Document:

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                                                                   EXHIBIT 10.21

                            CROSS-LICENSE AGREEMENT

        This Cross-License Agreement (the "Agreement") is made and entered into
as of July 24, 1995, between Simplex Solutions, Inc. ("Simplex"), a California
corporation with principal offices at 2540 N. First Street, Suite 302, San Jose,
CA 95131 ("Simplex"), and Chris Terman, an individual with a principal address
at 60 Cedar Street, Newton Centre, MA 02159 ("Terman").

                                     RECITAL

        A. The parties wish to enter into a cross-license arrangement pursuant
to which each party will grant to the other party certain rights with respect to
proprietary technologies of the granting party.

        NOW THEREFORE, the parties agree as follows:

        1. Definitions.

               (a) "Documentation" shall mean the documentation and supporting
materials in hard copy form relating to a party's Licensed Technology hereunder.

               (b) "Source Code" means the human readable embodiment of a
product's computer code, which implements specific algorithms from which the
product is derived, whether such embodiment is fixed on paper or magnetic
medium, in electronic impulses, or any other medium of expression from which it
can be perceived, copied, or communicated.

               (c) "Object Code" means the computer executable embodiment of a
product's computer code, which is derived from the Source Code by a process
normally referred to as compilation or any other process that translates the
Source Code or some intermediate code derived from the Source Code into a form
that can be understood and acted upon by a computer, regardless of the medium in
which such code is fixed or embodied.

               (d) "Simplex Programs" shall mean the commercially released
versions of Simplex's [*] software programs.

               (e) "Terman Code" shall mean the proprietary Source Code modules
identified on Exhibit A attached hereto.

               (f) "Simplex Licensed Technology" shall mean the Simplex Programs
and their associated Documentation.

               (g) "Terman Licensed Technology" shall mean the Terman Code and
its associated Documentation, as each exists on the date of this Agreement.

*Certain information on this page has been omitted and filed separately with
 the Commission. Confidential treatment has been requested with respect to the
 omitted portions.
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        2. License Grants.

               (a) Simplex License Grants. Simplex hereby grants to Terman under
Simplex's intellectual property rights in the Simplex Licensed Technology, and
Terman accepts, a worldwide, nonexclusive, perpetual, fully paid-up license to
use the Simplex Software.

               (b) Terman License Grants. Terman hereby grants to Simplex under
Terman's intellectual property rights in the Terman Licensed Technology, and
Simplex accepts, a worldwide, nonexclusive, perpetual, fully paid-up license,
with right of sublicense, to use, modify, reproduce, sell or otherwise
distribute the Terman Licensed Technology, and to prepare, use, reproduce, sell
or otherwise directly or indirectly distribute derivative works based thereon.

               (c) License Restrictions. Neither party will use, modify, adapt,
prepare derivative works of, reproduce, disclose, distribute or sublicense the
other party's Licensed Technology in any circumstances or manner except as
expressly authorized herein or as expressly agreed to in writing by the
licensing party.

        3. Proprietary Notices. All copyright or trademark notices placed on a
party's Licensed Technology by the licensing party must be reproduced and
included with any copy of any portion of such Licensed Technology.

        4. Technology Transfer. Upon execution of this Agreement, Terman shall
deliver to Simplex one complete copy of the Terman Licensed Technology. Within
thirty (30) days after the first commercial sale of a Simplex Program, Simplex
shall deliver to Terman one complete copy of the Simplex Licensed Technology
associated with such commercially released Simplex Program. Terman shall deliver
the Terman Licensed Technology via internet wire transfer.

        5. Ownership and Future Provisions.

               (a) Ownership Representation. Each party hereto represents and
warrants, and the other party hereby acknowledges, that it has sufficient right,
title and interest in and to the technology ostensibly being licensed by it to
the other party hereunder to give full force and effect to the license grants
set forth in Section 2 above.

               (b) Ownership Covenant. Subject to the licenses granted to
Terman herein, the Simplex Licensed Technology and all intellectual property
rights associated therewith are and shall remain the exclusive property of
Simplex. As between the parties hereto and subject to the licenses granted to
Simplex herein, the Terman Licensed Technology and all intellectual property
rights associated therewith are and shall remain the exclusive property of
Terman and Simplex shall own all rights, title and interest in all improvements
of, modifications to or derivative works based on the Terman Licensed Technology
made by or for Simplex.

               (c) Upgrades and Updates. Simplex and Terman may in their
discretion provide limited enhancements of their respective Licensed Technology
to each other during the term of this Agreement, but no obligation to do so
shall be created hereunder. The parties acknowledge and agree that Terman and
Simplex have entered into or are contemplating entering

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into a consulting arrangement whereby Terman would provide certain programming
services to Simplex in connection with the Terman Licensed Technology.

        6. Support Obligations. Each party's Licensed Technology is provided "AS
IS" with reasonable maintenance or support services available.

        7. Term and Termination.

               (a) Term. This Agreement and the licenses granted herein shall be
effective from the date of this Agreement and shall continue in perpetuity,
unless earlier terminated pursuant to the mutual written consent of the parties
or otherwise in accordance with the terms of this Section 7.

               (b) Termination for Breach. Notwithstanding the terms of
subsection (a) above, this Agreement may be terminated by one party if the other
party materially fails to perform or comply with this Agreement or any provision
hereof. Termination shall be effective thirty (30) days after delivery of notice
of termination to the defaulting party if the default(s) have not been cured
within such thirty (30) day period.

               (c) Survival and Return of Materials.

                    (i) General. The rights and obligations of the parties
contained in Section 5(b) (Ownership Covenant), Section 8 (Confidentiality),
Section 10 (Disclaimer of Warranties) and Section 11 (Limitation of Liability)
shall survive the termination of this Agreement.

                    (ii) Return. Upon the termination of this Agreement, each
party shall return to the other party or destroy, at such other party's sole
discretion, all copies of the other party's Licensed Technology.

        8. Confidentiality.

               (a) Obligation of Confidentiality. Each party represents and
covenants, unless otherwise agreed to by the other party in writing, that it
will, for a period of [*] years after receipt of confidential information, keep
confidential and will not divulge or publish to any other person or entity, or
use for its own benefit any technical, marketing or other business information
of the other party acquired by it in the course of its performance of this
Agreement except as is necessary in the performance of or expressly permitted by
this Agreement, provided that the disclosing party has designated in writing or
reduced oral disclosure to writing within thirty (30) days of oral disclosure to
the receiving party that such information constitutes confidential proprietary
information or a trade secret of the disclosing party. The information protected
by this section shall in all cases include but not be limited to the Licensed
Technology made available by one party by the other party hereto.

               (b) Exclusions to Confidentiality. This Section shall impose no
obligation upon the receiving party with respect to any proprietary information
which (i) is now or which

*Certain information on this page has been omitted and filed separately with
 the Commission. Confidential treatment has been requested with respect to the
 omitted portions.

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subsequently becomes generally known or available by publication, general use,
or otherwise; (ii) was known by the receiving party prior to the time of
disclosure as showed by the receiving party's files and records immediately
prior to the time of disclosure; (iii) is furnished by the disclosing party to
third parties without restriction on disclosure; (iv) is subsequently rightfully
furnished to the receiving party by a third party without restriction on
disclosure; or (v) is independently developed by the receiving party as
demonstrated by such party's files and records created contemporaneously with
such developments, provided that the person or persons developing same have not
had access to the proprietary information.

               (c) Return of Confidential Information. Each party agrees to
return or destroy any and all confidential information to the disclosing party
upon the disclosing party's request. However, the disclosing party acknowledges
and understands that upon such return or destruction the receiving party is
relieved from fulfilling those, and only those, obligations that required the
use of the returned confidential information. Information marked with
"returnable" shall not be destroyed.

        9. Indemnification.

               (a) Intellectual Property Indemnity. Each party hereto represents
that it has the sufficient right, title and interest in its Licensed Technology
to enter into this Agreement and to grant the license rights as stated in
Section 2 above. Each party (the "Indemnifying Party") agrees, at its own
expense, to defend the other party (the "Indemnified Party") and hold the
Indemnified Party harmless against any suit, claim, or proceeding brought
against the Indemnified Party alleging that any use, distribution or any other
exercise of the rights of the Indemnified Party or its customers of the
Indemnifying Party's Licensed Technology infringes any copyright or trademark or
any trade secrets of any third parties, provided that the Indemnified Party (i)
promptly notifies the Indemnifying Party in writing of any such suit, claim or
proceeding; (ii) allows the Indemnifying Party to defend, settle or otherwise
dispose of such suit or proceeding and, at its expense, to direct the defense of
such suit, claim, or proceeding; (iii) gives the Indemnifying Party sole
authority, full information and assistance necessary to defend such suit, claim,
or proceeding; and, (iv) does not enter into any settlement of any such suit,
claim or proceeding without the Indemnifying Party's written consent. This
obligation will not cover (A) any claim that any of the Indemnifying Party's
Licensed Technology infringes any third party's rights as used solely in
combination with products or technology not supplied by Indemnifying Party, if
that claim could have been avoided by the use of the Product in combination with
such other products or technology; (B) any claim that arises out of the use of
software, hardware or other technology supplied by the Indemnified Party or its
representatives, sublicensees or resellers.

               (b) Remedies. Following written notice of a suit, claim or
proceeding or a threat of suit, claim or proceeding requiring said
indemnification, or in the event the Indemnifying Party desires to minimize its
liabilities hereunder, the Indemnifying Party shall have the right, at its sole
discretion, to either (i) substitute a full equivalent, noninfringing
technology; (ii) modify the infringing technology so that it no longer infringes
but remains functionally equivalent; or (iii) obtain for the Indemnified Party
at the Indemnifying Party's

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expense the right to continue the use of such technology. THE FOREGOING STATES
THE ENTIRE LIABILITY OF EACH PARTY FOR PATENT, COPYRIGHT OR PROPRIETARY RIGHTS
INFRINGEMENT.

               (c) General Indemnity. The Indemnifying Party agrees to indemnify
and hold harmless the Indemnified Party from any claims, suits, or proceedings
including without limitation the payment of the Indemnified Party's reasonable
attorney's fees incurred in connection therewith, made or brought against the
Indemnified Party as a result of the negligence, misrepresentation, misconduct
or error or omission on the part of the Indemnifying Party or its
representatives, sublicensees or resellers.

        10. Disclaimer of Warranties. OTHER THAN AS EXPRESSLY SET FORTH ABOVE,
EACH PARTY IS PROVIDING ITS LICENSED TECHNOLOGY "AS IS" AND WITHOUT ANY
WARRANTY. EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES WITH RESPECT TO ITS
LICENSED TECHNOLOGY, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

        11. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE
FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES IN CONNECTION
WITH OR ARISING OUT OF ITS PERFORMANCE OR FAILURE TO PERFORM PURSUANT TO THIS
AGREEMENT EVEN IF INFORMED OF THE POSSIBILITY THEREOF IN ADVANCE. Both parties
release the other from all obligation, liability, claims or demands in excess of
the limitations provided in this Section 11.

        12. U.S. Government Restricted Rights. Each party's Licensed Technology
is being provided to the other party with RESTRICTED RIGHTS. Use, duplication or
disclosure by the Government is subject to restrictions as set forth in
(c)(1)(ii) of The Rights in Technical Data and Computer Software clause at DFARS
252.227-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer
Software--Restricted Rights at 48 CFR 52.227-19, as applicable.
Contractor/manufacturer in the case of the Simplex Licensed Technology is
Simplex Solutions, Inc., 2540 N. First Street, Suite 302, San Jose, CA 95131,
and in the case of the Terman Licensed Technology is Chris Terman, 60 Cedar
Street, Newton Centre, MA 02159.

        13. Notices. All notices shall be sent to the address set forth in the
introductory paragraph to this Agreement, or to such other address as one party
notifies the other of in writing. All notices required under this Agreement
shall be deemed given when sent by fax with subsequent confirmation, or mailed
by certified mail, return receipt, postage prepaid; or courier service or
equivalent.

        14. General Provisions.

               (a) Severability. If any term or provision of the Agreement shall
be found to be illegal or unenforceable therein, this Agreement shall remain in
full force and effect and such term or provision shall be deemed stricken and
the parties will endeavor to substitute similar language that is as consistent
as possible with the original intent.

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               (b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to that body of law controlling conflicts of law.

               (c) Entire Agreement: Amendment. This Agreement, including
Exhibit A attached hereto, which is hereby incorporated by reference, represents
the entire Agreement between the parties relating to it subject matter and
supersedes all prior representations, discussions, negotiations and agreements,
whether written or oral. No amendment to this Agreement shall be effective
unless it is in writing, dated subsequent hereto, refers explicitly to this
Agreement and is duly executed.

               (d) Waiver. No waiver will be implied from a party's conduct or
failure to enforce its rights thereunder. No waiver will be effective unless in
writing signed on behalf of the party against whom the waiver is asserted.

               (e) Relationship of the Parties. The parties to this Agreement
are independent contractors. There is no relationship of agency, partnership,
joint venture, employment or franchise between the parties. Neither party has
the ability to bind the other or to incur any obligation on its behalf.

               (f) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one instrument.

               (g) Injunctive Relief. Since unauthorized use or transfer of a
party's Licensed Technology and any information contained therein will diminish
substantially the value to Simplex or Terman of their respective trade secrets
and other proprietary rights that are the subject of this Agreement, each party
shall, if the other party breaches any of its obligations with respect to
limited use or confidentiality of the Licensed Technology, be entitled to obtain
equitable relief in addition to money damages to protect its interests therein,
including but not limited to injunctive relief. Each party's rights and remedies
as set forth in this Agreement are not exclusive, and are in addition to any
other rights and remedies provided by law.

        IN WITNESS WHEREOF, the parties have executed this Cross-License
Agreement as of the date first written above.

SIMPLEX SOLUTIONS, INC.                  CHRIS TERMAN

By:   [SIGNATURE]                        By: /s/ CHRIS TERMAN
   ---------------------------------        ------------------------------------

Title:   Vice President
      ------------------------------

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                                   EXHIBIT A

[*]

*Certain information on this page has been omitted and filed separately with
 the Commission. Confidential treatment has been requested with respect to the
 omitted portions.<PAGE>   1

                                                                   EXHIBIT 10.18

                               WILLIAM LYON HOMES
                             STOCK OPTION AGREEMENT

         THIS STOCK OPTION AGREEMENT (the "AGREEMENT") is made and entered into
as of the date set forth on Exhibit A hereto by and between WILLIAM LYON HOMES,
a Delaware corporation (the "COMPANY"), and the individual set forth on Exhibit
A hereto (the "OPTIONEE").

         A. Pursuant to the William Lyon Homes 2000 Stock Incentive Plan (the
"PLAN"), the Administrator has determined that it is to the advantage and best
interest of the Company to grant to Optionee this option (the "OPTION") to
purchase the number of shares of the Common Stock of the Company (the "SHARES")
set forth on Exhibit A hereto, at the exercise price determined as provided
herein, and in all respects subject to the terms, definitions and provisions of
the Plan, which is incorporated herein by reference.

         B. Unless otherwise defined herein, capitalized terms used in this
Agreement shall have the meanings set forth in the Plan.

         NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Optionee and the Company hereby agree as follows:

1. Grant and Terms of Stock Option.

         1.1 Grant of Option. The Company hereby grants to the Optionee the
right and option to purchase, subject to the terms and conditions set forth in
the Plan and this Agreement, all or any part of the number of shares of the
Common Stock of the Company set forth on Exhibit A hereto at the purchase price
per share equal to the exercise price per Share set forth on Exhibit A.

         1.2 Vesting and Exercisability. Subject to the provisions of the Plan
and the other provisions of this Agreement, this Option shall vest and become
exercisable with respect to 33.4% of the Shares subject to this Option on the
initial vesting date set forth on Exhibit A hereto (the "INITIAL VESTING DATE").
Thereafter, on each subsequent anniversary of the Initial Vesting Date, this
Option shall become vested and exercisable with respect to an additional 33.3%
of the Shares subject to this Option. In the event of termination of Optionee's
Continuous Status as an Employee, Director or Consultant for any reason, with or
without Cause, including as a result of death or Disability, this Option shall
immediately cease vesting and shall be cancelled to the extent of the number of
Shares as to which this Option has not vested as of the date of termination.

         1.3 Term of Option. No portion of this Option may be exercised more
than ten years from the date of this Agreement. In the event of termination of
Optionee's Continuous Status as an Employee, Director or Consultant, this Option
shall be cancelled as to any unvested Shares as provided in Section 1.2, and
shall terminate and be cancelled with respect to any vested Shares on the
earlier of (i) the expiration of the ten year period set forth in the first
sentence of this Section 1.3 or (ii) 30 days after termination of Optionee's

<PAGE>   2

Continuous Status as an Employee, Director or Consultant (or 6 months in the
case of termination as a result of Optionee's Disability or death); provided,
however, if Optionee's Continuous Status as an Employee, Director or Consultant
is terminated for Cause, this entire Option shall be cancelled and terminated as
of the date of such termination and shall no longer be exercisable as to any
Shares, whether or not previously vested.

2. Method of Exercise.

         2.1 Delivery of Notice of Exercise. This Option shall be exercisable by
written notice in the form attached hereto as Exhibit B which shall state the
election to exercise this Option, the number of Shares in respect of which this
Option is being exercised, and such other representations and agreements with
respect to such Shares as may be required by the Company pursuant to the
provisions of this Agreement and the Plan. Such written notice shall be signed
by Optionee (or by Optionee's beneficiary or other person entitled under the
Plan to exercise this Option in the event of Optionee's death) and shall be
delivered in person or by certified mail to the Secretary of the Company. The
written notice shall be accompanied by payment of the exercise price. This
Option shall not be deemed exercised until the Company receives such written
notice accompanied by the exercise price and any other applicable terms and
conditions of this Agreement are satisfied. This Option may not be exercised for
a fraction of a Share.

         2.2 Restrictions on Exercise. No Shares will be issued pursuant to the
exercise of this Option unless and until there shall have been full compliance
with all applicable requirements of the Securities Act of 1933, as amended
(whether by registration or satisfaction of exemption conditions), all
Applicable Laws, and all applicable listing requirements of any national
securities exchange or other market system on which the Common Stock is then
listed. As a condition to the exercise of this Option, the Company may require
Optionee to make any representation and warranty to the Company as may be
necessary or appropriate, in the judgment of the Administrator, to comply with
any Applicable Law.

         2.3 Method of Payment. Payment of the exercise price shall be made in
full at the time of exercise in cash or by check payable to the order of the
Company, or, subject in each case to the advance approval of the Administrator
in its sole discretion, by delivery of shares of Common Stock already owned by
Optionee, by delivery of a full recourse promissory note made by Optionee in
favor of the Company or by any combination of the foregoing. Shares of Common
Stock used to satisfy the exercise price of this Option shall be valued at their
Fair Market Value determined on the date of exercise (or if such date is not a
business day, as of the close of the business day immediately preceding such
date). In addition, the Administrator may impose such other conditions in
connection with the delivery of shares of Common Stock in satisfaction of the
exercise price as it deems appropriate in its sole discretion, including without
limitation a requirement that the shares of Common Stock delivered have been
held by the Optionee for a specified period of time. Any promissory note
delivered pursuant to this Section 2.3 shall have terms and provisions
(including, without limitation, those relating to the maturity date, payment
schedule and interest rate) as determined by the Administrator in its sole
discretion, shall be secured by the Shares acquired and shall comply with all
Applicable Laws (including, without limitation, state and federal margin
requirements).

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3. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution or to a
beneficiary designated pursuant to the Plan, and may be exercised during the
lifetime of Optionee only by Optionee. Subject to all of the other terms and
conditions of this Agreement, following the death of Optionee, this Option may,
to the extent it remained unexercised (but vested and exercisable by Optionee in
accordance with its terms) on the date of death, be exercised by Optionee's
beneficiary or other person entitled under the Plan to exercise this Option in
the event of Optionee's death. Notwithstanding the first sentence of this
Section 3, (i) if this Option is a Nonqualified Stock Option, this Option may be
assigned pursuant to a qualified domestic relations order as defined by the
Code, and exercised by the spouse of the Optionee who obtained such Option
pursuant to such qualified domestic relations order, and (ii) this Option may be
assigned, in connection with the Optionee's estate plan, in whole or in part,
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more of such
immediate family members. Rights under the assigned portion may be exercised by
the person or persons who acquire a proprietary interest in such Option pursuant
to the assignment. The terms applicable to the assigned portion shall be the
same as those in effect for the Option immediately before such assignment and
shall be set forth in such documents issued to the assignee as the Administrator
deems appropriate. For purposes of this Section 3, the term "immediate family"
means an individual's spouse, children, stepchildren, grandchildren and parents.

         3.1 Optionee's Beneficiary Designation Form. Attached to this Agreement
as Exhibit C is a form pursuant to which Optionee may designate a beneficiary,
and if such beneficiary predeceases Optionee, a contingent beneficiary. If
Optionee is married and designates a beneficiary other than Optionee's spouse,
Optionee's spouse must sign the spousal consent form on Exhibit C for such
designation to be effective. Any transfer of Options to a beneficiary shall be
subject to, and in compliance with, the terms and conditions of this Agreement,
the Plan, and all applicable laws.

4. General.

         4.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the state of Delaware applicable to Agreements made and to be
performed entirely in Delaware, without regard to the conflicts of law
provisions of Delaware or any other jurisdiction.

         4.2 Notices. Any notice required or permitted under this Agreement
shall be given in writing by express courier or by postage prepaid, United
States registered or certified mail, return receipt requested, to the address
set forth below or to such other address for a party as that party may designate
by 10 days advance written notice to the other parties. Notice shall be
effective upon the earlier of receipt or 3 days after the mailing of such
notice.

         If to the Company: William Lyon Homes
                            4490 Von Karman Avenue
                            Newport Beach, CA  92660
                            Attention: Wade H. Cable, President and C.O.O.

                                     - 3 -
<PAGE>   4

         If to Optionee, at the address set forth on Exhibit A hereto.

         4.3 Community Property. Without prejudice to the actual rights of the
spouses as between each other, for all purposes of this Agreement, the Optionee
shall be treated as agent and attorney-in-fact for that interest held or claimed
by his or her spouse with respect to this Option and the parties hereto shall
act in all matters as if the Optionee was the sole owner of this Option. This
appointment is coupled with an interest and is irrevocable.

         4.4 Modifications. This Agreement may be amended, altered or modified
only by a writing signed by each of the parties hereto.

         4.5 Additional Documents. Each party agrees to execute any and all
further documents and writings, and to perform such other actions, which may be
or become reasonably necessary or expedient to be made effective and carry out
this Agreement.

         4.6 No Third-Party Benefits. Except as otherwise expressly provided in
this Agreement, none of the provisions of this Agreement shall be for the
benefit of, or enforceable by, any third-party beneficiary.

         4.7 Successors and Assigns. Except as provided herein to the contrary,
this Agreement shall be binding upon and inure to the benefit of the parties,
their respective successors and permitted assigns.

         4.8 No Assignment. Except as otherwise provided in this Agreement, the
Optionee may not assign any of his, her or its rights under this Agreement
without the prior written consent of the Company, which consent may be withheld
in its sole discretion. The Company shall be permitted to assign its rights or
obligations under this Agreement, but no such assignment shall release the
Company of any obligations pursuant to this Agreement.

         4.9 Severability. The validity, legality or enforceability of the
remainder of this Agreement shall not be affected even if one or more of the
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect.

         4.10 Equitable Relief. The Optionee acknowledges that, in the event of
a threatened or actual breach of any of the provisions of this Agreement,
damages alone will be an inadequate remedy, and such breach will cause the
Company great, immediate and irreparable injury and damage. Accordingly, the
Optionee agrees that the Company shall be entitled to injunctive and other
equitable relief, and that such relief shall be in addition to, and not in lieu
of, any remedies they may have at law or under this Agreement.

         4.11 Arbitration.

                    4.11.1 General. Any controversy, dispute, or claim between
the parties to this Agreement, including any claim arising out of, in connection
with, or in relation to the formation, interpretation, performance or breach of
this Agreement shall be settled exclusively by arbitration, before a single
arbitrator, in accordance with this section 4.11 and the then most applicable
rules of the American Arbitration Association. Judgment upon any award rendered
by the arbitrator may be entered by any state or federal court having

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<PAGE>   5

jurisdiction thereof. Such arbitration shall be administered by the American
Arbitration Association. Arbitration shall be the exclusive remedy for
determining any such dispute, regardless of its nature. Notwithstanding the
foregoing, either party may in an appropriate matter apply to a court for
provisional relief, including a temporary restraining order or a preliminary
injunction, on the ground that the award to which the applicant may be entitled
in arbitration may be rendered ineffectual without provisional relief. Unless
mutually agreed by the parties otherwise, any arbitration shall take place in
the City of Newport Beach, California.

                    4.11.2 Selection of Arbitrator. In the event the parties are
unable to agree upon an arbitrator, the parties shall select a single arbitrator
from a list of nine arbitrators drawn by the parties at random from a list of
nine persons (which shall be retired judges or corporate or litigation attorneys
experienced in stock options and buy-sell agreements) provided by the office of
the American Arbitration Association having jurisdiction over Newport Beach,
California. If the parties are unable to agree upon an arbitrator from the list
so drawn, then the parties shall each strike names alternately from the list,
with the first to strike being determined by lot. After each party has used four
strikes, the remaining name on the list shall be the arbitrator. If such person
is unable to serve for any reason, the parties shall repeat this process until
an arbitrator is selected.

                    4.11.3 Applicability of Arbitration; Remedial Authority.
This agreement to resolve any disputes by binding arbitration shall extend to
claims against any parent, subsidiary or Affiliate of each party, and, when
acting within such capacity, any officer, director, shareholder, employee or
agent of each party, or of any of the above, and shall apply as well to claims
arising out of state and federal statutes and local ordinances as well as to
claims arising under the common law. In the event of a dispute subject to this
paragraph the parties shall be entitled to reasonable discovery subject to the
discretion of the arbitrator. The remedial authority of the arbitrator (which
shall include the right to grant injunctive or other equitable relief) shall be
the same as, but no greater than, would be the remedial power of a court having
jurisdiction over the parties and their dispute. The arbitrator shall, upon an
appropriate motion, dismiss any claim without an evidentiary hearing if the
party bringing the motion establishes that he or it would be entitled to summary
judgement if the matter had been pursued in court litigation. In the event of a
conflict between the applicable rules of the American Arbitration Association
and these procedures, the provisions of these procedures shall govern.

                    4.11.4 Fees and Costs. Any filing or administrative fees
shall be borne initially by the party requesting arbitration. The Company shall
be responsible for the costs and fees of the arbitration, unless the Optionee
wishes to contribute (up to 50%) of the costs and fees of the arbitration.
Notwithstanding the foregoing, the prevailing party in such arbitration, as
determined by the arbitrator, and in any enforcement or other court proceedings,
shall be entitled, to the extent permitted by law, to reimbursement from the
other party for all of the prevailing party's costs (including but not limited
to the arbitrator's compensation), expenses, and attorneys' fees.

                    4.11.5 Award Final and Binding. The arbitrator shall render
an award and written opinion, and the award shall be final and binding upon the
parties. If any of the provisions of this paragraph, or of this Agreement, are
determined to be unlawful or otherwise unenforceable, in whole or in part, such
determination shall not affect the validity of the remainder of this Agreement,
and this Agreement shall be reformed to the extent necessary to carry out its
provisions to the greatest extent possible and to insure that the resolution of
all conflicts between the parties, including those arising out of statutory
claims,

                                     - 5 -
<PAGE>   6

shall be resolved by neutral, binding arbitration. If a court should find that
the arbitration provisions of this Agreement are not absolutely binding, then
the parties intend any arbitration decision and award to be fully admissible in
evidence in any subsequent action, given great weight by any finder of fact, and
treated as determinative to the maximum extent permitted by law.

         4.12 Headings. The section headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, extend or interpret the
scope of this Agreement or of any particular section.

         4.13 Number and Gender. Throughout this Agreement, as the context may
require, (a) the masculine gender includes the feminine and the neuter gender
includes the masculine and the feminine; (b) the singular tense and number
includes the plural, and the plural tense and number includes the singular; (c)
the past tense includes the present, and the present tense includes the past;
(d) references to parties, sections, paragraphs and exhibits mean the parties,
sections, paragraphs and exhibits of and to this Agreement; and (e) periods of
days, weeks or month mean calendar days, weeks or months.

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

         4.15 Complete Agreement. This Agreement and the Plan constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof.

                            [SIGNATURE PAGE FOLLOWS]

                                     - 6 -
<PAGE>   7

                            [COMPANY SIGNATURE PAGE]

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

                                        WILLIAM LYON HOMES

                                        By:
                                            ------------------------------------
                                            William Lyon,
                                            Chairman and C.E.O.

                                        By:
                                            ------------------------------------
                                            Wade H. Cable,
                                            President and C.O.O.

                                     - 7 -

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