Document:

<PAGE>   1
                                                                     EXHIBIT 4.1

                          FIRST SUPPLEMENTAL INDENTURE

                            Dated as of July 1, 2001

                         amending and supplementing the

                                    INDENTURE

                            Dated as of June 29, 1994

                                  by and among

                               WILLIAM LYON HOMES
               f/k/a THE PRESLEY COMPANIES, a Delaware corporation

                                   as Company,

                            WILLIAM LYON HOMES, INC.
                              f/k/a PRESLEY HOMES,
             f/k/a/ THE PRESLEY COMPANIES, a California corporation

                                  as Guarantor

                                       and

                               FIRSTAR BANK, N.A.
                           AS SUCCESSOR-IN-INTEREST TO
                    AMERICAN NATIONAL BANK AND TRUST COMPANY

                                   as Trustee

<PAGE>   2

        This First Supplemental Indenture (this "SUPPLEMENTAL INDENTURE"), dated
as of July 1, 2001 by and among William Lyon Homes, f/k/a Presley Homes, f/k/a
The Presley Companies, a Delaware corporation, as issuer (the "COMPANY"),
William Lyon Homes, Inc., f/k/a The Presley Companies, a California corporation,
and Firstar Bank, N.A., as successor-in-interest to American National Bank and
Trust Company, as trustee (the "TRUSTEE"), amending and supplementing the
Indenture (the "INDENTURE"), dated as of June 29, 1994, by and among the
Company, the Guarantor and the Trustee. Terms defined (whether directly or
indirectly by reference) in the Indenture and used without other definition
herein shall have the respective meanings assigned to such terms in the
Indenture. The rules of construction set forth in the Indenture shall likewise
govern this Supplemental Indenture.

                              W I T N E S S E T H:

        WHEREAS, the Company originally issued and the Trustee authenticated and
delivered, pursuant to the Indenture, $200,000,000 aggregate principal amount of
12 1/2% Senior Notes due 2001 (the "SENIOR NOTES");

        WHEREAS, the Company desires to amend certain covenants contained in the
Indenture;

        WHEREAS, Section 9.02 of the Indenture provides that a supplemental
indenture may be entered into by the Company, the Guarantor, and the Trustee (i)
to amend or supplement the Indenture to change the fixed maturity of any
Security with the consent of each Holder affected, and (ii) to amend or
supplement certain other provisions of the Indenture with the consent of the
Holders of at least a majority in aggregate principal amount of the then
outstanding Senior Notes; and

        WHEREAS, pursuant to an exchange offer by the Company set forth in a
Consent Solicitation Statement dated February 28, 2001 (the "STATEMENT"),
consents of each affected Holder have been received consenting to the amendments
to the Indenture to be effected pursuant to this Supplemental Indenture.

        NOW, THEREFORE, the parties hereto hereby amend the Indenture as
follows:

        Section 1. Amendments to Section 1.01 of the Indenture (Definitions).
The following definitions shall hereby be amended as follows:

                 (a) The definition "Non-Recourse Mortgage Debt" shall be
amended by adding the following additional sentence to the end thereof: "An
obligation which is non-recourse to the Company and its Restricted Subsidiaries
except for customary contractual indemnities and similar obligations which do
not constitute Guarantees or Indebtedness may be classified as Non-Recourse
Mortgage Debt if it meets all of the other criteria of this definition."

                 (b) The definition of "Permitted Joint Venture Investors" is
hereby amended by inserting, immediately after the word "partnerships," the
following parenthetical phrase "(which are not Subsidiaries)."

<PAGE>   3

                 (c) The definition of "Permitted Liens" is hereby amended by
deleting the proviso from the end of clause (w) thereof in its entirety.

                 (d) The following definitions shall hereby be inserted in the
appropriate places respectively designated by alphabetical order:

                 "`Amendment Date' shall mean July 1, 2001, the effective date
of the First Supplemental Indenture."

                 "`First Supplemental Indenture' shall mean the First
Supplemental Indenture dated as of July 1, 2001, amending and supplementing this
Indenture."

        Section 2. Amendment to Section 4.08 of the Indenture (Asset Sales).
Section 4.08 of the Indenture is hereby amended by deleting from clause (ii)
thereof the term "Closing Date" and substituting in place thereof the term
"Amendment Date."

        Section 3. Amendment to Section 4.09 of the Indenture (Maintenance of
Consolidated Tangible Net Worth). Section 4.09 of the Indenture is hereby
amended by deleting from the first paragraph thereof the phrase "the Senior
Notes originally issued" and substituting in place thereof the phrase "the
Senior Notes remaining outstanding on the Amendment Date, after giving effect to
the First Supplemental Indenture."

        Section 4. Amendments to Section 4.10 of the Indenture (Restricted
Payments). Section 4.10 of the Indenture is hereby amended by (a) deleting from
clause (c)(y) thereof the parenthetical reading "(excluding Consolidated Net
Income attributable to dividends or distributions from Unrestricted
Subsidiaries)" and (b) deleting from clause (c)(y) thereof the date "March 31,
1994" and substituting in place thereof the phrase "the Amendment Date."

        Section 5. Amendment to Section 5 of the Senior Notes. Section 5 of the
Senior Notes is hereby amended and restated in its entirety to read as follows:

               "5. Optional Redemption. The Senior Notes will be redeemable in
        whole or from time to time in part, at any time after the Amendment Date
        at the option of the Company, at a redemption price equal to 100% of the
        outstanding principal amount, together with accrued interest to the
        redemption date."

        Section 5. Effective Date. This Supplemental Indenture shall take effect
automatically and without the necessity of further action on July 1, 2001 (the
"Effective Date").

        Section 6. Ratification, Etc. Except as expressly modified or waived
hereby, each term and provision of the Indenture and each obligation of the
Company and the Guarantor thereunder is hereby ratified and confirmed by the
Company and the Guarantor and shall continue in full force and effect. No waiver
of any condition set forth herein shall extend beyond the immediate
circumstances on which this Supplemental Indenture is predicated or support any
inference that similar waivers would be granted in the future. From and after
the date of this Supplemental Indenture, all references to the Indenture shall
be deemed to be references to the Indenture as amended and supplemented by this
Supplemental Indenture.

                                       -2-
<PAGE>   4

        Section 7. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

        Section 8. No Representations by Trustee. The recitals contained herein
shall be construed as statements of the Company, and the Trustee assumes no
responsibility for the correctness of same. The Trustee makes no representation
and shall have no responsibility as to the validity of this Supplemental
Indenture or the proper authorization or the due execution hereof by the Company
or the Guarantor.

        Section 9. Counterparts. This Supplemental Indenture may be executed in
any number of counterparts, which shall together constitute but one and the same
instrument. To make proof of this Supplemental Indenture, it shall only be
necessary to produce one such counterpart.

        Section 10. Successors and Assigns. This Supplemental Indenture shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns.

        Section 11. Severability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

                                       -3-
<PAGE>   5

        IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year first above written and to
take effect as of the Effective Date set forth herein.

                                    [FIRSTAR BANK, N.A. AS SUCCESSOR-IN-
                                    INTEREST TO]
                                    AMERICAN NATIONAL BANK AND TRUST
                                    COMPANY, as Trustee

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

                                   WILLIAM LYON HOMES, as the Company

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

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

                                   WILLIAM LYON HOMES, INC., as the Guarantor

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

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

                                       -4-<PAGE>   1
                                                                    EXHIBIT 10.1

                             BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
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   Principal        Loan Date        Maturity         Loan No.     Call/Coll   Account   Officer
------------------------------------------------------------------------------------------------
<S>                 <C>             <C>             <C>            <C>         <C>       <C>
$10,000,000.00      03-08-2001      03-12-2002      406013004069      00                   110
------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of
this document to any particular loan or item. Any item above containing "***" has been omitted
due to text length limitations.
------------------------------------------------------------------------------------------------
</TABLE>

Borrower: WILLIAM LYON HOMES, INC.              Lender: FIRST BANK & TRUST
          4490 VON KARMAN AVENUE                        NEWPORT BEACH
          NEWPORT BEACH, CA 92660                       4301 MACARTHUR BLVD.
                                                        NEWPORT BEACH, CA 92660

THIS BUSINESS LOAN AGREEMENT DATED MARCH 8, 2001, IS MADE AND EXECUTED BETWEEN
WILLIAM LYON HOMES, INC. ("BORROWER") AND FIRST BANK & TRUST ("LENDER") ON THE
FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS
FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS OR OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT
OR SCHEDULE ATTACHED TO THIS AGREEMENT ("LOAN"). BORROWER UNDERSTANDS AND AGREES
THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON
BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS AS SET FORTH IN THIS
AGREEMENT, AND (B) ALL SUCH LOANS SHALL BE AND REMAIN SUBJECT TO THE TERMS AND
CONDITIONS OF THIS AGREEMENT.

TERM. This Agreement shall be effective as of March 8, 2001, and shall continue
in full force and effect until such time as all of Borrower's Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses,
attorneys' fees, and other fees and charges, or until such time as the parties
may agree in writing to terminate this Agreement.

ADVANCE AUTHORITY. The following persons currently are authorized, except as
provided in this paragraph, to request advances and authorize payments under the
line of credit until Lender receives from Borrower, at Lender's address shown
above, written notice of revocation of their authority: Authorized Officer:
WILLIAM LYON & WADE H. CABLE AND AUTHORIZED OFFICER: MICHAEL D. GRUBBS & RICHARD
S. ROBINSON.

(1) EACH ADVANCE REQUEST MUST BE IN WRITING, DESCRIBING THE SPECIFIC PURPOSE OF
    USE AND THE APPROXIMATE DATE OF REPAYMENT AND THE SOURCE OF REPAYMENT.

(2) EACH SPECIFIC ADVANCE SHALL BE REPAID IN FULL WITHIN A TWELVE-MONTH PERIOD.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be Subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.

     LOAN DOCUMENTS. Borrower shall provide to Lender the following documents
     for the Loan: (1) the Note; (2) guaranties; (3) together with all such
     Related Documents as Lender may require for the Loan; all in form and
     substance satisfactory to Lender and Lender's counsel.

     BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
     substance satisfactory to Lender properly certified resolutions, duly
     authorizing the execution and delivery of this Agreement, the Note and the
     Related Documents. In addition, Borrower shall have provided such other
     resolutions, authorizations, documents and instruments as Lender or its
     counsel, may require.

     PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
     charges, and other expenses which are then due and payable as specified in
     this Agreement or any Related Document.

     REPRESENTATIONS AND WARRANTIES. The representations and warranties set
     forth in this Agreement, in the Related Documents, and in any document or
     certificate delivered to Lender under this Agreement are true and correct.

     NO EVENT OF DEFAULT. There shall not exist at the time of any Advance a
     condition which would constitute an Event of Default under this Agreement
     or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:

     ORGANIZATION. Borrower Is a corporation for profit which is, and at all
     times shall be, duly organized, validly existing, and in good standing
     under and by virtue of the laws of the State of California. Borrower is
     duly authorized to transact business in all other states in which Borrower
     is doing business, having obtained all necessary filings, governmental
     licenses and approvals for each state in which Borrower is doing business.
     Specifically, Borrower is, and at all times shall be, duly qualified as a
     foreign corporation In all states in which the failure to so qualify would
     have a material adverse effect on its business or financial condition.
     Borrower has the full power and authority to own its properties and to
     transact the business in which it is presently engaged or presently
     proposes to engage. Borrower maintains an office at 4490 VON KARMAN AVENUE,
     NEWPORT BEACH, CA 92660. Unless Borrower has designated otherwise in
     writing, the principle office is the office at
<PAGE>   2
     which Borrower keeps its books and records including its records concerning
     the Collateral. Borrower will notify Lender of any change in the location
     of Borrower's principle office. Borrower shall do all things necessary to
     preserve and to keep in full force and effect its existence, rights and
     privileges, and shall comply with all regulations, rules, ordinances,
     statutes, orders and decrees of any governmental or quasi-governmental
     authority or court applicable to Borrower and Borrower's business
     activities.

     ASSUMED BUSINESS NAMES. Borrower has filed or recorded all documents or
     filings required by law relating to all assumed business names used by
     Borrower. Excluding the name of Borrower, the following is a complete list
     of all assumed business names under which Borrower does business: NONE.

     AUTHORIZATION. Borrower's execution, delivery, and performance of this
     Agreement and all the Related Documents have been duly authorized by all
     necessary action by Borrower and do not conflict with, result in a
     violation of, or constitute a default under (1) any provision of Borrower's
     articles of incorporation or organization, or bylaws, or any agreement or
     other instrument binding upon Borrower or (2) any law, governmental
     regulation, court decree, or order applicable to Borrower or to Borrower's
     properties.

     FINANCIAL INFORMATION. Each of Borrower's financial statements supplied to
     Lender truly and completely disclosed Borrower's financial condition as of
     the date of the statement, and there has been no material adverse change in
     Borrower's financial condition subsequent to the date of the most recent
     financial statement supplied to Lender. Borrower has no material contingent
     obligations except as disclosed in such financial statements.

     LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
     Borrower Is required to give under this Agreement when delivered will
     constitute legal, valid, and binding obligations of Borrower enforceable
     against Borrower in accordance with their respective terms.

     PROPERTIES. Except as contemplated by this Agreement or as previously
     disclosed in Borrower's financial statements or in writing to Lender and as
     accepted by Lender, and except for property tax liens for taxes not
     presently due and payable, Borrower owns and has good title to all of
     Borrower's properties free and clear of all Security Interests, and has not
     executed any security documents or financing statements relating to such
     properties. All of Borrower's properties are titled in Borrower's legal
     name, and Borrower has not used or filed a financing statement under any
     other name for at least the last 5 years.

     YEAR 2000. Borrower warrants and represents that all software utilized in
     the conduct of its business will have appropriate capabilities and
     compatibility for operation to handle calendar dates falling on or after
     January 1, 2000, and all information pertaining to such calendar dates, in
     the same manner and with the same functionality as the software does
     respecting calendar dates falling on or before December 31, 1999. Further
     the Borrower warrants and represents that the data-related user interface
     functions, data-fields, and data-related program instructions and functions
     of the Software include the indication of the century.

     HAZARDOUS SUBSTANCES. Except as disclosed to and acknowledged by Lender in
     writing, Borrower represents and warrants that: (1) During the period of
     Borrower's ownership of Borrower's Collateral, there has no use,
     generation, manufacture, storage, treatment, disposal, release or
     threatened release of any Hazardous Substance by any person on, under,
     about or from any of the Collateral. (2) Borrower has no knowledge of, or
     reason to believe that there has been (a) any breach or violation of any
     Environmental Laws; (b) any use, generation, manufacture, storage,
     treatment, disposal, release or threatened release of any Hazardous
     Substance on, under, about or from the Collateral by any prior owners or
     occupants of any of the Collateral; or (c) any actual or threatened
     litigation or claims of any kind by any person relating to such matters.
     (3) Neither Borrower nor any tenant, contractor, agent or other authorized
     user of any of the Collateral shall use, generate, manufacture, store,
     treat, dispose of or release any Hazardous Substance on, under, about or
     from any of the Collateral; and any such activity shall be conducted in
     compliance with all applicable federal, state, and local laws, regulations,
     and ordinances, including without limitation all Environmental Laws.
     Borrower authorizes Lender and its agents to enter upon the Collateral to
     make such inspections and tests as Lender may deem appropriate to determine
     compliance of the Collateral with this section of the Agreement. Any
     inspections or tests made by Lender shall be at Borrower's expense and for
     Lender's purposes only and shall not be construed to create any
     responsibility or liability on the part of Lender to Borrower or to any
     other person. The representations and warranties contained herein are based
     on Borrower's due diligence in investigating the Collateral for hazardous
     waste and Hazardous Substances. Borrower hereby (1) releases and waives any
     future claims against Lender for indemnity or contribution in the event
     Borrower becomes liable for cleanup or other costs under any such laws, and
     (2) agrees to indemnify and hold harmless Lender against any and all
     claims, losses, liabilities, damages, penalties, and expenses which Lender
     may directly or indirectly sustain or suffer resulting from a breach of
     this section of the Agreement or as a consequence of any use, generation,
     manufacture, storage, disposal, release or threatened release of a
     hazardous waste or substance on the Collateral. The provisions of this
     section of the Agreement, including the obligation to indemnify, shall
     survive the payment of the indebtedness and the termination, expiration or
     satisfaction of this Agreement and shall not be affected by Lender's
     acquisition of any interest in any of the Collateral, whether by
     foreclosure or otherwise.

                                       2
<PAGE>   3
     LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
     proceeding or similar action (including those for unpaid taxes) against
     Borrower is pending or threatened, and no other event has occurred which
     may materially adversely affect Borrower's financial condition or
     properties, other than litigation, claims, or other events, if any, that
     have been disclosed to and acknowledged by Lender in writing.

     TAXES. To the best of Borrower's knowledge, all of Borrower's tax returns
     and reports that are or were required to be filed, have been filed, and all
     taxes, assessments and other governmental charges have been paid in full,
     except those presently being or to be contested by Borrower in good faith
     in the ordinary course of business and for which adequate reserves have
     been provided.

     LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
     Borrower has not entered into or granted any Security Agreements, or
     permitted the filing or attachment of any Security Interests on or
     affecting any of the Collateral directly or indirectly securing repayment
     of Borrower's Loan and Note, that would be prior or that may in any way be
     superior to Lender's Security Interests and rights in and to such
     Collateral.

     BINDING EFFECT. This Agreement, the Note, all Security Agreements (if any),
     and all Related Documents are binding upon the signers thereof, as well as
     upon their successors, representatives and assigns, and are legally
     enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:

     NOTICES OF CLAIMS AND LITIGATION. Promptly inform Lender in writing of (1)
     all material adverse changes in Borrower's financial condition, and (2) all
     existing and all threatened litigation, claims, investigations,
     administrative proceedings or similar actions affecting Borrower or any
     Guarantor which could materially affect the financial condition of Borrower
     or the financial condition of any Guarantor.

     FINANCIAL RECORDS. Maintain its books and records in accordance with GAAP,
     applied on a consistent basis, and permit Lender to examine and audit
     Borrower's books and records at all reasonable times.

     FINANCIAL STATEMENTS. Furnish Lender with the following:

          ANNUAL STATEMENTS. As soon as available after the end of each fiscal
          year, Borrower's balance sheet and income statement for the year
          ended, prepared by Borrower in form satisfactory to Lender.

          INTERIM STATEMENTS. As soon as available after the end of each fiscal
          quarter, Borrower's balance sheet and profit and loss statement for
          the period ended, prepared by Borrower in form satisfactory to Lender.

          TAX RETURNS. As soon as available after the applicable filing date for
          the tax reporting period ended, Federal and other governmental tax
          returns, prepared by a tax professional satisfactory to Lender.

          ADDITIONAL REQUIREMENTS. (1) Borrower to furnish Lender with CPA
          audited year-end Consolidated, Balance Sheets, statements of
          operations, stockholder's equity and cash flows, to be submitted to
          Bank within 120 days from year end.

          (2) Borrower to furnish Lender with quarterly Company prepared
              financial statements and/or 10Q's as submitted to the SEC, to be
              submitted to the Lender upon filing.

          (3) Borrower to furnish Lender, when requested by Lender, any
              financial or information reports prepared by the Borrower within a
              reasonable time, not to exceed 30 days from the date of the
              request.

     All financial reports required to be provided under this Agreement shall be
     prepared in accordance with GAAP, applied on a consistent basis, and
     certified by Borrower as being true and correct.

     ADDITIONAL INFORMATION. Furnish such additional information and statements,
     as Lender may request from time to time.

     FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
     ratios:

          MINIMUM INCOME AND CASH FLOW REQUIREMENTS. Other Cash Flow
          requirements are as follows:

          Borrower shall have a minimum Net Income of $10,000,000.00 for the
          year ending December 31, 2001, and each following year end thereafter,
          as long as the Credit Facility Is In place.

          TANGIBLE NET WORTH REQUIREMENTS. Other Net Worth requirements are as
          follows: Borrower shall at all times maintain a Tangible Net Worth of
          EIGHTY MILLION DOLLARS AND NO/100 ($80,000,000.00)

          Borrower shall have a Minimum Liabilities to Tangible Net Worth Ratio
          of no greater than 3.0 to 1.0 at year ending December 31, 2001, and
          thereafter each year end.

                                       3
<PAGE>   4

          OTHER REQUIREMENTS.

          Borrower shall maintain a Minimum Liquidity of not less than
          $10,000,000.00 (to include unfounded commitments under the Credit
          Facilities granted by Residential Funding Corp., Guaranty Federal Bank
          and California Bank and Trust).

          Except as provided above, all computations made to determine
          compliance with the requirements contained in this paragraph shall be
          made in accordance with generally accepted accounting principles,
          applied on a consistent basis, and certified by Borrower as being true
          and correct.

     INSURANCE. Maintain fire and other risk insurance, public liability
     insurance, and such other insurance as Lender may require with respect to
     Borrower's properties and operations, in form, amounts, coverages and with
     insurance companies acceptable to Lender. Borrower, upon request of Lender,
     will deliver to Lender from time to time the policies or certificates of
     insurance in form satisfactory to Lender, including stipulations that
     coverages will not be cancelled or diminished without at least ten (10)
     days prior written notice to Lender. Each insurance policy also shall
     include an endorsement providing that coverage in favor of Lender will not
     be impaired in any way by any act, omission or default of Borrower or any
     other person. In connection with all policies covering assets in which
     Lender holds or is offered a security interest for the Loans, Borrower will
     provide Lender with such lender's loss payable or other endorsements as
     Lender may require.

     INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
     each existing insurance policy showing such information as Lender may
     reasonably request, including without limitation the following: (1) the
     name of the insurer; (2) the risks insured; (3) the amount of the policy;
     (4) the properties insured; (5) the then current property values on the
     basis of which insurance has been obtained, and the manner of determining
     those values; and (6) the expiration date of the policy. In addition, upon
     request of Lender (however not more often than annually), Borrower will
     have an independent appraiser satisfactory to Lender determine, as
     applicable, the actual cash value or replacement cost of any Collateral.
     The cost of such a appraisal shall be paid by Borrower.

     GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
     guaranties of the Loans in favor of Lender, executed by the guarantor named
     below, on Lender's forms, and in the amount and under the conditions set
     forth in those guaranties.

                  NAME OF GUARANTOR                   AMOUNT
                  -----------------                  ---------
                  WILLIAM LYON HOMES                 UNLIMITED

     OTHER AGREEMENTS. Comply with all terms and conditions of all other
     agreements, whether now or hereafter existing, between Borrower and any
     other party and notify Lender immediately in writing of any default in
     connection with any other such agreements.

     LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
     operations, unless specifically consented to the contrary by Lender in
     writing.

     TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
     indebtedness and obligations, including without limitation all assessments,
     taxes, governmental charges, levies, liens, of every kind and nature,
     imposed upon Borrower or its properties, income, or profits, prior to the
     date on which penalties would attach, and all lawful claims that, if
     unpaid, might become a lien or charge upon any of Borrower's properties,
     income, or profits.

     PERFORMANCE. Perform and comply, in a timely manner, with all terms,
     conditions and provisions set forth in this Agreement, in the Related
     Documents, and in all other instruments and agreements between Borrower and
     Lender. Borrower shall notify Lender immediately in writing of any default
     in connection with any agreement.

     OPERATIONS. Maintain executive and management personnel with substantially
     the same qualifications and experience as the present executive and
     management personnel; provide written notice to Lender of any change in
     executive and management personnel; conduct its business affairs in a
     reasonable and prudent manner.

     ENVIRONMENTAL STUDIES. Promptly conduct and complete, at Borrower's
     expense, all such investigations, studies, samplings and testings as may be
     requested by Lender or any governmental authority relative to any
     substance, or any waste or by-product of any substance defined as toxic or
     a Hazardous Substance under applicable federal, state, or local law, rule,
     regulation, order or directive, at or affecting any property or any
     facility owned, leased or used by Borrower.

                                       4

<PAGE>   5
     COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Comply with all laws,
     ordinances, and regulations, now or hereafter In effect, of all
     governmental authorities applicable to the conduct of Borrower's
     properties, businesses and operations, and to the use or occupancy of the
     Collateral, including without limitation, the Americans With Disabilities
     Act. Borrower may contest In good faith any such law, ordinance, or
     regulation and withhold compliance during any proceeding, including
     appropriate appeals, so long as Borrower has notified Lender in writing
     prior to doing so and so long as, In Lender's sole opinion, Lender's
     interests In the Collateral are not jeopardized. Lender may require
     Borrower to post adequate security or a surety bond, reasonably
     satisfactory to Lender, to protect Lender's Interest.

     INSPECTION. Permit employees or agents of Lender at any reasonable time to
     inspect any and all Collateral for the Loan or Loans and Borrower's other
     properties and to examine or audit Borrower's books, accounts, and records
     and to make copies and memoranda of Borrower's books, accounts, and
     records. If Borrower now or at any time hereafter maintains any records
     (including without limitation computer generated records and computer
     software programs for the generation of such records) in the possession of
     a third party, Borrower, upon request of Lender, shall notify such party to
     permit Lender free access to such records at all reasonable times and to
     provide Lender with copies of any records it may request, all at Borrower's
     expense.

     COMPLIANCE CERTIFICATES. Unless waived in writing by Lender, provide Lender
     at least annually, with a certificate executed by Borrower's chief
     financial officer, or other officer or person acceptable to Lender,
     certifying that the representations and warranties set forth in this
     Agreement are true and correct as of the date of the certificate and
     further certifying that, as of the date of the certificate, no Event of
     Default exists under this Agreement.

     ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
     with any and all Environmental Laws; not cause or permit to exist, as a
     result of an intentional or unintentional action or omission on Borrower's
     part or on the part of any third party, on property owned and/or occupied
     by Borrower, any environmental activity where damage may result to the
     environment, unless such environmental activity is pursuant to and in
     compliance with the conditions of a permit issued by the appropriate
     federal, state or local governmental authorities; shall furnish to Lender
     promptly and in any event within thirty (30) days after receipt thereof a
     copy of any notice, summons, lien, citation, directive, letter or other
     communication from any governmental agency or instrumentality concerning
     any intentional or unintentional action or omission on Borrower's part in
     connection with any environmental activity whether or not there Is damage
     to the environment and/or other natural resources.

     ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
     notes, mortgages, deeds of trust, security agreements, assignments,
     financing statements, instruments, documents and other agreements as Lender
     or its attorneys may reasonably request to evidence and secure the Loans
     and to perfect all Security Interests.

RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guidelines or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall Impose, modify or make
applicable any taxes (except federal, state or local Income or franchise taxes
imposed on Lender), reserve requirements, capital adequacy requirements or other
obligations which would (A) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (B) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(C) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefore, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.

LENDER'S EXPENDITURES. If any action or proceeding Is commenced that would
materially affect Lender's Interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower's failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on any Collateral and paying all
costs for Insuring, maintaining and preserving any Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
Interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Borrower. All such expenses will become a
part of the indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity.

                                       5
<PAGE>   6
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

     INDEBTEDNESS AND LIENS. (1) Except for trade debt incurred In the normal
     course of business and indebtedness to Lender contemplated by this
     Agreement, create, incur or assume indebtedness for borrowed money,
     including capital leases, (2) sell, transfer, mortgage, assign, pledge,
     lease, grant a security interest in, or encumber any of Borrower's assets
     (except as allowed as Permitted Liens), or (3) sell with recourse any of
     Borrower's accounts, except to Lender.

     ADDITIONAL FINANCIAL RESTRICTIONS. BORROWER IS REQUIRED TO NOTIFY LENDER OF
     ANY LEGAL SETTLEMENTS OR JUDGMENTS AGAINST IT, IN EXCESS OF FIVE HUNDRED
     THOUSAND DOLLARS & NO/100 ($500,000.00), NOT COVERED BY INSURANCE, WITHIN
     TEN (10) DAYS OF ITS DETERMINATION OR KNOWLEDGE

     BORROWER SHALL MAINTAIN A MINIMUM OF $3,000,000.00 IN CASH DEPOSITS (DIRECT
     OR RELATED ACCOUNTS) AT FIRST BANK & TRUST, AS COMPENSATING BALANCES.

     CONTINUITY OF OPERATIONS. (1) Engage in any business activities
     substantially different than those in which Borrower is presently engaged,
     (2) cease operations, liquidate, merge, transfer, acquire or consolidate
     with any other entity, change its name, dissolve or transfer or sell
     Collateral out of the ordinary course of business, or (3) pay any dividends
     on Borrower's stock (other than dividends payable in its stock), provided,
     however that notwithstanding the foregoing, but only so long as no Event of
     Default has occurred and is continuing or would result from the payment of
     dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
     Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
     on its stock to its shareholders from time to time in amounts necessary to
     enable the shareholders to pay income taxes and make estimated income tax
     payments to satisfy their liabilities under federal and state law which
     arise solely from their status as Shareholders of a Subchapter S
     Corporation because of their ownership of shares of Borrower's stock, or
     purchase or retire any of Borrower's outstanding shares or alter or amend
     Borrower's capital structure.

     LOANS, ACQUISITIONS AND GUARANTIES. (1) Loan, Invest in or advance money or
     assets, (2) purchase, create or acquire any interest in any other
     enterprise or entity, or (3) incur any obligation as surety or guarantor
     other than in the ordinary course of business.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds If;
(A) 'Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes
incompetent or becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (D) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in
good faith deems itself insecure, even though no Event of Default shall have
occurred.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves the
right of setoff in all Borrowers' accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
debt against any and all such accounts.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

     PAYMENT DEFAULT. Borrower fails to make any payment when due under the
     Loan.

     OTHER DEFAULTS. Borrower fails to comply with or to perform any other term,
     obligation, covenant or condition contained in this Agreement or in any of
     the Related Documents or to comply with or to perform any term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Borrower.

     DEFAULT IN FAVOR OF THIRD PARTIES. Borrower or any Grantor defaults under
     any loan, extension of credit, security agreement, purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Borrower's or any Grantor's property or
     Borrower's or any Grantor's ability to repay the Loans or perform their
     respective obligations under this Agreement or any of the Related
     Documents.

     FALSE STATEMENTS. Any warranty, representation or statement made or
     furnished to Lender by Borrower or on Borrower's behalf under this
     Agreement, the Note, or the Related Documents is false or misleading in any
     material respect, either now or at the time made or furnished or becomes
     false or misleading at any time thereafter.

                                       6
<PAGE>   7
     INSOLVENCY. The dissolution or termination of Borrower's existence as a
     going business, the Insolvency of Borrower, the appointment of a receiver
     for any part of Borrower's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Borrower.

     DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
     ceases to be in full force and affect (including failure of any collateral
     document to create a valid and perfected security interest or lien) at any
     time and for any reason.

     CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceeding, self-help,
     repossession or any other method, by any creditor or Borrower or by any
     governmental agency against any collateral securing the Loan. This includes
     a garnishment of any of Borrower's accounts, including deposit accounts,
     with Lender. However, this Event of Default shall not apply if there is a
     good faith dispute by Borrower as to the validity or reasonableness of the
     claim which is the basis of the creditor or forfeiture proceeding and if
     Borrower gives Lender written notice of the creditor or forfeiture
     proceeding and deposits with Lender monies or a surety bond for the
     creditor or forfeiture proceeding, in an amount determined by Lender, in
     its sole discretion, as being an adequate reserve or bond for the dispute.

     EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
     to any Guarantor of any of the indebtedness or any Guarantor dies or
     becomes incompetent, or revokes or disputes the validity of, or liability
     under, any Guaranty of the indebtedness. In the event of a death, Lender,
     at its option, may, but shall not be required to, permit the Guarantor's
     estate to assume unconditionally the obligations arising under the guaranty
     in a manner satisfactory to Lender, and, in doing so, cure any Event of
     Default.

     CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
     or more of the common stock of Borrower.

     ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
     conditions or Lender believes the prospect of payment or performance of the
     Loan is impaired.

     INSECURITY. Lender in good faith believes itself insecure.

     RIGHT TO CURE. If any default, other than a default on indebtedness, is
     curable and if Borrower or Grantor, as the case may be, has not been given
     a notice of a similar default within the preceding twelve (12) months, it
     may be cured (and no Event of Default will have occurred) if Borrower or
     Grantor, as the case may be, after receiving written notice from Lender
     demanding cure of such default: (1) cure the default within fifteen (15)
     days; or (2) if the cure requires more than fifteen (15) days, immediately
     initiate steps which Lender deems in Lender's sole discretion to be
     sufficient to cure the default and thereafter continue and complete all
     reasonable and necessary steps sufficient to produce compliance as soon as
     reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and. at Lender's option, all
indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" Subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

     AMENDMENTS. This Agreement, together with any Related Documents,
     constitutes the entire understanding and agreement of the parties as to the
     matters set forth in this Agreement. No alteration of or amendment to this
     Agreement shall be effective unless given in writing and signed by the
     party or parties sought to be charged or bound by the alteration or
     amendment.

     ATTORNEYS' FEES; EXPENSES. Borrower agrees to pay upon demand all of
     Lender's costs and expenses, including Lender's attorneys' fees and
     Lender's legal expenses, incurred in connection with the enforcement of
     this Agreement. Lender may hire or pay someone else to help enforce this
     Agreement, and Borrower shall pay the costs and expenses of such
     enforcement. Costs and expenses include Lender's attorneys' fees and legal
     expenses whether or not there is a lawsuit, including attorneys' fees and
     legal expenses for bankruptcy proceedings (including efforts to modify or
     vacate any automatic stay or injunction), appeals, and any anticipated
     post-judgment collection services. Borrower also shall pay all court costs
     and such additional fees as may be directed by the court.

                                       7
<PAGE>   8
     CAPTION HEADINGS. Caption headings in this Agreement are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Agreement.

     CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
     sale or transfer, whether now or later, of one or more participation
     interests in the Loan to one or more purchasers, whether related or
     unrelated to Lender. Lender may provide, without any limitation whatsoever,
     to any one or more purchasers, or potential purchasers, any information or
     knowledge Lender may have about Borrower or about any other matter relating
     to the Loan, and Borrower hereby waives any rights to privacy Borrower may
     have with respect to such matters. Borrower additionally waives any and all
     notices of sale of participation interests, as well as all notices of any
     repurchase of such participation interests. Borrower also agrees that the
     purchasers of any such participation interests will be considered as the
     absolute owners of such interests in the Loan and will have all the rights
     granted under the participation agreement or agreements governing the sale
     of such participation interests. Borrower further waives all rights of
     offset or counterclaim that it may have now or later against Lender or
     against any purchaser of such a participation interest and unconditionally
     agrees that either Lender or such purchaser may enforce Borrower's
     obligation under the Loan irrespective of the failure or insolvency of any
     holder of any interest in the Loan. Borrower further agrees that the
     purchaser of any such participation interests may enforce its interests
     irrespective of any personal claims or defenses that Borrower may have
     against Lender.

     GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND ENFORCED
     IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF CALIFORNIA.
     THIS AGREEMENT HAS BEEN ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA.

     CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's
     request to submit to the jurisdiction of the courts of ORANGE County, State
     of California.

     NO WAIVER BY LENDER. Lender shall not be deemed to have waived any rights
     under this Agreement unless such waiver is given in writing and signed by
     Lender. No delay or omission on the part of Lender in exercising any right
     shall operate as a waiver of such right or any other right. A waiver by
     Lender of a provision of this Agreement shall not prejudice or constitute a
     waiver of Lender's right otherwise to demand strict compliance with that
     provision or any other provision of this Agreement. No prior waiver by
     Lender, nor any course of dealing between Lender and Borrower, or between
     Lender and any Grantor, shall constitute a waiver of any of Lender's rights
     or of any of Borrower's or any Grantor's obligations as to any future
     transactions. Whenever the consent of Lender is required under this
     Agreement, the granting of such consent by Lender in any instance shall not
     constitute continuing consent to subsequent instances where such consent is
     required and in all cases such consent may be granted or withheld in the
     sole discretion of Lender.

     NOTICES. Any notice required to be given under this Agreement shall be
     given in writing, and shall be effective when actually delivered, when
     actually received by telefacsimile (unless otherwise required by law), when
     deposited with a nationally recognized overnight courier, or, if mailed,
     when deposited in the United States mail, as first class, certified or
     registered mail postage prepaid, directed to the addresses shown near the
     beginning of this Agreement. Any party that may change its address for
     notices under this Agreement by giving formal written notice to the other
     parties, specifying that the purpose of the notice is to change the party's
     address. For notice purposes, Borrower agrees to keep Lender informed at
     all times of Borrower's current address. Unless otherwise provided or
     required by law, if there is more than one Borrower, any notice given by
     Lender to any Borrower is deemed to be notice given to all Borrowers.

     SEVERABILITY. If a court of competent jurisdiction finds nay provision of
     this Agreement to be illegal, invalid, or unenforceable as to any
     circumstance, that finding shall not make the offending provision illegal,
     invalid, or unenforceable as to any other circumstance. If feasible, the
     offending provision shall be considered modified so that it becomes legal,
     valid and enforceable. If the offending provision cannot be so modified, it
     shall be considered deleted from this Agreement. Unless otherwise required
     by law, the illegality, invalidity, or unenforceability of any provision of
     this Agreement shall not affect the legality, validity or enforceability of
     any other provision of this Agreement.

     SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
     provisions of this Agreement makes it appropriate, including without
     limitation any representation, warranty or covenant, the word "Borrower" as
     used in this Agreement shall include all of Borrower's subsidiaries and
     affiliates. Notwithstanding the foregoing however, under no circumstances
     shall this Agreement be construed to require Lender to make any Loan or
     other financial accommodation to any of Borrower's subsidiaries and
     affiliates.

     SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
     behalf of Borrower shall bind Borrower's successors and assigns and shall
     inure to the benefit of Lender and its successors and assigns. Borrower
     shall not, however, have the right to assign Borrower's rights under this
     Agreement or any interest therein, without the prior written consent of
     Lender.

                                       8

<PAGE>   9
     SURVIVOR OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
     that in extending Loan advances, Lender is relying on all representations,
     warranties, and covenants made by Borrower in this Agreement or in any
     certificate or other instrument delivered by Borrower to Lender under this
     Agreement or the Related Documents. Borrower further agrees that regardless
     of any investigation made by Lender, all such representations, warranties
     and covenants will survive the extension of Loan Advances and delivery to
     Lender of the Related Documents, shall be continuing in nature, shall be
     deemed made and redated by Borrower at the time each Loan Advance is made,
     and shall remain in full force and effect until such time as Borrower's
     indebtedness shall be paid in full, or until this Agreement shall be
     terminated in the manner provided above, whichever is the last to occur.

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

     WAIVE JURY. ALL PARTIES TO THIS AGREEMENT HEREBY WAIVE THE RIGHT TO ANY
     JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY ANY PARTY
     AGAINST ANY OTHER PARTY.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used In the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:

     ADVANCE. The word "Advance" means a disbursement of Loan funds made, or to
     be made, to Borrower or on Borrower's behalf on a line of credit or
     multiple advance basis under the terms and conditions of this Agreement.

     AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
     Business Loan Agreement may be amended or modified from time to time,
     together with all exhibits and schedules attached to this Business Loan
     Agreement from time to time.

     BORROWER. The word "Borrower" means WILLIAM LYON HOMES, INC., and all other
     persons and entities signing the Note in whatever capacity.

     COLLATERAL. The word "Collateral" means all property and assets granted as
     collateral Security for a Loan, whether real or personal property, whether
     granted directly or indirectly, whether granted now or in the future, and
     whether granted in the form of a security interest, mortgage, collateral
     mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
     collateral chattel mortgage, chattel trust, factor's lien, equipment trust,
     conditional sale, trust receipt, lien, charge, lien or title retention
     contract, lease or consignment intended as a security device, or any other
     security or lien interest whatsoever, whether created by law, contract, or
     otherwise.

     ENVIRONMENTAL LAWS. The words "Environmental Laws" mean any and all state,
     federal and local statutes, regulations and ordinances relating to the
     protection of human health or the environment, including without limitation
     the Comprehensive Environmental Response, Compensation, and Liability Act
     of 1980, as amended, 42 U.S.C. Section 9601, at seq. ("CERCLA"), the
     Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
     ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
     1801, at seq., the Resource Conservation and Recovery Act, 42 U.S.C.
     Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
     California Health and Safety Code, Section 25100, at seq., or other
     applicable state or federal laws, rules, or regulations adopted pursuant
     thereto.

     EVENT OF DEFAULT. The words "Event of Default" mean any of the events of
     default set forth in this Agreement in the default section of this
     Agreement.

     GAAP. The word "GAAP" means generally accepted accounting principles.

     GRANTOR. The word "Grantor" means each and all of the persons or entities
     granting a Security Interest in any Collateral for the Loan, including
     without limitation all Borrowers granting such a Security Interest.

     GUARANTOR. The word "Guarantor" means any guarantor, surety, or
     accommodation party of any or all of the Loan.

     GUARANTY. The word "Guaranty" means the guaranty from Guarantor to Lender,
     including without limitation a guaranty of all or part of the Note.

                                       9

<PAGE>   10
     HAZARDOUS SUBSTANCES. The words "Hazardous Substances" mean materials that,
     because of their quantity, concentration or physical, chemical or
     infectious characteristics may cause or pose a present or potential hazard
     to human health or the environment when improperly used, treated, stored,
     disposed of, generated, manufactured, transported or otherwise handled. The
     words "Hazardous Substances" are used in their very broadest sense and
     include without limitation any and all hazardous or toxic substances,
     materials or waste as defined by or listed under the Environmental Laws.
     The term "Hazardous Substances" also includes, without limitation,
     petroleum and petroleum by-products or any fraction thereof and asbestos.

     INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
     the Note or Related Documents, Including all principal and interest
     together with all other indebtedness and costs and expenses for which
     Borrower is responsible under this Agreement or under any of the Related
     Documents.

     LENDER. The word "Lender" means FIRST BANK &, TRUST, its successors and
     assigns.

     LOAN. The word "Loan" means any and all loans and financial accommodations
     from Lender to Borrower whether now or hereafter existing, and however
     evidenced, including without limitation those loans and financial
     accommodations described herein or described on any exhibit or schedule
     attached to this Agreement from time to time.

     NOTE. The word "Note" means the Note executed by Borrower in the principal
     amount of $10,000,000.00 dated March 8, 2001, together with all renewals
     of, extensions of, modifications of, refinancings of, consolidations of,
     and substitutions for the note or credit agreement.

     PERMITTED LIENS. The words "Permitted Liens" mean (1) liens and security
     interests securing indebtedness owed by Borrower to Lender; (2) liens for
     taxes, assessments, or similar charges either not yet due or being
     contested in good fault; (3) liens of materialmen, mechanics, warehousemen,
     or carriers, or other like liens arising in the ordinary course of business
     and securing obligations which are not yet delinquent; (4) purchase money
     liens or purchase money security interests upon or in any property acquired
     or held by Borrower in the ordinary course of business to secure
     indebtedness outstanding on the date of this Agreement or permitted to be
     incurred under the paragraph of this Agreement titled "Indebtedness and
     Liens"; (5) liens and security interests which, as of the date of this
     Agreement have been disclosed to and approved by the Lender in writing; and
     (6) those liens and security interests which in the aggregate constitute an
     immaterial and insignificant monetary amount with respect to the net value
     of Borrower's assets.

     RELATED DOCUMENTS. The words "Related Documents" mean all promissory notes,
     credit agreements, loan agreements, environmental agreements, guaranties,
     security agreements, mortgages, deeds of trust, security deeds, collateral
     mortgages, and all other instruments, agreements and documents, whether now
     or hereafter existing, executed In connection with the Loan.

     SECURITY AGREEMENT. The words "Security Agreement" mean and include without
     limitation any agreements, promises, covenants, arrangements,
     understandings or other agreements, whether created by law, contract, or
     otherwise, evidencing, governing, representing, or creating a Security
     Interest.

     SECURITY INTEREST. The words "Security Interest" mean, without limitation,
     any and all types of collateral security, present and future, whether in
     the form of a lien, charge, encumbrance, mortgage, deed of trust, security
     deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel
     mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
     trust receipt, lien or title retention contract, lease or consignment
     intended as a security device, or any other security or lien interest
     whatsoever whether created b law contract or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED MARCH 8, 2001.

BORROWER:

WILLIAM LYON HOMES, INC.

By: /s/ MICHAEL D. GRUBBS                        By: /s/ RICHARD S. ROBINSON
    ---------------------------------                ---------------------------
        SENIOR VICE PRESIDENT                            SENIOR VICE PRESIDENT
    ---------------------------------                ---------------------------
        Authorized Officer                               Authorized Officer

LENDER:

FIRST BANK & TRUST

By: /s/ K.P. BALKRISHNA
    ---------------------------------
        Authorized Signer

                                       10

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00025-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00025-of-00352.parquet"}]]