantor from
time to time reasonably requires for the assuring and confirming unto the Agent
or any Lender or Issuing Bank or the LC Guarantor of the rights hereby created
or intended now or hereafter so to be, or for carrying out the intention or
facilitating the performance of the terms of any Loan Document, or for assuring
the validity, perfection, priority or enforceability of any Lien under any Loan
Document. Any such further acts and documents shall be duly authorized by the
Borrower and all such documents, including, without limitation, any Request for
Letter of Credit, Request for Loan or Request for Redesignation of Loans, shall,
notwithstanding the form of the signature blocks on the forms thereof, be fully
executed by the Borrower in accordance with its articles of incorporation,
bylaws and applicable resolutions.

               13.14 Integration. This Agreement, together with the other Loan
Documents, comprises the complete and integrated agreement of the parties on the



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subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of the Agent or the Lenders, the Issuing Banks
(other than any Third Party Issuer) or the LC Guarantor in any other Loan
Document shall not be deemed a conflict with this Agreement. Each Loan Document
was drafted with the joint participation of the respective parties thereto and
shall be construed neither against nor in favor of any party, but rather in
accordance with the fair meaning thereof.

               13.15 Governing Law. Except to the extent otherwise provided
therein, each Loan Document shall be governed by, and construed and enforced in
accordance with, the local Laws of California; provided that the local Laws of
California shall not apply with respect to any foreclosure of real Property
Collateral located outside California.

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

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

               13.18 Time of the Essence. Time is of the essence of the Loan
Documents.

               13.19 Sharing of Setoffs. Each Lender severally agrees that if it
(whether as Lender or Issuing Bank or LC Guarantor), through the exercise of any
right of setoff, banker's lien or counterclaim against the Borrower or any of
its Affiliates, or otherwise (for example, pursuant to Section 13.8), receives
payment of the Obligations held by it that is ratably more than any other Lender
(whether as Lender, Issuing Bank or LC Guarantor), through any means, receives
in payment of the Obligations held by that Lender, then: (a) The Lender
exercising the right of setoff, banker's lien or counterclaim or otherwise
receiving such payment shall purchase, and shall be deemed to have
simultaneously purchased, from such other Lender a participation in the
Obligations held by such other Lender and shall pay to such other Lender a
purchase price in Cash in an amount so that the share of the Obligations held by
each Lender after the exercise of the right of setoff, banker's lien or
counterclaim or receipt of payment shall be in the same proportion that existed
prior to the exercise of the right of setoff, banker's lien or counterclaim or
receipt of payment; and (b) Such other



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<PAGE>   118
adjustments and purchases of participations shall be made from time to time as
shall be equitable to ensure that all Lenders (whether as Lenders, Issuing Banks
or LC Guarantor) share any payment obtained in respect of the Obligations
ratably in accordance with each Lender's share of the Obligations immediately
prior to, and without taking into account, the payment; provided that, if all or
any portion of a disproportionate payment obtained as a result of the exercise
of the right of setoff, banker's lien, counterclaim or otherwise is thereafter
recovered from the purchasing Lender by the Borrower or such Affiliate or any
Person claiming through or succeeding to the rights of the Borrower, the
purchase of a participation shall be rescinded and the purchase price thereof
shall be restored to the extent of the recovery, but without interest. Each
Lender that purchases a participation in the Obligations pursuant to this
Section 13.19 shall from and after the purchase have the right to give all
notices, requests, demands, directions and other communications under this
Agreement with respect to the portion of the Obligations purchased to the same
extent as though the purchasing Lender were the original owner of the
Obligations purchased. The Borrower expressly consents to the foregoing
arrangements and agrees that any Lender holding a participation in an Obligation
so purchased may exercise any and all rights of setoff, banker's lien or
counterclaim with respect to the participation as fully as if the Lender were
the original owner of the Obligation purchased; provided, however, that each
Lender agrees that it shall not exercise against any Party any right of setoff,
banker's lien or counterclaim without first obtaining the written consent of all
of the Lenders.

               13.20 Nature of the Lenders' Obligations. The obligations of the
Lenders, the Issuing Banks and the LC Guarantor hereunder are several and not
joint or joint and several. Nothing contained in this Agreement or any other
Loan Document and no action taken by the Agent, any Issuing Banks, the LC
Guarantor or the Lenders or any of them pursuant hereto or thereto may, or may
be deemed to, make the Lenders or Issuing Banks or the LC Guarantor a
partnership, an association, a joint venture or other entity, either among
themselves or with the Borrower or any Affiliate of the Borrower. Each Lender's
obligation to make any Advance pursuant hereto is several and not joint or joint
and several. A default by any Lender will not increase the percentage of the
Revolving Commitment attributable to any other Lender. Any Lender not in default
may, if it desires, assume in such proportion as the nondefaulting Lenders agree
the obligations of any Lender in default, but is not obligated to do so.

               13.21 Waiver of Jury Trial. The Borrower, the Agent, each Issuing
Bank (other than any Third Party Issuer), the LC Guarantor and each Lender each
hereby waives any right to a trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement or any other Loan Documents or
relating thereto or arising from the lending relationship which is the subject
of this Agreement and agrees that any such action or proceeding shall be tried
before a court and not before a jury.

               13.22 Jurisdiction. Each party hereto agrees that any action to
enforce any of the Loan Documents shall be brought in a state court located in
Orange County,



                                       112

<PAGE>   119
California or in the United States District Court for the Central District of
California or in any other court and/or in any other jurisdiction if required by
the nature of such action.

               13.23 Exercise of Discretion. Whenever any provision of any Loan
Document provides any party to such Loan Document with discretion as to any
action that such party may or may not take, such party shall act reasonably and
in good faith in exercising such discretion.



                                       113

<PAGE>   120
               IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date first above written.

                             PRESLEY HOMES (f/k/a The Presley Companies),
                               a California corporation


                             By  \s\  David M. Siegel
                                ------------------------------------------------
                                  Name:  David M. Siegel
                                  Title: Senior Vice President -
                                         Chief Financial Officer


                             By  \s\  W. Douglass Harris
                                ------------------------------------------------
                            Name: W. Douglass Harris
                                  Title: Vice President-Corporate Controller


                             Address:

                             19 Corporate Plaza
                             Newport Beach, California 92660
                             Attn: David M. Siegel, Senior Vice
                                   President - Chief Financial
                                   Officer,
                                   W.  Douglass Harris, Vice President-
                                   Corporate Controller, and
                                   Nancy M. Harlan, Senior Vice
                                   President and General Counsel

                             Telecopier:    (949) 640-1710
                             Telephone:     (949) 640-6400



                                       114

<PAGE>   121
                             FOOTHILL CAPITAL CORPORATION,
                               individually and as Agent

                             By   \s\ Karen S. Sandler
                                -----------------------------------------------
                                  Title:

                             Address:

                             Foothill Capital Corporation
                             11111 Santa Monica Boulevard
                             Suite 1500
                             Los Angeles, California  90025
                             Attn: Karen Sandler, Vice President

                             Telecopier:    (310) 478-8785
                             Telephone:     (310) 996-7157



                                       115

<PAGE>   122
                                    EXHIBIT A

                            ASSIGNMENT AND ACCEPTANCE

               Reference is made to the Fifth Amended and Restated Loan
Agreement dated as of June __, 1998 (as the same may be amended, restated,
supplemented or modified from time to time, the "Loan Agreement") among Presley
Homes (f/k/a The Presley Companies), a California corporation (the "Borrower"),
the Lenders (as defined in the Loan Agreement), and Foothill Capital
Corporation, as agent (the "Agent") for the Lenders, the Issuing Banks (other
than any Third Party Issuer) and the LC Guarantor (in each case as defined in
the Loan Agreement). Terms defined in the Loan Agreement are used herein with
the same meaning.

               The "Assignor" and the "Assignee" referred to on Schedule 1 agree
as follows:

               1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under the Loan Agreement as of the date
hereof equal to the percentage interest specified on Schedule 1 of all
outstanding rights and obligations under the Revolving Facility. After giving
effect to such sale and assignment, the Assignee's Revolving Commitment and the
amount of the Revolving Advances owing to the Assignee will be as set forth on
Schedule 1.

               2. The Assignor (i) represents and warrants that it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim created by it; (ii) makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or any other instrument or document furnished pursuant thereto or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Loan Documents or any other instrument or document furnished pursuant
thereto; (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of any Party or the performance or
observance by any Party of any of its obligations under the Loan Documents or
any other instrument or document furnished pursuant thereto; and (iv) attaches
the Revolving Note held by the Assignor and requests that the Agent exchange
such Revolving Note for a new Revolving Note payable to the order of the
Assignee in an amount equal to the Revolving Commitment assumed by the Assignee
pursuant hereto, or a new Revolving Note payable to the order of the Assignee in
an amount equal to the Revolving Commitment assumed by the Assignee pursuant
hereto and the Assignor in an amount equal to the Revolving Commitment retained
by the Assignor under the Loan Agreement, respectively, as specified on Schedule
1.

               3. The Assignee (i) confirms that it has received a copy of the
Loan Agreement, together with copies of the financial statements referred to in
Section 6.4 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender or


<PAGE>   123



Issuing Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents; (iii) confirms that it is an
Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers and discretion under the Loan
Documents as are delegated to the Agent by the terms thereof, together with such
powers and discretion as are reasonably incidental thereto; (v) agrees that it
will perform in accordance with their terms all of the obligations that by the
terms of the Loan Documents are required to be performed by it as a Lender; and
(vi) attaches any U.S. Internal Revenue Service forms required under Section
13.7 of the Loan Agreement.

               4. Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1.

               5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Loan Agreement and, to
the extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and under the other Loan Documents and (ii)
the Assignor shall, to the extent provided in this Assignment and Acceptance,*
relinquish its rights and be released from its obligations under the Loan
Agreement and the other Loan Documents [and shall cease to be a party
thereto].**

               6. Upon such acceptance and recording by the Agent, from and
after the Effective Date, the Agent shall make all payments under the Loan
Agreement, the Revolving Notes, and the other Loan Documents in respect of the
interest assigned hereby (including, without limitation, all payments of
principal, interest and commitment fees with respect thereto) to the Assignee.
The Assignor and Assignee shall make all appropriate adjustments in payments
under the Loan Agreement, the Revolving Notes and the other Loan Documents for
periods prior to the Effective Date directly between themselves.

               7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of California.

               8. This Assignment and Acceptance may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of Schedule 1 to this Assignment

--------

*           Except as otherwise contemplated in clause (f) of the definition of
            the term "Eligible Assignee".

**          In the case of any Assignment and Acceptance covering all or the
            remaining portion of the Assignor's rights and obligations under the
            Loan Agreement.

                                        2


<PAGE>   124



and Acceptance by telecopier shall be effective as delivery of a manually
executed counterpart of this Assignment and Acceptance.

               IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.

                                        3


<PAGE>   125

                                   SCHEDULE 1

                                       to

                            ASSIGNMENT AND ACCEPTANCE

Facility in respect of

which an interest is being assigned:                    _________________

        Percentage interest assigned:                   _________________%

        Assignee's Revolving Commitment:                $________________

        Aggregate outstanding principal amount

           of Advances assigned:                        $________________

        Principal amount of Revolving Note payable

           to Assignee:                                 $________________

        Principal amount of Revolving Note payable

           to Assignor:                                 $________________

Effective Date (if other than date

    of acceptance by Agent):                            *________________,  19__

                                      [NAME OF ASSIGNOR], as Assignor

                                      By: ______________________________________
                                          Title:

                                      Dated:_____________, 19__

                                      [NAME OF ASSIGNEE], as Assignee

                                      By: ______________________________________
                                          Title:

                                      [Address]

Accepted this ___  day
of ______________, 19__

[NAME OF AGENT]

By: _______________________
    Title:

--------

*           This date should be no earlier than five Business Days after the
            delivery of this Assignment and Acceptance to the Agent.


<PAGE>   126

                                    EXHIBIT B

                           BORROWING BASE CERTIFICATE

        Reference is made to the Fifth Amended and Restated Loan Agreement (as
the same may be amended, restated, supplemented or modified from time to time,
the "Loan Agreement") dated as of June __, 1998 among Presley Homes (f/k/a The
Presley Companies), a California corporation, as Borrower, Foothill Capital
Corporation, as the agent (the "Agent") for the Lenders, the Issuing Banks
(other than any Third Party Issuer) and the LC Guarantor (in each case as
defined in the Loan Agreement), and the Lenders parties thereto. All capitalized
terms used herein but not defined herein shall have the meanings defined for
those terms in the Loan Agreement.

        This Borrowing Base Certificate (this "Certificate") is executed and
delivered by the undersigned to the Agent, on and as of the date set forth
below, pursuant to Section 4.8(a) of the Loan Agreement.

        I, ________________________, in my capacity as the [Chief Financial
Officer] [Vice President/Controller] [President] of the Borrower and on behalf
of the Borrower, hereby certify as follows:

        1. The Borrowing Base, calculated as of the last day of
_________________, 19__, in accordance with Section 4.8 of the Loan Agreement,
is $___________________.

        2. This Certificate is executed and delivered on and as of
_____________, 19__*.

                                         By: ___________________________________
                                             Name:
                                             Title:[Chief Financial Officer]

                                             [Vice President/Controller] 
                                             [President] of Presley Homes

-------

*           This date may be no later than February 15 for each calculation as
            of December 31, March 8 for each calculation as of January 31, and
            in all other cases the last day of the month immediately following
            the month for which the above calculations are certified.



<PAGE>   127

                                    EXHIBIT C

                              BORROWING CERTIFICATE

               Reference is made to the Fifth Amended and Restated Loan
Agreement (as the same may be amended, restated, supplemented or modified from
time to time, the "Loan Agreement") dated as of June __, 1998 among Presley
Homes (f/k/a The Presley Companies), a California corporation, (the "Borrower"),
Foothill Capital Corporation, as the agent (the "Agent") for the Lenders, the
Issuing Banks (other than any Third Party Issuer) and the LC Guarantor (in each
case as defined in the Loan Agreement), and the Lenders parties thereto. All
capitalized terms used herein but not defined herein shall have the meanings
defined for those terms in the Loan Agreement.

               This Borrowing Certificate (this "Certificate") is executed and
delivered by the undersigned to the Agent, on and as of the date set forth
below, and to each of the Lenders in connection with the Request for Loan
delivered to the Agent on the date hereof (the "Applicable Request for Loan").

               I, ________________________________, in my capacity as the [Chief
Financial Officer] [Vice President/Controller] [Vice President/Finance]
[President] of the Borrower and on behalf of the Borrower, hereby certify as
follows:

               1. No event has occurred and is continuing, or would result from
the requested Revolving Loan or from the application of the proceeds therefrom,
which constitutes a Default under the Loan Agreement.

               2. After giving effect to the Revolving Loan requested in the
Applicable Request for Loan, (i) the aggregate amount of Outstanding Loans will
not exceed the aggregate Revolving Commitments minus Outstanding Letters of
Credit or (ii) to the best of my knowledge as of the date hereof, the
Outstanding Loans will not exceed the Maximum Revolving Loan Amount.


<PAGE>   128

               3. This Certificate is executed and delivered on and as of
_____________, 199_, concurrently with the delivery of the Applicable Request
for Loan dated the date hereof.

                                         By: ___________________________________
                                             Name:
                                             Title:[Chief Financial Officer]

                                             [Vice President/Controller] 
                                             [President] of Presley Homes



                                        2


<PAGE>   129


                                    EXHIBIT D

                          REQUEST FOR LETTER OF CREDIT

         SECTION 1. This REQUEST FOR LETTER OF CREDIT is executed and delivered
by Presley Homes (f/k/a The Presley Companies), a California corporation (the
"Borrower") to ___________________________, as the "Issuing Bank", pursuant to
the Fifth Amended and Restated Loan Agreement (as the same may be amended,
restated, supplemented or modified from time to time, the "Loan Agreement")
dated as of June __, 1998, entered into by the Borrower, Foothill Capital
Corporation, as the agent (the "Agent") for the Lenders, the Issuing Banks
(other than any Third Party Issuer) and the LC Guarantor (in each case as
defined in the Loan Agreement), and the Lenders parties thereto. Any terms used
herein and not defined herein shall have the meanings defined in the Loan
Agreement.

         SECTION 2. The Borrower hereby requests that the Issuing Bank issue a
Letter of Credit for the account of the Borrower pursuant to the Loan Agreement
as follows:

             (a)    Face Amount of Letter of Credit:

     $_______.

             (b) Date of Issuance: ________________, 19__.

             (c) Type of Letter of Credit (check one box only):

                  [ ] Standby Letter of Credit.

                  [ ] Commercial Letter of Credit.

             (d) Beneficiary under Letter of Credit:

                  Name:        _________________________________

                  Address:     _________________________________

                               _________________________________

                               _________________________________

             (e) Expiry Date: ____________________, 19__


                                              1


<PAGE>   130

             (f) Documents to be submitted with drafts: (attach sample) , no
                 later than ____ days prior to expiry.

             (g) Purpose of Letter of Credit: ________________

             (h) Additional Information/Terms: _______________

         SECTION 3.   The requested Letter of Credit is (check one box only):

                  [ ] a new Letter of Credit in addition to Letters of Credit 
                      already outstanding.

                  [ ] renewal, or extension to or of the following outstanding 
                      Letter(s) of 
                      Credit:
                      [Identify]

         SECTION 4. In connection with the issuance of the Letter of Credit
requested herein, the Borrower hereby represents, warrants, and certifies to the
Agent, the Issuing Bank of such Letter of Credit and the other Issuing Banks
(other than any Third Party Issuer), the LC Guarantor and the Lenders that:

             (a) As of the date of issuance of the Letter of Credit requested
         herein, each representation and warranty made by the Borrower in
         Article 6 of the Agreement (other than the representations and
         warranties contained in Sections 6.1(c), 6.1(e), 6.4 and 6.5, the last
         sentence of Section 6.6, and Sections 6.9, 6.12(a) and 6.20) will be
         true and correct in all material respects, both immediately before and
         after the issuance of such Letter of Credit, as though such
         representations and warranties were made on and as of the date of
         issuance of such Letter of Credit; no actions, suits or proceedings
         will be pending against or affecting the Borrower or any of its
         Subsidiaries or Presley Delaware or any Property of any of them in any
         court of Law or before any Governmental Agency which might reasonably
         be expected to materially and adversely affect the business operations
         or condition (financial or otherwise) of the Borrower; no material
         adverse change will have occurred in the business, operations or
         condition (financial or otherwise) of the Borrower, since the Closing
         Date which is materially adverse to the interests of the Agent, the
         Lenders, the Issuing Banks or the LC Guarantor; and no Default will
         have occurred and be continuing. (If any of the foregoing statements is
         not true and correct, attach a statement specifying in detail the
         circumstances thereof and the actions the Borrower is taking or
         proposes to take with respect thereto.)


                                        2


<PAGE>   131


             (b) Following the issuance of the Letter of Credit requested
         herein, (i) Total Outstandings shall not exceed the aggregate Revolving
         Commitments, (ii) Outstanding Letters of Credit shall not exceed the
         Maximum Letter of Credit Amount, (iii) Outstanding Loans shall not
         exceed the Maximum Revolving Loan Amount (as adjusted to reflect the
         issuance of the Letter of Credit requested herein), and (iv) giving
         effect to the issuance of such Letter of Credit, Outstanding Letters of
         Credit issued by Third Party Issuers, the Borrower's obligations in
         connection with which are secured by Cash and/or Cash Equivalents, will
         not exceed $5,000,000.

             (c) The issuance of the Letter of Credit requested herein is
         reasonably necessary in connection with transactions in the ordinary
         course of business of the Borrower or one of its Subsidiaries
         identified as follows:

         _______________________________________________.

             (d) If the Letter of Credit requested herein is issued in
         connection with one or more performance bonds, such performance bonds
         relate to a project included in the Borrowing Base.

         SECTION 5. This Request for Letter of Credit is executed on
_______________, 19__, by a Responsible Official of the Borrower, on behalf of
the Borrower. The undersigned, in such capacity, hereby certifies each and every
matter contained herein to be true and correct.

                                         BORROWER:                              
                                                                                
                                         PRESLEY HOMES, a California corporation
                                                                                
                                         By:_______________________________     
                                            Its:___________________________     
                                                                                
                                         By:_______________________________     
                                            Its:___________________________     
                                                                                
                                        3


<PAGE>   132

                                    EXHIBIT E

                                REQUEST FOR LOAN

         1. This REQUEST FOR LOAN is executed and delivered by Presley Homes
(f/k/a The Presley Companies), a California corporation (the "Borrower") to
Foothill Capital Corporation, as the agent (the "Agent") for the Lenders, the
Issuing Banks (other than any Third Party Issuer) and the LC Guarantor (in each
case as defined in the Fifth Amended and Restated Loan Agreement (as the same
may be amended, restated, supplemented or modified from time to time, the "Loan
Agreement") dated as of June __, 1998, entered into by the Borrower, the Agent,
and the Lenders parties thereto. Any terms used herein and not defined herein
shall have the meanings defined in the Loan Agreement.

         2. The Borrower hereby requests that the Lenders make a Revolving Loan
for the account of the Borrower pursuant to the Loan Agreement, as follows:

                  (a) Amount of Revolving Loan: $_________________.

                  (b) Date of Revolving Loan. _______________, 19__.

                  (c) Interest Type of Revolving Loan* (check one box only):

                  [ ] eference Rate Loan

                  [ ] Offshore Rate Loan with a ____ -month Interest Period.

         3. In connection with the Revolving Loan requested herein, the Borrower
hereby represents, warrants and certifies to the Agent and the Lenders that, as
of the date of the Revolving Loan requested herein: [(a) each representation and
warranty made by the Borrower in Article 6 of the Loan Agreement (other than the
representations and warranties contained in Sections 6.1(c), 6.1(e), 6.4 and
6.5, the last sentence of Section 6.6, and Sections 6.9, 6.12(a) and 6.20) will
be true and correct in all material respects, both immediately before and after
such Revolving Loan is made, as though such representations and warranties were
made on and as of the date of such Revolving Loan; (b) no actions, suits or
proceedings will be pending against or affecting the Borrower or any of its
Subsidiaries or Presley Delaware or any Property of any of them in any court of
law or before any Governmental Agency which might reasonably be expected to
materially and adversely affect the business, operations or condition (financial
or otherwise) of the Borrower; (c) no material adverse change will have occurred
in the business, operations or condition (financial or otherwise) of the
Borrower since the Closing Date which is materially adverse to the interests of
the Agent, the Lenders, the Issuing Banks or the LC




<PAGE>   133



Guarantor; and (d) no Default will have occurred and be continuing.]* [(a) each
representation and warranty made by the Borrower in Article 6 of the Revolving
Loan Agreement (other than Sections 6.1(c), 6.1(e), 6.4 and 6.5, the last
sentence of Section 6.6, and Sections 6.9, 6.12(a), 6.19 and 6.20) will be true
and correct in all material respects on and as of the date of such Revolving
Loan, both immediately before and after such Revolving Loan is made, as though
made on and as of that date; and (b) there shall not have occurred any Default
that is then continuing or will result from such Advance.]**

         (If any of the foregoing statements is not true and correct, attach a
statement specifying in detail the circumstances thereof and the actions the
Borrower is taking or proposes to take with respect thereto.)

         4. After giving effect to the Revolving Loan requested herein, no more
than eight (8) Offshore Rate Loans shall be outstanding.

         5. This Request for Loan is executed on _________, 19__, by a
Responsible Official of the Borrower, on behalf of the Borrower. The
undersigned, in such capacity, hereby certifies each and every matter contained
herein to be true and correct.

                          BORROWER:

                          PRESLEY HOMES, a California corporation

                          By:  ____________________________________

                               Its:______________________________

                          By:  ____________________________________

                               Its:______________________________

--------

*    For any Advance that increases Total Outstandings.

**   For any Advance that does not increase Total Outstandings.


                                        2


<PAGE>   134

                                    EXHIBIT F

                       REQUEST FOR REDESIGNATION OF LOANS

         1. This REQUEST FOR REDESIGNATION OF LOANS is executed and delivered by
Presley Homes (f/k/a The Presley Companies), a California corporation (the
"Borrower") to Foothill Capital Corporation, as agent (the "Agent") for the
Lenders, the Issuing Banks (other than any Third Party Issuer) and the LC
Guarantor (in each case as defined in the Loan Agreement referred to below),
pursuant to the Fifth Amended and Restated Loan Agreement (as the same may be
amended, restated, supplemented or modified from time to time, the "Loan
Agreement") dated as of June __, 1998, entered into by the Borrower, the Agent
and the Lenders parties thereto. Any terms used herein and not defined herein
shall have the meanings defined in the Loan Agreement.

         2. The Borrower hereby requests that the Lenders redesignate
outstanding [Reference Rate Loans] [Offshore Rate Loans] heretofore made or
redesignated for the account of the Borrower pursuant to the Loan Agreement, as
follows:

             2.1  Date of Redesignation: ______________, 19_____.

             2.2  Total Amount of [Reference Rate Loans] [Offshore Rate Loans]
to be redesignated as an Offshore Rate Loan:  $ _____________________.

             2.3  Applicable Interest Rate Period:  ___ months.

         3. In connection with the redesignation of Revolving Loans requested
herein, the Borrower hereby represents, warrants and certifies to the Agent, the
Lenders, the Issuing Banks (other than any Third Party Issuer) and the LC
Guarantor that, as of the date of the redesignation of Revolving Loans requested
herein: (a) each representation and warranty made by the Borrower in Article 6
of the Loan Agreement (other than the representations and warranties contained
in Sections 6.1(c), 6.1(e), 6.4 and 6.5, the last sentence of Section 6.6, and
Sections 6.9, 6.12(a), 6.19 and 6.20)) will be true and correct in all material
respects, both immediately before and after such redesignation of Revolving
Loans is made, as though such representations and warranties were made on and as
of the date of such redesignation of Revolving Loans; and (b) no Default will
have occurred and be continuing or will result from such redesignation. (If any
of the foregoing statements is not true and correct, attach a statement
specifying in detail the circumstances thereof and the actions the Borrower is
taking or proposes to take with respect thereto.)




<PAGE>   135



         4. After giving effect to the redesignation of Revolving Loans
requested herein, no more than eight (8) Offshore Rate Loans shall be
outstanding.

         5. This Request for Redesignation of Loans is executed on _________,
19__, by a Responsible Official of the Borrower, on behalf of the Borrower. The
undersigned, in such capacity, hereby certifies each and every matter contained
herein to be true and correct.

                                       BORROWER:

                                       PRESLEY HOMES, a California corporation

                                       By:______________________________________

                                            Its:________________________________

                                       By:______________________________________

                                            Its:________________________________


                                        2


<PAGE>   136

                                    EXHIBIT G

                                 REVOLVING NOTE

$___________________                                           ___________, 1998
                                                         Los Angeles, California

               FOR VALUE RECEIVED, the undersigned promises to pay to the order
of _____________________ (the "Lender") the principal amount of _______________
($______________), or such lesser aggregate amount of Outstanding Advances as
may be made by or otherwise payable to the Lender under the Loan Agreement
hereinafter described, payable as hereinafter set forth. The undersigned
promises to pay interest on the principal amount hereof remaining unpaid from
time to time from the date hereof until the date of payment in full, payable as
hereinafter set forth.

               Reference is made to the Fifth Amended and Restated Loan
Agreement dated as of July 6, 1998 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Loan Agreement")
among the undersigned as Borrower, the Lenders that are parties thereto, and
Foothill Capital Corporation, as the Agent. Terms defined in the Loan Agreement
and not otherwise defined herein are used herein as therein defined. This is one
of the Revolving Notes referred to in the Loan Agreement, and any holder hereof
is entitled to all of the rights, remedies, benefits and privileges provided for
in the Loan Agreement as originally executed or as it may from time to time be
supplemented, modified or amended. The Loan Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events upon the terms and conditions therein specified.

               This Revolving Note is secured by various real and personal
property Collateral as provided for in the Loan Agreement and the Collateral
Documents referred to therein.

               The principal indebtedness evidenced by this Revolving Note shall
be payable as provided in the Loan Agreement and in any event on the Termination
Date.

               Interest shall be payable on the outstanding daily unpaid
principal amount of each Revolving Advance hereunder from the date thereof until
payment in full and shall accrue and be payable at the rates and on the dates
set forth in the Loan Agreement both before and after default and before and
after maturity and judgment, with interest on overdue interest and principal to
bear interest at the rate set forth in Section 5.7 of the Loan Agreement, to the
fullest extent permitted by applicable Law.




<PAGE>   137



               The amount of each payment hereunder shall be made to the Agent
at the Agent's Office, for the account of the Lender, in lawful money of the
United States of America and in immediately available funds not later than 10:00
a.m., Los Angeles time, on the day of payment (which must be a Banking Day). All
payments received after 10:00 a.m., Los Angeles time, on any Banking Day, shall
be deemed received on the next succeeding Banking Day. The Lender shall use its
best efforts to keep a record of Revolving Advances made by it and payments of
principal with respect to this Revolving Note, and such record shall be
presumptive evidence of the principal amount owing under this Revolving Note.

               The undersigned hereby promises to pay all costs and expenses of
any holder hereof incurred in collecting the undersigned's obligations hereunder
or in enforcing or attempting to enforce any of any holder's rights hereunder,
including attorneys' fees and disbursements, whether or not an action is filed
in connection therewith.

               The undersigned hereby waives presentment, demand for payment,
dishonor, notice of dishonor, protest, notice of protest and any other notice or
formality, to the fullest extent permitted by applicable Laws.

               This Revolving Note shall be delivered to and accepted by the
Lender, or by the Agent on its behalf, in the State of California and shall be
governed by, and construed and enforced in accordance with, the local Laws
thereof.

                                        Presley Homes, a California corporation


                                        By:_______________________________
                                                                          
                                           Its:___________________________
                                                                          
                                        By:_______________________________
                                                                          
                                           Its:___________________________
                                                                          
                                        2


<PAGE>   138


                       ADVANCES AND PAYMENTS OF PRINCIPAL

                            (Reference Rate Advances)

<TABLE>
<CAPTION>
            Amount of Advance or     Amount of Principal
           of Redesignation from     Paid or Redesignated
              another type of        into another type of    Unpaid Principal     Notation
Date              Advance                  Advance                Balance         Made by
------------------------------------------------------------------------------------------
<S>        <C>                       <C>                     <C>                  <C>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

------------------------------------------------------------------------------------------
</TABLE>


                                        3


<PAGE>   139

<TABLE>
<CAPTION>
            Amount of Advance or     Amount of Principal
           of Redesignation from     Paid or Redesignated
              another type of        into another type of    Unpaid Principal     Notation
Date              Advance                  Advance                Balance         Made by
------------------------------------------------------------------------------------------
<S>        <C>                       <C>                     <C>                  <C>

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

------------------------------------------------------------------------------------------
</TABLE>


                                        4


<PAGE>   140
                                    EXHIBIT J

                          AMENDED AND RESTATED GUARANTY

               AMENDED AND RESTATED GUARANTY ("Guaranty"), dated as of , 1998,
made by THE PRESLEY COMPANIES, a Delaware corporation (the "Guarantor"), in
favor of the lenders (the "Lenders") parties to the Loan Agreement (as
hereinafter defined), the Issuing Banks (other than any Third Party Issuer) and
the LC Guarantor (in each case as defined in the Loan Agreement), and Foothill
Capital Corporation, as agent (the "Agent") for the Lenders, such Issuing Banks
and the LC Guarantor.

               PRELIMINARY STATEMENTS.

               (1) The Lenders and the Agent have entered into a Fifth Amended
and Restated Loan Agreement dated as of June __, 1998 (said agreement, as it may
hereafter be amended, restated, supplemented or otherwise modified from time to
time, being the "Loan Agreement", the terms defined therein and not otherwise
defined herein being used herein as therein defined) with Presley Homes (f/k/a
The Presley Companies), a California corporation (the "Borrower"). The Guarantor
will derive substantial direct and indirect benefit from the transactions
contemplated by the Loan Agreement.

               (2) The Guarantor has entered into an Amended and Restated
Guaranty dated as of March 25, 1994 (as amended, the "Existing Guaranty") in
favor of the lenders parties to the Existing Loan Agreement and the agent for
such lenders.

               (3) It is a condition precedent to the making of Revolving
Advances by the Lenders under the Loan Agreement that the Guarantor, as owner of
all the outstanding shares of stock of the Borrower, shall have executed and
delivered this Guaranty.

               NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make Revolving Advances under the Loan Agreement, the
Guarantor hereby agrees that, effective on and as of the Closing Date, the
Existing Guaranty is amended and restated in its entirety as follows:

               SECTION 1. Guaranty. The Guarantor hereby unconditionally
guarantees the punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all obligations of the Borrower now or hereafter
existing under the Loan Agreement, the Revolving Notes and each other Loan
Document, whether for principal, interest, fees, expenses or otherwise (such
obligations being the "Obligations"), and agrees to pay any and all expenses
(including counsel fees and expenses) incurred by the Agent, the Lenders, the
Issuing Banks (other than any Third Party Issuer) or the LC Guarantor in
enforcing any rights under this Guaranty. Without limiting the generality of the
foregoing, the Guarantor's liability shall extend to all amounts which
constitute part of the Obligations and would be owed by the Borrower to the
Agent, the Lenders, such Issuing Banks or the LC Guarantor under the Loan
Agreement, the Revolving



<PAGE>   141



Notes or any other Loan Documents but for the fact that they are unenforceable
or not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Borrower.

               SECTION 2. Guaranty Absolute. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the Loan
Agreement, the Revolving Notes and the other Loan Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Agent, the Lenders, the Issuing
Banks (other than any Third Party Issuer) or the LC Guarantor with respect
thereto. The obligations of the Guarantor under this Guaranty are independent of
the Obligations, and a separate action or actions may be brought and prosecuted
against the Guarantor to enforce this Guaranty, irrespective of whether any
action is brought against the Borrower or any other Party or whether the
Borrower or any other Party is joined in any such action or actions. The
liability of the Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:

               (a) any lack of validity or enforceability of the Loan Agreement,
        the Revolving Notes, the other Loan Documents or any other agreement or
        instrument relating thereto;

               (b) any change in the time, manner or place of payment of, or in
        any other term of, all or any of the Obligations, or any other amendment
        or waiver of or any consent to departure from the Loan Agreement, the
        Revolving Notes or the other Loan Documents, including, without
        limitation, any increase in the Obligations resulting from the extension
        of additional credit to the Borrower, any of its subsidiaries or any
        Party or otherwise;

               (c) any taking, exchange, release or non-perfection of any
        collateral, or any taking, release or amendment or waiver of or consent
        to departure from any other guaranty, for all or any of the Obligations;

               (d) any manner of application of collateral, or proceeds thereof,
        to all or any of the Obligations, or any manner of sale or other
        disposition of any collateral for all or any of the Obligations or any
        other assets of the Borrower, any of its subsidiaries or any other
        Party;

               (e) any change, restructuring or termination of the corporate
        structure or existence of the Borrower, any of its subsidiaries or any
        Party;

               (f) the existence of any claim, setoff, defense or other rights
        which the Borrower or the Guarantor may have at any time against the
        Agent, any Issuing Bank, the LC Guarantor or any Lender, any beneficiary
        of any Letter of Credit or Set-Aside Letter (or any Persons or entities
        for whom any such beneficiary may be acting) or any other Person,
        whether in connection with the Loan Agreement, any other Loan Documents
        or any other agreement or instrument relating thereto, or any unrelated
        transactions;


                                        2



<PAGE>   142

               (g) any demand, statement or any other document presented under
        any Letter of Credit or Set-Aside Letter proving to be forged,
        fraudulent, invalid or insufficient in any respect or any statement
        therein being untrue or inaccurate in any respect whatsoever;

               (h) payment by any Issuing Bank under any Letter of Credit
        against presentation of a draft or any accompanying document which does
        not strictly comply with the terms of such Letter of Credit;

               (i) the existence, character, quality, quantity, condition,
        packing, value or delivery of any Property purported to be represented
        by documents presented in connection with any Letter of Credit or any
        difference between any such Property and the character, quality,
        quantity, condition or value of such Property as described in such
        documents;

               (j) the time, place, manner, order or contents of shipments or
        deliveries of property as described in documents presented in connection
        with any Letter of Credit or the existence, nature and extent of any
        insurance relating thereto;

               (k) the solvency (or insolvency) or financial responsibility (or
        lack thereof) of any party issuing any documents in connection with any
        Letter of Credit;

               (l) any failure or delay in notice of shipment or arrival of any
        Property;

               (m) any error in the transmission of any message relating to any
        Letter of Credit not caused by the Issuing Bank thereof, or any delay or
        interruption in any such message;

               (n) any error, neglect or default of any correspondent of any
        Issuing Bank in connection with any Letter of Credit; and/or

               (o) any other circumstance which might otherwise constitute a
        defense available to, or a discharge of, the Borrower or a guarantor.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned by the Agent, any Lender, any such Issuing Bank or the LC
Guarantor upon the insolvency, bankruptcy or reorganization of the Borrower, any
of its subsidiaries, any Party or otherwise, all as though such payment had not
been made.


                                        3


<PAGE>   143


               SECTION 3. Waivers.  The Guarantor hereby waives, to the fullest
extent permitted by applicable law:

               (a) any requirement that the Agent, any Lender, any Issuing Bank
        or the LC Guarantor perfect, secure or insure any security interest or
        lien or any property subject thereto or exhaust any right or take any
        action against the Borrower or any other Person or any collateral;

               (b) any defense arising by reason of any claim or defense based
        upon an election of remedies by the Agent, any Lender, any Issuing Bank
        or the LC Guarantor (including, without limitation, an election to
        nonjudicially foreclose on any real or personal property collateral)
        which in any manner impairs, reduces, releases or otherwise adversely
        affects its subrogation, reimbursement or contribution rights or other
        rights to proceed against the Borrower, any other Person or any
        collateral;

               (c) any defense arising by reason of the failure of any other
        Person to execute this Guaranty or any other guaranty or agreement;

               (d) any defense arising by reason of the failure of any Party to
        execute properly any Loan Document or otherwise comply with applicable
        legal formalities;

               (e) any defense or benefits that may be derived from [California
        Civil Code Sections 2808, 2809, 2810, 2819, 2845 or 2850, or California
        Code of Civil Procedure Sections 580a, 580d or 726,]* or comparable
        provisions of the laws of any other jurisdiction and all other
        suretyship defenses it would otherwise have under the laws of California
        or any other jurisdiction;

               (f) any duty on the part of the Agent, any Lender, any Issuing
        Bank or the LC Guarantor to disclose to the Guarantor any matter, fact
        or thing relating to the business, operation or condition of the
        Borrower, any of its subsidiaries or any Party and their respective
        assets now known or hereafter known by the Agent, such Lender, such
        Issuing Bank or the LC Guarantor;

               (g) all benefits of any statute of limitations affecting the
        Guarantor's liability under this Guaranty or affecting the enforcement
        of this Guaranty or any of the Obligations or realization on the
        collateral;

--------

        *      To confirm.


                                        4


<PAGE>   144

               (h) all setoffs and counterclaims;

               (i) promptness, diligence, presentment, demand for performance
        and protest;

               (j) notice of nonperformance, default, acceleration, protest or
        dishonor;

               (k) except for any notice otherwise required by applicable laws
        that may not be effectively waived by the Guarantor (all of which are
        hereby waived to the fullest extent permitted by law), notice of sale or
        other disposition of the collateral; and

               (l) notice of acceptance of this Guaranty and of the existence,
        creation or incurring of new or additional Obligations.

               SECTION 4. Waiver of Defense from Nonjudicial Foreclosure. The
Guarantor acknowledges that if the Agent, acting on the instructions of the
Majority Lenders, forecloses any of the deeds of trust or mortgages or any other
Collateral Documents executed by the Borrower or any other Party in favor of the
Agent or any other deed of trust or mortgage covering interests in real
property, and the interest in real property secured thereby, by nonjudicial
sale, the Guarantor may, if it were not for this Section 4, have a defense to
the recovery under this Guaranty for any deficiency from such nonjudicial sale;
however, the Guarantor hereby waives such defense to the recovery by the Agent,
the Lenders, the Issuing Banks (other than any Third Party Issuer) and the LC
Guarantor against the Guarantor of any deficiency after a nonjudicial sale and
the Guarantor expressly waives any defense or benefits that may be derived from
California Code of Civil Procedure [Section 580a, Section 580d] or any other
similar statute. Without limiting the foregoing, the Guarantor waives any
defense arising out of any such nonjudicial sale even though such sale operates
to impair or extinguish any right of reimbursement or subrogation or any other
right or remedy of the Guarantor against the Borrower or any other Party or any
collateral security.

               SECTION 5. Waiver of Subrogation and Contribution Rights. The
Guarantor hereby irrevocably waives any rights (including, without limitation,
any rights arising under California Civil Code Sections [2847, 2848 and 2849)]
which it may acquire by way of subrogation under this Guaranty or any other Loan
Document, by any payment made hereunder or otherwise, including without
limitation, the right to take or receive from the Borrower, directly or
indirectly, in cash or other property or by setoff or in any other manner,
payment or security on account of such subrogation rights. The Guarantor hereby
irrevocably agrees, to the fullest extent permitted by law, that it will not
exercise any rights which it may acquire by way of contribution, reimbursement,
indemnification or exoneration under this Guaranty or any other Loan Document,
by any payment made hereunder or otherwise, all of such rights being expressly
waived herein. If any amount shall be paid to the Guarantor in violation of the
preceding sentences and the Obligations shall not have been paid in full, such
amount shall be deemed to have been paid to the Guarantor for the benefit of,
and held in trust for the benefit of, the Agent, the Lenders, the Issuing Banks
(other than any Third Party Issuer) and the LC Guarantor and shall forthwith be
paid to the Agent for its benefit and the benefit of the Lenders, such Issuing


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<PAGE>   145
Banks and the LC Guarantor to be credited and applied to the Obligations,
whether matured or unmatured, in accordance with the terms of the Loan Agreement
and the other Loan Documents.

               SECTION 6. Taxes. The Guarantor agrees, subject to the limits set
forth in Section 13.3 of the Loan Agreement, to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery, registration, filing, recording or enforcement of, or otherwise with
respect to, this Guaranty and the other Loan Documents to which it is party.

               SECTION 7. Representations and Warranties. The Guarantor hereby
represents and warrants to the Agent, the Issuing Banks (other than any Third
Party Issuer), the LC Guarantor and the Lenders, and each of them, as follows:

               (a) Each of this Guaranty, the other Loan Documents to which it
        is party is or has been executed at the request of the Borrower and no
        oral promises, assurances, representations or warranties have been made
        by or on behalf of the Agent, any Lender, any Issuing Bank or the LC
        Guarantor to induce the Guarantor to execute and deliver this Guaranty
        and such other Loan Documents.

               (b) (i) The Guarantor is a corporation duly formed, validly
        existing and in good standing under the Laws of Delaware. The Guarantor
        is duly qualified or registered to transact business and is in good
        standing in each jurisdiction in which the conduct of its business or
        the ownership or leasing of its Properties makes such qualification or
        registration necessary, except where the failure so to qualify or
        register and to be in good standing would not have a material adverse
        effect on the business, operations or condition (financial or otherwise)
        of the Guarantor. The Guarantor has all requisite corporate power and
        authority to conduct its business, to own and lease its Properties and
        to execute, deliver and perform all of its Obligations under this
        Guaranty and the other Loan Documents.

                (ii)    At the Closing Date, the authorized capital stock of the
                        Guarantor will consist of 100,w000,000 shares of Series
                        A Stock, par value $.01 per share, 50,000,000 shares of
                        Series B Stock, par value $.01 per share, and 25,000,000
                        shares of preferred stock, par value $.01 per share. As
                        of the Closing Date, the Guarantor will have no
                        outstanding subscriptions, options, warrants, calls,
                        contracts, demands, commitments, convertible securities
                        or other instruments, agreements or arrangements of any
                        character or nature whatsoever under which the Guarantor
                        is or may be obligated to issue common stock, preferred
                        stock, or other securities of any kind which would
                        constitute or otherwise cause the occurrence of a
                        Default under the Loan Agreement or under any other Loan
                        Document. The Guarantor has no other authorized capital
                        stock. As of the Closing Date, 20,516,371 shares of
                        Series A Stock and 31,679,307 shares of Series B Stock
                        will have been issued by the Guarantor, and no shares of
                        preferred stock will have been issued. All outstanding
                        shares of common stock of the Guarantor are duly
                        authorized, validly issued, fully paid, non-

                                        6

<PAGE>   146

                        assessable and issued in compliance with all applicable
                        state and federal securities and other Laws. The
                        Guarantor meets each of the requirements listed
                        in Section 25117(a)(2)(A) of the California Corporations
                        Code.

                (iii)   The Guarantor is in compliance with all Laws and other
                        legal requirements applicable to its business, has
                        obtained all authorizations, consents, approvals,
                        orders, licenses and permits from, and has accomplished
                        all filings, registrations and qualifications with, or
                        obtained exemptions from any of the foregoing from, any
                        Governmental Agency that are necessary for the
                        transaction of its business, except where the failure so
                        to comply, ------ or to obtain authorizations, consents,
                        approvals, orders, licenses or permits, or file,
                        register, qualify or obtain exemptions would not have a
                        material adverse effect on the business, operations or
                        condition (financial or otherwise) of the Guarantor.

                (iv)    The Guarantor has no Subsidiary or Subsidiaries other
                        than the Borrower, Presley Mortgage Company, a
                        California corporation, PH Ventures - San Jose, a
                        California corporation, PH-LP Ventures, a California
                        corporation, PH Institutional Ventures, a California
                        corporation, HSP, Inc., a California corporation,
                        Presley Southwest, Inc., an Arizona corporation, The
                        Presley Companies, a California corporation, Presley
                        CMR, Inc., and CMR. The Guarantor owns 100% of the
                        issued and outstanding common stock of the Borrower.

               (c) Except as set forth in Schedule 6.2 to the Loan Agreement,
        the execution, delivery and performance of each Loan Document by each
        Party, to the extent such Party is a party thereto, have been duly
        authorized by all necessary action, and do not and will not:

                (i)     Require any consent or approval not heretofore obtained
                        of any partner, director, stockholder, security holder
                        or creditor;

                (ii)    Violate or conflict with any provision of such Party's
                        partnership agreement, certificate of limited
                        partnership, charter, articles of incorporation or
                        bylaws, or amendments thereto, as applicable;

                (iii)   Result in or require the creation or imposition of any
                        Lien or Right of Others (other than as permitted under
                        the Loan Documents) upon or with respect to any Property
                        now owned or leased or hereafter acquired by such Party;

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


                                        7
<PAGE>   147

                (v)     Violate any provision of any Law (including, without
                        limitation, Regulations T, U and/or X of the Board of
                        Governors of the Federal Reserve System or the usury
                        laws of any jurisdiction), order, writ, judgment,
                        injunction, decree, determination or award presently in
                        effect and having applicability to such Party; or

                (vi)    Result in a breach of or constitute a default under, or
                        cause or permit the acceleration of any obligation owed
                        under, any indenture or loan or credit agreement or any
                        other material agreement, lease or instrument to which
                        such Party is a party or by which such Party or any of
                        its Property is bound or affected; and neither the
                        Borrower nor the Guarantor is in default under any Law,
                        order, writ, judgment, injunction, decree, determination
                        or award, or any indenture, agreement, lease or
                        instrument described in Schedule 6.2 to the Loan
                        Agreement as contemplated above in this subsection (c),
                        in any respect that is materially adverse to the
                        interests of the Agent, the Issuing Banks, the LC
                        Guarantor or the Lenders or that would have any material
                        adverse effect on the business, operations or condition
                        (financial or otherwise) of the Borrower or the
                        Guarantor.

               (d) Except as set forth in Schedule 6.3 to the Loan Agreement, no
        authorization, consent, approval, order, license or permit from, or
        filing, registration or qualification with, or exemption from any of the
        foregoing from, any Governmental Agency is or will be required to
        authorize or permit under applicable Law the execution, delivery and
        performance by any Party of the Loan Documents. As to those matters set
        forth in Schedule 6.3 to the Loan Agreement, the Borrower has obtained
        such authorizations, consents, approvals, orders, licenses and permits
        required to authorize or permit under any applicable Law the execution,
        delivery and performance by any Party of the Loan Documents, except as
        otherwise indicated on said Schedule.

               (e) The Borrower has furnished to the Agent and the Lenders (i)
        the audited consolidated balance sheet of the Guarantor as at December
        31, 1997, and the related audited consolidated statement of operations
        of the Guarantor for the period then ended and (ii) the unaudited
        interim consolidated balance sheet of the Guarantor as of April 30, 1998
        and the related unaudited interim consolidated statement of operations
        for the four months ended April 30, 1998. Such financial statements
        fairly present the financial condition and results of operations of the
        Guarantor as at such dates and for such periods, in conformity with
        GAAP, consistently applied, except that the unaudited interim financial
        statements do not include all of the information and footnotes required
        by GAAP for complete financial statements. There has been no material
        adverse change in the business, prospects, operations or condition
        (financial or otherwise) of the Guarantor and the Borrower since April
        30, 1998.

               (f) Except as set forth in Schedule 6.9 to the Loan Agreement,
        there are no actions, suits or proceedings pending or, to the best
        knowledge of the Guarantor, threatened against or affecting the
        Borrower, any of its Subsidiaries, the Guarantor or any Property of the
        Borrower or any such Subsidiary or the Guarantor in any court of Law or


                                        8
<PAGE>   148
        before any Governmental Agency (i) where the amount in controversy is
        $1,000,000 or more, (ii) which involve claims under the Racketeer
        Influenced and Corrupt Organization Act of 1970, 18 U.S.C. Sections
        1961-1968, or any other federal or state law for which the forfeiture of
        assets is a potential penalty, or (iii) which, if determined adversely
        to the Borrower or such Subsidiary or the Guarantor, as applicable,
        would have a material adverse effect on the condition or operations of
        the Borrower or the Guarantor, financial or otherwise, or which material
        adverse effect may affect the legality, validity or enforceability of
        the Loan Documents.

               (g) Subject to the exceptions set forth in the Opinion of Counsel
        addressed to the Agent and the Lenders and dated as of the Closing Date,
        each of the Loan Documents will, when executed and delivered by the
        Borrower or the Guarantor, constitute the legal, valid and binding
        obligation of the Borrower or the Guarantor, as applicable, enforceable
        against the Borrower or the Guarantor, as applicable, in accordance with
        its terms, except as enforcement may be limited by bankruptcy,
        insolvency, reorganization, arrangement, moratorium or other similar
        Laws relating to or affecting creditors' rights generally or equitable
        principles relating to the granting of specific performance and other
        equitable remedies as a matter of judicial discretion.

               (h) No event has occurred and is continuing that is a Default.

               (i) No written statement made by or on behalf of the Borrower or
        the Guarantor to the Agent or any Lender in connection with the Loan
        Agreement, or in connection with any Revolving Loan, when taken in
        context with all other such statements, contains any untrue statement of
        a material fact or omits a material fact necessary to make the statement
        made not misleading in light of all of the circumstances existing at the
        time the statement was made, including without limitation matters
        disclosed to the Agent and the Lenders in any Schedules to the Loan
        Agreement or in any other written statement previously delivered to the
        Agent and the Lenders pursuant to the Loan Agreement. To the best
        knowledge of the Guarantor there is no fact (except for general economic
        conditions) which the Borrower has not disclosed to the Agent and the
        Lenders in writing which materially and adversely affects nor, so far as
        the Guarantor can now reasonably foresee, can reasonably be expected to
        affect materially and adversely the business, operations, Properties,
        prospects, profits or condition (financial or otherwise) of the Borrower
        or the Guarantor, or the ability of either the Borrower or the Guarantor
        to perform its Obligations under the Loan Documents.

               (j) The Borrower, each of its Subsidiaries and the Guarantor have
        filed all federal and state income tax returns, and all material tax
        returns other than federal and state income tax returns, that are
        required (subject to any extensions obtained pursuant to applicable Law)
        to be filed, and have paid, or made provision for the payment of, all
        taxes payable by the Borrower or such Subsidiary or the Guarantor with
        respect to the periods, Property or transactions covered by said
        returns, or pursuant to any assessment received by the Borrower or such
        Subsidiary or the Guarantor, except such taxes, if any, as are being
        contested in good faith by appropriate proceedings and as to which
        adequate reserves have been established and maintained.


                                        9
<PAGE>   149

               (k) [Deleted]

               (l) The Guarantor has established adequate means of obtaining
        from the Borrower on a continuing basis information pertaining to, and
        is now and on a continuing basis will be completely familiar with, the
        financial condition, operations, properties and prospects of the
        Borrower, and, independently and without reliance upon the Agent, any
        Lender or Issuing Bank or the LC Guarantor, has made its own credit
        analysis and decision to enter into this Guaranty.

               (m) The Guarantor has received and approved copies of all of the
        other Loan Documents.

               (n) There are no conditions precedent to the effectiveness of
        this Guaranty that have not been satisfied or waived.

               SECTION 8. Affirmative Covenants. The Guarantor covenants and
agrees that, so long as any part of the obligations shall remain unpaid (other
than any contingent indemnity obligations under any Loan Document) or any Lender
shall have any Revolving Commitment, the Guarantor shall, unless the Majority
Lenders otherwise consent in writing:

               (a) Pay and discharge promptly all taxes, assessments and
        governmental charges or levies imposed upon it or its Property or any
        part thereof, upon its income or profits or any part thereof or, subject
        to the provisions of Section 13.7 of the Loan Agreement, upon any right
        or interest of the Agent, any Issuing Bank, the LC Guarantor or any
        Lender under any Loan Document, except that it shall not be required to
        pay or cause to be paid (i) any income, net worth or gross receipts tax,
        or any tax imposed in lieu of such income, gross receipts or net worth
        taxes, applicable to any Lender or any participant of any Lender, or
        (ii) any tax, assessment, charge or levy that is not yet delinquent, or
        is being contested in good faith by appropriate proceedings, so long as
        it has established and maintains adequate reserves for the payment of
        the same and by reason of such nonpayment and contest no material item
        or portion of its Property is in jeopardy of being seized, levied upon
        or forfeited.

               (b) Preserve and maintain its existence, and all material
        licenses, rights, franchises and privileges in the jurisdiction of its
        formation and all authorizations, consents, approvals, orders, licenses,
        permits, or exemptions from, or registrations with, any Governmental
        Agency that are necessary for the transaction of its business,
        including, without limitation, all notices, permits or licenses, if any,
        filed or obtained with regard to compliance with Environmental Laws, and
        qualify and remain qualified to transact business in each jurisdiction
        in which such qualification is necessary in view of its business or the
        ownership or leasing of its Properties.


                                       10
<PAGE>   150

               (c) Maintain, preserve and protect all of its depreciable
        Properties and equipment in good order and condition, subject to wear
        and tear in the ordinary course of business, and not permit any waste
        (other than developmental waste) of its Properties, except that the
        failure to maintain, preserve and protect a particular item of
        depreciable Property or equipment that is not of significant value,
        either intrinsically or to its operations, shall not constitute a
        violation of this covenant.

               (d) Comply in all material respects with the requirements of all
        applicable Laws and orders of any Governmental Agency, including all
        applicable provisions of ERISA, except that it need not comply with a
        requirement then being contested by it in good faith by appropriate
        proceedings so long as no interest of the Agent or any Lender or Issuing
        Bank or the LC Guarantor would be materially impaired thereby.

               (e) At any time during regular business hours and as often as
        requested, permit the Agent or any other Lender, or any employee, agent
        or representative thereof, (a) to examine, audit and make copies and
        abstracts from the records and books of account of, and to visit and
        inspect the Properties of, the Borrower, any of its Subsidiaries and the
        Guarantor and to discuss the affairs, finances and accounts of the
        Borrower, any such Subsidiary and the Guarantor with any of its officers
        and key employees, customers or vendors, and/or (b) to inspect the real
        Property of the Borrower and any such Subsidiary, and any books,
        records, journals, orders, receipts, correspondence, notices, permits or
        licenses of the Borrower, any such Subsidiary and the Guarantor, with
        regard to compliance with Environmental Laws, and, upon request, furnish
        promptly to the Agent or any other Lender true copies of all financial
        information and all information pertaining to the Borrower's and such
        Subsidiary's compliance with Environmental Laws made available to the
        senior management of the Borrower or such Subsidiary.

               (f) Keep adequate records and books of account reflecting all
        financial transactions in conformity with GAAP, consistently applied,
        and in material conformity with all applicable requirements of any
        Governmental Agency having regulatory jurisdiction over it.

               (g) Promptly and fully comply with all of its agreements, duties
        and obligations under the Loan Documents, and under any other material
        agreements, indentures, leases and/or instruments to which it is a
        party, whether such other agreements, indentures, leases or instruments
        are with the Agent, any Lender or any other Person, except that it need
        not comply with any such other agreements, indentures, leases or
        instruments then being contested by it in good faith by appropriate
        proceedings or if the failure to comply with such other agreements,
        indentures, leases or instruments would not have a material adverse
        effect on it, in either case so long as no material interest of the
        Agent or any Lender or Issuing Bank or the LC Guarantor would be
        materially impaired thereby.


                                       11

<PAGE>   151
               (h) At any time and from time to time upon the request of the
        Agent or the Majority Lenders, forthwith, and in any event within five
        Banking Days after such request, execute and deliver or cause to be
        executed and delivered to the Agent such Collateral Documents as may be
        requested by the Agent or the Majority Lenders, in the form furnished to
        the Guarantor by the Agent in connection with such request, covering any
        or all of its Property as requested, to secure payment and performance
        of the Obligations of such Person or of any other Party, or such portion
        thereof as may be specified by the Agent or the Majority Lenders. In
        addition, at any time and from time to time, the Guarantor forthwith
        shall deliver or cause to be delivered to the Agent at the Guarantor's
        sole expense such appraisals, surveys, and policies of title insurance
        and endorsements thereto relating to any or all of the Property of the
        Guarantor as the Agent or the Majority Lenders may request.

               (i) Cause all of its Cash and Cash Equivalents to be deposited
        into the Operating Account, unless otherwise agreed by the Majority
        Lenders or otherwise permitted under Section 7.11 of the Loan Agreement.

               (j) Cause the Borrower to deliver to the Agent and each Lender,
        at the Borrower's sole expense, as soon as practicable, and in any event
        within 30 days after the end of each fiscal month of the Borrower other
        than December and January, within 45 days after the end of each
        December, and within 36 days after the end of each January, (i) a
        consolidated balance sheet of the Guarantor as at the end of such month,
        setting forth in comparative form the corresponding figures as at the
        end of the preceding month and (ii) a consolidated statement of
        operations of the Guarantor for such month and for the portion of its
        fiscal year ended with such month, setting forth in comparative form the
        corresponding figures for the preceding month, all in reasonable detail.
        The preceding financial statements shall include, on a
        project-by-project basis, a breakdown of Real Estate Inventory costs. In
        addition, the preceding financial statements shall be certified by a
        Responsible Official of the Borrower as fairly presenting the financial
        condition and results of operations of the Guarantor in accordance with
        GAAP, consistently applied as at such date and for such periods, subject
        only to normal year-end audit adjustments, provided that such financial
        statements need not contain all footnotes and disclosures required by
        generally accepted accounting principles.

               (k) Cause the Borrower to deliver to the Agent and each Lender,
        at the Borrower's sole expense, as soon as practicable, and in any event
        within 120 days after the close of each fiscal year of the Borrower, (i)
        a consolidated balance sheet of the Guarantor as at the end of such
        fiscal year, and (ii) a consolidated statement of operations and of
        changes in financial position of the Guarantor for such fiscal year, all
        in reasonable detail. Such balance sheet and statements shall be
        prepared in accordance with GAAP, consistently applied, and shall be
        accompanied by a report and opinion of Ernst & Young LLP or other
        independent public accountants of recognized standing selected by the
        Borrower and reasonably satisfactory to the Majority Lenders, which
        report and opinion shall be prepared in accordance with generally
        accepted auditing standards as at such date, and shall not be subject to
        any qualifications or limitations except as approved by


                                       12
<PAGE>   152
        the Majority Lenders, which approval shall not be unreasonably withheld.
        Such accountants' report and opinion shall be accompanied by a separate
        report stating that, during their examination of the financial
        statements of the Guarantor, nothing came to the attention of such
        accountants that would give them knowledge of the existence of any
        Default under the Loan Agreement, or, if, in the opinion of such
        accountants, any such Default shall exist, stating the nature and status
        of such Default, and setting forth the financial calculations under
        Section 8.17 of the Loan Agreement as of the date of the balance sheet.

               (l) Deliver to the Agent and each Lender:

                   (i) Promptly after request by the Agent, copies of any
        detailed audit reports or recommendations submitted to the Guarantor by
        independent accountants in connection with the accounts or books of the
        Guarantor or any audit of any of them;

                   (ii) Promptly after request by the Agent, copies of any
        report or other document filed by the Guarantor with any Governmental
        Agency;

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

                   (iv) Promptly upon any corporate officer of the Guarantor
        becoming aware that (i) any Person commenced a legal proceeding with
        respect to a claim against the Guarantor in excess of $1,000,000 not
        arising under a contract that is not fully covered by insurance or (ii)
        any creditor or lessor under a written credit agreement or material
        lease has asserted a default thereunder on the part of the Guarantor or
        (iii) any Person commenced a legal proceeding with respect to a claim
        against the Guarantor under a contract that is not a credit agreement or
        material lease in excess of $500,000 or which otherwise may reasonably
        be expected to result in a material adverse effect on the Guarantor, a
        written notice describing the pertinent facts relating thereto and what
        action the Guarantor is taking or proposes to take with respect thereto;

                   (v) Promptly (but in any event within five Banking Days) upon
        becoming aware of any casualty loss affecting any Property of the
        Guarantor in excess of $500,000, or any other event that may have a
        material adverse effect on the financial condition or operations of the
        Guarantor, written notice of the same and the pertinent facts relating
        thereto; and

                   (vi) Such other data and information as from time to time may
        be reasonably requested by the Agent or the Majority Lenders.


                                       13
<PAGE>   153

               SECTION 9. Negative Covenants. The Guarantor covenants and agrees
that, so long as any part of the Obligations shall remain unpaid (other than any
contingent indemnity obligations under any Loan Document) or any Lender shall
have any Revolving Commitment, the Guarantor shall not, unless the Majority
Lenders (or all the Lenders (other than any Lender which is, at such time, a
Defaulting Lender), if expressly required below) shall otherwise consent in
writing:

               (a) Enter into any transaction of any kind with any Affiliate of
        the Guarantor other than arms'-length transactions with Affiliates that
        are permitted with non-Affiliates pursuant to Section 9(c).

               (b) Without the written consent of the Majority Lenders (other
        than any Defaulting Lender), merge, consolidate or amalgamate with or
        into any Person.

               (c) [(i) Make any Acquisition (as hereinafter defined) or enter
        into any agreement to make any Acquisition, or make or suffer to exist
        any Investment, other than (A) the Guarantor's Investment in the
        Borrower, (B) Investments consisting of Cash or Cash Equivalents that
        are maintained in deposit accounts in accordance with Section 7.11 of
        the Loan Agreement, and (C) Investments consisting of any prepaid
        expenses made on customary terms and in the ordinary course of the
        business of the Guarantor, or (ii) acquire any real Property. For the
        purposes hereof "Acquisition" shall mean any transaction, or any series
        of related transactions, by which the Guarantor or any Affiliate
        directly or indirectly (i) acquires any going business or all or
        substantially all of the assets of any firm, partnership, joint venture,
        corporation or division thereof, whether through purchase of assets,
        merger or otherwise, or (ii) acquires (in one transaction or as the most
        recent transaction in a series of transactions) control of at least a
        majority in ordinary voting power of the securities of a corporation
        which have ordinary voting power for the election of directors.]

               (d) Transfer, sell, encumber, hypothecate, pledge or otherwise
        dispose of any interest in the Borrower.

               (e) [(i) Engage in any sale and leaseback transactions with any
        Person, or (ii) sell, lease, transfer or otherwise dispose of any of its
        Properties, whether now owned or hereafter acquired, or grant any option
        or other right to purchase, lease or otherwise acquire any such
        Property, to any Person.]

               (f) Accept dividends or other distributions with respect to
        capital stock of the Borrower which are prohibited by Section 8.5 of the
        Loan Agreement.

               (g) Make any material change in the nature of the business of the
        Guarantor, as conducted and presently proposed to be conducted.

               (h) Create, incur, assume or suffer to exist any Lien of any
        nature upon or with respect to any of its Properties, whether now owned
        or hereafter acquired; create, incur or assume any indebtedness for
        borrowed money or in connection with the purchase of


                                       14
<PAGE>   154

        Property or any liability to the issuer of any letter of credit;
        guaranty the indebtedness or obligations of any other Person or provide
        to a creditor of any other Person any agreement to maintain net worth or
        liquidity of the Person or any other analogous agreement designed to
        provide credit assurance to such creditor; or incur any lease obligation
        that is required to be capitalized under GAAP; except:

                  (i) Liens securing taxes, assessments or governmental charges
        or levies, or in connection with workers' compensation, unemployment
        insurance or social security obligations, or the claims or demands of
        carriers, warehousemen, landlords and other like Persons not yet
        delinquent or which are being contested in good faith by appropriate
        proceedings with adequate reserves set aside;

                  (ii) Attachment, judgment or other similar Liens arising in
        connection with court proceedings that do not, in the aggregate,
        materially detract from the value of the Guarantor's Property,
        materially impair the use thereof in the operation of the Guarantor's
        business, or materially impair the Guarantor's ability to perform the
        Obligations and (A) that are discharged or stayed within thirty days of
        attachment or levy, or (B) payment of which is covered in full (subject
        to customary and reasonable deductibles) by insurance, surety bond or
        reserves;

                  (iii) Indebtedness, liabilities, guarantees or Liens in favor
        of the Agent or the Lenders, the Issuing Banks or the LC Guarantor under
        the Loan Agreement, the Notes and the other Loan Documents;

                  (iv) Unsecured indebtedness incurred to vendors in the
        ordinary course of business;

                  (v) Guarantees arising from endorsement, in the ordinary
        course of collection, of negotiable instruments; and

                  (vi) Indebtedness in respect of High Yield Securities.

               SECTION 10. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty, and no consent to any departure by the Guarantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent and the Majority Lenders, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given, provided, however, that no amendment, waiver or consent
shall, unless in writing and signed by all the Lenders (other than any Lender
which is, at such time, a Defaulting Lender), (a) limit the liability of the
Guarantor hereunder, (b) postpone any date fixed for payment hereunder, or (c)
change the number of Lenders required to take any action hereunder. Nothing
contained in this Section 10 shall prohibit or prevent the Majority Lenders from
agreeing with the Guarantor to forbear in the exercise of remedies on account of
any Default.


                                       15
<PAGE>   155

               SECTION 11. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Guarantor, at its address
specified on the signature page hereto, and if to the Agent or any Lender or
Issuing Bank (other than any Third Party Issuer) or the LC Guarantor, at its
address specified in the Loan Agreement, or, as to any party, at such other
address (other than a post office box) as shall be designated by such party in a
written notice to each other party. Any notice, request, demand, direction or
other communication given by telegram, telecopier, telex or cable must be
confirmed within 48 hours by letter mailed or delivered to the appropriate party
at its respective address. Except as otherwise expressly provided in any Loan
Document, if any notice, request, demand, direction or other communication
required or permitted by any Loan Document is given by mail it will be effective
on the earlier of receipt or the third Banking Day after deposit in the United
States mail with first class or airmail postage prepaid; if given by telegraph
or cable, when delivered to the telegraph company with charges prepaid; if given
by telex or telecopier, when sent; or if given by personal delivery, when
delivered.

               SECTION 12. No Waiver; Remedies. No failure on the part of the
Agent or any Lender or Issuing Bank (other than any Third Party Issuer) or the
LC Guarantor to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

               SECTION 13. Right of Set-off. Upon (i) the occurrence and during
the continuance of any Event of Default and (ii) the making of the request or
the granting of the consent specified by Section 11.2 of the Loan Agreement to
authorize the Agent to declare the Notes due and payable pursuant to the
provisions of said Section 11.2, each of the Lenders, the Issuing Banks (other
than any Third Party Issuer) and the LC Guarantor is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, but only
with the consent of the Majority Lenders, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender or Issuing Bank or
the LC Guarantor to or for the credit or the account of the Guarantor against
any and all of the obligations of the Guarantor now or hereafter existing under
this Guaranty, whether or not such Lender or Issuing Bank or the LC Guarantor
shall have made any demand under this Guaranty and although such obligations may
be contingent and unmatured. Each of the Lenders, the Issuing Banks (other than
any Third Party Issuer) and the LC Guarantor agrees promptly to notify the
Guarantor after any such set-off and application made by such Lender or Issuing
Bank or the LC Guarantor, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of each of
the Lenders, the Issuing Banks (other than any Third Party Issuer) and the LC
Guarantor under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which such Lender or
Issuing Bank or the LC Guarantor may have.


                                       16
<PAGE>   156
               SECTION 14. Continuing Guaranty. This Guaranty is a continuing
guaranty, is irrevocable, and shall (i) remain in full force and effect until
the later of (x) the payment in full of the Obligations (other than any
contingent indemnity obligations under any Loan Document) and all other amounts
payable under this Guaranty and (y) the termination of the aggregate Commitments
under the Loan Agreement, (ii) be binding upon the Guarantor, its successors and
assigns, and (iii) inure to the benefit of, and be enforceable by, the Agent,
the Lenders, the Issuing Banks (other than any Third Party Issuer), the LC
Guarantor and their respective successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), any Lender may assign or
otherwise transfer all or any portion of its rights and obligations under the
Loan Agreement (including, without limitation, all or any portion of its
Revolving Commitments, the Revolving Advances owing to it and the Revolving Note
held by it) to any other person or entity (which person or entity must be an
Eligible Assignee if and to the extent required under Section 13.7 of the Loan
Agreement), and such other person or entity shall thereupon become vested with
all the benefits in respect thereof granted to such Lender herein or otherwise,
subject, however, to the provisions of Article 12 (concerning the Agent) and
Section 13.7 (concerning assignments) of the Loan Agreement.

               SECTION 15. Severability. The provisions of this Guaranty are
severable, and if any clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Guaranty in
any jurisdiction.

               SECTION 16. Survival of Representations and Warranties. All
representations and warranties contained herein or in any other Loan Document,
or in any certificate or other writing delivered by or on behalf of any one or
more of the Parties to any Loan Document, will survive the making and repayment
of the Revolving Loans under the Loan Agreement and the execution and delivery
of the Revolving Notes, and have been or will be relied upon by the Agent, each
Issuing Bank (other than any Third Party Issuer), the LC Guarantor and each
Lender notwithstanding any such investigation made by the Agent, any such
Issuing Bank, the LC Guarantor or any Lender.

               SECTION 17. Waiver of Jury Trial. The Guarantor hereby waives any
right to a trial by jury in any action or proceeding to enforce or defend any
rights under this Guaranty or any other Loan Documents or relating thereto or
arising from the lending relationship which is the subject of the Loan Agreement
or the relationship which is the subject of this Guaranty and the other Loan
Documents and agrees that any such action or proceeding shall be tried before a
court and not before a jury.

               SECTION 18. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS.

                                       17
<PAGE>   157

               IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.

                                         THE PRESLEY COMPANIES, 
                                         a Delaware corporation


                                         By:
                                             -----------------------------------
                                             Name:  David M. Siegel
                                             Title: Senior Vice President - 
                                             Chief Financial Officer


                                         By:
                                             -----------------------------------
                                             Name:  W. Douglass Harris
                                             Title: Vice President -
                                                    Corporate Controller

                                         Address:

                                         19 Corporate Plaza
                                         Newport Beach, California 92660
                                         Attn: David M. Siegel
                                               Senior Vice President
                                               Chief Financial Officer

                                                         and

                                               W. Douglass Harris
                                               Vice President - Corporate 
                                                 Controller
                                               Telecopier:(949) 640-1710
                                               Telephone: (949) 640-6400

<PAGE>   158

                                    EXHIBIT K

                     AMENDED AND RESTATED SECURITY AGREEMENT

             This AMENDED AND RESTATED SECURITY AGREEMENT ("Agreement"), dated
as of _________, 1994, is made by The Presley Companies, a California
corporation ("Grantor'), as the Grantor, in favor of FOOTHILL CAPITAL
CORPORATION, as the Agent under the Loan Agreement hereinafter referred to, and
in favor of each of the Lenders therein named and the issuing Banks (other than
any Third Party Issuer) and the LC Guarantor (in each case as defined in
the.Loan Agreement), collectively as the Secured Party, with reference to the
following facts:

                                    RECITALS

            A. Pursuant to the Loan Agreement (as defined below), the Secured
Party is making certain credit facilities available to the Grantor.

            B. The Grantor has entered into an Amended and Restated Security
Agreement dated as of May 7, 1993 (as amended, the "Existing Security
Agreement") in favor of the agent under the Existing Loan Agreement and the
lenders named therein.

            C. As a condition of the availability of such credit facilities, the
Grantor is required to enter into this Agreement and to grant security interests
to the Secured Party as herein provided.

            D. The Grantor expects to realize direct indirect benefits as a
result of the availability of the aforementioned credit facilities.

                                    AGREEMENT

            NOW, THEREFORE, in order to induce the Secured Party to extend the
aforementioned credit facilities, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Grantor hereby
agrees that, effective on and as of the Closing Date, the Existing Security
Agreement is amended and restated in its entirety as follows, and hereby
represents, warrants, covenants, agrees, assigns and grants as follows:

<PAGE>   159

               SECTION 1. Definitions.

               "Loan Agreement" means that certain Fourth Amended and Restated
Loan Agreement dated as of March 25, 1994 among the Grantor, the Lenders and the
Agent, as it may from time to time be amended, restated, extended, renewed,
modified or supplemented. This Agreement is one of the "Loan Documents" referred
to in the Loan Agreement. Terms defined in the Loan Agreement and not otherwise
defined in this Agreement shall have the meanings defined for those terms in the
Loan Agreement. Terms defined in the California Commercial Code and not
otherwise defined in this Agreement or in the Loan Agreement shall have the
meanings defined for those terms in the California Commercial Code. As used in
this Agreement, the following terms shall have the meanings respectively set
forth after each:

               "Agreement" means this Amended and Restated Security Agreement,
and any extensions, modifications, renewals, restatements, supplements or
amendments hereof.

               "Collateral" means and includes all present and future or
after-acquired right, title and interest of the Grantor in or to any Property or
assets whatsoever, and all rights and powers of the Grantor to transfer any
interest in or to any Property or assets whatsoever, including, without
limitation, any and all of the following Property:

               (a) All present and future accounts accounts receivable,
agreements, contracts, leases, contract rights, rights to payment, instruments
(including without limitation the Notes Receivable), documents, chattel paper,
security agreements, guaranties, undertakings, surety bonds, insurance policies,
notes and drafts, and all forms of obligations owing to the Grantor or in which
the Grantor may have any interest, however created or arising, and any
collateral or security for any of the foregoing;

               (b) All present and future general intangibles, all tax refunds
of every kind and nature to which the Grantor now or hereafter may become
entitled, however arising, all other refunds, and all deposits, goodwill,
choices in action, trade secrets, computer programs, software, customer lists,
trademarks, trade names, patents, licenses, copyrights, technology, processes,
proprietary information, insurance proceeds, plans and specifications and, to
the extent that the following can be made subject hereto without adversely
affecting the Grantor's rights therein, governmental entitlements and
governmental credits;

               (c) All present and future deposit accounts of the Grantor,
including, without limitation, the Operating Account, the other operating
accounts referred to in Section 7.11 of the Loan Agreement (other than clauses
(i), to the extent such accounts are subject to Liens in favor of lenders
providing secured financing to divisions referred to therein, and (iv) thereof)
and any demand, time, savings, passbook or like account maintained by the
Grantor with any bank, savings and loan association, credit union or like
organization, and all money, cash and cash equivalents (including, without
limitation, the Cash and Cash Equivalents) of the Grantor, whether or not
deposited in any such deposit account;



                                        2
<PAGE>   160
               (d) All present and future books and records, including, without
limitation, books of account and ledgers of every kind and nature, all
electronically recorded data relating to the Grantor or the business thereof,
all receptacles and containers for such records, and all files and
correspondence;

        (e) All present and future goods, including,, without limitation, all
consumer goods, farm products, inventory, equipment, machinery, tools, molds,
dies, furniture, furnishings, fixtures, trade fixtures, motor vehicles and all
other goods used in connection with or in the conduct of the Grantor's business;

        (f) All present and future inventory and merchandise, including, without
limitation, all present and future goods held for sale or lease or to be
furnished under a contract of service, all raw materials, work in process and
finished goods, all packing materials, supplies and containers relating to or
used in connection with any of the foregoing, and all bills of lading, warehouse
receipts or documents of title relating to any of the foregoing;

        (g) All present and future stocks (including, without limitation, all
outstanding stock of Presley CMR, Inc., a California corporation), bonds,
debentures, securities, subscription rights, options, warrants, puts, calls,
certificates, partnership interests (including, without limitation, in Palm
Desert Resorter, a California general partnership), joint venture interests
(including, without limitation, the Grantor's joint venture interests in CMR and
Horsethief Canyon Ranch Partnership), Investments and/or brokerage accounts and
all rights, preferences, privileges, dividends, distributions, redemption
payments, or liquidation payments with respect thereto;

        (h) All present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions, additions,
issue and/or improvements to or of or with respect to any of the foregoing;

        (i) All other tangible and intangible Property of the Grantor (other
than any of its real Property located in New Mexico which secures other
indebtedness of the Grantor to the extent permitted by Section 8.8(i)(ii) of the
Loan Agreement and other than the operating accounts described in clauses (i),
to the extent such accounts are subject to Liens in favor of lenders providing
secured financing to the divisions referred to in such clause, and (iv) of
Section 7.11 of the Loan Agreement);

        (j) All rights, remedies, powers and/or privileges of the Grantor with
respect to any of the foregoing; and

        (k) Any and all proceeds and products of any of the foregoing,
including, without limitation, all money, accounts, general intangibles, deposit
accounts, documents, instruments, chattel paper, goods, insurance proceeds, and
any other tangible or intangible property received upon the sale or disposition
of any of the foregoing.


                                        3
<PAGE>   161
               "Grantor" means The Presley Companies, a California corporation,
and its successors and permitted assigns.

               "Secured Obligations" means any and all present and future
Obligations of any type or nature of the Grantor to the Secured Party arising
under or relating to the Loan Documents or any one or more of them, whether due
or to become due, matured or unmatured, liquidated or unliquidated, contingent
or noncontingent, and whether arising in contract, tort or otherwise, including
Obligations of performance as well as obligations of payment, and including
interest that accrues after the commencement of any bankruptcy or insolvency
proceeding by or against the Grantor or any Affiliate of the Grantor.

               "Secured Party" means the Agent (acting as the Agent and/or on
behalf or the Lenders, the Issuing Banks (other than any Third Party Issuer)
and,the LC Guarantor), and the Lenders, such Issuing Banks and the LC Guarantor,
collectively, and each of them, and any one or more of them. Subject to the
terms of the Loan Agreement, any right, remedy, privilege or power of the
Secured Party hereunder may be exercised by the Agent, or by the Majority
Lenders, or by any Lender, or any such Issuing Bank, or the LC Guarantor, in
each case if acting with the consent of the Majority Lenders.

               SECTION 2. Further Assurances. At any time and from time to time
at the request of the Secured Party, the Grantor shall execute and deliver to
the Secured Party all such financing statements and other instruments and
documents in form and substance satisfactory to the Secured Party as shall be
necessary or desirable to fully perfect, when filed and/or recorded, the Secured
Party's security interests granted pursuant to Section 3 of this Agreement, At
any time and from time to time, the Agent, for the Secured Party, shall be
entitled to file and/or record any or all such financing statements, instruments
and documents held by it, and any or all such further financing statements,
documents and instruments, and to take all such other actions, as the Secured
Party may deem appropriate to perfect and to maintain perfected the security
interests granted in Section 3 of this Agreement. Before and after the
occurrence of any Event of Default, at the Secured Party's request, the Grantor
shall execute all such further financing statements, instruments and documents,
and shall do all such further acts and things, as may be deemed necessary or
desirable by the Secured Party to create and perfect, and to continue and
preserve, an indefeasible security interest in the Collateral in favor of the
Secured Party, or the priority thereof. With respect to any Collateral
consisting of certificated securities, instruments, documents, certificates of
title or the like, as to which the Secured Party's security interest need be
perfected by, or the priority thereof need be assured by, possession of such
Collateral, the Grantor will upon demand of the Secured Party deliver possession
of same in pledge to the Agent, for the Secured Party. With respect to any
Collateral consisting of securities, instruments, partnership or joint venture
interests or the like, the Grantor hereby consents and agrees that the issuers
of, or obligors on, any such Collateral, or any registrar or transfer agent or
trustee for any such Collateral, shall be entitled to accept the provisions of
this Agreement as conclusive


                                        4
<PAGE>   162
evidence of the right of the Secured Party to effect any transfer or exercise
any right hereunder or with respect to any such Collateral, notwithstanding any
other notice or direction to the contrary heretofore or hereafter given by the
Grantor or any other Person to such issuers or such obligors or to any such
registrar or transfer agent or trustee.

               SECTION 3. Security Agreement. For valuable consideration, the
Grantor hereby assigns and pledges to the Secured Party, and grants to the
Secured Party a security interest in, all presently existing and hereafter
acquired Collateral, as security for the timely payment and performance of the
Secured Obligations, and each of them. This Agreement is a continuing and
irrevocable agreement and all the rights, powers, privileges and remedies
hereunder shall apply to any and all Secured Obligations, including those
arising under successive transactions which shall either continue the Secured
Obligations, increase or decrease them, or from time to time create new Secured
Obligations after all or any prior Secured Obligations have been satisfied, and
notwithstanding the bankruptcy of the Grantor or any other Person or any other
event or proceeding affecting the Grantor or any other Person.

               SECTION 4. Grantor's Representations, Warranties and Agreements.
Except as otherwise disclosed to the Secured Party in writing concurrently
herewith, the Grantor represents, warrants and agrees that: (a) the Grantor will
pay, prior to delinquency, all taxes, charges, Liens and assessments against the
Collateral, except such as are timely contested in good faith by appropriate
proceedings, so long as the Grantor has established and maintains adequate
reserves for the payment of the same and by reason of such nonpayment and
contest no material item of Collateral is in jeopardy of being seized, levied
upon or forfeited, and upon its failure to pay or so contest such taxes,
charges, Liens and assessments, the Secured Party at its option may pay any of
them, and the Secured Party shall be the sole judge of the legality or validity
thereof and the amount necessary to discharge the same; (b) the Collateral will
not be used for any unlawful purpose or in violation of any Law, regulation or
ordinance, nor used in any way that will void or impair any insurance required
to be carried in connection therewith; (c) the Grantor will, to the extent
consistent with good business practice, keep the Collateral in reasonably good
repair, working order and condition, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto and,
as appropriate and applicable, will otherwise deal with the Collateral in all
such ways as are considered good practice by owners of like Property; (d) the
Grantor will take all reasonable steps to preserve and protect the Collateral;
(e) the Grantor will maintain, with responsible insurance companies, insurance
covering the Collateral against such insurable losses as is required by the Loan
Agreement and as is consistent with sound business practice, and will cause the
Secured Party to be designated as an additional insured and loss payee with
respect to such insurance, will obtain the written agreement of the insurers
that such insurance shall not be cancelled, terminated or materially modified to
the detriment of the Secured Party without at least 30 days prior written notice
to the Secured Party, and will furnish copies of such insurance policies or
certificates to the Secured Party promptly upon request therefor and will
otherwise comply with Section 7.4 of the Loan Agreement with respect to such
insurance; and (f) the Grantor will promptly notify the Secured Party in writing
in the event of any substantial or material damage to the Collateral from


                                        5
<PAGE>   163
any source whatsoever, and, except for the disposition of collections and other
proceeds of the Collateral permitted by Section 6 hereof, the Grantor will not
remove or permit to be removed any part of the Collateral from its places of
business without the prior written consent of the Secured Party, for such items
of the Collateral as are removed in the ordinary course of business or in
connection with any transaction or disposition otherwise permitted by the Loan
Documents.

        SECTION 5. Secured Party's Rights Regarding Collateral. At any time
(whether or not a Default has occurred), without notice or demand and at the
expense of the Grantor, the Secured Party may, to the extent it may be necessary
or desirable to protect the security hereunder, but the Secured Party shall not
be obligated to: (a) enter upon any premises on which Collateral is situated and
examine the same or (b) perform any obligation of the Grantor under this
Agreement or any other Loan Document or any obligation of any other Person under
the Loan Documents. At any time and from time to time upon the occurrence and
during the continuance of an Event of Default, at the expense of the Grantor,
the Secured Party may, to the extent it may be necessary or desirable to protect
the security hereunder, but the Secured Party shall not be obligated to: (i)
notify obligors on the Collateral that the Collateral has been assigned to the
Secured Party; (ii) at any time and from time to time request from obligors on
the Collateral, in the name of the Grantor or in the name of the Secured Party,
information concerning the Collateral and the amounts owing thereon; and (iii)
cause the Collateral to be registered in the name of the Secured Party, as legal
owner. The Grantor shall maintain books and records pertaining to the Collateral
in such detail, form and scope as the Secured Party shall reasonably require
consistent with the Secured Party's interests hereunder. The Grantor shall at
any time at the Secured Party's request mark the Collateral and/or the Grantor's
ledger cards, books of account and other records relating to the Collateral with
appropriate notations satisfactory to the Secured Party disclosing that they are
subject to the Secured Party's security interests. The Secured Party shall at
all reasonable times on reasonable notice have full access to and the right to
audit any and all of the Grantors' books and records pertaining to the
Collateral to the extent provided in the Loan Agreement, and subject to the
limits set forth in this Agreement, and to confirm and verify the value of the
Collateral and to do whatever else the Secured Party reasonably may deem
necessary or desirable to protect its interests; provided, however, that any
such action which involves communicating with customers of the Grantor shall be
carried out by the Secured Party through the Grantor's independent auditors
unless the Secured Party shall then have the right directly to notify obligors
on the Collateral as provided in Section 9. The Secured Party shall be under no
duty or obligation whatsoever to take any action to preserve any rights of or
against any prior or other parties in connection with the Collateral, to
exercise any voting rights or managerial rights with respect to any Collateral,
whether or not a Default or Event of Default shall have occurred, or to make or
give any presentments, demands for performance, notices of non-performance,
protests, notices of protests, notices of dishonor or notices of any other
nature whatsoever in connection with the Collateral or the Secured Obligations.
The Secured Party shall be under no duty or obligation whatsoever to take any
action to protect or preserve the Collateral or any rights of the Grantor
therein, or to make collections or enforce payment thereon, or to participate in
any foreclosure or other proceeding in connection therewith.


                                        6

<PAGE>   164

             SECTION 6. Collections on the Collateral. Except as otherwise
provided in any Loan Document, the Grantor shall have the right to use and to
continue to make collections on and receive dividends and other proceeds of all
of the Collateral in the ordinary course of business so long as no Event of
Default shall have occurred and be continuing. Upon the occurrence and during
the continuance of an Event of Default, at the option of the Secured Party, the
Grantor's right to make collections on and receive dividends and other proceeds
of the Collateral and to use or dispose of such collections and proceeds shall
terminate, and any and all dividends, proceeds and collections, including all
partial or total prepayments, then held or thereafter received on or on account
of the Collateral will be held or received by the Grantor in trust for the
Secured Party and immediately delivered in kind to the Agent, for the Secured
Party. Any remittance received by the Grantor from any person shall be presumed
to relate to the Collateral and to be subject to the Secured Party's security
interests. Upon the occurrence and during the continuance of an Event of
Default, the Secured Party shall have the right at all times to receive, receipt
for, endorse, assign, deposit and deliver, in the name of the Secured Party or
in the name of the Grantor, any and all checks, notes, drafts and other
instruments for the payment of money constituting proceeds of or otherwise
relating to the Collateral; and the Grantor hereby authorizes the Secured Party
to affix, by facsimile signature or otherwise, the general or special
endorsement of it, in such manner as the Secured Party shall deem advisable, to
any such instrument in the event the same has been delivered to or obtained by
the Secured Party without appropriate endorsement, and the Secured Party and any
collecting bank are hereby authorized to consider such endorsement to be a
sufficient, valid and effective endorsement by the Grantor, to the same extent
as though it were manually executed by the duly authorized officer of the
Grantor, regardless of by whom or under what circumstances or by what authority
such facsimile signature or other endorsement actually is affixed, without duty
of inquiry or responsibility as to such matters, and the Grantor hereby
expressly waives demand, presentment, protest and notice of protest or dishonor
and all other notices of every kind and nature with respect to any such
instrument.

             SECTION 7. Possession of Collateral by Secured Party. All the
Collateral now, heretofore or hereafter delivered to the Secured Party shall be
held by the Secured Party in its possession, custody and control, subject, in
the case of deposit accounts, to use by the Grantor in the manner permitted by
the Loan Agreement. Any or all of the Collateral which is cash delivered to the
Secured Party may be held in an interest bearing or non-interest bearing
account, in the Secured Party's sole and absolute discretion, and the Secured
Party may, in its discretion, apply any such interest to payment of the Secured
Obligations. Nothing herein shall obligate the Secured Party to invest any
Collateral or obtain any particular return thereon. Upon the occurrence and
during the continuance of an Event of Default, whenever any of the Collateral is
in the Secured Party's possession, custody or control, the Secured Party may
use, operate and consume the Collateral, whether for the purpose of preserving
and/or protecting the Collateral, or for the purpose of performing any of the
Grantor's obligations with respect thereto, or otherwise. The Secured Party may
at any time deliver or redeliver the Collateral or any part thereof to the
Grantor, and the receipt of any of the same by the Grantor shall be complete and
full acquittance for the Collateral so delivered, and the Secured Party
thereafter shall be discharged from any



                                        7

<PAGE>   165
liability or responsibility therefor. So long as the Secured Party exercises
reasonable care with respect to any Collateral in its possession, custody or
control, the Secured Party shall have no liability for any loss of or damage to
such Collateral, and in no event shall the Secured Party have liability for any
diminution in value of any Collateral occasioned by economic or market
conditions or events. The Secured Party shall be deemed to have exercised
reasonable care within the meaning of the preceding sentence if the Collateral
in the possession, custody or control of the Secured Party is accorded treatment
substantially equal to that which the Secured Party accords its own property, it
being understood that the Secured Party shall not have any responsibility for
(a) ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Collateral, whether or not
the Secured Party has or is deemed to have knowledge of such matters, or (b)
taking any necessary steps to preserve rights against any Person with respect to
any Collateral.

             SECTION 8. Events of Default.  There shall be an Event of Default
hereunder upon the occurrence and during the continuance of an Event of Default
under the Loan Agreement.

             SECTION 9. Rights Upon Event of Default. Upon the occurrence and
during the continuance of an Event of Default, the Secured Party shall have, in
any jurisdiction where enforcement hereof is sought, in addition to all other
rights and remedies that the Secured Party may have under applicable Law or in
equity or under this Agreement (including, without limitation, all rights set
forth in Section 6 hereof) or under any other Loan Document, all rights and
remedies of a secured party under the Uniform Commercial Code as enacted in any
jurisdiction where any Collateral may be located, and, in addition, the
following rights and remedies, all of which may be exercised with or without
notice to the Grantor and without affecting the Obligations of the Grantor
hereunder or under any other Loan Document, or the enforceability of the Liens
and security interests created hereby: (a) to foreclose the Liens and security
interests created hereunder or under any other agreement relating to any
Collateral by any available judicial procedure or without judicial process; (b)
to enter any premises where any Collateral may be located for the purpose of
securing, protecting, inventorying, appraising, inspecting, repairing,
preserving, storing, preparing, processing, taking possession of or removing the
same; (c) to sell, assign, lease or otherwise dispose of any Collateral or any
part thereof, either at public or private sale or at any broker's board, in lot
or in bulk, for cash, on credit or otherwise, with or without representations or
warranties and upon such terms as shall be acceptable to the Secured Party; (d)
to notify obligors on the Collateral that the Collateral has been assigned to
the Secured Party and that all payments thereon are to be made directly and
exclusively to the Secured Party; (e) to collect by legal proceedings or
otherwise all dividends, distributions, interest, principal or other sums now or
hereafter payable upon or on account of the Collateral; (f) to enter into any
extension, reorganization, deposit, merger or consolidation agreement, or any
other agreement relating to or affecting the Collateral, and in connection
therewith the Secured Party may deposit or surrender control of the Collateral
and/or accept other Property in exchange for the Collateral; (g) to settle,
compromise or release, on terms acceptable to the Secured Party, in whole or in
part, any amounts owing on the Collateral and/or any


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<PAGE>   166
disputes with respect thereto; (h) to extend the time of payment, make
allowances and adjustments and issue credits in connection with the Collateral
in the name of the Secured Party or in the name of the Grantor; (i) to enforce
payment and prosecute any action or proceeding with respect to any or all of the
Collateral and take or bring, in the name of the Secured Party or in the name of
the Grantor, any and all steps, actions, suits or proceedings deemed by the
Secured Party necessary or desirable to effect collection of or to realize upon
the Collateral, including any judicial or nonjudicial foreclosure thereof or
thereon, and the Grantor specifically consents to any nonjudicial foreclosure of
any or all of the Collateral or any other action taken by the Secured Party
which may release any obligor from personal liability on any of the Collateral,
and the Grantor, to the fullest extent permitted by applicable Law, waives any
right not expressly provided for in this Agreement to receive notice of any
public or private judicial or nonjudicial sale or foreclosure of any security or
any of the Collateral; and any money or other property received by the Secured
Party in exchange for or on-account of the Collateral, whether representing
collections or proceeds of Collateral, and whether resulting from voluntary
payments or foreclosure proceedings or other legal action, taken by the Secured
Party or the Grantor may be applied by the Secured Party without notice to the
Grantor to the Secured Obligations in such order and manner as the Secured Party
in its sole discretion shall determine; (j) to insure, protect and preserve the
Collateral; (k) to exercise all rights, remedies, powers or privileges provided
under any of the Loan Documents; (1) to remove, from any premises where the same
may be located, the Collateral and any and all documents, instruments, files and
records, and any receptacles and cabinets containing the same, relating to the
Collateral, and the Secured Party, may, at the cost and expense of the Grantor,
use such of the Grantor's supplies, equipment, facilities and space at its
places of business as may be necessary or appropriate to properly administer,
process, store, control, prepare for sale or disposition and/or sell or dispose
of the Collateral or to properly administer and control the handling of
collections and realizations thereon, and the Secured Party shall be deemed to
have a rent-free tenancy of any premises of the Grantor for such purposes and
for such periods of time as reasonably required by the Secured Party; (m) to
receive, open and dispose of all mail addressed to the Grantor and notify postal
authorities to change the address for delivery thereof to such address as the
Secured Party may designate; provided that the Secured Party agrees that it will
promptly deliver over to the Grantor such opened mail as does not relate to the
Collateral; and (n) to exercise all other rights, powers, privileges and
remedies, of an owner of the Collateral; all at the Secured Party's sole option
and as the Secured Party in its sole discretion may deem advisable. The Grantor
will, at the Secured Party's request, assemble the Collateral and make it
available to the Secured Party at places which the Secured Party may designate,
whether at the premises of the Grantor or elsewhere, and will make available to
the Secured Party, free of cost, all premises, equipment and facilities of the
Grantor for the purpose of the Secured Party's taking possession of the
Collateral or storing same or removing or putting the Collateral in salable form
or selling or disposing of same.

             Upon the occurrence and during the continuance of an Event of
Default, the Secured Party also shall have the right, without notice or demand,
either in person, by agent or by a receiver to be appointed by a court (and the
Grantor hereby expressly consents upon the occurrence and during the continuance
of an Event of Default to the appointment of such a


                                        9
<PAGE>   167

receiver), and without regard to the adequacy of any security for the Secured
Obligations, to take possession of the Collateral or any part thereof and to
collect and receive the rents, issues, profits, income and proceeds thereof.
Taking possession of the Collateral shall not cure or waive any Event of Default
or notice thereof or invalidate any act done pursuant to such notice. The
rights, remedies and powers of any receiver appointed by a court shall be
ordered by said court.

             Any public or private sale or other disposition of the Collateral
may be held at any office of the Secured Party, or at the Grantor's places of
business, or at any other place permitted by applicable Law, and without the
necessity of the Collateral's being within the view of prospective purchasers.
The Secured Party may direct the order and manner of sale of the Collateral, or
portions thereof, as it in its sole and absolute discretion may determine, and
the Grantor expressly waives any right to direct the order and manner of sale of
any Collateral. To the extent permitted by applicable Law, the Secured Party or
any person on the Secured Party's behalf may bid and purchase at any such sale
or other disposition. The net cash proceeds resulting from the collection,
liquidation, sale, lease or other disposition of the Collateral shall be
applied, first, to the expenses including reasonable attorneys' fees and
disbursements) of retaking, holding, storing, processing and preparing for sale
or lease, selling, leasing, collecting, liquidating and the like, and, subject
to the Loan Agreement, then to the satisfaction of the Secured Obligations in
such order as shall be determined by the Secured Party in its sole and absolute
discretion. The Grantor and any other Person then obligated therefor shall pay
to the Secured Party on demand any deficiency with regard thereto which may
remain after such sale, disposition, collection or liquidation of the
Collateral.

             Unless the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market, the
Secured Party will send or otherwise make available to the Grantor reasonable
notice of the time and place of any public sale thereof or of the time on or
after which any private sale thereof is to be made. The Grantor expressly agrees
that the requirement of sending reasonable notice conclusively shall be met if
such notice is mailed, first class mail, postage prepaid, to the Grantor at its
address set forth in the Loan Agreement, or delivered or otherwise sent to the
Grantor, at least five (5) days before the date of the sale. The Grantor
expressly waives any right to receive notice of any public or private sale of
any Collateral or other security for the Secured Obligations except as expressly
provided for in this paragraph.

             With respect to any Collateral consisting of securities,
partnership interests, joint venture interests, Investments or the like, and
whether or not any of such Collateral has been effectively registered under the
Securities Act of 1933 or other applicable Laws, the Secured Party may, in its
sole and absolute discretion, sell all or any part of such Collateral at private
sale in such manner and under such circumstances as the Secured Party may deem
necessary or advisable in order that the sale may be lawfully conducted. Without
limiting the foregoing, the Secured Party may (i) approach and negotiate with a
limited number of potential purchasers, and (ii) restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing such Collateral for their own account for investment and not with a
view to


                                       10

<PAGE>   168

the distribution or resale thereof. In the event that any such Collateral is
sold at private sale, the Grantor agrees that if such Collateral is sold for a
price which the Secured Party in good faith believes to be reasonable under the
circumstances then existing, then (a) the sale shall be deemed to be
commercially reasonable in all respects, (b) the Grantor shall not be entitled
to a credit against the Secured Obligations in an amount in excess of the
purchase price, and (c) the Secured Party shall not incur any liability or
responsibility to the Grantor in connection therewith, notwithstanding the
possibility that a substantially higher price might have been realized at a
public sale. The Grantor recognizes that a ready market may not exist for such
Collateral if it is not regularly traded on a recognized securities exchange,
and that a sale by the Secured Party of any such Collateral for an amount
substantially less than, a pro rata share of the fair market value of the
issuers assets minus liabilities may be commercially reasonable in view of the
difficulties that may be encountered in attempting to sell a large amount of
such Collateral or Collateral that is privately traded.

             Upon consummation of any sale of Collateral hereunder, the Secured
Party shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each such purchaser at any such sale
shall hold the Collateral so sold absolutely free from any claim or right upon
the part of the Grantor or any other Person, and the Grantor hereby waives (to
the extent permitted by applicable Laws) all rights of redemption, stay and
appraisal which it now has or may at any time in the future have under any rule
of Law or statute now existing or hereafter enacted. If the sale of all or any
part of the Collateral is made on credit or for future delivery, the Secured
Party shall not be required to apply any portion of the sale price to the
Secured Obligations until such amount actually is received by the Secured Party,
and any Collateral so sold may be retained by the Secured Party until the sale
price is paid in full by the purchaser or purchasers thereof. The Secured Party
shall not incur any liability in case any such purchaser or purchasers shall
fail to pay for the Collateral so sold, and, in case of any such failure, the
Collateral may be sold again.

            SECTION 10. Voting Rights; Dividends; Etc. With respect to any
Collateral consisting of securities, partnership interests, joint venture
interests, Investments or the like (referred to collectively and individually in
this Section 10 and in Section 11 as the "Investment Collateral"), so long as no
Event of Default occurs and remains continuing:

                     10.1 Voting Rights.  The Grantor shall be entitled to 
exercise any and all voting and other consensual rights pertaining to the
Investment Collateral, or any part thereof, for any purpose not inconsistent
with the terms of this Agreement, the Loan Agreement, or the other Loan
Documents; provided, however, that the Grantor shall not exercise, or shall
refrain from exercising, any such right if it would result in a Default or Event
of Default.

                     10.2 Dividend and Distribution Rights.  Except as otherwise
provided in any Loan Document, the Grantor shall be entitled to receive and to
retain and use any and all dividends or distributions paid in respect of the
Investment Collateral; provided, however, that any and all such dividends or
distributions received in the form of capital stock, certificated


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<PAGE>   169
securities, warrants, options or rights to acquire capital stock or certificated
securities forthwith shall be, and the certificates representing such capital
stock or certificated securities, if any, forthwith shall be delivered to the
Agent, for the Secured Party, to hold as pledged Collateral and shall, if
received by the Grantor, be received in trust for the benefit of the Secured
Party, be segregated from the other Property of the Grantor, and forthwith be
delivered to the Agent, for the Secured Party, as pledged Collateral in the same
form as so received (with any necessary endorsements).

             SECTION 11.  Rights During Event of Default.  With respect to any 
Investment Collateral, so long as an Event of Default has occurred and is
continuing:

                     11.1 Voting, Dividend and Distribution Rights.  At the 
option of the Secured Party, all rights of the Grantor to exercise the voting
and other consensual rights which it would otherwise be entitled to exercise
pursuant to Section 10.1 above, and to receive the dividends and distributions
which it would otherwise be authorized to receive and retain pursuant to Section
10.2 above, shall cease, and all such rights thereupon shall become vested in
the Secured Party which thereupon shall have the sole right to exercise such
voting and other consensual rights and to receive and to hold as pledged
Collateral such dividends and distributions.

                     11.2 Dividends and Distributions Held in Trust.  All 
dividends and other distributions which are received by the Grantor contrary to
the provisions of this Agreement shall be received in trust for the benefit of
the Secured Party, shall be segregated from other funds of the Grantor, and
forthwith shall be paid over to the Agent, for the Secured Party, as pledged
Collateral in the same form as so received (with any necessary endorsements).

                     11.3 Irrevocable Proxy.    The Grantor does hereby revoke 
all previous proxies with regard to the Investment Collateral and does hereby
appoint the Agent, for the Secured Party, as its proxyholder to attend and vote
at any and all meetings of the shareholders or other equity holders of the
Persons that issued the Investment Collateral and any adjournments thereof, held
on or after the date of the giving of this proxy and prior to the termination of
this proxy, and to execute any and all written consents of shareholders or
equity holders of such Persons executed on or after the date of the giving of
this proxy and prior to the termination of this proxy, with the same effect as
if the Grantor had personally attended the meetings or had personally voted its
shares or other interests or had personally signed the written consents;
Provided, however, that the proxyholder shall have rights hereunder only upon
the occurrence and during the continuance of an Event of Default. The Grantor
hereby authorizes the Secured Party to substitute another Person as the
proxyholder and, upon the occurrence and during the continuance of any Event of
Default, hereby authorizes the proxyholder to file this proxy and any
substitution instrument with the secretary or other appropriate official of the
appropriate Person. This proxy is coupled with an interest and is irrevocable
until such time as all Secured Obligations have been paid and performed in full.



                                       12

<PAGE>   170
             SECTION 12. Attorney-in-Fact. The Grantor hereby irrevocably
nominates and appoints the Secured Party as its attorney-in-fact for the
following purposes: (a) to do all acts and things which the Secured Party may
deem necessary or advisable to perfect and continue perfected the security
interests created by this Agreement and, upon the occurrence and during the
continuance of an Event of Default, to preserve, process, develop, maintain and
protect the Collateral; (b) upon the occurrence and during the continuance of an
Event of Default, to do any. and every act which the Grantor is obligated to do
under this Agreement, at the expense of the Grantor and without any obligation
to do so; (c) in the case of the Agent, for the Secured Party, to prepare, sign,
file and/or record, for the Grantor, in the name of the Grantor, any financing
statement, application for registration, or like paper, and to take any other
action deemed by the Secured Party necessary or desirable in order to perfect or
maintain perfected the security interests granted hereby; and (d) upon the
occurrence and during the continuance of an Event of Default, to execute any and
all papers and instruments and do all other things necessary or desirable to
preserve, and protect the Collateral and to protect the Secured Party's security
interests therein; provided, however, that the Secured Party shall be under no
obligation whatsoever to take any of the foregoing actions, and, absent bad
faith or actual malice, the Secured Party shall have no liability or
responsibility for any act taken or omission with respect thereto.

             SECTION 13. Costs and Expenses. The Grantor agrees to pay to the
Secured Party all costs and expenses, (including, without limitation, reasonable
attorneys fees and disbursements) incurred by the Secured Party in the
enforcement or attempted enforcement of this Agreement, whether or not an action
is filed in connection therewith, and in connection with any waiver or amendment
of any term or provision hereof. All advances, charges, costs and expenses,
including reasonable attorneys fees and disbursements, incurred or paid by the
Secured Party in exercising any right, privileged power or remedy conferred by
this Agreement (including, without limitation, the right to perform any Secured
Obligation of the Grantor under the Loan Documents), or in the enforcement or
attempted enforcement thereof, shall be secured hereby and shall become a part
of the Secured obligations and shall be paid to the Secured Party by the
Grantor, immediately upon demand, together with interest thereon at the rate(s)
provided for under the Loan Agreement.

             SECTION 14. Statute of Limitations and Other Laws. Until the
Secured Obligations shall have been paid and performed in full, the power of
sale and all other rights, privileges, powers and remedies granted to the
Secured Party hereunder shall continue to exist and may be exercised by the
Secured Party at any time and from time to time irrespective of the fact that
any of the Secured Obligations may have become barred by any statute of
limitations. The Grantor expressly waives the benefit of any and all statutes of
limitation, and any and all Laws providing for exemption of property from
execution or for valuation and appraisal upon foreclosure, to the maximum extent
permitted by applicable Law.



                                       13

<PAGE>   171
            SECTION 15. Other Agreements. Nothing herein shall in any way modify
or limit the effect of terms or conditions set forth in any other security or
other agreement executed by the Grantor or in connection with the Secured
Obligations, but each and every term and condition hereof shall be in addition
thereto. All provisions contained in the Loan Agreement or any other Loan
Document that apply to Loan Documents generally are fully applicable to this
Agreement and are incorporated herein by this reference.

             SECTION 16. Understandings With Respect to Waivers and Consents.
The Grantor warrants and agrees that each of the waivers and consents set forth
herein are made after consultation with legal counsel and with full knowledge of
their significance and consequences, with the understanding that events giving
rise to any defense or right waived may diminish, destroy or otherwise adversely
affect rights which the Grantor otherwise might have against the Secured Party
or others, or against Collateral, and that, under the circumstances, the waivers
and consents herein given are reasonable and not contrary to public policy or
Law. If any of the waivers or consents herein are determined to be contrary to
any applicable Law or public policy, such waivers and consents shall be
effective to the maximum extent permitted by Law.

             SECTION 17. Release of Grantor. This Agreement and all Secured
Obligations of the Grantor hereunder shall be released when all Secured
Obligations have been paid in full in cash or otherwise performed in full (other
than any contingent indemnity obligations under any 'Loan Document) and when no
portion of any Commitment remains then outstanding. Upon such release, any
Secured Party shall return any pledged Collateral to the Grantor, or to the
Person or Persons legally entitled thereto, and shall endorse, execute, deliver,
record and file all instruments, and documents, and do all other acts and
things, reasonably required for the return of the Collateral to the Grantor, or
to the Person or Persons legally entitled thereto, and to evidence or document
the release of the Secured Party's interests arising under this Agreement, all
as reasonably requested by, and at the sole expense of, the Grantor.

             IN WITNESS WHEREOF, the Grantor has executed this Agreement by its
duly authorized officers as of the date first written above.

                                     "Grantor"

                                     THE PRESLEY COMPANIES,
                                     a California corporation

                                     By: /s/    David M. Siegel
                                         ---------------------------------------
                                         Name:  David M Siegel,
                                         Title: Senior Vice President - Chief
                                                Financial Officer



                                       14

<PAGE>   172
                                     By: /s/    W. Douglass Harris
                                         ---------------------------------------
                                         Name:  W. Douglass Harris
                                         Title: Vice President - Corporate
                                                Controller

ACCEPTED AND AGREED AS OF
THE DATE FIRST ABOVE WRITTEN:

"Secured Party"

FOOTHILL CAPITAL CORPORATION
as the Agent, and for and on behalf of the
Lenders, the Issuing Banks (other than any Third Party Issuer)
and the LC Guarantor

BY: 
    -----------------------------------
    Name:
    Title:

<PAGE>   173
                                    EXHIBIT L

                               INDEMNITY AGREEMENT

             INDEMNITY AGREEMENT ("Agreement") dated as of __________, 1994 made
by THE PRESLEY COMPANIES, a California corporation (the "Indemnitor"), in favor
of the lenders (the "Lenders") parties to the Loan Agreement (as hereinafter
defined), the Issuing Banks (other than any Third Party Issuer) and the LC
Guarantor (in each case as defined in the Loan Agreement) and Foothill Capital
Corporation, as agent (the "Agent") for the Lenders,, such Issuing Banks and the
LC Guarantor.

             PRELIMINARY STATEMENTS

             A. The Indemnitor is executing this Agreement to induce the Agent
and the Lenders to enter into and become bound by that certain Fourth Amended
and Restated Loan Agreement dated as of March 25, 1994 (said Agreement, as it
may hereafter be amended or otherwise modified from time to time being the "Loan
Agreement", the terms defined therein and not otherwise defined herein being
used herein as therein defined).

             B. The Loans existing under and made pursuant to the Loan Agreement
are evidenced by promissory notes (the "Notes") made payable to the Lenders in
an aggregate principal amount equal to the aggregate Commitments, The Loans are
secured by numerous deeds of trust and mortgages (the "Deeds of Trust") and by
other collateral, as more fully described in the Loan Agreement.

             Because the Lenders are making the Loans (and, in the case of
Issuing Banks, issuing Letters of Credit and, as applicable to such Issuing
Banks, Set-Aside Letters, and, in the case of the LC Guarantor, LC Guaranties)
and obtaining the Deeds of Trust, the Lenders and such Issuing Banks and the LC
Guarantor may potentially become subject to certain costs, risks and
liabilities. Among other things, the Lenders and such Issuing Banks and the LC
Guarantor may become subject to liabilities or alleged liabilities relating to
environmental conditions as an "owner" or "operator" under applicable
environmental law. These costs and liabilities may arise before or after
repayment of the Loans and payments in respect of Letters of Credit, Set-Aside
Letters and the LC Guaranties, and before or after foreclosure under all or some
of the Deeds of Trust. Because these costs and liabilities, if they occur, will
be the result of the Lenders' agreement to make the Loans (and, in the case of
Issuing Banks, issue Letters of Credit and, as applicable to such Issuing Banks,
Set-Aside Letters, and, in the case of the LC Guarantor, LC Guaranties), and in
consideration of that agreement, the Lenders, the Agent and the Indemnitor have
agreed as set forth below.


                                        1

<PAGE>   174
             D. The obligations of the Indemnitor hereunder are secured
obligations under the Deeds of Trust and other Collateral Documents for so long
as the Deeds of Trust or the other Collateral Documents shall remain in effect,
and thereafter shall survive and be unsecured obligations of the Indemnitor to
the extent permitted by applicable law.

             NOW, THEREFORE, in consideration of the foregoing and the Lenders'
agreement to make Loans (and, in the case of Issuing Banks, issue Letters of
Credit and, as applicable to such Issuing Banks, Set-Aside Letters, and, in the
case of the LC Guarantor, LC Guaranties) and other valuable consideration, the
receipt of which are hereby acknowledged, the Indemnitor covenants and agrees to
and for the benefit of the Lenders, the Issuing Banks (other than any Third
Party Issuer), the LC Guarantor and the Agent as follows:

     I.      Definitions.

             In addition to any terms defined elsewhere in this Agreement or in
the Loan Agreement, as used in this Agreement:

             1.1 "Hazardous means any substance, material or waste (including
petroleum and petroleum products) which is or becomes designated, classified or
regulated as being "toxic" or "hazardous" or a "pollutant," or which is or
becomes similarly designated, classified or regulated, under any federal, state
or local law, regulation or ordinance.

             1.2 "Indemnified Costs" means all actual or threatened liabilities,
claims, actions, causes or action, judgments, orders, damages (including
foreseeable and unforeseeable consequential damages, punitive damages, exemplary
damages, diminution in value of any of the Properties, as defined below, damages
for the loss or restriction of use of any of the Properties and damages arising
from any adverse impact on marketing any of the Properties), costs, expenses,
fines, penalties and losses(including sums paid in settlement of claims and all
consultant, expert and legal fees and expenses of the Lenders', the Issuing
Banks' (other than any Third Party Issuer), the LC Guarantor's and the Agent's
counsel), including those incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work (whether of
the Properties or any other property), or any resulting damages, harm or
injuries to the person or property of any third parties or to any natural
resources, in each case, unless otherwise specified, arising in connection with
any of the Properties.

             1.3 "Indemnified Parties" means and includes each Lender, each
Issuing Bank (other than any Third Party Issuer), the LC Guarantor and the
Agent, and their respective parents, subsidiaries and affiliated companies,
assignees of any of any Lender's interest in the Loans (or any such Issuing
Bank's interest in the Letters of Credit and Set-Aside Letters or the LC
Guarantor's interest in the LC Guaranties) or the Loan Documents, owners of
participation or other interests in the Loans (or Letters of Credit, Set-Aside
Letters or LC Guaranties) or the Loan Documents, any purchasers of any of the
Properties at any foreclosure sale or from the Agent,


                                        2

<PAGE>   175
any Lender, any such Issuing Bank, the LC Guarantor or any of their respective
affiliates, and the officers, directors, employees and agents of each of them.

             1.4   "Property" means all property that is or was at
any time encumbered by any Deed of Trust, which may later include any and all
property previously released from such Deed of Trust.

             1.5 "Release" means any presence, use, generating, storing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing of Hazardous Substances into the
environment, or about, on, from, under, within or affecting any of the
Properties, or transported to or from any of the Properties, including
continuing migration of Hazardous Substances into or through soil, surface water
or groundwater.

             1.6 "Termination Date" means, with respect to any Property, the
earlier of (a) the time of foreclosure of the respective Deed of Trust, (b) the
time of acceptance by the Agent of a deed in lieu of foreclosure of the
respective Deed of Trust, and (c) the time of full reconveyance of the
respective Deed of Trust.

             1.7 "1991 Statute" means California Civil Code Section 2929.5 and
California Code of Civil Procedure Sections 564, 726.5 and 736, as added to such
Codes or amended by Chapter 1167 of the Laws of 1991, as the same may be
subsequently amended.

II.Indemnity Agreement.

             2.1  Agreement Secured By the Deeds of Trust and Other Collateral
Documents. For as long as the Deeds of Trust and the other Collateral Documents
shall be and remain in effect, this Indemnity shall be secured by the Deeds of
Trust and the other Collateral Documents, and thereafter the provisions of this
Indemnity shall be deemed to be unsecured obligations of Indemnitor and shall be
enforceable to the fullest extent permitted by applicable law, including without
limitation the 1991 Statute and all applicable law that would apply in the
absence of the 1991 Statute. Notwithstanding any other provisions of this
Indemnity or any of the Loan Documents, any liability of Indemnitor hereunder
shall be its personal liability, and may be asserted against the Indemnitor's
interest in any Collateral as well as against any and all of its other assets.

             2.2 Indemnity Regarding Hazardous Substances. The Indemnitor
indemnities, defends and holds the Indemnified Parties harmless from and against
any and all Indemnified Costs directly or indirectly arising out of or resulting
from any Hazardous Substance being present or released in, on or around any part
of any of the Properties, or in the soil, groundwater or soil vapor on or under
any of the Properties prior to the Termination Date, including:

               (a) any claim for such Indemnified Costs asserted by any federal,
state or local Governmental Agency, including the United States Environmental
Protection Agency and the


                                        3
<PAGE>   176
California Department of Toxic Substance Control, and including any claim that
any Indemnified Party is liable for any such Indemnified Costs as an "owner" or
"operator" of the Property under any law relating to Hazardous Substances; and

               (b) any such Indemnified Costs claimed against any Indemnified
Party by any Person other than a Governmental Agency, including any Person who
may purchase or lease all or any portion of the Properties from the Indemnitor,
from any Indemnified Party, or from any other purchaser or lessee; any Person
who may at any time have any interest in all or any portion of any of the
Properties; any Person who may at any time be responsible for any clean-up costs
or other Indemnified Costs relating to any of the Properties; and any Person
claiming to have been injured in any way as a result of exposure to any
Hazardous Substance; and

               (c) any such Indemnified Costs which any Indemnified Party
reasonably believes at any time must be incurred to comply with any law,
judgment, order, regulation or regulatory directive relating to Hazardous
Substances, or which any Indemnified Party reasonably believes at any time must
be incurred to protect the public health or safety; and

               (d) any such Indemnified Costs resulting from currently existing
conditions in, on or around any of the Properties, whether known or unknown by
the Indemnitor or the Indemnified Parties at the time this Agreement is
executed, and any such Indemnified Costs resulting from the activities of the
Indemnitor, the Indemnitor's tenants, contractors, subcontractors or agents, or
any other Person in, on or around any of the Properties.

             2.3 Indemnity Regarding Construction and Other Risks. The
Indemnitor indemnities, defends and holds the Indemnified Parties harmless from
and against any and all Indemnified Costs directly or indirectly arising out of
or resulting from construction of any improvements on any of the Properties
prior to the Termination Date, including any defective workmanship or materials;
or prior to the Termination Date, any failure to satisfy any requirements of any
laws, regulations, ordinances, governmental policies or standards, reports,
subdivision maps or development agreements that apply or pertain to any of the
Properties; or prior to the Termination Date, breach of any representation or
warranty made or given by the Indemnitor to any of the Indemnified Parties or to
any prospective or actual buyer of all or any portion of any of the Properties;
or any claim or cause of action of any kind by any party that any Indemnified
Party is liable for any act or omission of the Indemnitor or any other Person in
connection with the ownership, sale, operation or development of any of the
Properties prior to the Termination Date.

             2.4 Defense of Indemnified Parties. Upon demand by any Indemnified
Party, the Indemnitor shall defend any investigation, action or proceeding
involving any Indemnified Costs which is brought or commenced against any
Indemnified Party, whether alone or together with the Indemnitor or any other
Person, all at the Indemnitor's own cost and by counsel to be approved by the
Indemnified Party in the exercise of its reasonable judgment. If the Indemnitor
fails to comply with the foregoing provision, any Indemnified Party may elect to
conduct its own


                                        4

<PAGE>   177
defense at the expense of the Indemnitor. The Indemnified Parties shall, to the
extent practicable, retain one counsel to represent all Indemnified Parties.

               2.5 Representation and Warranty Regarding Hazardous Substances.
The Indemnitor represents and warrants that it has no actual or constructive
knowledge of, the disposal or release of any Hazardous Substance or the
threatened release of any Hazardous Substance, in, on, under or around the
Properties in violation of any applicable law, regulation, ordinance,
governmental policy or standard, except in compliance with Environmental Laws,
and except as the Indemnitor has disclosed to the Agent in writing.

              2.6 Compliance Regarding Hazardous Substances. The Indemnitor has
complied, shall comply and shall use its best efforts to cause all tenants,
contractors, subcontractors and any other Persons who may come upon any of the
Properties to comply in all materials respects, with all laws, regulations and
ordinances governing or applicable to Hazardous Substances, including those
requiring disclosures to prospective and actual buyers of all or any portion of
any of the Properties.

             2.7  Notices Regarding Hazardous Substances.  If the Indemnitor 
shall receive:

              (i) notice that any violation of any Environmental Law may have
been committed or is.about to be committed by the Indemnitor,

             (ii) notice that any administrative or judicial complaint or order
has been filed or is about to be filed against, the Indemnitor alleging
violations of any Environmental Law or requiring the Indemnitor to take any
action in connection with the release or threatened release of hazardous
substances or solid waste into the environment, or

            (iii) any notice from a federal, state, or local
governmental agency or private party alleging that the Indemnitor may be liable
or responsible for costs associated with a response to or cleanup of a release
or disposal of a hazardous substance or solid waste into the environment or any
damages caused thereby, including without limitation any notice that the
Indemnitor is a potentially responsible party" as defined by CERCLA,
the Indemnitor shall provide the Agent and each Lender with a copy of such
notice within ten (10) days of the Indemnitor's receipt thereof.

               2.8 Site Visits, Observations and Testing. The Indemnified
Parties and their agents and representatives shall have the right in a
reasonable manner and at reasonable intervals to enter and visit any of the
Properties for the purposes of observing such Properties, taking and removing
soil or groundwater samples, and conducting tests on any part of such Property.
The Indemnified Parties have no duty, however, to visit or observe the
Properties or to conduct tests, and no site visit, observation or testing by any
Indemnified Party shall impose any liability on any


                                        5
<PAGE>   178
Indemnified Party. In no event shall any site visit, observation or testing by
any Indemnified Party be a representation that Hazardous Substances are or are
not present in, on or under any of the Properties, or that there has been or
shall be compliance with any law, regulation or ordinance pertaining to
Hazardous Substances or any other applicable governmental law. Neither the
Indemnitor nor any other Person is entitled to rely on any site visit,
observation or testing by any Indemnified Party, The Indemnified Parties owe no
duty of care to protect the Indemnitor or any other Person against, or to inform
the Indemnitor or any other Person of, any Hazardous Substances or any other
adverse condition affecting any of the Properties. Any Indemnified Party shall
give the Indemnitor reasonable notice before entering any of the Properties and
shall make reasonable efforts to avoid interfering with the Indemnitors use of
the Properties in exercising any rights provided in this Section 2.8.

               2.9 Remedial Work. In the event that any investigation, site
monitoring, containment, cleanup, removal, restoration, precautionary actions or
other remedial work of any kind or nature (the "Remedial Work") is required
under any applicable Environmental Law as a result of, or in connection with,
any Release, suspected Release, or threatened Release, the Indemnitor shall
within thirty days after receipt of information that such Remedial Work is or
may be required (or such shorter period of time as may be required under
applicable law regulation, order or agreement), commence the performance of, or
cause to be commenced, and thereafter diligently prosecute to completion, the
performance of all such Remedial Work. All Remedial Work shall be performed by
one or more contractors, approved in advance in writing by the the Majority
Lenders, and under the supervision of a consulting engineer approved in advance
in writing by the the Majority Lenders, which consent shall not be unreasonably
withheld. All costs and expenses of such Remedial Work shall be paid by the
Indemnitor, including, without limitation, the charges of such contractors
and/or the consulting engineer, the reasonable attorneys' fees and costs of the
Lenders, the Issuing Banks (other than any Third Party Issuer), the LC Guarantor
or the Agent, including, without limitation, fees and costs of both outside and
staff counsel incurred in connection with monitoring or review of such Remedial
Work. In the event the Indemnitor shall fail to timely commence, or cause to be
commenced, or fail to diligently prosecute to completion, the performance of
such Remedial Work, the Majority Lenders may, but shall not be required to,
cause such Remedial Work to be performed and all costs and expenses thereof, or
incurred in connection therewith, shall be deemed claims hereunder.

             2.10 Interest Accrued. Any amount claimed hereunder by an
Indemnified Party not paid within thirty days after written demand from such
Indemnified Party with an explanation of the amounts claimed shall bear interest
at a rate per annum equal to the Reference Rate (as defined in the Loan
Agreement) plus 4% per annum.


                                        6
<PAGE>   179
             2.11 Costs and Expenses. The Indemnitor agrees to pay all of the
Indemnified Parties' costs and expenses, including attorneys' fees, which may be
incurred in-any effort to enforce any term of this Agreement, including all such
costs and expenses which may be incurred by any Indemnified Party in any legal
action, reference or arbitration proceeding. From the times incurred until paid
in full to the Indemnified Party, those sums shall bear interest at the
Reference Rate plus 4% per annum.

             2.12 Election by Indemnified Parties. Any Indemnified Party may, in
its sole discretion, elect to enforce the obligations hereunder pursuant to and
as limited by the 1991 Statute, in order to prevent any such enforcement from
being deemed an "action" within the meaning of Section 580a, 580b or 580d, or
subdivision (b) of Section 726 of the California Code of Civil Procedure. In any
such case, the Indemnified Party may elect to limit the obligations of the
Indemnitor and all other provisions hereunder to the extent necessary to conform
to the 1991 Statute.

III.         General Provisions.

             3.1 Events of Default. Lenders may declare the Indemnitor to be in
default under this Agreement upon the occurrence of any of the following events
("Events of Default"):

             (a) the Indemnitor fails to perform any of its obligations under 
this Agreement; or

             (b) the Indemnitor revokes this Agreement or this Agreement becomes
ineffective for any reason.

             3.2 Reservation of Other Rights and Remedies. Nothing in this
Agreement shall be construed to limit any claim or right which any Indemnified
Party may otherwise have at any time against the Indemnitor or any other Person
arising from any source other than this Agreement, including any claim for
fraud, misrepresentation, waste or breach of contract other than this Agreement,
and any rights of contribution or indemnity under federal or state environmental
law or any other applicable law, regulation or ordinance.

             3.3 Delay; Cumulative Remedies. If any Indemnified Party delays in
exercising or fails to exercise any right or remedy against the Indemnitor, that
alone shall not be construed as a waiver of such right or remedy. All remedies
of any Indemnified party against the Indemnitor are cumulative.

             3.4 Rules of Construction. The word "include(s)" means "include(s),
without limitation," and the word "including" means "including, but not limited
to", When the context and construction so require, all words used in the
singular shall be deemed to have been used in the plural and vice versa. All
headings appearing in this Agreement are for convenience only and shall be
disregarded in construing this Agreement.


                                        7

<PAGE>   180
             3.5 Severability. Every provision of this Agreement is intended to
be severable. In the event any terms provision, section or subsection of this
Agreement is declared to be illegal or invalid, for any reason whatsoever, by a
court of competent jurisdiction, such illegality or invalidity shall not affect
the other terms, provisions, sections or subsections of this Agreement, which
shall remain binding and enforceable.

             3.6 In-House Counsel Fees. Whenever the Indemnitor is obligated to
pay or reimburse any Indemnified Party for any attorneys' fees, those fees shall
include the allocated costs for services of in-house counsel.

             3.7 Integration; Modifications. The Loan Documents, including this
Agreement, (a) integrate all the terms and conditions mentioned in or incidental
to this Agreement, (b) supersede all oral negotiations and prior writings with
respect to their subject matter, and (c) are intended by the parties as the
final expression of the agreement with respect to the terms and conditions set
forth in the Loan Documents and as the complete and exclusive statement of the
terms agreed to by the parties. No representation, understanding, promise or
condition shall be enforceable against any party unless it is contained in the
Loan Documents. This Agreement may not be modified except in a writing signed by
the Lenders, the Issuing Banks (other than any Third Party Issuer), the LC
Guarantor, the Agent and the Indemnitor.

             3.9 Miscellaneous. The provisions of this Agreement shall bind and
benefit the heirs, executors, administrators, legal representatives, successors
and assigns (which assigns must be Eligible Assignees if and to the extent
required under Section 13.7 of the Loan Agreement) of the Indemnitor and the
Indemnified Parties; provided, however, that the Indemnitor may not assign this
Agreement, or assign or delegate any of its rights or obligations under this
Agreement, without the prior written consent of the Lenders, the Issuing Banks
(other than any Third Party Issuer), the LC Guarantor and the Agent in each
instance, The liability of all Persons who are in any manner obligated under
this Agreement shall be joint and several. This Agreement shall be governed by,
and construed in accordance with, the law of the State of California.


                                       8

<PAGE>   181
             IN WITNESS WHEREOF, the Indemnitor has caused this Agreement to be
duly executed as of the date first above written.

"INDEMNITOR":

THE PRESLEY COMPANIES, a

  California corporation

By:   /s/  David M. Siegel
      -------------------------------
Name:      David M. Siegel
Title:     Senior Vice

           President - Chief
           Financial Officer

By:   /s/  W. Douglass Harris
      -------------------------------
Name:      W. Douglass Harris
Title:     Vice President -
           Corporate Controller

Address where notices to 
the Indemnitor are to be sent:

The Presley Companies
19 Corporate Plaza
Newport Beach, CA 92660

Attn:      Mr. David M, Siegel
           and
           Nancy M. Harlan, Esq.


                                        9
<PAGE>   182
                                    EXHIBIT M

                           PLEDGE AGREEMENT (BORROWER)

               PLEDGE AGREEMENT ("Agreement") dated as of July 6, 1998, made by
PRESLEY HOMES, a California corporation (the "Pledgor"), to FOOTHILL CAPITAL
CORPORATION, as agent (the "Agent") for the lenders (the "Lenders") parties to
the Loan Agreement (as hereinafter defined) and the Issuing Banks (other than
any Third Party Issuer) and LC Guarantor (in each case as defined in the Loan
Agreement).

               PRELIMINARY STATEMENTS:

               (1) The Lenders and the Agent have entered into a Fifth Amended
and Restated Loan Agreement dated as of July 6, 1998 (said agreement, as it may
hereafter be amended, restated, supplemented or otherwise modified from time to
time, being the "Loan Agreement", the terms defined therein and not otherwise
defined herein being used herein as therein defined) with the Pledgor.

               (2) Pursuant to the Loan Agreement, the Lenders, the Issuing
Banks (other than Third Party Issuers) and the LC Guarantor is making certain
credit facilities available to the Pledgor.

               (3) It is a condition precedent of the availability of such
credit facilities under the Loan Agreement that the Pledgor, shall have made the
pledge contemplated by this Agreement.

               NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders, the Issuing Banks (other than any Third Party Issuer) and
the LC Guarantor to provide the aforementioned credit facilities, the Pledgor
hereby agrees with the Agent for its benefit and the ratable benefit of the
Lenders, the Issuing Banks (other than any Third Party Issuer) and the LC
Guarantor as follows:

               SECTION 1. Pledge. The Pledgor hereby pledges to the Agent for
its benefit and the ratable benefit of the Lenders, the Issuing Banks (other
than any Third Party Issuer) and the LC Guarantor, and grants to the Agent for
its benefit and the ratable benefit of the Lenders, such Issuing Banks and the
LC Guarantor a security interest in, the following (the "Pledged Collateral"):

               (a) all right, title and interest of the Pledgor as a partner
           (limited or general), joint venturer or member now existing or
           hereafter acquired in (i) any person which is a partnership, joint
           venture or limited liability company including, without limitation,
           the persons identified on Schedule 6.20 to the Loan Agreement (other
           than CMR) (collectively, the "Partnerships"), (ii) the partnership
           agreements, joint venture


                                        1
<PAGE>   183
           agreements and operating agreements (as the same may from time to
           time be amended, supplemented, restated or otherwise modified from
           time to time in accordance with the terms hereof, the "Partnership
           Agreements"), if any, under which any of the Partnerships exist, and
           (iii) all certificates, instruments or other documents evidencing or
           representing the same, if any (all of the foregoing being hereinafter
           collectively referred to as the "Pledged Equity Interests");

               (b) all right, title and interest of the Pledgor in and to all
           present and future payments, proceeds, distributions, instruments,
           compensation, property, assets, interests and rights, and all monies
           due or to become due and payable to the Pledgor in connection with
           the Pledged Equity Interests or otherwise paid, issued or distributed
           from time to time in respect of or in exchange therefor, and any
           certificate, instrument or other document evidencing or representing
           the same (including, without limitation, all proceeds of dissolution
           or liquidation);

               (c) all of the Pledgor's rights, interests, powers and
           privileges, if any, now owned or hereafter acquired in or with
           respect to each of the Partnerships, whether as a partner (general or
           limited), joint venturer or member of any of the Partnerships or
           creditor thereof, including, without limitation, the Pledgor's right,
           title and interest in, to and under (i) the capital of any of the
           Partnerships, (ii) any subscription and antidilution rights with
           respect to interests in any of the Partnerships, (iii) the Pledgor's
           claims, rights, powers, privileges, security interests, liens and
           remedies against any of the Partnerships or any partner (general or
           limited), joint venturer or member with respect to any such
           Partnership's property or operations, under the Partnership
           Agreements or at law, and (iv) all other rights, title and interest
           of the Pledgor in and to any of the Partnerships, and the proceeds of
           and distributions in respect of any of the foregoing; and

               (d) all instruments of indebtedness (whether now existing or
           hereinafter arising) by any Partnership which name the Pledgor as
           payee thereunder (the "Pledged Debt"), and

               (e) all proceeds of any and all of the foregoing collateral
           (including, without limitation, proceeds that constitute property of
           the types described above).

               SECTION 2. Security for Obligations. This Agreement secures the
payment of all obligations of the Pledgor now or hereafter existing under the
Loan Agreement, the Revolving Notes and the other Loan Documents to which it is
a party, whether for principal, interest, fees, expenses or otherwise (all such
obligations of the Pledgor being the "Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by the Pledgor to the
Agent, the Lenders, the Issuing Banks (other than any Third Party Issuer) or the
LC Guarantor under the Loan Agreement, the Revolving Notes or any other Loan
Documents but for the fact that they are


                                        2

<PAGE>   184
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.

               SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of the Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Agent. The Agent shall have the right, upon the occurrence
and during the continuance of an Event of Default, after ten days, prior written
notice to the Pledgor, to transfer to or to register in the name of the Agent or
any of its nominees any or all of the Pledged Collateral, subject only to the
revocable rights specified in Section 6(a). In addition, the Agent shall have
the right at any time to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations.

               SECTION 4. Representations and Warranties. The Pledgor represents
and warrants to the Agent, the Lenders, the Issuing Banks (other than any Third
Party Issuer) and the LC Guarantor, and each of them, as follows:

               (a) The Pledgor is the legal and beneficial owner of the Pledged
           Collateral free and clear of any lien, security interest, option or
           other charge or encumbrance except for the security interest created
           by this Agreement and any interests arising under the Partnership
           Agreements.

               (b) The pledge of the Pledged Collateral pursuant to this
           Agreement creates a valid and perfected first priority security
           interest in the Pledged Collateral, securing the payment of the
           Obligations.

               (c) No consent of any other person or entity and no
           authorization, approval, or other action by, and no notice to or
           filing with, any governmental authority or regulatory body is
           required (i) for the pledge by the Pledgor of the Pledged Collateral
           pursuant to this Agreement or for the execution, delivery or
           performance of this Agreement by the Pledgor, (ii) for the perfection
           or maintenance of the security interest created hereby (including the
           first priority nature of such security interest) or (iii) subject to
           the Partnership Agreements, the remedies in respect of the Pledged
           Collateral pursuant to this Agreement (except as may be required in
           connection with any disposition of any portion of the Pledged
           Collateral by laws affecting the offering and sale of securities
           generally).

               (d) The Pledged Collateral constitutes, and will continue to
           constitute, all of the equity and debt interests of the Pledgor in
           each Partnership.

               (e) There are no conditions precedent to the effectiveness of
           this Agreement that have not been satisfied or waived.


                                        3

<PAGE>   185
               (f) The Pledgor has, independently and without reliance upon the
           Agent or any Lender or Issuing Bank or the LC Guarantor and based on
           such documents and information as it has deemed appropriate, made its
           own credit analysis and decision to enter into this Agreement.

               SECTION 5. Further Assurances. The Pledgor agrees that at any
time and from time to time, at the expense of the Pledgor, the Pledgor will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Agent to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral.

               SECTION 6. Voting Rights; Proceeds; Etc. (a) So long as no Event
of Default shall have occurred and be continuing:

                      (i) The Pledgor shall be entitled to exercise or refrain
           from exercising any and all voting and other consensual rights
           pertaining to the Pledged Collateral or any part thereof for any
           purpose not inconsistent with the terms of this Agreement or the Loan
           Agreement.

                      (ii) The Pledgor shall be entitled to receive and retain
           any and all monies, proceeds, distributions or payments paid in
           respect of the Pledged Collateral to the extent that such dividends
           are not prohibited by the Loan Agreement.

               (b) Upon the occurrence and during the continuance of an Event of
           Default:

                      (i) All rights of the Pledgor (x) to exercise or refrain
           from exercising the voting and other consensual rights which it would
           otherwise be entitled to exercise pursuant to Section 6(a)(i) shall,
           upon ten days' prior written notice to the Pledgor by the Agent,
           cease and (y) to receive the dividends payments which it would
           otherwise be authorized to receive and retain pursuant to Section
           6(a)(ii) shall automatically cease, and all such rights shall
           thereupon, in the case of dividends, or after the expiration of said
           ten-day notice period in the case of voting and consensual rights,
           become vested in the Agent who shall thereupon have the sole right to
           exercise or refrain from exercising such voting and other consensual
           rights and to receive and hold as Pledged Collateral such dividends.

                      (ii) All monies, proceeds, distributions or payments which
           are received by the Pledgor contrary to the provisions of paragraph
           (i) of this Section 6(b) shall be received in trust for the benefit
           of the Agent, shall be segregated from other funds of the Pledgor and
           shall be forthwith paid over to the Agent as Pledged Collateral in
           the same form as so received (with any necessary endorsement).


                                        4
<PAGE>   186
               SECTION 7. Transfers and Other Liens; Additional Shares. (a) The
Pledgor agrees that it will not (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to, any of
the Pledged Collateral, or (ii) create or permit to exist any lien, security
interest, option or other charge or encumbrance upon or with respect to any of
the Pledged Collateral, except for the security interest under this Agreement
(or arising under the Partnership Agreements).

               (b) The Pledgor agrees that it will pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all other equity
securities or debt obligations of each issuer of the Pledged Collateral.

               SECTION 8. Agent Appointed Attorney-in-Fact. The Pledgor hereby
appoints the Agent the Pledgor's attorney-in-fact, which appointment shall
become effective upon the occurrence and during the continuance of an Event of
Default, with full authority in the place and stead of the Pledgor and in the
name of the Pledgor or otherwise, from time to time in the Agent's discretion to
take any action and to execute any instrument which the Agent may deem necessary
or advisable to accomplish the purposes of this Agreement (subject to the rights
of the Pledgor under Section 6), including, without limitation, to receive,
indorse and collect all instruments made payable to the Pledgor representing any
dividend or other distribution in respect of the Pledged Collateral or any part
thereof and to give full discharge for the same.

               SECTION 9. Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor under Section 13.

               SECTION 10. The Agent's Duties. The powers conferred on the Agent
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no duty as to any
Pledged Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Collateral, whether or not the Agent or any Lender or Issuing Bank or
the LC Guarantor has or is deemed to have knowledge of such matters, or as to
the taking of any necessary steps to preserve rights against any parties or any
other rights pertaining to any Pledged Collateral. The Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any Pledged
Collateral in its possession if such Pledged Collateral is accorded treatment
substantially equal to that which the Agent, in its individual capacity, accords
its own property.

               SECTION 11. Remedies upon Default. If any Event of Default shall
have occurred and be continuing:


                                        5
<PAGE>   187
               (a) The Agent may exercise in respect of the Pledged Collateral,
           in addition to other rights and remedies provided for herein or
           otherwise available to it, all the rights and remedies of a secured
           party on default under the Uniform Commercial Code in effect in the
           State of California at that time (the "Code") (whether or not the
           Code applies to the affected Collateral), and may also, without
           notice except as specified below, sell the Pledged Collateral or any
           part thereof in one or more parcels at public or private sale, at any
           exchange, broker's board or at any of the Agent's offices or
           elsewhere, for cash, on credit or for future delivery, and upon such
           other terms as the Agent may deem commercially reasonable. The
           Pledgor agrees that, to the extent notice of sale shall be required
           by law, at least five days' notice to the Pledgor of the time and
           place of any public sale or the time after which any private sale is
           to be made shall constitute reasonable notification. The Agent shall
           not be obligated to make any sale of Pledged Collateral regardless of
           notice of sale having been given. The Agent may adjourn any public or
           private sale from time to time by announcement at the time and place
           fixed therefor, and such sale may, without further notice, be made at
           the time and place to which it was so adjourned.

               (b) Any cash held by the Agent as Pledged Collateral and all cash
           proceeds received by the Agent in respect of any sale of, collection
           from, or other realization upon all or any part of the Pledged
           Collateral may, in the discretion of the Agent, be held by the Agent
           as collateral for, and/or then or at any time thereafter be applied
           (after payment of any amounts payable to the Agent pursuant to
           Section 13) in whole or in part by the Agent for the ratable benefit
           of the Lenders, the Issuing Banks (other than any Third Party Issuer)
           and the LC Guarantor against, all or any part of the Obligations in
           such order as the Agent shall elect. Any surplus of such cash or cash
           proceeds held by the Agent and remaining after payment in full of all
           the Obligations shall be paid over to the Pledgor or to whomsoever
           may be lawfully entitled to receive such surplus.

               SECTION 12. [Deleted]

               SECTION 13. Expenses. The Pledgor will upon demand pay to the
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which the Agent
may incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Agent or the Lenders or Issuing Banks
(other than any Third Party Issuer) or the LC Guarantor hereunder or (iv) the
failure by the Pledgor to perform or observe any of the provisions hereof, in
each case, to the extent provided in Section 13.3 of the Loan Agreement.

               SECTION 14. Security Interest Absolute. The obligations of the
Pledgor under this Agreement are independent of the Obligations, and a separate
action or actions may be brought and prosecuted against the Pledgor to enforce
this Agreement, irrespective of whether any action is brought against any other
Party or whether any other Party is joined in any such


                                        6
<PAGE>   188
action or actions. All rights of the Agent and security interests hereunder, and
all obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:

               (a) any lack of validity or enforceability of the Loan Agreement,
           the Revolving Notes, the other Loan Documents or any other agreement
           or instrument relating thereto;

               (b) any change in the time, manner or place of payment of, or in
           any other term of, all or any of the Obligations, or any other
           amendment or waiver of or any consent to any departure from the Loan
           Agreement, the Revolving Notes or the other Loan Documents,
           including, without limitation, any increase in the Obligations
           resulting from the extension of additional credit to the Pledgor, any
           of its subsidiaries or any Party or otherwise;

               (c) any taking, exchange, release or non-perfection of any other
           collateral, or any taking, release or amendment or waiver of or
           consent to departure from any guaranty, for all or any of the
           Obligations;

               (d) any manner of application of collateral, or proceeds thereof,
           to all or any of the Obligations, or any manner of sale or other
           disposition of any collateral for all or any part of the Obligations
           or any other assets of the Pledgor, any of its subsidiaries or any
           other Party;

               (e) any change, restructuring or termination of the corporate
           structure or existence of the Pledgor, any of its subsidiaries or any
           other Party;

               (f) the existence of any claim, setoff, defense or other rights
           which the Pledgor may have at any time against the Agent, any Issuing
           Bank, the LC Guarantor or any Lender, any beneficiary of any Letter
           of Credit or Set-Aside Letter (or any Persons or entities for whom
           any such beneficiary may be acting) or any other Person, whether in
           connection with the Loan Agreement, any other Loan Documents or any
           other agreement or instrument relating thereto, or any unrelated
           transactions;

               (g) any demand, statement or any other document presented under
           any Letter of Credit or Set-Aside Letter proving to be forged,
           fraudulent, invalid or insufficient in any respect or any statement
           therein being untrue or inaccurate in any respect whatsoever;

               (h) payment by any Issuing Bank under any Letter of Credit
           against presentation of a draft or any accompanying document which
           does not strictly comply with the terms of such Letter of Credit;

               (i) the existence, character, quality, quantity, condition,
           packing, value or delivery of any Property purported to be
           represented by documents presented in


                                        7

<PAGE>   189
           connection with any Letter of Credit or any difference between any
           such Property and the character, quality, quantity, condition or
           value of such Property as described in such documents;

               (j) the time, place, manner, order or contents of shipments or
           deliveries of property as described in documents presented in
           connection with any Letter of Credit or the existence, nature and
           extent of any insurance relating thereto;

               (k) the solvency (or insolvency) or financial responsibility (or
           lack thereof) of any party issuing any documents in connection with
           any Letter of Credit;

               (l) any failure or delay in notice of shipment or arrival of any
           Property;

               (m) any error in the transmission of any message relating to any
           Letter of Credit not caused by the Issuing Bank thereof, or any delay
           or interruption in any such message;

               (n) any error, neglect or default of any correspondent of any
           Issuing Bank in connection with any Letter of Credit; and/or

               (o) any other circumstance which might otherwise constitute a
           defense available to, or a discharge of, a third party pledgor,
           except for the payment in full of the Obligations (other than any
           contingent indemnity obligations under any Loan Document) if, at such
           time no portion of the Revolving Commitments remain outstanding.

               SECTION 15. Amendments, Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent and the Pledgor, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.

               SECTION 16. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Pledgor, at its address specified
on the signature page hereto, and if to the Agent, at its address specified in
the Loan Agreement, or, as to either party, at such other address (other than a
post office box) as shall be designated by such party in-a written notice to the
other party. Any notice, request, demand, direction or other communication given
by telegram, telecopier, telex or cable must be confirmed within 48 hours by
letter mailed or delivered to the appropriate party at its respective address.
Except as otherwise expressly provided in any Loan Document, if any notice,
request, demand, direction or other communication required or permitted by any
Loan Document is given by mail it will be effective on the earlier of receipt or
the third Banking Day after deposit in the United States mail with first class
or airmail postage prepaid; if given by telegraph or


                                       8
<PAGE>   190
cable, when delivered to the telegraph company with charges prepaid; if given by
telex or telecopier, when sent; or if given by personal delivery, when
delivered.

               SECTION 17. Continuing Security Interest; Assignments under Loan
Agreement; Termination of Pledge in Certain Circumstances. This Agreement shall
create a continuing security interest in the Pledged Collateral and shall (i)
remain in full force and effect until the later of (x) the payment in full of
the Obligations (other than any contingent indemnity obligations under any Loan
Document) and all other amounts payable under this Agreement and (y) the
termination in full of the aggregate Revolving Commitments under the Loan
Agreement, (ii) be binding upon the Pledgor, its successors and assigns, and
(iii) inure, together with the rights and remedies of the Agent hereunder, to
the benefit of, and be enforceable by, the Agent, the Lenders, the Issuing Banks
(other than any Third Party Issuer), the LC Guarantor and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), subject to the provisions of Section 13.7 of the Loan
Agreement, any Lender may assign or otherwise transfer all or any portion of its
rights and obligations under the Loan Agreement (including, without limitation,
all or any portion of its Revolving Commitments, the Revolving Advances owing to
it and any Revolving Note held by it) to any other person or entity (which
person or entity must be an Eligible Assignee if and to the extent required
under Section 13.7 of the Loan Agreement), and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to such
Lender herein or otherwise, subject, however, to the provisions of Article 12
(concerning the Agent) and Section 13.7 (concerning assignments) of the Loan
Agreement. Upon the later of the payment in full of the Obligations (other than
any contingent indemnity obligations under any Loan Document) and all other
amounts payable under this Agreement and the expiration or termination of the
Revolving Commitments, the security interest granted hereby shall terminate and
all rights to the Pledged Collateral shall revert to the Pledgor. Upon any such
termination, the Agent will, at the Pledgor's expense, return to the-Pledgor
such of the Pledged Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof and execute and deliver to the Pledgor such
documents as the Pledgor shall reasonably request to evidence such termination.

               SECTION 18. Governing Law; Terms. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California. Unless otherwise defined herein or in the Loan Agreement, terms
defined in Article 9 of the Code are used herein as therein defined.


                                       9
<PAGE>   191
               IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.

                                         PRESLEY HOMES,
                                         a California corporation

                                         By:
                                             -----------------------------------
                                             Name:  David M. Siegel
                                             Title: Senior Vice President -
                                                    Chief Financial Officer


                                         By:
                                             -----------------------------------
                                             Name:  W. Douglass Harris
                                             Title: Vice President -
                                                    Corporate Controller

                                         Address:

                                         19 Corporate Plaza
                                         Newport Beach, California 92660
                                         Attn: David M. Siegel
                                               Senior Vice President
                                               Chief Financial Officer

                                                         and

                                               W. Douglass Harris
                                               Vice President -  
                                                 Corporate Controller
                                               Telecopier:(949) 640-1710
                                               Telephone: (949) 640-6400

Accepted, as of the date
first above written

FOOTHILL CAPITAL CORPORATION,

as Agent

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


                                       10
<PAGE>   192
                                   SCHEDULE I
                 Attached to and forming a part of that certain
                                Pledge Agreement
                           dated as of July 6, 1998 by
                     Presley Homes, a California corporation
                  as Pledgor, to Foothill Capital Corporation,
                                    as Agent

                List and Description of Pledged Equity Interests

<TABLE>
<CAPTION>
Name of Partnership          Description of Partnership Agreement       Description of Pledgor's Interest
-------------------          ------------------------------------       ---------------------------------
<S>                          <C>                                        <C>





</TABLE>

                      List and Description of Pledged Debt

<TABLE>
<CAPTION>
Obligation Issuer       Description of Obligation        Maturity Date          Original Principal Amount
-----------------       -------------------------        -------------          -------------------------
<S>                     <C>                              <C>                    <C>





</TABLE>

<PAGE>   193
                                    EXHIBIT N

                      AMENDED AND RESTATED PLEDGE AGREEMENT

               AMENDED AND RESTATED PLEDGE AGREEMENT ("Agreement") dated as of
July __, 1998, made by THE PRESLEY COMPANIES, a Delaware corporation (the
"Pledgor"), to FOOTHILL CAPITAL CORPORATION, as agent (the "Agent") for the
lenders (the "Lenders") parties to the Loan Agreement (as hereinafter defined)
and the Issuing Banks (other than any Third Party Issuer) and LC Guarantor (in
each case as defined in the Loan Agreement).

               PRELIMINARY STATEMENTS:

               (1) The Lenders and the Agent have entered into a Fifth Amended
and Restated Loan Agreement dated as of July 6, 1998 (said agreement, as it may
hereafter be amended, restated, supplemented or otherwise modified from time to
time, being the "Loan Agreement", the terms defined therein and not otherwise
defined herein being used herein as therein defined) with Presley Homes (f/k/a
The Presley Companies), a California corporation (the "Borrower"). The Pledgor
will derive substantial direct and indirect benefit from the transactions
contemplated by the Loan Agreement.

               (2) The Pledgor is the owner of the shares (the "Pledged Shares")
of stock described in Schedule I hereto and issued by the Borrower.

               (3) The Pledgor has entered into a Pledge Agreement dated as of
May 20, 1994 (as amended, the "Existing Pledge Agreement") in favor of the agent
for the lenders parties to the Existing Pledge Agreement.

               (4) It is a condition precedent to the making of Revolving
Advances by the Lenders under the Loan Agreement that the Pledgor, as owner of
100 percent of the outstanding shares of stock of the Borrower, shall have made
the pledge contemplated by this Agreement and shall have amended and restated
the Existing Pledge Agreement as set forth below.

               NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make Revolving Advances under the Loan Agreement, the
Pledgor hereby agrees with the Agent for its benefit and the ratable benefit of
the Lenders, the Issuing Banks (other than any Third Party Issuer) and the LC
Guarantor that, effective on and as of the Closing Date, the Existing Pledge
Agreement is amended and restated in its entirety as follows:

               SECTION 1. Pledge. The Pledgor hereby pledges to the Agent for
its benefit and the ratable benefit of the Lenders, the Issuing Banks (other
than any Third Party Issuer) and the LC Guarantor, and grants to the Agent for
its benefit and the ratable benefit of the Lenders, such Issuing Banks and the
LC Guarantor a security interest in, the following (the "Pledged Collateral"):


                                       1
<PAGE>   194
               (a) the Pledged Shares and the certificates representing the
    Pledged Shares, and all dividends, cash, instruments and other property from
    time to time received, receivable or otherwise distributed in respect of or
    in exchange for any or all of the Pledged Shares;

               (b) all additional shares of stock of the Borrower from time to
    time acquired by the Pledgor in any manner, and the certificates
    representing such additional shares, and all dividends, cash, instruments
    and other property from time to time received, receivable or otherwise
    distributed in respect of or in exchange for any or all of such shares; and

               (c) all proceeds of any and all of the foregoing collateral
    (including, without limitation, proceeds that constitute property of the
    types described above).

               SECTION 2. Security for Obligations. This Agreement secures the
payment of (i) all obligations of the Borrower now or hereafter existing under
the Loan Agreement, the Revolving Notes and the other Loan Documents to which it
is a party, whether for principal, interest, fees, expenses or otherwise, and
(ii) all obligations of the Pledgor now or hereafter existing under this
Agreement, the Guaranty and the other Loan Documents to which it is a party (all
such obligations of the Borrower and the Pledgor being the "Obligations").
Without limiting the generality of the foregoing, this Agreement secures the
payment of all amounts which constitute part of the Obligations and would be
owed by the Borrower or the Pledgor to the Agent, the Lenders, the Issuing Banks
(other than any Third Party Issuer) or the LC Guarantor under the Loan
Agreement, the Revolving Notes, the Guaranty or any other Loan Documents but for
the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Borrower or the
Pledgor. The Pledgor hereby ratifies and confirms that, notwithstanding the
provisions of Section 17(b) of the Existing Pledge Agreement, the grant of the
security interest contained in the Existing Pledge Agreement continues in full
force and effect without interruption, and the security interest granted in the
Existing Pledge Agreement as amended and restated pursuant hereto constitutes
the single grant of a security interest.

               SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of the Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Agent. The Agent shall have the right, upon the occurrence
and during the continuance of an Event of Default, after ten days, prior written
notice to the Pledgor, to transfer to or to register in the name of the Agent or
any of its nominees any or all of the Pledged Collateral, subject only to the
revocable rights specified in Section 6(a). In addition, the Agent shall have
the right at any time to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations.

               SECTION 4. Representations and Warranties. The Pledgor represents
and warrants to the Agent, the Lenders, the Issuing Banks (other than any Third
Party Issuer) and the LC Guarantor, and each of them, as follows:


                                       2
<PAGE>   195
               (a) The Pledged Shares have been duly authorized and validly
    issued and are fully paid and non-assessable.

               (b) The Pledgor is the legal and beneficial owner of the Pledged
    Collateral free and clear of any lien, security interest, option or other
    charge or encumbrance except for the security interest created by this
    Agreement.

               (c) The pledge and delivery to the Agent of the Pledged Shares
    pursuant to this Agreement create a valid and perfected first priority
    security interest in the Pledged Collateral, securing the payment of the
    Obligations.

               (d) No consent of any other person or entity and no
    authorization, approval, or other action by, and no notice to or filing
    with, any governmental authority or regulatory body is required (i) for the
    pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement
    or for the execution, delivery or performance of this Agreement by the
    Pledgor, (ii) for the perfection or maintenance of the security interest
    created hereby (including the first priority nature of such security
    interest) or (iii) for the exercise by the Agent of the voting or other
    rights provided for in this Agreement or the remedies in respect of the
    Pledged Collateral pursuant to this Agreement (except as may be required in
    connection with any disposition of any portion of the Pledged Collateral by
    laws affecting the offering and sale of securities generally).

               (e) The Pledged Shares constitute 100% of the issued and
    outstanding shares of stock of the Borrower.

               (f) There are no conditions precedent to the effectiveness of
    this Agreement that have not been satisfied or waived.

               (g) The Pledgor has, independently and without reliance upon the
    Agent or any Lender or Issuing Bank or the LC Guarantor and based on such
    documents and information as it has deemed appropriate, made its own credit
    analysis and decision to enter into this Agreement.

               SECTION 5. Further Assurances. The Pledgor agrees that at any
time and from time to time, at the expense of the Pledgor, the Pledgor will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Agent to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral.

               SECTION 6. Voting Rights; Dividends; Etc. So long as no Event of
Default shall have occurred and be continuing:

                      (i) The Pledgor shall be entitled to exercise or refrain
    from exercising any and all voting and other consensual rights pertaining to
    the Pledged Collateral or any part thereof for any purpose not inconsistent
    with the terms of this Agreement or the Loan Agreement;


                                       3
<PAGE>   196
    provided, however, that the Pledgor shall give the Agent at least five days'
    written notice of the manner in which it intends to exercise any such right,
    except for the exercise of such rights in connection with voting for members
    of the Borrower's Board of Directors and with the ratification or
    appointment of Ernst & Young LLP or other independent public accountants of
    recognized standing.

                      (ii) The Pledgor shall be entitled to receive and retain
    any and all dividends paid in respect of the Pledged Collateral to the
    extent that such dividends are made in accordance with Section 8.5 of the
    Loan Agreement, provided, however, that any and all

                      (A)    dividends paid or payable other than in cash in
                             respect of, and instruments and other property
                             received, receivable or otherwise distributed in
                             respect of, or in exchange for, any Pledged
                             Collateral,

                      (B)    dividends and other distributions paid or payable
                             in cash in respect of any Pledged Collateral in
                             connection with a partial or total liquidation or
                             dissolution or in connection with a reduction of
                             capital, capital surplus or paid-in surplus, and

                      (C)    cash paid, payable or otherwise distributed in
                             respect of principal of, or in redemption of, or in
                             exchange for, any Pledged Collateral

    shall be, and shall be forthwith delivered to the Agent to hold as, Pledged
    Collateral and shall, if received by the Pledgor, be received in trust for
    the benefit of the Agent, be segregated from the other property or funds of
    the Pledgor, and be forthwith delivered to the Agent as Pledged Collateral
    in the same form as so received (with any necessary endorsement or
    assignment).

                      (iii) The Agent shall execute and deliver (or cause to be
    executed and delivered) to the Pledgor all such proxies and other
    instruments as the Pledgor may reasonably request for the purpose of
    enabling the Pledgor to exercise the voting and other rights which it is
    entitled to exercise pursuant to paragraph (i) above and to receive the
    dividends which it is authorized to receive and retain pursuant to paragraph
    (ii) above.

               (b) Upon the occurrence and during the continuance of an Event of
Default:

                      (i) All rights of the Pledgor (x) to exercise or refrain
    from exercising the voting and other consensual rights which it would
    otherwise be entitled to exercise pursuant to Section 6(a)(i) shall, upon
    ten days' prior written notice to the Pledgor by the Agent, cease and (y) to
    receive the dividends payments which it would otherwise be authorized to
    receive and retain pursuant to Section 6(a)(ii) shall automatically cease,
    and all such rights shall thereupon, in the case of dividends, or after the
    expiration of said ten-day notice period in the case of voting and
    consensual rights, become vested in the Agent who shall thereupon have the
    sole right to exercise or refrain from exercising such voting and other
    consensual rights and to receive and hold as Pledged Collateral such
    dividends.


                                       4
<PAGE>   197
                      (ii) All dividends which are received by the Pledgor
    contrary to the provisions of paragraph (i) of this Section 6(b) shall be
    received in trust for the benefit of the Agent, shall be segregated from
    other funds of the Pledgor and shall be forthwith paid over to the Agent as
    Pledged Collateral in the same form as so received (with any necessary
    endorsement).

               SECTION 7. Transfers and Other Liens; Additional Shares. (a) The
Pledgor agrees that it will not (i) sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to, any of
the Pledged Collateral, or (ii) create or permit to exist any lien, security
interest, option or other charge or encumbrance upon or with respect to any of
the Pledged Collateral, except for the security interest under this Agreement.

               (b) The Pledgor agrees that it will (i) cause the Borrower not to
issue any stock or other equity securities in addition to or in substitution for
the Pledged Shares, except to the Pledgor and (ii) pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all additional
shares of stock or other equity securities of each issuer of the Pledged Shares.

               SECTION 8. Agent Appointed Attorney-in-Fact. The Pledgor hereby
appoints the Agent the Pledgor's attorney-in-fact, which appointment shall
become effective upon the occurrence and during the continuance of an Event of
Default, with full authority in the place and stead of the Pledgor and in the
name of the Pledgor or otherwise, from time to time in the Agent's discretion to
take any action and to execute any instrument which the Agent may deem necessary
or advisable to accomplish the purposes of this Agreement (subject to the rights
of the Pledgor under Section 6), including, without limitation, to receive,
indorse and collect all instruments made payable to the Pledgor representing any
dividend or other distribution in respect of the Pledged Collateral or any part
thereof and to give full discharge for the same.

               SECTION 9. Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor under Section 13.

               SECTION 10. The Agent's Duties. The powers conferred on the Agent
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no duty as to any
Pledged Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Collateral, whether or not the Agent or any Lender or Issuing Bank or
the LC Guarantor has or is deemed to have knowledge of such matters, or as to
the taking of any necessary steps to preserve rights against any parties or any
other rights pertaining to any Pledged Collateral. The Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any Pledged
Collateral in its possession if such Pledged Collateral is accorded treatment
substantially equal to that which the Agent, in its individual capacity, accords
its own property.


                                       5
<PAGE>   198
               SECTION 11. Remedies upon Default. If any Event of Default shall
have occurred and be continuing:

               (a) The Agent may exercise in respect of the Pledged Collateral,
    in addition to other rights and remedies provided for herein or otherwise
    available to it, all the rights and remedies of a secured party on default
    under the Uniform Commercial Code in effect in the State of California at
    that time (the "Code") (whether or not the Code applies to the affected
    Collateral), and may also, without notice except as specified below, sell
    the Pledged Collateral or any part thereof in one or more parcels at public
    or private sale, at any exchange, broker's board or at any of the Agent's
    offices or elsewhere, for cash, on credit or for future delivery, and upon
    such other terms as the Agent may deem commercially reasonable. The Pledgor
    agrees that, to the extent notice of sale shall be required by law, at least
    five days' notice to the Pledgor of the time and place of any public sale or
    the time after which any private sale is to be made shall constitute
    reasonable notification. The Agent shall not be obligated to make any sale
    of Pledged Collateral regardless of notice of sale having been given. The
    Agent may adjourn any public or private sale from time to time by
    announcement at the time and place fixed therefor, and such sale may,
    without further notice, be made at the time and place to which it was so
    adjourned.

               (b) Any cash held by the Agent as Pledged Collateral and all cash
    proceeds received by the Agent in respect of any sale of, collection from,
    or other realization upon all or any part of the Pledged Collateral may, in
    the discretion of the Agent, be held by the Agent as collateral for, and/or
    then or at any time thereafter be applied (after payment of any amounts
    payable to the Agent pursuant to Section 13) in whole or in part by the
    Agent for the ratable benefit of the Lenders, the Issuing Banks (other than
    any Third Party Issuer) and the LC Guarantor against, all or any part of the
    Obligations in such order as the Agent shall elect. Any surplus of such cash
    or cash proceeds held by the Agent and remaining after payment in full of
    all the Obligations shall be paid over to the Pledgor or to whomsoever may
    be lawfully entitled to receive such surplus.

               SECTION 12. Registration Rights. In connection with the Agent's
right to sell all or any of the Pledged Collateral pursuant to Section 11, the
Pledgor agrees that, upon request of the Agent, the Pledgor will, at its own
expense:

               (a) execute and deliver, and cause each issuer of the Pledged
    Collateral contemplated to be sold and the directors and officers thereof to
    execute and deliver, all such instruments and documents, and do or use its
    best efforts to cause to be done all such other acts and things, as may be
    necessary or, in the opinion of the Agent, advisable to register such
    Pledged Collateral under the provisions of the Securities Act of 1933, as
    from time to time amended (the "Securities Act"), and use its best efforts
    to cause the registration statement relating thereto to become effective and
    to remain effective for such period as prospectuses are required by law to
    be furnished, and to make all amendments and supplements thereto and to the
    related prospectus which, in the opinion of the Agent, are necessary or
    advisable, all in conformity with the requirements of the Securities Act and
    the rules and regulations of the Securities and Exchange Commission
    applicable thereto;


                                       6
<PAGE>   199
               (b) use its best efforts to qualify the Pledged Collateral under
    the state securities or "Blue Sky" laws and to obtain all necessary
    governmental approvals for the sale of the Pledged Collateral, as requested
    by the Agent;

               (c) cause each such issuer to make available to its security
    holders, as soon as practicable, an earning statement which will satisfy the
    provisions of Section 11(a) of the Securities Act; and

               (d) do or cause to be done all such other acts and things as may
    be necessary to make such sale of the Pledged Collateral or any part thereof
    valid and binding and in compliance with applicable law.

The Pledgor further acknowledges the impossibility of ascertaining the amount of
damages which would be suffered by the Agent or the Lenders or Issuing Banks
(other than any Third Party Issuer) or the LC Guarantor by reason of the failure
by the Pledgor to perform any of the covenants contained in this Section and,
consequently, agrees that, if the Pledgor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Pledged Collateral on the date the Agent shall demand
compliance with this Section.

               SECTION 13. Expenses. The Pledgor will upon demand pay to the
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which the Agent
may incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Agent or the Lenders or Issuing Banks
(other than any Third Party Issuer) or the LC Guarantor hereunder or (iv) the
failure by the Pledgor to perform or observe any of the provisions hereof, in
each case, to the extent provided in Section 13.3 of the Loan Agreement.

               SECTION 14. Security Interest Absolute. The obligations of the
Pledgor under this Agreement are independent of the Obligations, and a separate
action or actions may be brought and prosecuted against the Pledgor to enforce
this Agreement, irrespective of whether any action is brought against the
Borrower or any other Party or whether the Borrower or any other Party is joined
in any such action or actions. All rights of the Agent and security interests
hereunder, and all obligations of the Pledgor hereunder, shall be absolute and
unconditional irrespective of:

               (a) any lack of validity or enforceability of the Loan Agreement,
    the Revolving Notes, the other Loan Documents or any other agreement or
    instrument relating thereto;

               (b) any change in the time, manner or place of payment of, or in
    any other term of, all or any of the Obligations, or any other amendment or
    waiver of or any consent to any departure from the Loan Agreement, the
    Revolving Notes or the other Loan Documents, including, without limitation,
    any increase in the Obligations resulting from the extension of additional
    credit to the Borrower, any of its subsidiaries or any Party or otherwise;


                                       7
<PAGE>   200
               (c) any taking, exchange, release or non-perfection of any other
    collateral, or any taking, release or amendment or waiver of or consent to
    departure from any guaranty, for all or any of the Obligations;

               (d) any manner of application of collateral, or proceeds thereof,
    to all or any of the Obligations, or any manner of sale or other disposition
    of any collateral for all or any part of the Obligations or any other assets
    of the Borrower, any of its subsidiaries or any other Party;

               (e) any change, restructuring or termination of the corporate
    structure or existence of the Borrower, any of its subsidiaries or any other
    Party;

               (f) the existence of any claim, setoff, defense or other rights
    which the Borrower or the Pledgor may have at any time against the Agent,
    any Issuing Bank, the LC Guarantor or any Lender, any beneficiary of any
    Letter of Credit or Set-Aside Letter (or any Persons or entities for whom
    any such beneficiary may be acting) or any other Person, whether in
    connection with the Loan Agreement, any other Loan Documents or any other
    agreement or instrument relating thereto, or any unrelated transactions;

               (g) any demand, statement or any other document presented under
    any Letter of Credit or Set-Aside Letter proving to be forged, fraudulent,
    invalid or insufficient in any respect or any statement therein being untrue
    or inaccurate in any respect whatsoever;

               (h) payment by any Issuing Bank under any Letter of Credit
    against presentation of a draft or any accompanying document which does not
    strictly comply with the terms of such Letter of Credit;

               (i) the existence, character, quality, quantity, condition,
    packing, value or delivery of any Property purported to be represented by
    documents presented in connection with any Letter of Credit or any
    difference between any such Property and the character, quality, quantity,
    condition or value of such Property as described in such documents;

               (j) the time, place, manner, order or contents of shipments or
    deliveries of property as described in documents presented in connection
    with any Letter of Credit or the existence, nature and extent of any
    insurance relating thereto;

               (k) the solvency (or insolvency) or financial responsibility (or
    lack thereof) of any party issuing any documents in connection with any
    Letter of Credit;

               (l) any failure or delay in notice of shipment or arrival of any
    Property;

               (m) any error in the transmission of any message relating to any
    Letter of Credit not caused by the Issuing Bank thereof, or any delay or
    interruption in any such message;


                                       8
<PAGE>   201
               (n) any error, neglect or default of any correspondent of any
    Issuing Bank in connection with any Letter of Credit; and/or

               (o) any other circumstance which might otherwise constitute a
    defense available to, or a discharge of, the Borrower or a third party
    pledgor, except for the payment in full of the Obligations (other than any
    contingent indemnity obligations under any Loan Document) if, at such time
    no portion of the Revolving Commitment remains outstanding.

               SECTION 15. Amendments, Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent and the Pledgor, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.

               SECTION 16. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Pledgor, at its address specified
on the signature page hereto, and if to the Agent, at its address specified in
the Loan Agreement, or, as to either party, at such other address (other than a
post office box) as shall be designated by such party in-a written notice to the
other party. Any notice, request, demand, direction or other communication given
by telegram, telecopier, telex or cable must be confirmed within 48 hours by
letter mailed or delivered to the appropriate party at its respective address.
Except as otherwise expressly provided in any Loan Document, if any notice,
request, demand, direction or other communication required or permitted by any
Loan Document is given by mail it will be effective on the earlier of receipt or
the third Banking Day after deposit in the United States mail with first class
or airmail postage prepaid; if given by telegraph or cable, when delivered to
the telegraph company with charges prepaid; if given by telex or telecopier,
when sent; or if given by personal delivery, when delivered.

               SECTION 17. Continuing Security Interest; Assignments under Loan
Agreement; Termination of Pledge in Certain Circumstances. This Agreement shall
create a continuing security interest in the Pledged Collateral and shall (i)
remain in full force and effect until the later of (x) the payment in full of
the Obligations (other than any contingent indemnity obligations under any Loan
Document) and all other amounts payable under this Agreement and (y) the
termination in full of the aggregate Revolving Commitments under the Loan
Agreement, (ii) be binding upon the Pledgor, its successors and assigns, and
(iii) inure, together with the rights and remedies of the Agent hereunder, to
the benefit of, and be enforceable by, the Agent, the Lenders, the Issuing Banks
(other than any Third Party Issuer), the LC Guarantor and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), subject to the provisions of Section 13.7 of the Loan
Agreement, any Lender may assign or otherwise transfer all or any portion of its
rights and obligations under the Loan Agreement (including, without limitation,
all or any portion of its Revolving Commitments, the Revolving Advances owing to
it and any Revolving Note held by it) to any other person or entity (which
person or entity must be an Eligible Assignee if and to the extent required
under Section 13.7 of the Loan Agreement), and such other person or entity shall
thereupon become vested with all the benefits in respect thereof granted to such
Lender herein or otherwise,


                                       9
<PAGE>   202
subject, however, to the provisions of Article 12 (concerning the Agent) and
Section 13.7 (concerning assignments) of the Loan Agreement. Upon the later of
the payment in full of the Obligations (other than any contingent indemnity
obligations under any Loan Document) and all other amounts payable under this
Agreement and the expiration or termination of the Revolving Commitments, the
security interest granted hereby shall terminate and all rights to the Pledged
Collateral shall revert to the Pledgor. Upon any such termination, the Agent
will, at the Pledgor's expense, return to the-Pledgor such of the Pledged
Collateral as shall not have been sold or otherwise applied pursuant to the
terms hereof and execute and deliver to the Pledgor such documents as the
Pledgor shall reasonably request to evidence such termination.

               SECTION 18. Governing Law; Terms. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California. Unless otherwise defined herein or in the Loan Agreement, terms
defined in Article 9 of the Code are used herein as therein defined.


                                       10
<PAGE>   203
               IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.

                                         THE PRESLEY COMPANIES
                                         a Delaware corporation

                                         By:
                                             -----------------------------------
                                             Name:  David M. Siegel
                                             Title: Senior Vice
                                             President - Chief Financial Officer


                                         By:
                                             -----------------------------------
                                             Name:  W. Douglass Harris
                                             Title: Vice President -
                                                    Corporate Controller

                                         Address:

                                         19 Corporate Plaza
                                         Newport Beach, California 92660
                                         Attn: David M. Siegel
                                               Senior Vice President
                                               Chief Financial Officer

                                                         and

                                               W. Douglass Harris
                                               Vice President - Corporate 
                                                 Controller
                                               Telecopier:(949) 640-1710
                                               Telephone: (949) 640-6400

Accepted, as of the date
first above written

FOOTHILL CAPITAL CORPORATION,

as Agent

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


                                       11
<PAGE>   204
                                   SCHEDULE I

                 Attached to and forming a part of that certain
                      Amended and Restated Pledge Agreement
                           dated as of July 6, 1998 by
                  The Presley Companies, a Delaware corporation
                  as Pledgor, to Foothill Capital Corporation,
                                    as Agent

<TABLE>
<CAPTION>
                                                                                   Percentage of
                                    Stock Certificate                 Number of      Outstanding
Stock Issuer       Class of Stock        No(s).         Par Value      Shares          Shares
------------       --------------   -----------------   ---------     ---------    -------------
<S>                <C>              <C>                 <C>           <C>          <C>
Presley Homes, a       Common              35              0.00        115,875          100%
California
corporation
</TABLE>

<PAGE>   205
                                                        Schedules 1.1(a) and (b)

                       PROPOSED CLASSIFIED BOARD AMENDMENT

1. Resolved that Article FOUR of the Certificate of Incorporation of this
corporation (the "Certificate") shall be amended in its entirety to read as
follows:

        "FOUR" The total number of shares of all classes of capital stock which
        this corporation shall have authority to issue is 175,000,000 shares,
        divided into the following two classes:

                l. 150,000,000 shares of Common Stock, par value $.01 per share,
        (Common Stock) consisting of the following series:

                      (x) 100,000,000 share of Series A Common Stock ("Series A
                Common"); and

                      (y) 50,000,000 share of Series B Common Stock ("Series B
                Common"); and

                2. 25,000,000 shares of preferred stock, par value $.01 per
        share, ("Preferred Stock").

        Upon the filing with the Office of the Secretary of State of the State
of Delaware of the Certificate of Amendment by which this Article FOUR is added
to the Certificate (the "Filing"), and without further action on the part of the
corporation or its stockholders, Board of Directors or officers, each
outstanding share of the corporation's Common Stock, par value $.01 per share
("Old Common"), shall be automatically reclassified and changed into one fully
paid and nonassessable share of Series A Common. Upon the Filing, stock
certificates previously representing shares of Old Common shall represent the
same number of shares of Series A Common, and each option, warrant or other
right to purchase shares of Old Common immediately prior to the Filing shall,
from and after the Filing, be deemed to be an option, warrant or other right to
purchase the same number of shares of series A Common.

        A. Powers, Rights and Privileges of Holders of Series A Common and
Series B Common.

               Except as provided by this Article FOUR, Series A Common and
Series B Common shall have equal powers, preferences, rights and privileges, and
except as provided by this Article FOUR, the holders of Series A Common and the
holders of series B Common shall vote together as a single class. Without
limiting the immediately preceding sentence, the corporation may not, except by
the percentage votes required by Paragraph D of this Article FOUR to amend
paragraphs A, B, C and D of this Article FOUR, effect a stock split, reverse
stock split or other similar event or declare or pay or otherwise distribute any
dividend with respect to any series of the corporation's Common Stock unless it
lawfully effects at the same time an identical stock split, reverse stock split
or other such event or declares or pays or

<PAGE>   206
otherwise distributes a dividend in an equal amount of kind per share with
respect to all series of the corporation's Common Stock, except that stock
dividends on Series A Common will be made only in the form of Series A Common
and stock dividends on Series B Common will be made only in the form of Series B
Common.

        B. Board of Directors

               (1) From and after the Filing, the Board of Directors of this
corporation shall be comprised of six members (the "Series A Directors") until
the date (the "Increase Date") this corporation shall have issued shares of
Series B Common, and from and after the Increase Date the Board of Directors of
this corporation shall be compromised of nine members, until such number is
decreased pursuant to Paragraph B(4) of this Article FOUR. From and after the
Increase Date, six of the directors (the "Series A Directors") shall be elected
by the holders of Series A Common, voting separately as a class, and the
remaining director or directors (the "Series B Director") shall be elected by
the holders of Series B Common, voting separately as a class.

               (2) The series A Directors shall be divided into three classes,
each consisting of two directors, and designated Class I, Class II and Class
III, respectively. At the annual meeting of stockholders held in 1994, Series A
Directors of Class I shall initially be elected to hold office for a term
expiring at the annual meeting of stockholders in 1995, Series A Directors of
Class II shall be elected to hold office for a term expiring at the annual
meeting of stockholders in 1996 and Series A Directors of Class III shall be
elected to hold office for a term expiring at the annual meeting of stockholders
in 1997. At each annual meeting of stockholders following such initial
classification and election, the Series A Directors to be elected at such
meeting shall be elected for three-year terms, and each director so elected
shall hold office for such three-year term and until his or her successor is
duly elected and qualified or until his or her earlier resignation or removal.
At every annual meeting of stockholders called for the election of directors,
the holders of Series A Common, voting separately as a class, shall elect the
Series A Directors entitled to be elected at such meeting. From and after the
Cause Date (as defined below in this Paragraph(2)), no Series A Director may be
elected to the Board of Directors or removed from the Board of Directors by
written consent of stockholders or at any meeting of stockholders except an
annual meeting of stockholders, each of which shall be held not sooner that 11
months following the immediately preceding annual meeting of stockholders. Any
Series A Director or Directors may be removed with or without cause, and may be
removed without cause only by a vote of the holders of a majority of the shares
of Series A Common; provided however that from and after the date the number of
outstanding shares of Series A Common is more than 18,500,000 (the "Cause
Date"), any Series A Director or Directors may be removed only for cause.
Notwithstanding any of the foregoing, upon the occurrence of a Conversion Change
of Control (as defined in Paragraph C(7) of this Article FOUR) or upon the
occurrence and during the continuance of a Conversion Event of Default (as
defined in Paragraph C(7) of this Article FOUR), any Series A Director or
Directors may be removed with or without cause by written consent of
stockholders or at any meeting of stockholders, by the consent or vote of the
holders of a majority of the outstanding shares of Series A Common.

               From and after the Increase Date and until the number of Series B
Directors is reduced below three pursuant to Paragraph B(4) below, the Series B
Directors shall be divided into three classes, each consisting of one director,
and designated Class I, Class II and Class III, respectively.


                                       2
<PAGE>   207
After the Increase Date and before the first annual meeting of stockholders to
be held after the Increase Date (the "First Meeting"), a majority of the holders
of Series B Common may by written consent elect the Series B Director of Class
I, to hold office for a term expiring at the First Meeting, and the Series B
Director of Class II to hold office for a term expiring at the second annual
meeting of stockholders to be held after the Increase Date (unless sooner
terminated pursuant to the provisions of either of the two immediately following
unnumbered paragraphs), and the Series B Director of Class III, to hold office
for a term expiring at the third annual meeting of stockholders to be held after
the Increase Date (unless sooner terminated pursuant to the provisions of either
of the two immediately following unnumbered paragraphs).

               At the first annual stockholders' meeting at which only two
Series B Directors are to be elected pursuant to Paragraph B(4) below (the "One
Reduction Meeting"), if any, the terms of all Series B Directors shall cease and
the Series B Directors shall be divided into two classes, designated Class I and
Class II, respectively, and the Series B Directors elected to such Classes shall
be determined at the One Reduction Meeting by the vote of a majority of the
outstanding shares of Series B Common. The Series B Director elected as the
Class I Director shall hold office for a term expiring at the annual meeting of
stockholders next following the One Reduction Meeting, and the Series B Director
elected as the Class II Director shall hold office for a term expiring at the
second annual meeting of stockholders next following the One Reduction Meeting
(unless sooner terminated pursuant to the provisions of the immediately
following unnumbered paragraph).

             At the first annual stockholders' meeting at which only one Series
B Director is to be elected pursuant to Paragraph B(4) below (the "Two Reduction
Meeting"), if any, the terms of all Series B Directors shall cease, there shall
be no classes of Series B Directors, and the person to serve as the sole Series
B Director shall be determined by the vote of a majority of the outstanding
shares of Series B Common.

               At each annual meeting of stockholders following the initial
classification and election of Series B Directors, the Series B Director to be
elected at such meeting shall be elected for a three-year term (if the Series B
Directors are then divided into three classes) or two years (if the Series B
Directors are then divided into two classes) or one year (if there is then only
one Series B Director), and each director so elected shall hold office for such
term (except as previously provided) and until his or her successor is duly
elected and qualified or until his or her earlier resignation or removal. At
every annual meeting of stockholders called for the election of directors, the
holders of Series B Common, voting separately as a class, shall elect the Series
B Director entitled to be elected at such meeting. Except as otherwise provided
in this Paragraph B(2), no Series B Director may be elected to the Board of
Directors by written consent of stockholders or at any meeting of stockholders
except an annual meeting of stockholders, each of which shall be held not sooner
than 11 months following the immediately preceding annual meeting of
stockholders. Any Series B Director or Directors may be removed only for cause
so long as there is more than one Series B Director.

               (3) If a vacancy or vacancies shall occur in the number of Series
A Directors, by death, resignation or otherwise (other than removal by the
holders of the Series A Common in accordance with this Article FOUR), such
vacancy or vacancies may be filled by a majority vote or written consent of the
remaining Series A Directors or the sole remaining Series A Director if there is


                                       3
<PAGE>   208
only one or if there is no remaining series A Director or if the remaining
Series A Director or Directors fail to fill the vacancy within 60 days of such
vacancy occurring or if such vacancy exists as a result of removal by the
holders of the Series A Common in accordance with this Article FOUR, by the vote
or written consent of the holders of a majority of the outstanding shares of
Series A Common. Any director so elected to fill any such vacancy shall be a
Series A Director, If a vacancy or vacancies shall occur in the number of Series
B Directors, by death, resignation or otherwise, such vacancy or vacancies may
be filled by a majority vote or written consent of the remaining Series B
Directors or the sole remaining Series B Director if there is only one or, if
the remaining Series B Director or Directors fail to fill the vacancy within 60
days of such vacancy occurring or if there is no remaining Series B Director, by
the vote or written consent of the holders of a majority of the outstanding
shares of Series B Common. Any director so elected to fill any such vacancy
shall be a Series B Director.

               (4) The number of Series B Directors shall be decreased in the
following circumstances: (i) the number of Series B Directors shall
automatically become two at the first annual stockholders' meeting occurring
after the Increase Date at which Series B Directors are to be elected and at
which the number of outstanding shares of Series B Common entitled to vote is
less than 35%, but at least 14%, of the total number of outstanding shares of
Common Stock; and (ii) the number of Series B Directors shall automatically
become one at the first annual stockholders' meeting occurring after the
Increase Date at which Series B Directors are to be elected and at which the
number of outstanding shares of Series B Common entitled to vote is less than
14%, but at least 5%, of the total number of outstanding shares of Common Stock;
and (iii) there shall be no Series B Directors from and after the date of the
first annual stockholders' meeting occurring after the Increase Date (whether or
not directors are to be elected at such meeting) on which the number of
outstanding shares of Series B common is less than five percent of the total
number of outstanding shares of Common Stock.

               (5) Except as provided by this Article FOUR, each of the Series A
Directors and Series B Directors shall have one vote on all matters on which the
Board of Directors votes or takes any action by written consent.

               (6) A quorum for any meeting of the Board of Directors shall be a
majority of the total number of Series A Directors and Series B Directors, so
long as such majority includes at least three Series A Directors and one Series
B Director or so long as such meeting is held after at least five days' written
notice to all directors; provided however that no quorum requirement shall be
applicable for any meeting held for the sole purpose of filling a vacancy or
vacancies that exist in the number of Series A Directors or in the number of
Series B Directors, but no business other than the filling of such vacancy or
vacancies in the number of Directors of that series shall be conducted at such
meeting.

               (7) To the extent the provisions of this Section B conflict with
the Bylaws of this corporation, the provisions of this Section B shall govern.


                                       4
<PAGE>   209
        C. Conversion of Series B Common.

               (1) Each share of Series B Common shall be convertible into one
share of Series A Common, at the option of the holder thereof, at any time from
and after the Initial Conversion Date (as hereinafter defined).

               (2) Any holder of a share of Series B Common may exercise the
conversion rights set forth in this Article FOUR as to such share from and after
the Initial Conversion Date (but in the case of an Initial Conversion Date
arising by reason of the occurrence of a Conversion Event of Default, only if
such conversion rights are exercised during the continuance of such Conversion
Event of Default) by delivering to the corporation during regular business
hours, at the principal office of the corporation or at such other place as may
be designated in a written notice delivered to all holders of Series B Common by
the corporation, the certificate for the share of Series B Common to be
converted, duly endorsed for transfer to the corporation, accompanied by written
notice stating the number of such shares that the holder elects to convert.
Conversion shall be deemed to have been effected at 5:00 p.m.(Pacific Time) on
the date such delivery is made, and such date is referred to herein as the
"Conversion Date," As promptly as practicable thereafter, but in any case within
30 days, the corporation shall issue and deliver to such holder a certificate or
certificates for the number of shares of Series A Common to which such holder is
entitled. The holder shall be deemed to have become a shareholder of record of
the Series A Common on the applicable conversion Date with all of the powers,
rights and privileges of a Series A Common stockholder. Upon conversion of only
a portion of the number of shares of Series B Common represented by a
certificate surrendered for conversion, the corporation shall issue and deliver
to such holder, at the expense of the corporation a new certificate representing
the number of shares of Series B Common not converted.

               (3) Each share of Series B Common which is outstanding on the
Automatic Conversion Date shall automatically be converted into one share of
Series A Common, without the requirement of any notice or other action on the
part of the holder of such share or the Company or any other person. Thereafter,
the stock certificate which represented the share of Series B Common so
converted shall represent the share of Series A Common issued as a result of
such conversion, until that certificate is surrendered to the corporation for
cancellation and a new certificate issued in place thereof. The "Automatic
Conversion Date" shall be the first date after the Increase Date on which less
than 1,000,000 shares of Series B common are outstanding.

               (4) If any share of Series A Common to be reserved for the
purpose of conversion of Series B Common requires registration or listing with
or approval of any governmental authority, stock exchange or other regulatory
body under any federal or state law or regulation or otherwise before such share
may be validly issued or delivered upon conversion, the corporation shall at its
sole cost and expense in good faith and as expeditiously as practical endeavor
to secure such registration, listing or approval, as the case may be.

               (5) All shares of Series A Common issued upon conversion of
Series B Common shall be validly issued, fully paid and nonassessable. The
corporation will pay any and all documentary and other taxes that may be payable
in respect of any issue of shares of Series A Common on conversion of Series B
Common pursuant hereto. The corporation shall not, however,


                                       5
<PAGE>   210
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Series A Common in a name other
than that in which the Series B Common so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting such
transfer has paid to the corporation the amount of any such tax or has
established to the satisfaction of the corporation that such tax has been paid.

               (6) All certificates representing shares of Series B Common
shall, upon conversion, be appropriately cancelled on the books of the
corporation except under the circumstances described in Paragraph C(3) of this
Article FOUR. Shares of Series B Common converted into shares of Series A Common
may not be reissued.

               (7) The "Initial Conversion Date" for any share of Series B
Common means the date three years after the date of the Filing or, if earlier,
the first date upon which any of the events described in the immediately
following clauses (a), (b) and (c) shall occur: (a) the date of sale of the
share of Series A Common into which thee share of Series B Common is being
converted (the "Conversion Common Share") if such sale is a public sale (as
"Public Sale" is defined in that certain Shareholders' Agreement dated as of
[_______,] 1994, as the same may be amended from time to time, among the
Company, Foothill Capital Corporation ("Foothill") and others) and is made in
accordance with the requirements of said Shareholders' Agreement; or (b) the
date a Conversion Change of Control of the corporation occurs (a "Conversion
Change of Control" shall be deemed to take place on the date determined in
accordance with the definition of a Conversion Change of Control in said
Shareholders' Agreement); or (c) the date of the occurrence and during the
continuance of a Conversion Event of Default (a "Conversion Event of Default"
shall be deemed to take place, and to continue, as determined in accordance with
the definition of a Conversion Event of Default in said Shareholders Agreement).

        D. Amendment, etc. of Article FOUR.

               Any stockholder approval required to amend, alter, modify or
repeal any provision of any of Paragraphs A, B, C or D of this Article FOUR or
any provision of the Bylaws of this corporation shall be effective only if such
approval consists of the affirmative vote or written consent of the holders of
more than seventy-five percent (75%) of the outstanding shares of Series A
Common, voting as a separate class, and the affirmative vote or written consent
of the holders of more than seventy five percent (75%) of the outstanding shares
of Series B Common, voting as a separate class.

        E. Preferred stock,

               The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized to fix the number of shares of
any series of Preferred Shares and to determine the designation of any such
series. The Board of Directors is also authorized to determine or alter the
powers, preferences, rights, qualifications, limitations and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock and,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of such
series then outstanding the number of shares of any such series subsequent to
the issue of shares of that series)."


                                       6
<PAGE>   211
        RESOLVED FURTHER, that the Chairman of the Board of Directors, Chief
Executive Officer or the President or any Vice President, and the Secretary, the
Chief Financial Officer, the Treasurer or any Assistant Secretary of the
corporation are each authorized to execute, verify and file a certificate of
amendment with respect to the amendment of Article FOUR of the Certificate as
set forth above.


                                       7
<PAGE>   212
                                                                 SCHEDULE 1.1(g)


                              Revolving Commitments


<TABLE>
<CAPTION>
                                                                Approximate
                                                                Percentage of
                                          Revolving          Aggregate Revolving
Lender                                    Commitment             Commitments
------                                   ------------        -------------------
<S>                                      <C>                 <C> 
Foothill Capital Corporation             $100,000,000               100%
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025
</TABLE>

<PAGE>   213
                                  SCHEDULE 6.2

                               NECESSARY CONSENTS


None



                                  SCHEDULE 6.2
<PAGE>   214
                                  SCHEDULE 6.3

                       NECESSARY GOVERNMENT AUTHORIZATION


None



                                  SCHEDULE 6.3
<PAGE>   215
                                  SCHEDULE 6.5

                     LIABILITIES AND CONTINGENT LIABILITIES

Set-Aside Letters Under the Existing Loan Agreement

     1)   Issuer:              Foothill Capital Corporation
          Beneficiary:         Lou Jones & Associates, Managing General Partner
                               for American Motorists Insurance Company

          Date of Issue:       January 20, 1998
          Amount:              $1,000,000
          Date of Expiration:  January 20, 1999
          Account (Obligor):   The Presley Companies

     2)   Issuer:              Foothill Capital Corporation
          Beneficiary:         Lou Jones & Associates, Managing General Partner
                               for American Motorists Insurance Company

          Date of Issue:       March 17, 1998
          Amount:              $500,000
          Date of Expiration:  January 20, 1999
          Account (Obligor):   The Presley Companies


                                  SCHEDULE 6.5
<PAGE>   216
                                  SCHEDULE 6.9

                               PENDING LITIGATION

VIEWPOINT NORTH COMMUNITY CORPORATION v THE PRESLEY COMPANIES, et al. Orange
County Superior Court Case No. 87457

JOHN ALLEN, et al v PRESLEY HOMES, et al. Riverside Superior Court Case No.
302555

THE HORIZONS COMMUNITY ASSOCIATION v PRESLEY OF SOUTHERN CALIFORNIA, et al.
Orange County Superior Court Case No. 783152

DAVID AND LESLIE SHARPE, et al v CARMEL MOUNTAIN RANCH, et al. San Diego
Superior Court Case No. 690105

BLACK DIAMOND OWNERS ASSOCIATION v THE PRESLEY COMPANIES, et al.   Contra
Costa County Superior Court Case No. 97-01858


                                  SCHEDULE 6.9

<PAGE>   217
                                  SCHEDULE 6.12

                     PENSION PLANS AND MULTI-EMPLOYER PLANS


None


                                  SCHEDULE 6.12

<PAGE>   218
                                  SCHEDULE 6.19

                              ENVIRONMENTAL MATTERS


None


                                  SCHEDULE 6.19
<PAGE>   219
                                  SCHEDULE 6.20

                        PARTNERSHIPS, JOINT VENTURES AND
                           LIMITED LIABILITY COMPANIES

Carmel Mountain Ranch, a California general partnership

Cerro Plata Associates, LLC, a Delaware limited liability company

Laurel Creek Associates, LLC, a Delaware limited liability company

Presley Torrey I Associates, LLC, a Delaware limited liability company

Presley Torrey II Associates, LLC, a Delaware limited liability company

Presley Mercy Associates, LLC, a Delaware limited liability company

PHI Otay Ranch Associates, LLC, a Delaware limited liability company

PHI Castle Creek Associates, LLC, a Delaware limited liability company

Presley Homes - Thousand Oaks, L.P., a California limited partnership

Stonecrest - San Diego, L.P., a California limited partnership

White Cloud Estates - Simi Valley, L.P., a California limited partnership



                                  SCHEDULE 6.20