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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[ ] Preliminary Proxy Statement [X] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
The Presley Companies
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Series A Common Stock, par value $.01
Series B Common Stock, par value $.01
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(2) Aggregate number of securities to which transaction applies:
52,195,678
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
THE PRESLEY COMPANIES
19 CORPORATE PLAZA
NEWPORT BEACH, CALIFORNIA 92660
(949) 640-6400
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 5, 1999
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of The
Presley Companies will be held at the executive offices of The Presley
Companies, located at 19 Corporate Plaza, Newport Beach, California, on Friday,
November 5, 1999 at 6:30 a.m. Pacific Time, for the following purposes:
1. To consider and vote upon a proposal to adopt a certificate of ownership
and merger pursuant to which The Presley Companies will merge with and into
Presley Merger Sub, Inc., a newly-formed Delaware corporation and wholly owned
subsidiary of The Presley Companies, with Presley Merger Sub, Inc. being the
surviving corporation. In the merger, each outstanding share of common stock of
The Presley Companies will become exchangeable for 0.2 share of common stock of
Presley Merger Sub, Inc. Upon completion of the merger, the surviving
corporation will be named "The Presley Companies."
2. To transact such other business as may properly come before the special
meeting or any adjournments or postponements thereof.
The Board of Directors of Presley has fixed September 15, 1999 as the
record date to determine the stockholders entitled to notice of and to vote at
the special meeting. Only those stockholders of record as of the close of
business on that date will be entitled to vote at the special meeting or at any
adjournments or postponements thereof.
IF YOU ARE A HOLDER OF PRESLEY'S SERIES A COMMON STOCK OR SERIES B COMMON
STOCK, PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING RETURN ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY
REASON, YOU MAY DO SO AT ANY TIME BEFORE THE VOTING BY DELIVERING TO PRESLEY A
WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE OR BY
ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK AT THIS TIME. IF THE
MERGER IS COMPLETED, YOU WILL RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS
REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.
By Order of the Board of Directors,
[Foster signature]
Linda L. Foster
Vice President and Corporate Secretary
October 7, 1999
Newport Beach, California
<PAGE> 3
PRESLEY MERGER SUB, INC.
PROXY STATEMENT/PROSPECTUS
The Board of Directors of The Presley Companies has approved the merger of
The Presley Companies with and into its wholly owned subsidiary, Presley Merger
Sub, Inc., which will be the surviving corporation in the merger and at the
effective time of the merger, will change its name to "The Presley Companies."
The principal purpose of the merger is to help preserve Presley's substantial
tax net operating loss carryforwards for use in offsetting future taxable
income. Under current tax law, an ownership change could severely limit
Presley's ability to use these tax benefits. Through the merger, Presley will
implement stock transfer restrictions to reduce the risk of an ownership change.
Presley cannot currently prevent the occurrence of an ownership change. If
approved, the merger will help reduce, but not eliminate, the risk of
unfavorable ownership changes by including stock transfer restrictions in the
surviving corporation's certificate of incorporation and legends on the shares
of its common stock.
Presley has entered into an agreement pursuant to which its wholly owned
subsidiary, Presley Homes, has agreed to purchase, subject to adjustment,
substantially all of the assets of William Lyon Homes, Inc. for a purchase price
of $48 million and the assumption of substantially all of the liabilities of
William Lyon Homes. Pursuant to this agreement, William Lyon and his son,
William H. Lyon, have agreed to commence a tender offer to purchase up to
10,678,792 shares, representing 20.46% of Presley's outstanding Common Stock at
a price of $0.655 per share in cash. The Lyons are not obligated pursuant to the
purchase agreement to increase the offer price per share in the tender offer
even if the offer price is below recent market prices for Presley's Series A
Common Stock. The Lyons have advised Presley that they do not presently intend
to increase the tender offer price to meet or exceed the market price of the
Series A Common Stock. Notwithstanding the current market price, the Lyons have
advised Presley that they believe that the tender offer may be attractive to
certain stockholders, particularly stockholders holding a large number of
shares, in that it provides them with an opportunity for liquidity which may not
otherwise exist, given the relatively limited trading volume of the Series A
Common Stock and the existence of the transfer restrictions following
consummation of the merger.
The obligation of the Lyons to pay for tendered shares is conditioned upon,
among other things, there being a minimum of 1,989,180 shares of Series A Common
Stock validly tendered and not withdrawn prior to the expiration of the tender
offer. Pursuant to the Purchase Agreement, the Lyons have agreed to extend the
tender offer if, among other things, the minimum condition is not satisfied on
the initial scheduled expiration date of the tender offer. Such extension shall
be for such number of days as may be necessary to allow the minimum condition to
be satisfied, but in no event shall the Lyons be obligated to extend the
expiration date of the tender offer beyond November 30, 1999 if the minimum
condition is not satisfied. If this minimum condition is not satisfied following
completion of the tender offer, the Lyons may waive the minimum condition and
William Lyon Homes may proceed with the purchase of shares pursuant to the
tender offer. If the Lyons do not waive the minimum condition, William Lyon
Homes will not be obligated to close the sale of assets pursuant to the Purchase
Agreement. The Lyons have advised Presley that they have not made, and do not
intend to make, any determination to waive the minimum condition until at least
five business days prior to the initial expiration date of the tender offer.
Once the asset purchase has closed, the Lyons are required to close their
tender offer, subject only to any action by governmental entities that would
prohibit completion of the tender offer, the merger, the asset purchase or the
purchase of Series B Common Stock.
William Lyon Homes has also entered into agreements with three of the
holders of Presley's Series B Common Stock to purchase 9,434,813 shares, subject
to adjustment, of
<PAGE> 4
Series B Common Stock. Each of these transactions is expected to be consummated
prior to the effective time of the merger.
William Lyon is the Chairman of the Board of Presley, and he and his son,
William H. Lyon, own William Lyon Homes. As a result of these transactions,
William Lyon and his affiliates are expected to own an aggregate of
approximately 49% of Presley's outstanding shares of Common Stock at the
effective time of the merger. Because the transfer restrictions will generally
prohibit any person from acquiring a significant or controlling interest in
Presley, implementation of the transfer restrictions will make it difficult for
a third party to acquire Presley even if doing so would benefit its
stockholders. The closing of each of the asset purchase and the tender offer is
conditioned on, among other things, the approval of the merger by Presley's
stockholders. The closing of the tender offer is also conditioned on, among
other things, the closing of the asset purchase. The consummation of the merger
is conditioned on, among other things, the closing of the asset purchase, the
tender offer and the purchase of shares pursuant to the Series B Purchase
Agreements. Presley does not intend to waive any of these conditions to the
merger. No vote of Presley's stockholders is required under applicable law with
respect to either the asset purchase or tender offer, and the asset purchase
agreement and tender offer will not be submitted for stockholder approval at the
special meeting.
In the merger, each outstanding share of Presley's Series A Common Stock
and Series B Common Stock will be converted into 0.2 share of Merger Sub common
stock. Prior to the merger, there has been no public market for the common stock
of Merger Sub. A technical original listing was made to the listing application
of Presley with the NYSE and the NYSE has approved for listing the common stock
of Merger Sub under the symbol "PDC."
To complete the merger, a majority of the holders of Presley's Series A
Common Stock and Series B Common Stock voting together as a single class must
vote in favor of the certificate of ownership and merger. Your vote is very
important. If you are a Series A stockholder or Series B stockholder of Presley,
please take the time to vote by completing and mailing the enclosed proxy card
to us whether or not you plan to attend the meeting. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
counted as FOR the certificate of ownership and merger. If you don't return your
proxy card, or if you don't instruct your broker how to vote any shares held for
you in "street name," the effect will be the same as a vote against the
certificate of ownership and merger.
The date, time and location of the special meeting are:
------------------------------------
19 Corporate Plaza, Newport Beach, California,
Friday, November 5, 1999, 6:30 a.m., California time
This Proxy Statement/Prospectus gives you detailed information about the
proposed merger, and it includes a copy of the certificate of ownership and
merger as Appendix A. It also constitutes a prospectus of Merger Sub with
respect to the shares of common stock to be issued pursuant to the merger in
exchange for the outstanding shares of Presley Common Stock.
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/s/ WILLIAM LYON /s/ WADE H. CABLE
William Lyon Wade H. Cable
Chairman of the Board President and Chief
Executive Officer
</TABLE>
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS PROXY
STATEMENT/PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROXY STATEMENT/PROSPECTUS DATED OCTOBER 7, 1999
FIRST MAILED TO PRESLEY STOCKHOLDERS ON OR ABOUT OCTOBER 7, 1999
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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Questions and Answers About the Certificate of Ownership and
Merger.................................................... 1
Summary..................................................... 4
Risk Factors................................................ 8
Risks Related to the Merger............................... 8
The imposition of transfer restrictions may cause the
market price of our stock to go down.................. 8
The transfer restrictions may make it difficult for a
third party to acquire us even if doing so would
benefit our stockholders.............................. 8
The transfer restrictions may not be enforceable and an
ownership change may occur with the result that our
ability to use the tax net operating loss
carryforwards will be severely limited................ 8
Future legislation may result in us not being able to
realize the tax benefits currently available.......... 8
We may not be able to use the existing tax benefits
from the tax net operating loss carryforwards......... 8
The IRS could challenge the amount of the NOLs thereby
reducing the amount of tax benefits that we can use... 8
The exchange ratio may adversely affect the market
price or liquidity of Merger Sub common stock......... 9
The NYSE has notified us that we do not meet the NYSE's
current continued listing standards and delisting by
the NYSE could adversely impact the liquidity and
market price of our stock............................. 9
Risks Related to Our Business............................. 9
Our revenues may go down and results of operations may
be adversely affected if demand for housing declines
as a result of changes in economic and business
conditions............................................ 9
Our financial position, future results and prospects
may be adversely affected by a variety of risks, many
of which are beyond our control....................... 10
Governmental laws and regulations may increase our
expenses, limit the number of homes that we can build
or delay completion of our projects................... 10
We may not be able to acquire desirable lots for
residential buildout.................................. 11
Our requirement to repurchase senior notes may
adversely affect our ability to acquire, hold and
develop projects...................................... 11
We may not be able to succeed against our
competitors........................................... 11
Our operating results are variable and if we fail to
meet the expectations of public market analysts and
investors, the market price of our common stock may
decline significantly................................. 11
The forecasts and projections contained in this Proxy
Statement/Prospectus may not prove to be accurate..... 11
Risks Related to the Purchase Agreement with William Lyon
Homes, Inc. ........................................... 12
We may not complete the asset purchase and the market
price for our common stock may decline
significantly......................................... 12
We will be more highly leveraged following the
completion of the asset purchase and may not be able
to service our debt, withstand adverse business
conditions or capitalize on business opportunities.... 12
We may not be able to refinance our working capital
facility and the senior notes when they mature........ 12
As a result of risks associated with the proposed
purchase of assets from William Lyon Homes, we may not
achieve the expected benefits of the acquisition...... 12
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PAGE
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The ownership of up to 49.9% by the Lyons may adversely
affect the market price or liquidity of Merger Sub
common stock.......................................... 13
We need the consent of our lenders and joint venture
partners to consummate the Purchase Agreement and
merger................................................ 13
Cautionary Statement Regarding Forward-Looking Statements... 13
References to Additional Information........................ 14
Where You Can Find More Information......................... 15
The Special Meeting......................................... 16
Matters to be Considered.................................. 16
Shares Outstanding and Entitled to Vote; Record Date...... 16
Votes Required............................................ 16
Voting, Solicitation and Revocation of Proxies............ 17
The Merger.................................................. 17
General................................................... 17
William Lyon and William H. Lyon.......................... 19
Background of the Merger and Purchase Agreement........... 20
Series B Purchase Agreements.............................. 25
Recommendation of the Board of Directors of Presley and
Reasons for the Merger................................. 27
Reasons for the Approval of the Purchase Agreement by the
Special Committee...................................... 28
Opinion of Warburg Dillon Read LLC........................ 32
Opinion of Houlihan Lokey Howard & Zukin Financial
Advisors, Inc.......................................... 39
Financial Forecasts and Projection........................ 45
Preservation of Tax Benefits.............................. 47
Limitations on Use of NOLs................................ 47
Summary of Transfer Restrictions.......................... 49
Conditions to the Merger and Abandonment.................. 52
Description of the Capital Stock of Merger Sub............ 53
Certain Provisions of Delaware Corporate Law and Charter
Documents.............................................. 53
Comparison of Certificate of Incorporation and Bylaws..... 54
Appraisal Rights.......................................... 55
Board of Directors and Management of Merger Sub........... 55
Security Ownership of Principal Stockholders and
Management............................................. 58
Conversion of Securities in the Merger.................... 61
Listing on NYSE........................................... 61
Exchange of Certificates.................................. 61
Federal Income Tax Consequences........................... 62
Pro Forma and Comparative Financial Information........... 63
Effect of Agreements to Purchase Shares of Series B Common
Stock and Tender Offer for Series A Common Stock....... 64
Purchase Agreement.......................................... 65
Information About William Lyon Homes........................ 79
Selected Financial Data of William Lyon Homes.......... 79
Management's Discussion and Analysis of Financial
Condition and Results of Operations of William Lyon
Homes................................................. 80
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Legal Matters............................................... 84
Other Matters............................................... 85
Index to Financial Statements............................... F-1
APPENDICES
A. Certificate of Ownership and Merger.................... A-1
B. Certificate of Incorporation of Presley Merger Sub,
Inc.................................................... B-1
C. Bylaws of Presley Merger Sub, Inc...................... C-1
D. Opinion of Warburg Dillon Read LLC..................... D-1
E. Opinion of Houlihan Lokey Howard & Zukin Financial
Advisors, Inc.......................................... E-1
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iii
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE CERTIFICATE OF OWNERSHIP AND MERGER
Q: WHAT IS THE PROPOSAL I AM BEING ASKED TO VOTE ON?
A: As a stockholder of Presley, you are being asked to approve the certificate
of ownership and merger, which if completed, will result in Presley merging
with and into its wholly owned subsidiary, Merger Sub, which will be the
surviving corporation and will change its name to "The Presley Companies."
Q: WHY IS PRESLEY PROPOSING THIS MERGER?
A: We are proposing the merger in order to implement restrictions on the
transfer of our common stock. These stock transfer restrictions will reduce,
but not eliminate, the risk that an ownership change will occur that would
limit the use of our substantial tax net operating loss carryforwards.
Q: WHY CAN'T PRESLEY SIMPLY AMEND ITS CERTIFICATE OF INCORPORATION OR BYLAWS TO
IMPLEMENT THESE TRANSFER RESTRICTIONS?
A: If the transfer restrictions are simply implemented by an amendment to
Presley's certificate of incorporation or bylaws, the transfer restrictions
will not be binding on those stockholders who do not vote in favor of the
amendment. However, if the transfer restrictions are imposed by merging with
Merger Sub, they will be binding on all stockholders, even those who voted
against the merger.
Q: DO THE STOCKHOLDERS OF MERGER SUB HAVE TO APPROVE THE CERTIFICATE OF
OWNERSHIP AND MERGER?
A: No.
Q: WILL THE STOCKHOLDERS OF PRESLEY VOTE AT THE SPECIAL MEETING TO APPROVE
EITHER THE TENDER OFFER OR THE PURCHASE OF SUBSTANTIALLY ALL OF THE ASSETS OF
WILLIAM LYON HOMES?
A: No. On October 7, 1999 the Special Committee of independent directors
appointed by Presley's Board of Directors gave final approval of the asset
purchase and tender offer. No vote of Presley's stockholders at the special
meeting is required by applicable law.
Q: WHAT WILL STOCKHOLDERS OF PRESLEY RECEIVE IN THE MERGER?
A: Presley stockholders will receive 0.2 share of Merger Sub common stock in
exchange for every outstanding share of Presley common stock that they hold
at the time of the merger. For example, if you currently own 5,000 shares of
Presley common stock, then after the merger you will receive 1,000 shares of
Merger Sub common stock. You will not receive any fractional shares. In case
of any fractional interests, you will have the right for 30 days to purchase
the additional fractional interests necessary to make up full shares or to
sell your fractional interests. An agent appointed by Presley will buy and
sell fractional interests for your account. At the end of 45 days, the agent
will deliver your full shares and sale proceeds from any fractional
interests.
Q: WHAT ARE MERGER SUB'S ASSETS, LIABILITIES AND BUSINESS OPERATIONS?
A: Merger Sub, as a newly-formed corporation, has only a nominal amount of
assets and does not have any liabilities or business operations. Therefore,
when Presley is merged with and into Merger Sub, the resulting company will
have substantially the same assets, liabilities and business operations as
Presley.
Q: WHAT WILL I OWN AFTER THE MERGER?
A: You will own approximately the same ownership percentage in Merger Sub, as
you did in Presley immediately prior to the merger, except for any cash paid
to you by the agent appointed by Presley on account of the sale of any
fractional interests. Merger Sub will have substantially the same assets,
liabilities and business operations as Presley immediately prior to the
merger. It is expected that William Lyon and his affiliates will increase
their ownership percentage of Presley up to 49.9%, as a result of the tender
offer and the transactions contemplated by the Series B Purchase Agreements
which are expected to be completed prior to the effectiveness of the merger.
Accordingly, after these transactions it may be more difficult to effect a
merger or similar transaction even if a majority of the
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<PAGE> 9
stockholders other than the Lyons favor such a transaction.
Q: WILL THE PRESLEY STOCKHOLDERS RECEIVE ALL OF THE SHARES OF MERGER SUB COMMON
STOCK IN THE MERGER?
A: Yes. In the merger, all of the common stock of Merger Sub will be issued to
and owned by the current stockholders of Presley.
Q: DOES PRESLEY INTEND TO WAIVE ANY OF THE CONDITIONS TO THE MERGER IF SUCH
CONDITIONS ARE NOT MET?
A: Presley presently does not intend to waive any of the conditions to the
merger. Because stockholder approval is required pursuant to Delaware law,
this condition can not be waived.
Q: HOW DOES PRESLEY INTEND TO FINANCE THE ASSET PURCHASE?
A: Presley intends to borrow approximately $78 million dollars under its
existing working capital facility to finance the cash purchase price of $48
million and to repay indebtedness of William Lyon Homes of approximately $30
million. In addition, Presley intends to acquire real estate projects of
William Lyon Homes subject to indebtedness of approximately $30 million
through joint ventures consistent with Presley's existing operating strategy
of financing real estate projects with joint ventures. Presley further
intends to assume approximately $30 million of existing indebtedness of
William Lyon Homes.
Q: WHY IS PRESLEY PROPOSING A ONE-FOR-FIVE EXCHANGE RATIO?
A: Presley believes that this conversion ratio is likely to increase the market
price per share of its common stock by decreasing the total number of
outstanding shares without changing the aggregate economic interests
represented by these shares. You should not expect, however, that the market
price for a share of Merger Sub common stock will necessarily be equal to
five times the market price of Presley common stock before the merger.
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should review "RISKS RELATED TO THE MERGER".
Q: WHEN WILL THE MERGER TAKE EFFECT?
A: We expect that the merger will become effective after the stockholders of
Presley approve and adopt the certificate of ownership and merger, provided
that the other conditions to the merger have been satisfied. The special
meeting of Presley's stockholders is scheduled for Friday, November 5, 1999.
Q: WILL STOCKHOLDERS OF PRESLEY HAVE APPRAISAL RIGHTS?
A: No.
Q: WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER FOR
THE STOCKHOLDERS OF PRESLEY?
A: The receipt of shares of Merger Sub common stock in the merger generally will
be tax free to the stockholders of Presley. You, however, may have to pay
taxes on cash received from the agent for the sale of fractional interests.
You are urged to consult your tax advisors as to the specific consequences of
the merger to you.
Q: WHAT SHOULD PRESLEY STOCKHOLDERS DO NOW?
A: You should date, sign and mail your proxy card in the enclosed postage paid
envelope, as soon as possible, so that your shares will be represented at the
special meeting. The board of directors of Presley unanimously recommends
that Presley stockholders vote for approval and adoption of the certificate
of ownership and merger. After the merger is completed, Presley stockholders
will receive a letter of transmittal and written instructions for exchanging
their stock certificates.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN A SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting in one of the following ways. First, you can revoke your
proxy by written notice. Second, you can submit a new, later dated proxy
card. Third, you can attend the special meeting and vote in person.
2
<PAGE> 10
Q: SHOULD I SEND IN MY PRESLEY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Presley stockholders will be sent a letter
of transmittal and written instructions for sending in their stock
certificates, receiving the Merger Sub common stock and selling or purchasing
any fractional interests.
Q: PRESLEY HAS ANNOUNCED THAT IT INTENDS TO ACQUIRE REAL ESTATE ASSETS FROM
WILLIAM LYON HOMES AND THAT WILLIAM LYON AND HIS SON HAVE AGREED TO COMMENCE
A TENDER OFFER FOR UP TO 10,678,792, OF PRESLEY'S OUTSTANDING SERIES A COMMON
STOCK REPRESENTING 20.46% OF PRESLEY'S OUTSTANDING COMMON STOCK. WHAT EFFECT
WILL MY VOTE HAVE ON THESE TRANSACTIONS?
A: Presley stockholders are not required and are not being asked to vote to
approve the purchase agreement or tender offer. While the merger is
conditioned, among other things, on the closing of the asset purchase and the
purchase of shares pursuant to the tender offer, the other conditions may be
waived by Presley's Board of Directors. The approval of the merger by
Presley's stockholders is also a condition to the obligations of each of the
parties to the purchase agreement.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: Presley stockholders who have questions about the merger or how to vote their
shares, should call Linda L. Foster or W. Douglass Harris at Presley at (949)
640-6400.
3
<PAGE> 11
SUMMARY
This brief summary highlights material information from this Proxy
Statement/Prospectus. It does not contain all of the information that is
important to you. You should read carefully the entire Proxy
Statement/Prospectus and the other documents to understand fully the proposal
presented.
THE COMPANIES
The Presley Companies
Presley Merger Sub, Inc.
19 Corporate Plaza
Newport Beach, CA 92660
(949) 640-6400
The Presley Companies and its subsidiaries are primarily engaged in
designing, constructing, and selling single family, detached and attached homes
in California, Arizona, New Mexico, and Nevada. Presley believes that it was one
of the largest homebuilders in California in terms of both sales and homes
delivered in 1998.
Presley Merger Sub, Inc., is a wholly owned subsidiary of Presley that was
recently formed for the purpose of effecting the merger. Merger Sub will be the
surviving corporation in the merger. At the time of the completion of the
merger, Merger Sub will change its name to "The Presley Companies."
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING. (PAGE 16) The special meeting
will be held at the executive offices of Presley, located at 19 Corporate Plaza,
Newport Beach, California, on Friday, November 5, 1999, at 6:30 a.m., Pacific
Time.
RECORD DATE. (PAGE 16) You may vote at the special meeting if you owned
Presley Series A Common Stock or Series B Common Stock at the close of business
on September 15, 1999.
THE MERGER
REASONS FOR THE MERGER. (PAGE 17) The principal purpose of the merger is
to help preserve Presley's tax benefits from its tax net operating loss
carryforwards for use in offsetting future taxable income. Under current tax
laws, an ownership change could severely limit Presley's ability to use these
tax benefits. Presley cannot currently prevent the occurrence of an ownership
change. Merger Sub's certificate of incorporation includes stock transfer
restrictions intended to decrease the risk that an unfavorable ownership change
will occur. In addition, Merger Sub's stock certificates representing Merger Sub
common stock that will be issued to you in exchange for your shares of Presley
common stock will include a legend referring to these transfer restrictions.
Except for the purchase of Presley's common stock pursuant to the proposed
tender offer and Series B Purchase Agreements, Presley is not aware of any
proposed or threatened changes in the ownership of Presley.
THE TRANSFER RESTRICTIONS. (PAGE 49) In general, the transfer restrictions
will prohibit, without prior approval of Merger Sub's board of directors, the
direct or indirect sale, transfer, disposition, purchase or acquisition of any
its stock by or to any holder:
- - who beneficially owns directly or through attribution 5% or more of its stock;
or
- - who, upon the direct or indirect sale, transfer, disposition, purchase or
acquisition of any of its stock, would beneficially own directly or through
attribution 5% or more of its stock.
The transfer restrictions are scheduled to expire on the day after the
third anniversary of the completion of the merger, unless Merger Sub's board of
directors extends or accelerates the expiration date.
BACKGROUND OF THE MERGER. (PAGE 20) The Board of Directors and management
have considered various strategic alternatives to enhance stockholder value,
including the merger, and, for this reason, Presley retained Warburg Dillon Read
as its exclusive financial advisor with respect to strategic alternatives and
formed a Special Committee of independent directors to investigate, review and
consider such strategic alternatives. After receiving a proposal from William
Lyon Homes to acquire all of the outstanding Common Stock of Presley for a cash
price of $0.40 per share on June 30, 1998, the Special Committee directed
Warburg Dillon Read to contact third parties regarding possible other strategic
alterna-
4
<PAGE> 12
tives. Warburg Dillon Read contacted 18 parties regarding a possible transaction
and, thereafter, received two proposals, including a revised proposal from
William Lyon Homes. On December 31, 1998, after unanimous approval by the
special committee, Presley entered into a letter of intent, that was
subsequently amended several times, with William Lyon Homes setting forth the
terms of the asset purchase and tender offer, and contemplating the merger.
VOTES REQUIRED. (PAGE 16) The affirmative vote of the holders of a
majority of the issued and outstanding shares of Presley's Series A Common Stock
and Series B Common Stock, voting together as a single class, is required to
approve the certificate of ownership and merger. As of September 15, 1999,
Presley's directors, executive officers and their affiliates as a group,
consisting of 9 persons, beneficially owned 6,065,334 shares of Presley's Series
A Common Stock, exclusive of presently exercisable stock options, which
represented 11.6% of the aggregate number of votes entitled to be cast at the
special meeting. Such persons have indicated that they intend to vote all of
their shares in favor of the certificate of ownership and merger. No such
persons will receive any benefits pursuant to any current employment agreement
or employee benefit or stock option plan as a result of the merger. In addition,
as of September 15, 1999, three holders of Presley's Series B Common Stock
beneficially owned an aggregate of 15,566,837 shares of Presley Series B Common
Stock and 1,697,325 shares of Presley's Series A Common Stock which represented
approximately 33.1% of the aggregate votes entitled to be cast at the special
meeting. Pursuant to stock purchase agreements between each of these holders of
Series B Common Stock and William Lyon Homes, each of these Series B Common
Stockholders has conditionally agreed to vote all of its shares in favor of the
certificate of ownership and merger. As of September 15, 1999, there were four
stockholders of Presley who had reported to the SEC beneficial ownership,
including voting power, of more than five percent of the outstanding Presley
common stock.
MANAGEMENT OF MERGER SUB. (PAGE 55) At the effective time of the merger,
the directors and executive officers of Merger Sub will be the same persons who
currently serve as directors and executive officers of Presley. There will be no
increase in the aggregate compensation and benefits of the officers and
directors of Presley as a result of the merger. The board of directors of Merger
Sub will consist of the same eight individuals who are currently members of
Presley's board.
PURCHASE AGREEMENT. (PAGE 65) Presley has entered into a purchase agreement
pursuant to which its wholly owned subsidiary, Presley Homes, has agreed to
purchase substantially all of the assets of William Lyon Homes for a purchase
price of $48 million and the assumption of substantially all of the liabilities
of William Lyon Homes. Pursuant to the Purchase Agreement, William Lyon and his
son, William H. Lyon, have agreed to commence a tender offer for up to
10,678,792 shares of Presley's outstanding Series A Common Stock at $0.655 per
share in cash. Each of these transactions is expected to be consummated prior to
the effective time of the merger, and the consummation of the merger is
conditioned upon, among other things, the closing of each of the asset purchase
and the tender offer. The closing of each of the asset purchase and tender offer
is conditioned upon, among other things, the approval of the merger by Presley's
stockholders. The closing of the tender offer is also conditioned upon, among
other things, the closing of the asset purchase and there being validly tendered
and not withdrawn prior to and as of the expiration of the tender offer at least
1,989,180 shares of Series A Common Stock. Presley intends to borrow
approximately $78 million dollars under its existing working capital facility to
finance the cash purchase price of $48 million and to repay indebtedness of
William Lyon Homes of approximately $30 million. In addition, Presley intends to
acquire real estate projects of William Lyon Homes subject to indebtedness of
approximately $30 million through joint ventures consistent with Presley's
existing operating strategy of financing real estate projects with joint
ventures. Presley further intends to assume approximately $30 million of
existing indebtedness of William Lyon Homes. The purchase of the shares of
Series A Common Stock in the tender offer and the purchase of Series B Common
Stock pursuant to the Series B Purchase Agreements will therefore be funded by
the Lyons from the proceeds of the asset purchase, which, in turn, will be
funded by Presley with borrowings under its existing working capital facility.
SERIES B PURCHASE AGREEMENTS. (PAGES 25 AND 64) William Lyon Homes has
entered into agreements with three of the holders of Presley's Series B Common
Stock to purchase
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9,434,813 shares, subject to adjustment, of
Series B Common Stock at a purchase price of $0.655 per share. Each of the
Series B Purchase Agreements provides that, if less than 10,678,792 shares of
Presley's Series A Common Stock are validly tendered and not withdrawn prior to
and as of the expiration of the tender offer, William Lyon Homes may purchase
additional shares of Series B Common Stock on a pro rata basis at a purchase
price of $0.655 per share, so as to enable William Lyon Homes and its affiliates
to own an aggregate of approximately 49%, but in no case more than 49.9% of
Presley's Common Stock. The obligation of William Lyon Homes to purchase the
shares pursuant to the Series B Purchase Agreements is conditioned on, among
other things, the closing of the asset purchase, the acceptance and payment of
shares pursuant to the tender offer, the approval of the merger and the absence
of any person other than William Lyon Homes and its affiliates owning
beneficially more than 5% of the outstanding Common Stock of Presley. Either
party to the Series B Purchase Agreement may terminate the agreement in the
event the closing under that agreement has not occurred on or before November
15, 1999. Neither Presley nor Presley Homes is a party to any of the Series B
Purchase Agreements.
OPINION OF WARBURG DILLON READ LLC. (PAGE 32) Warburg Dillon Read LLC has
acted as the financial advisor to the Special Committee of the Board of
Directors or Presley. Warburg Dillon Read delivered to the Special Committee its
written opinion dated September 16, 1999 to the effect that the merger
consideration and the tender offer consideration are fair to the public holders
of the Series A Common Stock from a financial point of view. Warburg Dillon Read
confirmed its opinion as of October 7, 1999. The full text of Warburg Dillon
Read's written opinion is attached to this document as Appendix D and sets
forth: the assumptions made; matters considered; and limitations on the review
undertaken by Warburg Dillon Read.
Warburg Dillon Read's opinion is neither a recommendation as to whether you
should tender Series A Common Stock pursuant to the tender offer nor a
recommendation on how you should vote with respect to the merger. You are urged
to read this opinion in its entirety.
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC. (PAGE 39)
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. has delivered its opinion
dated September 16, 1999 to the Special Committee of Presley to the effect that,
as of such date and based upon and subject to certain matters stated in such
opinion, the consideration to be paid by Presley and Presley Homes in connection
with the Asset Purchase is fair to Presley and Presley Homes from a financial
point of view. The full text of Houlihan Lokey's written opinion, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken by Houlihan Lokey, has been attached as Appendix E to this Proxy
Statement/Prospectus. Houlihan Lokey's opinion is directed only to the fairness,
from a financial point of view, of the consideration to be paid by Presley and
Presley Homes in connection with the Asset Purchase and is not intended to
constitute, and does not constitute, a recommendation as to whether any
stockholder should tender Series A Common Stock pursuant to the tender offer. In
addition, the opinion does not address the fairness of the merger consideration
and is not a recommendation on how a stockholder should vote with respect to the
approval of the merger. The opinion does not address Presley's underlying
business decision to effect the Purchase Agreement. Houlihan Lokey has not been
requested to, and did not solicit third party indications of interest in
acquiring all or any part of Presley. You are urged to read this opinion
carefully in its entirety.
PRESLEY STOCK OPTIONS. (PAGE 61) Each unexercised stock option to buy
Presley common stock outstanding under Presley's stock option plan will become
an option to purchase 0.2 share of Merger Sub common stock. However, 750,000
stock options held by William Lyon will be cancelled upon the closing of the
asset purchase.
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS. (PAGE 54) Presley's
common stock is presently divided into two series, designated as Series A Common
Stock and Series B Common Stock. As a result of the merger, the shares of Series
A Common Stock and Series B Common Stock will be converted into shares of common
stock of Merger Sub which is not divided into series. As a result, the
certificate of incorporation of Merger Sub will not contain those provisions
relating to the separate powers, rights and privi-
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leges of Presley's Series A Common Stock and Series B Common Stock.
LISTING OF MERGER SUB COMMON STOCK. (PAGE 61) Presley's Series A Common
Stock is listed on the NYSE under the symbol "PDC." Merger Sub filed a technical
original listing to the listing application of Presley which was approved for
listing by the NYSE under the same symbol, "PDC." After the merger, Presley's
Series A Common Stock will be delisted and cease to trade. On October 6, 1999,
the closing price of Presley's Series A Common Stock was $0.8125.
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RISK FACTORS
You should carefully consider the following risk factors, as well as the
other information contained in this Proxy Statement/Prospectus.
RISKS RELATED TO THE MERGER
THE IMPOSITION OF TRANSFER RESTRICTIONS MAY CAUSE THE MARKET PRICE OF OUR STOCK
TO GO DOWN.
As a result of the merger, you will receive shares of common stock of
Merger Sub as the surviving corporation in the merger. These shares will be
subject to the transfer restrictions described in this Proxy
Statement/Prospectus. These transfer restrictions currently do not apply to
Presley's common stock. It is possible that the market price of Merger Sub
common stock will be adversely affected by the transfer restrictions. Because of
the implementation of the transfer restrictions, you cannot be sure that the
market price of the shares of Merger Sub common stock will be comparable to the
market price of Presley's Series A Common Stock.
THE TRANSFER RESTRICTIONS MAY MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE US
EVEN IF DOING SO WOULD BENEFIT OUR STOCKHOLDERS.
The transfer restrictions may impede an attempt by someone to acquire a
significant or controlling interest in Merger Sub. The transfer restrictions
also may make it more difficult to effect a merger or similar transaction even
if a majority of the stockholders favor that transaction. Furthermore, the
transfer restrictions could entrench management because the common stock is more
likely to remain owned by the same stockholders without much trading volume or
the potential for the realization of a change of control premium.
THE TRANSFER RESTRICTIONS MAY NOT BE ENFORCEABLE AND AN OWNERSHIP CHANGE MAY
OCCUR WITH THE RESULT THAT OUR ABILITY TO USE THE TAX NET OPERATING LOSS
CARRYFORWARDS WILL BE SEVERELY LIMITED.
The transfer restrictions could be challenged and a court could refuse to
enforce them. It also is possible that the tax authorities could take the
position that the transfer restrictions do not provide the intended effect or
adequate remedies for tax purposes. Thus, even if the transfer restrictions are
in place, transactions could potentially occur that would severely limit Merger
Sub's ability to use the tax benefits associated with Presley's net operating
loss carryforwards.
FUTURE LEGISLATION MAY RESULT IN US NOT BEING ABLE TO REALIZE THE TAX BENEFITS
CURRENTLY AVAILABLE.
It is possible that legislation or regulations will be adopted that would
limit Merger Sub's ability to use the tax benefits associated with Presley's
current tax net operating loss carryforwards. However, Presley is not aware of
any proposed changes in the tax laws or regulations that could materially impact
the ability of Merger Sub to use the tax benefits.
WE MAY NOT BE ABLE TO USE THE EXISTING TAX BENEFITS FROM THE TAX NET OPERATING
LOSS CARRYFORWARDS.
Merger Sub's ability to use the tax benefits in future years will depend
upon the amount of its otherwise taxable income. We therefore cannot be sure
that Merger Sub will have sufficient taxable income in future years to use the
tax benefits before they otherwise would expire.
THE IRS COULD CHALLENGE THE AMOUNT OF THE NOLS THEREBY REDUCING THE AMOUNT OF
TAX BENEFITS THAT WE CAN USE.
The amount of the NOLs claimed by Presley has not been audited or otherwise
validated by the IRS. The IRS could challenge the amount of the NOLs calculated
by Presley.
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THE EXCHANGE RATIO MAY ADVERSELY AFFECT THE MARKET PRICE OR LIQUIDITY OF MERGER
SUB COMMON STOCK.
The Board of Directors of Presley believes that the exchange of each share
of Presley's common stock for 0.2 share of Merger Sub common stock, which will
decrease the total number of shares of common stock of Merger Sub outstanding
after the merger without altering the aggregate ownership interest in Merger Sub
represented by such shares, should increase the market price per share of Merger
Sub common stock. While Presley believes the total market value of Merger Sub
common stock should be substantially similar to that of the total market value
of Presley common stock immediately prior to the merger, there can be no
assurance that the market price per share of Merger Sub common stock will be
approximately equal to five times the market price of Presley common stock prior
to the merger.
By decreasing the number of outstanding shares of Merger Sub common stock
by approximately 80%, the merger may adversely affect the liquidity of the
market for the Merger Sub common stock. Consequently, it may be more difficult
for holders of Merger Sub common stock to sell their shares.
THE NYSE HAS NOTIFIED US THAT WE DO NOT MEET THE NYSE'S CURRENT CONTINUED
LISTING STANDARDS AND DELISTING BY THE NYSE COULD ADVERSELY IMPACT THE LIQUIDITY
AND MARKET PRICE OF OUR STOCK.
While the NYSE has authorized Merger Sub's common stock for listing on the
NYSE, the NYSE has informed Presley that it is not in compliance with the NYSE's
recently amended continued listing criteria. The NYSE has further informed
Presley that failure to raise its stock price above $1.00 per share within six
months will result in immediate suspension of trading and application to the SEC
for delisting. Presley has presented a business plan to the NYSE that
demonstrates compliance with all aspects of the NYSE's other continued listing
criteria within 12 months of the date of the NYSE's notification. Under these
criteria, Presley must have:
- a total market capitalization of not less than $50 million and
stockholders' equity of not less than $50 million; and
- an average market capitalization of not less than $15 million over a
consecutive 30 day period.
The NYSE will monitor Presley for quarterly compliance with its plan. If Presley
or Merger Sub fails to achieve the quarterly milestones included in its plan or
if at the completion of the 12 months it is not in compliance with the NYSE's
continued listing criteria, Presley or Merger Sub will be suspended from trading
on the NYSE and application will be made to the SEC for delisting.
Delisting of Merger Sub's common stock could adversely impact its liquidity
and market price.
RISKS RELATED TO OUR BUSINESS
OUR REVENUES MAY GO DOWN AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED IF
DEMAND FOR HOUSING DECLINES AS A RESULT OF CHANGES IN ECONOMIC AND BUSINESS
CONDITIONS.
General economic and business conditions, both local and national, may be
less favorable in the future. For example, California, where many of Presley's
and William Lyon Homes' projects are located, underwent a significant recession
in the early 1990s. Should economic and business conditions decline, demand for
Presley's homes could be significantly affected. An important segment of
Presley's customer base consists of move-up buyers, who often purchase homes
subject to contingencies related to the sale of their existing homes. In the
past, the
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difficulties facing these buyers in selling their homes during recessionary
periods have adversely affected Presley's sales. Moreover, during the last
recession, Presley had to reduce its sales prices and offer greater incentives
to buyers to compete for sales which resulted in reduced margins.
In addition, increases in mortgage interest rates could reduce demand for
new homes by reducing prospective buyers' ability to obtain affordable
financing. Higher interest rates will also increase the amount of interest that
Presley is obligated to pay its lenders.
Increases in the rate of inflation could adversely affect Presley's margins
by increasing its costs and expenses. In times of high inflation, demand for
housing may decline and Presley may be unable to recover its increased costs
through higher sales prices.
Presley's operations are subject to the potential for significant
variability and fluctuations in real estate values. Should a substantial decline
in real estate values occur, Presley may be required to write-down the book
value of its real estate assets in accordance with generally accepted accounting
principles.
If the merger is approved and Merger Sub assumes Presley's business, Merger
Sub will be subject to the same risk factors relating to its business as
Presley.
OUR FINANCIAL POSITION, FUTURE RESULTS AND PROSPECTS MAY BE ADVERSELY AFFECTED
BY A VARIETY OF RISKS, MANY OF WHICH ARE BEYOND OUR CONTROL.
As a homebuilder, Presley is subject to numerous risks, many of which are
beyond its control, including:
- Adverse weather conditions such as droughts, floods, or wildfires could
damage Presley's projects, cause delays in completion of its projects or
reduce consumer demand for its projects.
- Shortages in labor or materials could delay completion of Presley's
projects and cause increases in the prices that it pays for labor or
materials, thereby affecting Presley's sales and profitability.
- Landslides, soil subsidence, earthquakes and other geologic events could
occur that damage Presley's projects, cause delays in the completion of
its projects or reduce consumer demand for its projects. Many of
Presley's and William Lyon Homes' projects are located in California,
which has experienced significant earthquake activity, including the 1994
earthquake in Northridge, California. Losses associated with these events
may not be insurable, economically insurable or subject to effective
indemnification arrangements. In addition to direct damage to Presley's
projects, earthquakes or other geologic events could damage roads and
highways providing access to those projects, thereby adversely affecting
the ability of Presley to market homes in those areas and possibly
increasing the costs of completion.
- Construction defect, soil subsidence and other building related claims
may be asserted against Presley.
GOVERNMENTAL LAWS AND REGULATIONS MAY INCREASE OUR EXPENSES, LIMIT THE NUMBER OF
HOMES THAT WE CAN BUILD OR DELAY COMPLETION OF OUR PROJECTS.
Presley is subject to numerous local, state, Federal and other statutes,
ordinances, rules and regulations concerning zoning, development, building
design, construction and similar matters which impose restrictive zoning and
density requirements in order to limit the number of homes that can eventually
be built within the boundaries of a particular area. Presley may also be subject
to periodic delays in its homebuilding projects due to building moratoria.
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Presley is also subject to a variety of local, state, Federal and other
statutes, ordinances, rules and regulations concerning the protection of health
and the environment. The particular environmental laws which apply to any given
homebuilding site vary according to the site's location, its environmental
conditions and the present and former uses of the site, as well as adjoining
properties. Environmental laws and conditions may result in delays, may cause
Presley to incur substantial compliance and other costs, and can prohibit or
severely restrict homebuilding activity in environmentally sensitive regions or
areas.
WE MAY NOT BE ABLE TO ACQUIRE DESIRABLE LOTS FOR RESIDENTIAL BUILDOUT.
The future growth of Presley depends upon its ability to acquire suitable
properties for development. Presley's financial position, future results and
prospects may be adversely affected if properties at desirable prices and
locations are not continually available.
OUR REQUIREMENT TO REPURCHASE SENIOR NOTES MAY ADVERSELY AFFECT OUR ABILITY TO
ACQUIRE, HOLD AND DEVELOP PROJECTS.
If Presley's consolidated tangible net worth is less than $60 million for
two consecutive quarters, Presley is required by the trust indenture governing
its senior notes to offer to purchase $20 million in principal amount of the
notes, less the face amount of notes acquired by Presley, each six months, until
such time as Presley has a consolidated tangible net worth of at least $60
million. At June 30, 1999, Presley had a consolidated tangible net worth of
$20.7 million. On a pro forma basis, after giving effect to the asset
acquisition, Presley would have a consolidated tangible net worth of $20.7
million. Because of Presley's obligation to offer to purchase $20 million,
Presley is, and Merger Sub will be after the merger, restricted in its ability
to acquire, hold and develop real estate projects.
WE MAY NOT BE ABLE TO SUCCEED AGAINST OUR COMPETITORS.
The homebuilding industry is highly competitive. Homebuilders compete for,
among other things, desirable properties, financing, raw materials and skilled
labor. Presley competes both with large homebuilding companies, some of which
have greater financial resources than Presley, and with smaller local builders.
Presley also competes for sales with individual resales of existing homes and
with available rental housing.
OUR OPERATING RESULTS ARE VARIABLE AND IF WE FAIL TO MEET THE EXPECTATIONS OF
PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE OF OUR COMMON STOCK MAY
DECLINE SIGNIFICANTLY.
Presley has historically experienced, and in the future expects to continue
to experience, variability in its operating results on a quarterly and
year-to-year basis. Many of the factors affecting Presley's results, such as
those discussed above, are beyond its control and may be difficult to predict.
THE FORECASTS AND PROJECTIONS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS MAY
NOT PROVE TO BE ACCURATE.
Presley does not as a matter of course make public its forecasts or
projections as to future operating performance. These forecasts and projections
are based upon estimates and assumptions that inherently are subject to material
uncertainties and risk, all of which are difficult to quantify and many of which
are beyond the control of Presley and William Lyon Homes. In addition to other
factors, each of the risk factors identified in this Proxy Statement/Prospectus
has the potential to negatively impact the estimates and assumptions upon which
the forecasts and projection are based, and therefore, may cause the forecasts
and projection to become inaccurate. There can be no assurance that the
assumptions made in preparing the forecasts and projection will prove accurate,
and actual results may be materially
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greater or less than those contained in the forecasts and projection. You are
cautioned not to place any undue reliance on any forecasts or projections
contained herein. See "Cautionary Statement Regarding Forward-Looking
Statements" on page 13.
RISKS RELATED TO THE PURCHASE AGREEMENT WITH WILLIAM LYON HOMES, INC.
WE MAY NOT COMPLETE THE ASSET PURCHASE AND THE MARKET PRICE FOR OUR COMMON STOCK
MAY DECLINE SIGNIFICANTLY.
The purchase of substantially all of the assets of William Lyon Homes is
subject to a number of contingencies, including approval of the merger by
Presley's stockholders and the other conditions described in this Proxy
Statement. As a result, there can be no assurance that the transactions under
the Purchase Agreement will be completed. Although Presley's Board of Directors
may waive the condition, the completion of the asset purchase is a condition to
the consummation of the merger. The failure to complete the asset purchase may
cause the merger to not be consummated. Failure to complete the merger or the
asset purchase agreement may also cause the market price of Presley's common
stock to decline significantly.
WE WILL BE MORE HIGHLY LEVERAGED FOLLOWING THE COMPLETION OF THE ASSET PURCHASE
AND MAY NOT BE ABLE TO SERVICE OUR DEBT, WITHSTAND ADVERSE BUSINESS CONDITIONS
OR CAPITALIZE ON BUSINESS OPPORTUNITIES.
If the asset acquisition had been completed on June 30, 1999, Presley would
have had consolidated indebtedness of approximately $292.4 million and a ratio
of consolidated indebtedness to consolidated tangible net worth of approximately
14.1 to 1.0. Presley expects to service its outstanding indebtedness and to fund
its ongoing operations primarily through cash flows from operations and
borrowings under its working capital facility. The ability of Presley to meet
its obligations will depend to a large degree on its future performance, which
in turn will be subject, in part, to factors beyond its control, including those
discussed above. Failure to be in compliance with the financial and other
covenants (following expiration of any applicable cure periods) would result in
a default under Presley's working capital facility and the trust indenture
governing its outstanding senior notes. There can be no assurance that Presley's
cash flows from operations will be sufficient to service its debt.
WE MAY NOT BE ABLE TO REFINANCE OUR WORKING CAPITAL FACILITY AND THE SENIOR
NOTES WHEN THEY MATURE.
Because Presley's business is capital intensive and requires significant
upfront expenditures to acquire and develop land and build residences, it will
in all likelihood be required to refinance its working capital facility and the
senior notes when they mature on May 20, 2001 and July 1, 2001, respectively.
There can be no assurance that Presley will be able to refinance this
indebtedness on terms acceptable to it.
AS A RESULT OF RISKS ASSOCIATED WITH THE PROPOSED PURCHASE OF ASSETS FROM
WILLIAM LYON HOMES, WE MAY NOT ACHIEVE THE EXPECTED BENEFITS OF THE ACQUISITION.
If the asset purchase agreement is completed, Presley will acquire and be
responsible for the development of a substantial number of additional real
estate projects. Presley may not be able to assimilate successfully these
additional projects, personnel and operations into its business. The asset
acquisition may strain Presley's existing financial and managerial controls and
reporting systems and procedures. These difficulties may distract Presley's
management and increase its expenses, resulting in a deterioration of its
business.
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THE OWNERSHIP OF UP TO 49.9% BY THE LYONS MAY ADVERSELY AFFECT THE MARKET PRICE
OR LIQUIDITY OF MERGER SUB COMMON STOCK.
It is anticipated that William Lyon and his son will own up to 49.9% of the
outstanding common stock following consummation of the tender offer and Series B
Purchase Agreements. As a result, the number of shares of common stock of Merger
Sub that might otherwise trade publicly will be reduced. Consequently, the
liquidity and market value of the remaining shares of Merger Sub held by the
public could be adversely affected.
WE NEED THE CONSENT OF OUR LENDERS AND JOINT VENTURE PARTNERS TO CONSUMMATE THE
PURCHASE AGREEMENT AND MERGER.
We will need the consent of our lender under our existing working capital
facility to consummate the merger. In addition, we will need the consent of
William Lyon Homes' lenders in order to assume approximately $30 million of
indebtedness in connection with the Purchase Agreement. We will also need to
reach agreements with joint venture partners in order to acquire other William
Lyon Homes real estate projects subject to indebtedness of approximately $30
million. If these consents or agreements are not obtained or reached, we may not
be able to consummate the Purchase Agreement or the merger. If we can't
consummate the Purchase Agreement, the Lyons are not obligated to purchase
shares pursuant to the tender offer.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains certain forward-looking statements
with respect to the financial condition, results of operations and business of
each of Presley, Merger Sub and William Lyon Homes. These statements may be made
directly in this document or may be "incorporated by reference" from other
documents filed with the SEC and may include statements for the period following
the completion of the merger. You can find many of these statements by looking
for such words as "believes," "expects," "anticipates," "estimates,"
"contemplates" or similar expressions in this Proxy Statement/Prospectus or as
otherwise incorporated herein.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ from those
contemplated by the forward-looking statements, include, among others, the
following possibilities:
- Competitive pressures in the real estate industry may increase
significantly.
- Changes in interest rates could reduce demand for new homes, reduce our
revenues or increase the amount we pay in interest.
- General economic or business conditions, both local and national, may be
less favorable than expected, resulting in, among other things, lower
demand for new homes and reduced revenues.
- Adverse weather conditions could cause delays in the completion of new
homes.
- Labor shortages could cause delays in the completion of new homes.
- Changes in tax laws or the occurrence of an ownership change could limit
the tax benefits associated with our current tax net operating loss
carryforwards.
- The prices we pay for homebuilding materials could change.
- Landslides, soil subsidence, earthquakes and other events that are not
insurable, economically insurable or subject to effective indemnification
arrangements could occur.
- Changes in governmental laws and regulations may increase our expenses,
limit the number of homes that we can build or delay completion of our
projects.
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- We may not be able to refinance our outstanding senior notes and working
capital facilities when they mature.
- The asset purchase from William Lyon Homes may not be completed.
- The tender offer by William Lyon and his son may not be completed.
- Land for future growth may become more costly or unavailable.
- The possibility of construction defect, soil subsidence or other building
related litigation may adversely affect our business.
- Our ability to obtain entitlements.
- Our access to additional capital.
- A lack of liquidity in our common stock.
- The IRS may challenge the amount of our NOLs.
Because these statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by forward-looking
statements. You are cautioned not to place undue reliance on these statements,
which speak only as of the date of this Proxy Statement/Prospectus, or in the
case of documents incorporated by reference, the date of the document.
All subsequent written and oral forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained and referred to in this section. We do
not undertake to release publicly any revisions to the forward-looking
statements to reflect events or circumstances after the date of this Proxy
Statement/Prospectus or to reflect the occurrence of unanticipated events.
REFERENCES TO ADDITIONAL INFORMATION
This Proxy Statement/Prospectus incorporates important business and
financial information about Presley that is not included in or delivered with
this document. This information is available without charge to you upon written
or oral request to Presley. You can obtain documents incorporated by reference
in this Proxy Statement/Prospectus other than certain exhibits to those
documents by requesting them in writing or by telephone from Presley at the
following address:
THE PRESLEY COMPANIES
19 Corporate Plaza
Newport Beach, CA 92660
(949) 640-6400
Attention: Linda L. Foster
Please request documents by October 20, 1999 in order to receive them before the
special meeting. See "Where You Can Find More Information" below.
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WHERE YOU CAN FIND MORE INFORMATION
Presley is delivering with this Proxy Statement/Prospectus a copy of its
Annual Report on Form 10-K/A for the year ended December 31, 1998. The following
documents filed with the SEC pursuant to the Securities and Exchange Act of 1934
are incorporated by reference in this Proxy Statement/Prospectus:
- Presley's Annual Report on Form 10-K/A for the year ended December 31,
1998;
- Presley's Quarterly Report on Form 10-Q/A for the quarter ended March 31,
1999;
- Presley's Quarterly Report on Form 10-Q/A for the quarter ended June 30,
1999; and
- All other reports filed pursuant to Section 13(a) or 15(d) of the
Securities and Exchange Act since December 31, 1998.
Any statement contained in a document incorporated by reference in this
Proxy Statement/Prospectus shall be deemed modified or superceded for all
purposes to the extent that a statement contained in this Proxy
Statement/Prospectus or any other subsequently filed document which is also
incorporated by reference modifies or supercedes that statement. You may read
and copy any materials Presley files with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C., 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxies and information statements, and other information regarding issuers that
file electronically with the SEC. The address of this site is
http://www.sec.gov.
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THE SPECIAL MEETING
Presley's Board of Directors is furnishing this Proxy Statement/Prospectus
to holders of shares of Series A Common Stock and Series B Common Stock in
connection with the solicitation of proxies for use at a special meeting to be
held at the executive offices of Presley, located at 19 Corporate Plaza, Newport
Beach, California, on Friday, November 5, 1999, at 6:30 a.m., Pacific Time, and
at any adjournments or postponements thereof.
MATTERS TO BE CONSIDERED
At the special meeting, the holders of Presley's Series A Common Stock and
Series B Common Stock will be asked:
- to consider and vote on a proposal to adopt a certificate of ownership
and merger pursuant to which Presley will merge with and into Merger Sub,
a newly-formed Delaware corporation and wholly owned subsidiary of
Presley, with Merger Sub being the surviving corporation; and
- to transact such other business as may properly come before the special
meeting.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
Only the holders of record of the outstanding shares of Presley's Common
Stock at the close of business on September 15, 1999, the record date, will be
entitled to notice of and to vote at the special meeting. On the record date,
there were 34,792,732 shares of Presley's Series A Common Stock and 17,402,946
shares of Series B Common Stock issued and outstanding, respectively. Holders of
record of Presley Common Stock at the close of business on the record date will
be entitled to one vote per share.
VOTES REQUIRED
A quorum, consisting of a majority of the outstanding shares of Presley
Common Stock, must be present in person or by proxy before any action may be
taken at the special meeting with respect to the approval of the certificate of
ownership and merger. The affirmative vote of the holders of a majority of the
outstanding shares of Presley's Series A Common Stock and Series B Common Stock,
voting together as a single class, is required to approve the certificate of
ownership and merger.
The proposal to approve the certificate of ownership and merger to be
presented for a vote at the special meeting, is considered to be a
"non-discretionary item" whereby brokerage firms may not vote in their
discretion on behalf of their clients if their clients have not furnished voting
instructions. Broker "non-votes" will not be considered as present for
determining the existence of a quorum at the special meeting and will be the
same as a vote against the certificate of ownership and merger. Abstentions will
be considered in determining the presence of a quorum at the special meeting but
will not be counted as a vote cast for the proposal. Accordingly, abstentions
will have the same effect as a vote against the merger proposal.
As of September 15, 1999, Presley's directors, executive officers and their
affiliates as a group, consisting of 9 persons, beneficially owned 6,065,334
shares of Series A Common Stock, exclusive of presently exercisable stock
options, which represented 11.6% of the aggregate number of votes entitled to be
cast at the special meeting with respect to the merger. Such persons have
indicated that they intend to vote all of their shares for approval of the
certificate of ownership and merger. No such persons will receive any benefits
pursuant to any current employment agreement or employee benefit or stock option
plan as a result of the merger. See "THE MERGER." In addition, as of September
15, 1999, three holders of Presley's Series B Common Stock beneficially owned an
aggregate of 15,566,837 shares of Presley Series B Common Stock and 1,697,325
shares of Presley's Series A Common Stock, which represented
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approximately 33.1% of the aggregate votes entitled to be cast at the special
meeting. Each of these holders has conditionally agreed with William Lyon Homes
to vote all of their shares in favor of the certificate of ownership and merger.
As of the record date, there were four stockholders of Presley who had reported
to the SEC beneficial ownership, including voting power, of more than five
percent of the outstanding Presley Common Stock.
VOTING, SOLICITATION AND REVOCATION OF PROXIES
Any holder of Presley Common Stock who has given a proxy may revoke it at
any time prior to its exercise at the special meeting by one of the following:
- giving written notice of revocation to the Corporate Secretary of
Presley;
- properly submitting to the Corporate Secretary a duly-executed proxy
bearing a later date; or
- attending the special meeting and voting in person.
Stockholders who have executed a proxy but intend to vote in person are
requested to notify Presley's Corporate Secretary prior to the time of the
special meeting. All written notices of revocation and other communications with
respect to revocation of proxies should be addressed as follows: Linda L.
Foster, Vice President and Corporate Secretary, The Presley Companies, 19
Corporate Plaza, Newport Beach, California 92660. Attendance at the special
meeting will not, in and of itself, constitute revocation of a proxy.
SHARES OF PRESLEY COMMON STOCK HELD BY BENEFICIAL OWNERS AND REPRESENTED BY
PROPERLY EXECUTED PROXIES, IF SUCH PROXIES ARE RECEIVED IN TIME AND NOT REVOKED,
WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED ON THE PROXIES. IF
NO INSTRUCTIONS ARE INDICATED, THE PROXIES RELATING TO SHARES OF PRESLEY COMMON
STOCK WILL BE VOTED FOR APPROVAL OF THE CERTIFICATE OF OWNERSHIP AND MERGER AND
WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER
WHICH MAY PROPERLY COME BEFORE THE SPECIAL MEETING. A BROKER "NON-VOTE" WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE CERTIFICATE OF OWNERSHIP AND MERGER.
Presley will bear the costs of printing and mailing this Proxy
Statement/Prospectus as well as all other costs incurred on behalf of Presley's
Board in connection with the solicitation of proxies from the holders of Presley
Common Stock. Presley has retained ChaseMellon Shareholder Services and Proxy
Express to assist in the solicitation of proxies and in the distribution of
proxies and accompanying materials to brokerage houses and institutions for an
estimated fee of $1,000 plus expenses. In addition, directors, officers or
employees of Presley and its subsidiaries may solicit proxies by mail, personal
interview, telephone or telegraph without additional compensation therefor.
Arrangements also will be made with brokerage houses, voting trustees, banks,
associations and other custodians, nominees and fiduciaries, who are record
holders of the Series A Common Stock not beneficially owned by them, for
forwarding such solicitation materials to and obtaining proxies from the
beneficial owners of such stock entitled to vote at the special meeting. Presley
will reimburse these persons for their reasonable expenses incurred in doing so.
THE MERGER
GENERAL
The holders of Presley Common Stock are being asked to approve the
certificate of ownership and merger pursuant to which Presley will merge with
and into its wholly owned subsidiary, Merger Sub. As a result of the merger,
Merger Sub will be the surviving corporation and all of the outstanding shares
of Presley Common Stock will be converted into and exchanged for shares of
common stock of Merger Sub, par value $0.01 per share, on a one-for-five basis.
The principal purpose of the merger is to effect the transfer restrictions. The
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Purchase Agreement entered into in connection with the asset purchase and tender
offer contemplates that Presley will implement the transfer restrictions. See
"THE MERGER -- Effect of Agreements to Purchase Shares of Series B Common Stock
and Tender Offer for Series A Common Stock." The full text of the certificate of
ownership and merger is attached as Appendix A to this Proxy
Statement/Prospectus, and the discussion below, which summarizes the material
terms of the certificate of ownership and merger, is qualified in its entirety
by reference thereto.
Merger Sub is a newly-formed Delaware corporation that was organized as a
direct wholly owned subsidiary of Presley for the purpose of becoming the
successor of Presley in the merger. Merger Sub has no operating history and only
nominal assets, liabilities and capitalization. If the merger is approved by the
stockholders of Presley and all the other conditions set forth in the
certificate of ownership and merger are satisfied or waived, Presley will be
merged with and into Merger Sub, with Merger Sub as the surviving corporation.
After the merger, the stockholders of Presley will own all of the
outstanding shares of Merger Sub common stock, having received that stock in
exchange for their shares of Presley Common Stock as part of the merger. Merger
Sub will succeed to the existing business and operations of Presley. The
consolidated assets, liabilities, stockholders' equity and income of Merger Sub
immediately following the merger will be the same as those of Presley
immediately prior to the consummation of the merger. The Merger Sub Board of
Directors is comprised of the same eight current members of the Presley Board of
Directors, and the executive officers of Merger Sub are the same as the
executive officers of Presley.
The transfer restrictions to be implemented by the merger are intended to
help prevent the occurrence of an "ownership change" as defined under Section
382 of the Internal Revenue Code of 1986, and the applicable Treasury
Regulations thereunder, as amended from time to time (collectively, "Section
382"), which could severely limit the availability of Presley's tax benefits.
See "THE MERGER -- Preservation of Tax Benefits."
Under Section 202 of the Delaware corporate law, a restriction on the
transfer or registration of transfer of securities of a corporation may be
imposed either by the certificate of incorporation or the bylaws or by an
agreement among any number of security holders or among any number of security
holders and the corporation. However, no transfer restriction is binding on a
security holder with respect to securities issued prior to the adoption of the
restriction unless such security holders are parties to an agreement or voted in
favor of the restriction. In determining the most effective method for imposing
the transfer restrictions, Presley, with the advice of its Delaware counsel,
Morris, Nichols, Arsht & Tunnell, reviewed the applicable provisions of the
Delaware corporate law, relevant case law, and other instances where public
companies had imposed transfer restrictions on their shares in order to protect
their tax benefits against an "ownership change" under Section 382 or for other
purposes. Presley concluded that, while there was no structure under which the
enforceability of the transfer restrictions with respect to shares held by
stockholders not voting in favor of the transaction was certain, a structure
that is likely to result in such enforceability under Section 202 of the
Delaware corporate law, and had accordingly been used in such other instances,
was one in which Presley was a party to a merger pursuant to which new shares
would be issued in exchange for all outstanding shares, because such newly
issued shares would, for purposes of the Delaware corporate law, be issued as of
the effective time of such merger and, accordingly, should be subject to the
transfer restrictions from their initial issuance for purposes of Section 202 of
the Delaware corporate law. Presley selected the issuance of shares of Merger
Sub common stock to all stockholders of Presley in exchange for their shares of
Presley Common Stock pursuant to the merger as the means of accomplishing the
transfer restrictions with the least change in the business, financial
condition, assets, management or contractual relations of Presley. Section 202
of the Delaware corporate law also provides that transfer restrictions permitted
by that section will not be effective with respect to securities
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unless they are noted conspicuously on the certificates representing such
securities or unless the holder or transferee of such securities has actual
knowledge of such restrictions. For information with respect to the exchange of
Presley Common Stock certificates for Merger Sub common stock certificates, see
"THE MERGER -- Exchange of Certificates." Consequently, the stock certificates
of Merger Sub will be legended to reflect the transfer restrictions if the
merger is completed. For certain potential limitations on the effectiveness of
the transfer restrictions, see "Risks Related to the Merger."
The transfer restrictions are intended to bind all holders of shares of
Presley Common Stock outstanding at the effective time of the merger and will
apply both to shares of Merger Sub common stock issued in exchange for those
shares of Presley Common Stock outstanding at the effective time and to shares
of Merger Sub common stock issued thereafter. Transfers of shares of Presley
Common Stock occurring prior to the effective time of the merger will not be
restricted, and all holders of Presley Common Stock as of the effective time
will receive shares of Merger Sub common stock in exchange for their shares of
Presley Common Stock. However, subsequent transfers of those Merger Sub shares
will be subject to the transfer restrictions. See "THE MERGER -- Summary of
Transfer Restrictions -- Prohibited Transfers."
WILLIAM LYON AND WILLIAM H. LYON
William Lyon currently owns 5,439,589 shares of Series A Common Stock,
after giving effect to the sale of 2,500,000 shares in August 1999, which
represent approximately 10.42% of the outstanding Presley Common Stock. William
Lyon has the right to acquire 750,000 shares pursuant to stock options granted
to him by Presley in 1994 in respect of his service as a consultant to Presley.
It is contemplated in the Purchase Agreement that these stock options will be
cancelled upon the closing of the asset purchase. William H. Lyon is the
beneficiary of a trust which owns 492,450 shares of Series A Common Stock of
Presley, after giving effect to the sale of 500,000 shares in August 1999.
However, William H. Lyon does not have or share, directly or indirectly, the
power to vote or to direct the vote, or the power to dispose or to direct the
disposition, of such shares, and thus disclaims beneficial ownership of such
shares. William H. Lyon does not otherwise beneficially own any shares of Series
A Common Stock of Presley.
The total amount of funds that will be required to consummate the tender
offer and to pay related fees and expenses is estimated to be approximately
$7.75 million. Further, the total amount of funds that will be required to
consummate the Series B Purchase Agreements, exclusive of related fees and
expenses, is estimated to be approximately $6.18 million. The Lyons have advised
Presley that they will use a combination of personal funds and a portion of the
proceeds received from the sale of William Lyon Homes' assets to Presley to
consummate the tender offer and the Series B Purchase Agreements, and to pay the
related fees and expenses. The Lyons have advised Presley that approximately 16%
of the asset purchase proceeds, if available, will be used to pay for shares
tendered in the tender offer, and related fees and expenses. Likewise, an
additional 13% of the asset purchase proceeds, if available, will be used to pay
for the shares purchased pursuant to the Series B Purchase Agreements, exclusive
of related fees and expenses. The purchase of the shares of Series A Common
Stock in the tender offer and the purchase of the shares of Series B Common
Stock pursuant to the Series B Purchase Agreements will therefore be funded by
the Lyons from the proceeds of the asset purchase, which, in turn, will be
funded by Presley with borrowings under its current working capital facility. If
there is any delay in receiving the proceeds from the asset sale, the Lyons have
informed Presley that they believe that their personal funds, together with
distributions which they may receive as shareholders of William Lyon Homes prior
to the expiration of the tender offer, will be sufficient to allow them to pay
for any shares tendered in the offer or purchased pursuant to the Series B
Purchase Agreements on a timely basis.
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The Lyons have advised Presley that neither they nor their affiliates have
any present intention to engage in a Rule 13e-3 or "going private" transaction
with respect to Presley following the merger and the other transactions
contemplated by the Purchase Agreement. The closing of the transactions
contemplated by the Purchase Agreement is conditioned upon Presley being able to
maintain the listing of its shares on the NYSE, or on another national
securities exchange or on NASDAQ, and there being at least 300 record holders of
Presley Common Stock. In addition, the transfer restrictions to be included in
Presley's charter following the merger will prohibit additional acquisitions of
Presley shares by the Lyons or their affiliates for a period of at least three
years unless otherwise approved or earlier terminated by Presley's Board of
Directors.
BACKGROUND OF THE MERGER AND PURCHASE AGREEMENT
FORMATION OF SPECIAL COMMITTEE AND RETENTION OF FINANCIAL ADVISOR. As part
of their ongoing efforts to enhance stockholder value, Presley's Board of
Directors and management have from time to time considered various strategic
alternatives for Presley. These alternatives included the
refinancing/restructuring of Presley's outstanding debt obligations, merger,
reorganization or the sale of certain, or substantially all of the assets of
Presley, or a similar transaction.
As part of Presley's ongoing exploration of strategic alternatives, on May
5, 1998, Presley retained SBC Warburg Dillon Read Inc., which subsequently
became Warburg Dillon Read LLC, to serve as exclusive financial advisor with
respect to strategic alternatives. In conjunction with the engagement of Warburg
Dillon Read, on June 10, 1998, Presley's Board of Directors formed a Special
Committee comprised of independent directors to investigate, review and consider
strategic alternatives and to make a recommendation to Presley's Board of
Directors with respect thereto. The Special Committee initially consisted of
James E. Dalton, Gregory P. Flynn, Steven B. Sample, Karen S. Sandler, Marshall
E. Stearns and Ray A. Watt.
Presley's Board of Directors authorized and directed the Special Committee
to engage such experts, accountants, investment bankers and advisers, including
legal counsel, as the Special Committee shall deem necessary or desirable in
order to assist it in the discharge of its responsibilities in connection with
the investigation, review and consideration of strategic alternatives and the
making of a recommendation to the Board of Directors with respect thereto.
Presley's Board of Directors also authorized and directed the Special Committee
to solicit third parties with respect to strategic alternatives and to negotiate
the terms of definitive documentation with respect thereto, subject to final
approval of any recommended strategic alternative by Presley's Board of
Directors. On June 16, 1998, the Special Committee selected Warburg Dillon Read
as its financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as its
special legal counsel.
Among the strategic alternatives explored by the Special Committee have
been:
- continuing to operate Presley's business as currently operated, coupled
with ongoing efforts to further improve operating performance,
- a sale of all or substantially all of Presley's assets,
- a recapitalization or financial restructuring, with or without the early
retirement or other restructuring of Presley's 12 1/2% Senior Notes
and/or with or without an infusion of new capital,
- forming a strategic alliance with one or more other organizations in the
homebuilding industry, and
- merging with a strategic buyer with significant resources to bring to the
combination.
The strategic alternatives considered by the Special Committee included a
transaction with William Lyon Homes, which had previously indicated its interest
in engaging in an acquisition of or other strategic transaction with Presley.
William Lyon Homes is owned by William Lyon
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and his son, William H. Lyon. William Lyon Homes is a California-based
homebuilder and real estate developer with projects currently under development
in Northern and Southern California.
RECEIPT AND REJECTION OF INITIAL PROPOSALS. On June 30, 1998, Presley
received a non-binding proposal from William Lyon Homes proposing a series of
related transactions by which William Lyon Homes would acquire all of the Common
Stock of Presley for a cash price of $0.40 per share. The June 30 proposal was
conditioned on, among other things, the negotiation and execution of a
definitive agreement, completion of due diligence, certain amendments to the
trust indenture governing the Senior Notes, and regulatory, stockholder and
other approvals. The June 30 proposal, by its terms, would expire on July 31,
1998, unless accepted prior to that date.
In early July 1998, after Presley's public announcement of the receipt of
the June 30 proposal, Presley received an unsolicited preliminary proposal from
a third party to acquire Presley in a merger pursuant to which Presley's
stockholders would receive not less than $0.50 per share in cash. This July
proposal was conditioned on, among other things, due diligence and the
negotiation of an agreement in principle.
During a series of meetings between June 30, 1998 and July 31, 1998, the
Special Committee met with Warburg Dillon Read to discuss the June 30 proposal,
the unsolicited July proposal and other strategic alternatives available to
Presley. On July 28, 1998, the Special Committee determined that the June 30
proposal was not so compelling as to preempt the Special Committee's exploration
of additional strategic alternatives. On or about July 28, 1998, the Special
Committee advised William Lyon Homes of its decision and encouraged William Lyon
Homes to make a new or revised proposal to the Special Committee. In addition,
the Special Committee directed its special legal counsel to advise counsel to
the party making the unsolicited July proposal that the Special Committee had
not yet determined whether to engage in a transaction involving a third party,
that the Special Committee was exploring various strategic alternatives, and
that the Special Committee would consider the July proposal in due course.
SOLICITATION OF STRATEGIC ALTERNATIVES. On or about July 28, 1998, the
Special Committee directed Warburg Dillon Read to begin to contact third parties
regarding the possibility of such parties submitting a proposal to acquire
Presley or engage in another strategic alternative with Presley and to prepare
materials for distribution to such parties. On August 21, 1998, Warburg Dillon
Read presented a list of third parties which Warburg Dillon Read determined were
among the more likely parties to express interest in the possibility of
acquiring Presley or engaging in another strategic alternative with Presley.
After discussion, the Special Committee agreed upon seventeen parties which
Warburg Dillon Read should contact regarding the possibility of such parties
submitting an indication of interest to the Special Committee regarding an
acquisition of Presley or other strategic alternative with Presley. The parties
contacted by Warburg Dillon Read included William Lyon Homes and the party which
made the unsolicited July proposal. With the approval of the Special Committee,
an eighteenth party was also contacted by Warburg Dillon Read regarding a
possible transaction with Presley.
Thereafter, Warburg Dillon Read contacted the agreed upon parties seeking
indications of interest. Interested parties were asked to enter into a
confidentiality agreement with Presley. After execution of a confidentiality
agreement, interested parties were sent information concerning Presley. Of these
parties, five indicated their interest in continuing to explore the possibility
of a transaction with Presley. During the Fall of 1998, these parties were given
additional information regarding Presley, including a presentation by management
of Presley, a proposed form of agreement on which they were asked to indicate
their proposed revisions, and access to financial, project and other information
of Presley, including access to Presley's properties and employees. After
conducting a due diligence review of such information, these
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parties were asked to submit a proposal for a transaction with Presley. The
Special Committee received proposals from two of these parties, including a
revised proposal from William Lyon Homes made in November 1998. The other
proposal, which was received in December 1998, proposed a sale of a number of
newly issued shares at a cash price of $0.50 per share whereby the party making
the proposal would own approximately 49% of Presley's outstanding shares of
Common Stock following consummation of the transaction. The December 1998
proposal would not be subject to a financing condition at the time of signing a
definitive agreement. The December 1998 proposal was conditioned upon holders of
at least 90% of the face amount of the Senior Notes exchanging their Senior
Notes for new 12 1/2% senior notes representing 80% of the Senior Notes' face
value. The new 12 1/2% senior notes would require certain modifications to the
terms of the Senior Notes, including elimination of the Senior Notes'
requirement that Presley purchase $20 million of Senior Notes every six months
for so long as Presley's consolidated tangible net worth is less than $60
million. The December 1998 proposal was also conditioned upon satisfactory
completion of due diligence and execution of a satisfactory shareholders'
agreement. This agreement would grant the party making the proposal the ability
to elect a majority of Presley's Board of Directors.
After discussion with Warburg Dillon Read regarding the value to
stockholders of such proposals and the likelihood that such proposed
transactions would be successfully consummated, the Special Committee determined
that the revised proposal from William Lyon Homes was superior to the December
1998 proposal. The Special Committee's basis for this decision included:
- the fact that the revised William Lyon Homes proposal provided for a
price per share for the Series A Common Stock of $0.62 per share while
the December 1998 proposal provided for a price per share of $0.50 per
share; and
- that the revised William Lyon Homes proposal provided partial liquidity
for Presley's Series A stockholders, while the December 1998 proposal
provided no added liquidity for Presley's stockholders.
In addition, the Special Committee determined that the conditions and other
contingencies associated with the revised William Lyon Homes proposal were more
likely to be satisfied than were the conditions and contingencies associated
with the December 1998 proposal, including that:
- The December 1998 proposal required that the holders of 90% of the Senior
Notes agree to exchange their Senior Notes for notes representing 80% of
the face value of the Senior Notes; the new notes would not require
Presley to purchase $20 million of notes every six months if Presley's
consolidated tangible net worth is below $60 million. In contrast, the
William Lyon Homes proposal contemplated that the approval or consent of
the holders of the Senior Notes would not be required; and
- The December 1998 proposal was conditioned upon completion of due
diligence while the William Lyon Homes proposal was not.
In late 1998, it became apparent that Presley would not likely engage in a
sale or business combination transaction with a party other than William Lyon
Homes. Because of this, it also became apparent that Presley's existing working
capital facility with Foothill Capital Corporation might remain outstanding,
including after a transaction with William Lyon Homes. Because Karen S. Sandler
and Marshall E. Stearns are officers of Foothill Capital Corporation, each of
them resigned from the Special Committee, effective December 10, 1998, to avoid
any appearance of a potential conflict of interest that might arise were they to
continue to serve as both officers of Foothill Capital Corporation and as
members of the Special Committee of independent directors.
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LETTER OF INTENT WITH WILLIAM LYON HOMES. On December 31, 1998, after
unanimous approval by the Special Committee, Presley entered into a letter of
intent with William Lyon Homes. The letter of intent contemplated the merger or
other transactions designed to help preserve Presley's substantial tax net
operating loss carryforwards to offset future taxable income. The letter also
set forth the parties' preliminary understanding with respect to the proposed
acquisition by Presley of substantially all of the assets of William Lyon Homes
for approximately $48.0 million together with the assumption of related
liabilities, and the concurrent purchase by William Lyon Homes pursuant to a
tender offer for not less than 40% and not more than 49% of the outstanding
shares of Presley's Common Stock held by stockholders other than the Lyons at a
price of $0.62 per share. Following the completion of the proposed transactions
and depending on the number of shares tendered, the Lyons would own beneficially
between 55% and 65% of the outstanding shares of Presley's Common Stock. The
remaining shares would continue to be publicly traded.
Under the terms of the December 31, 1998 letter of intent, the proposed
transactions would be subject to various conditions, including:
- the successful negotiation and execution of a definitive agreement,
- the receipt of opinions of Presley's advisors with respect to the
fairness of the transactions to Presley and its stockholders as well as
the solvency of Presley following the consummation of the transactions,
- the receipt of real estate appraisals satisfactory to Presley and William
Lyon Homes with respect to the real estate assets of William Lyon Homes,
- the approval of a definitive agreement by the respective boards of
directors of Presley and William Lyon Homes by March 31, 1999,
- the receipt of all required regulatory approvals and third party
consents, including any required lender consents,
- the receipt of agreements from certain significant stockholders of
Presley to tender their shares pursuant to the tender offer,
- the receipt of financing by Presley in an amount sufficient to enable
Presley to finance the transactions, and
- the absence of any material adverse change in the business or financial
condition of either Presley or William Lyon Homes.
In addition, the December 31, 1998 letter of intent contemplated that each
of the transactions would be structured so as to be subject to the successful
completion of the other and that the parties would structure the transactions,
including, if necessary, by imposing limitations on certain transfers of shares,
so as to avoid triggering the change of control tax provisions that would result
in the loss of Presley's tax net operating loss carryforwards for tax purposes.
The December 31, 1998 letter of intent also contemplated that Presley's Senior
Notes would remain outstanding without modification.
The December 31, 1998 letter of intent provided that, subject to the
fiduciary duties of their respective boards of directors, Presley and William
Lyon Homes would negotiate exclusively with each other toward a definitive
agreement until March 31, 1999. The letter of intent did not constitute a
binding agreement to consummate the transactions.
RETENTION OF HOULIHAN LOKEY. On January 21, 1999, the Special Committee
retained Houlihan Lokey Howard & Zukin Financial Advisors, Inc. to assist it
with respect to the proposed acquisition of the assets of William Lyon Homes and
the other transactions proposed by the December 31, 1998 letter of intent,
including the solvency of Presley after completion of the proposed transactions
with William Lyon Homes.
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REVISIONS TO LETTER OF INTENT. On February 18, 1999, after further
discussions with William Lyon Homes regarding the terms of a definitive
agreement, Presley announced that it had received a letter from William Lyon
Homes proposing a modification to the previously executed letter of intent with
William Lyon Homes. Under the proposed modification, which had been developed by
William Lyon Homes as a result of tax and accounting considerations to, among
other things, ensure preservation of Presley's tax net operating loss
carryforwards after consummation of the proposed transactions, William Lyon
Homes would make a tender offer for not more than 37% of the outstanding shares
of Common Stock of Presley for a purchase price of $0.62 per share. In the event
that more than 37% of the outstanding shares of Common Stock of Presley were
tendered, William Lyon Homes would purchase shares from each tendering
stockholder on a pro rata basis. The tender offer was to be conditioned upon
there being tendered, and not withdrawn, a number of shares which constituted at
least 37% of the outstanding shares of Presley. The proposed modification also
provided that the transaction would be structured to permit William Lyon or his
affiliates, prior to consummation of the transaction and consistent with
applicable securities laws, to sell shares of Presley's Common Stock owned by
them up to a maximum of 4% of the total number of shares of Presley's Common
Stock presently outstanding.
On March 30, 1999, the parties amended the letter of intent to extend its
term and the period of exclusive negotiations to April 30, 1999. A condition
included in the March 30, 1999 letter of intent, that the boards of directors of
Presley and William Lyon Homes must approve a definitive agreement by March 31,
1999, was also extended to April 30, 1999. The parties also agreed that William
Lyon Homes could participate in discussions and negotiations with the holders of
Presley's Series B Common Stock regarding the purchase by William Lyon Homes of
such percentage of the Series B Common Stockholders' shares so as to reduce each
such Series B Common Stockholders' ownership interest in Presley's Common Stock
to between 4.9% and 5% of Presley's outstanding Common Stock following
consummation of the proposed transactions. William Lyon Homes was also permitted
to seek commitments from the Series B Common Stockholders to sell additional
shares to the extent that the number of shares of Series A Common Stock tendered
in the tender offer are below the minimum threshold set forth in a definitive
agreement. Any such negotiations were to be conducted exclusively so as to
obtain the consent of the Series B Common Stockholders to the proposed
transactions and to avoid triggering the change of control tax provisions that
would result in the loss of Presley's tax net operating loss carryforwards for
tax purposes. William Lyon Homes was required to notify the Special Committee
regarding the details of any such discussions and negotiations. William Lyon
Homes was not permitted to enter into any agreement with any Series B Common
Stockholder prior to receiving the written approval from the Special Committee
or Presley's Board of Directors.
In negotiating the terms of the March 30, 1999 letter of intent, the
parties became aware that William Lyon Homes would approach the individual
holders of Series B Common Stock to negotiate the terms of agreements by which
William Lyon Homes would purchase shares of Series B Common Stock. These
negotiations ultimately resulted in the Series B Purchase Agreements which
William Lyon Homes entered into with three of the holders of Series B Common
Stock, including ING (U.S.) Capital, L.L.C. In apprehension of a potential
conflict of interest that might arise as a result of his serving both as a
member of the Special Committee and as a representative of ING at a time when
ING would be negotiating its Series B Purchase Agreement with William Lyon
Homes, Gregory P. Flynn resigned from the Special Committee of independent
directors, effective March 31, 1999.
On May 4, 1999, Presley announced that after approval by the Special
Committee, it had entered into a revised letter of intent with William Lyon
Homes on May 3, 1999. The letter set forth their preliminary understanding with
respect to the proposed acquisition by Presley of substantially all of the
assets of William Lyon Homes for a cash purchase price of $48.0
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million and the assumption of all or substantially all of the liabilities of
William Lyon Homes, and the proposed purchase by William Lyon Homes of a portion
of the outstanding shares of Common Stock of Presley. Like the December 31, 1998
letter of intent, the May 3, 1999 letter of intent contemplated the merger or
other transaction structured to help preserve Presley's substantial tax net
operating loss carryforwards to offset future taxable income. Under the terms of
the May 3, 1999 letter of intent, William Lyon Homes would make offers to the
holders of Presley's Series B Common Stock and a tender offer to the holders of
Presley's Series A Common Stock to purchase, for a cash purchase price of $0.655
per share, an aggregate number of shares of Common Stock which when added to the
number of shares of Presley already owned by William Lyon Homes and its
affiliates, and after giving effect to a disposition of up to 8% of the total
number of shares of Common Stock currently outstanding by William Lyon Homes
and/or its affiliates, would cause William Lyon Homes and its affiliates to own
an aggregate of approximately 49% of the outstanding shares of Presley's Common
Stock. The proposed transactions were subject to various conditions, including:
- the successful negotiation and execution of a definitive agreement;
- the receipt of opinions of Presley's advisors with respect to the
fairness of the transactions to Presley and its stockholders as well as
the solvency of Presley following the consummation of the transactions;
- the receipt of real estate appraisals satisfactory to Presley and William
Lyon Homes with respect to the real estate assets of William Lyon Homes;
- the approval of a definitive agreement by the respective boards of
directors of Presley and William Lyon Homes by July 15, 1999;
- the receipt of all required regulatory approvals and third party
consents, including any required lender consents;
- the availability of sufficient borrowing capacity or the receipt of
financing by Presley in an amount sufficient to enable Presley to finance
the transactions; the holders of Company's Series B Common Stock not
acquiring or disposing of any beneficial interest in Presley's Common
Stock prior to closing;
- the purchase by William Lyon Homes of a sufficient number of shares of
Presley's Common Stock to cause, when added to the number of shares
already owned and after giving effect to the sale of up to 8% of
Presley's Common Stock, William Lyon Homes to own at least 49% of
Presley's Common Stock, but not more than 49.9%; and
- the absence of any material adverse change in the business or financial
condition of either Presley or William Lyon Homes.
SERIES B PURCHASE AGREEMENTS
Effective as of July 15, 1999, Presley and William Lyon Homes amended the
revised letter of intent to extend from July 15 to October 15, 1999 the term of
the letter of intent, the period of exclusive negotiations and the date by which
the respective boards of directors of Presley and William Lyon Homes must
approve a definitive agreement with respect to the proposed transactions. The
proposed transactions were also conditioned upon certain holders of Presley's
Series B Common Stock having consented to the transactions and executed a
written agreement, in form and substance satisfactory to William Lyon Homes and
Presley, to sell shares of Presley's Series B Common Stock to William Lyon Homes
such that each holder would own less than 5% of the aggregate number of shares
of Presley Common Stock.
William Lyon Homes entered into separate agreements each dated as of July
6, 1999, with three holders of the Series B Common Stock which provide for the
purchase by William Lyon Homes from these holders of an aggregate of 9,434,813
shares, subject to adjustment as
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described below, of Presley's Series B Common Stock for a cash price of $0.655
per share. The parties have agreed that if less than 10,678,792 shares of Series
A Common Stock are validly tendered and not withdrawn prior to and as of the
expiration of the tender offer, then such holders of Presley's Series B Common
Stock will sell to William Lyon Homes, at a cash price of $0.655 per share, an
additional number of shares of Presley's Series B Common Stock, so as to enable
William Lyon Homes and its affiliates to own approximately 49%, but in no event
more than 49.9%, of Presley's outstanding Common Stock.
The obligation of William Lyon Homes to purchase the shares pursuant to the
Series B Purchase Agreements is conditioned on, among other things, the closing
of the asset purchase, the acceptance and payment of shares pursuant to the
tender offer, the approval of the merger and the absence of any person other
than William Lyon Homes and its affiliates owning beneficially more than 5% of
the outstanding Common Stock of Presley. Each of these holders of Presley's
Series B Common Stock has also agreed that prior to the closing of the purchase,
it will not transfer, tender, or encumber any shares of the Series A Common
Stock that it owns or convert any of its remaining Series B Common Stock. Each
of these holders has also agreed that prior to the closing, it will not acquire
any beneficial interest in shares of Presley's Common Stock or options, warrants
or other rights to acquire shares of Presley's Common Stock. William Lyon Homes
has also agreed with three holders of the Series B Common Stock not to sell for
three years any shares of Presley's Common Stock in excess of the number of
shares of Common Stock of Presley owned by William Lyon Homes, William Lyon or
their affiliates on July 6, 1999 unless such sale occurs in a transaction in
which all stockholders of Presley are given the opportunity to participate pro
rata and on the same terms and conditions. The agreements with these holders of
Presley's Series B Common Stock contain conditional commitments on the part of
the selling security holders to vote their shares in favor of the proposed
merger. Each of the agreements with such holders of Presley's Series B Common
Stock may be terminated by either of the parties if the closing has not occurred
by November 15, 1999. Presley is not a party to these Series B Purchase
Agreements.
The May 3, 1999 letter of intent contemplated that each of the transactions
would be structured so as to be subject to the successful completion of the
others. The May 3, 1999 letter of intent also contemplated that the parties
would structure the transactions, including, if necessary, by imposing
limitations on certain transfers of shares, so as to avoid triggering the change
of control tax provisions that would result in the loss of Presley's net
operating losses for tax purposes. The May 3, 1999 letter of intent also
contemplated that Presley's Senior Notes would remain outstanding without
modification. The May 3, 1999 letter of intent provides that, subject to the
fiduciary duties of their respective boards of directors, Presley and William
Lyon Homes would negotiate exclusively with each other toward a definitive
agreement until October 15, 1999.
As of July 15, 1999, Presley's Board of Directors approved the merger by
unanimous written consent.
On August 12, 1999, and in separate transactions, William Lyon and William
H. Lyon sold an aggregate of 2,500,000 shares and 500,000 shares, respectively,
of Series A Common Stock for a cash price of $0.65 per share. Such sales were
effected through privately negotiated sale transactions not involving a broker
or dealer.
On September 3, 1999, Presley's Board of Directors, after its members had
reviewed a substantially final draft of the Purchase Agreement, authorized the
Special Committee with all of the power of the Board of Directors with respect
to the adoption, authorization, execution and performance of the Purchase
Agreement and any amendments or supplements thereto.
On September 16, 1999, after receiving the opinions of Warburg Dillon Read
and Houlihan Lokey as hereinafter described (see "Opinion of Warburg Dillon
Read" and "Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc."),
the Special
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Committee, consisting of James E. Dalton, Steven B. Sample and Ray A. Watt,
approved the Purchase Agreement and the transactions contemplated thereby,
subject to review of the final form of the Purchase Agreement and related
documentation at a meeting to take place at a later date. Also at its September
16, 1999 meeting, pursuant to authority previously granted by the Board of
Directors and subject to review of final documentation, the Special Committee
resolved to, in furtherance of the transactions contemplated by the Purchase
Agreement, recommend the tender offer to the holders of the Series A Common
Stock, other than the Lyons and the Series B Common Stockholders who are parties
to a stock purchase agreement with William Lyon Homes, provided that each such
holder should consult with his or her financial and tax advisors prior to
tendering their shares in the tender offer.
Following its meeting of September 16, 1999 and in the course of finalizing
documentation relating to the proposed transactions, Presley's management
advised the Special Committee that management had prepared an updated projection
for Presley and William Lyon Homes on a combined basis. The Special Committee
reviewed the updated projection with Presley's management and requested that
Warburg Dillon Read review the updated projection and assess whether it could
confirm its fairness opinion dated September 16, 1999 in light of the updated
projection. At a meeting on October 7, 1999, Warburg Dillon Read advised the
Special Committee that it had confirmed, as of October 7, 1999, its fairness
opinion of September 16, 1999. Following Warburg Dillon Read's confirmation of
its September 16, 1999 fairness opinion, the Special Committee authorized
management of Presley to execute the Purchase Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PRESLEY AND REASONS FOR THE MERGER
Presley's Board of Directors has unanimously approved the certificate of
ownership and merger, subject to the receipt of stockholder approval, and
unanimously recommends that stockholders of Presley approve the merger. In
deciding to approve the certificate of ownership and merger, the Board of
Directors considered each of the following:
- The value to Presley of the tax benefits associated with its tax net
operating loss carryforwards.
- The fact that Presley cannot currently prevent an ownership change that
could limit the availability of these tax benefits.
- The advice of counsel regarding the relative enforceability of stock
transfer restrictions under Delaware corporate law when the restrictions
are imposed by amending the corporation's certificate of incorporation or
by merger.
- The recommendation of the Special Committee of the Board with respect to
the approval of the letter of intent with William Lyon Homes, which
required the merger or other transaction structured to help preserve
Presley's substantial tax net operating loss carryforwards to offset
future taxable income.
- The consummation of the transactions contemplated by the letter of
intent, including the tender offer, the asset purchase, and the purchase
of Series B Common Stock from the Series B Common Stockholders, would
facilitate approval of the merger.
- The federal income tax consequences of the merger to Presley and Merger
Sub.
- The accounting treatment of the merger.
- The current market price of Presley's Series A Common Stock.
Each director has advised Presley that he or she plans to vote all of his or her
shares of Presley's Common Stock in favor of the merger. Presley's Board of
Directors authorized the Special Committee to approve the Purchase Agreement.
Accordingly, Presley's Board of Directors will not separately approve the
Purchase Agreement.
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REASONS FOR THE APPROVAL OF THE PURCHASE AGREEMENT BY THE SPECIAL COMMITTEE
The Board of Directors of Presley has granted the Special Committee the
authority of the Board with respect to making a recommendation to Presley's
stockholders as it shall determine.
After the Special Committee received presentations and reviewed the terms
and conditions of the tender offer, the Purchase Agreement and the transactions
contemplated thereby with Presley's management, the Special Committee's legal
counsel, its financial advisor, Warburg Dillon Read, and with Houlihan Lokey,
which assisted the Special Committee with the asset purchase, the Special
Committee determined that the Purchase Agreement and the transactions
contemplated thereby were fair to and in the best interests of Presley's
stockholders. In reaching its conclusions, the Special Committee considered many
factors, including, but not limited to, the following factors. Except where
otherwise noted, the following factors favored the fairness of the Purchase
Agreement and the transactions contemplated thereby to Presley's stockholders:
- the terms and conditions of the tender offer, the Purchase Agreement and
related agreements and transactions;
- the fact that the asset purchase is conditioned upon a minimum number of
shares being tendered pursuant to the tender offer, such that the Lyons
and William Lyon Homes will own at least 45% of the outstanding shares of
common stock of Presley after the consummation of the transactions
contemplated by the Purchase Agreement and, therefore, the transactions
contemplated by the Purchase Agreement may not be consummated unless a
sufficient number of shares of Series A Common Stock are tendered
pursuant to the tender offer, which favors the fairness of the tender
offer as a part of and condition to all of the transactions contemplated
by the Purchase Agreement;
- the written opinion of Warburg Dillon Read, to the effect that, as of
September 16, 1999 and based upon and subject to certain matters stated
in such opinion, after giving effect to the asset purchase, the tender
offer, the merger and the Series B Purchase Agreements, the shares of
common stock of Merger Sub to be issued in the merger to Presley's
stockholders and/or, to the extent any holder of Series A Common Stock,
other than the Lyons and those stockholders who have entered into Series
B Purchase Agreements with William Lyon Homes, tenders shares in the
tender offer, the cash that may be received by each such tendering
stockholder, subject to the proration provisions of the tender offer, is
fair to the holders of Series A Common Stock, other than the Lyons and
the stockholders who have entered into a Series B Purchase Agreement with
William Lyon Homes, from a financial point of view. The full text of
Warburg Dillon Read's written opinion, which sets forth the assumptions
made, matters considered and limitations on the review undertaken by
Warburg Dillon Read, is attached as Appendix D to this Proxy
Statement/Prospectus. Warburg Dillon Read confirmed its opinion as of
October 7, 1999. Warburg Dillon Read's opinion is not intended to
constitute, and does not constitute, a recommendation as to whether any
stockholder should tender Series A Common Stock pursuant to the tender
offer. Stockholders are urged to read such opinion carefully in its
entirety;
- the written opinion of Houlihan Lokey that, as of September 16, 1999 and
based upon and in reliance on certain assumptions and other
considerations stated in its opinion, the consideration to be paid by
Presley and Presley Homes in connection with the asset purchase is fair
to Presley and Presley Homes from a financial point of view. The full
text of Houlihan Lokey's opinion, which sets forth the assumptions made,
matters considered and limitations on the review undertaken by Houlihan
Lokey, is attached as Appendix E to this Proxy Statement/Prospectus.
Houlihan Lokey's opinion does not constitute a recommendation to Presley,
Presley Homes or any stockholder as to
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whether to tender Series A Common Stock pursuant to the tender offer or
to take other action in connection with the transactions contemplated by
the Purchase Agreement. Holders of Series A Common Stock are urged to
read Houlihan Lokey's opinion carefully in its entirety;
- the receipt by Presley of determinations of value in the aggregate of the
real estate assets of William Lyon Homes made by CB Richard Ellis, Inc.,
a real estate appraisal firm which is of regional standing in the regions
in which the subject properties are located and is a Member Appraisal
Institute, MAI, certified, which appraisals were considered in the
aggregate by Houlihan Lokey in determining the fairness of the asset
purchase;
- the fact that three holders of Series B Common Stock, each of which is a
significant stockholder of Presley, were willing to enter into agreements
with William Lyon Homes pursuant to which they will sell an aggregate of
not less than 9,434,813 shares, subject to adjustment, of their Series B
Common Stock to William Lyon Homes at $0.655 and pursuant to which they
have conditionally agreed to vote in favor of the merger;
- Presley's need to acquire suitable properties for development;
- that the transactions contemplated by the Purchase Agreement enable
Presley to expand its operations in key markets in Northern and Southern
California;
- that the transactions contemplated by the Purchase Agreement may
strengthen Presley's and Presley Homes' management;
- a comparison of the historical financial results and present financial
condition of Presley and of William Lyon Homes with those of others that
were deemed relevant;
- that the tender offer provides partial liquidity to the holders of Series
A Common Stock, other than the Lyons and those holders of Series B Common
Stock who have agreed with William Lyon Homes not to tender any shares of
Series A Common Stock in the tender offer, enabling holders who wish to
sell some of their shares of Series A Common Stock at $0.655 per share to
do so;
- that the holders of Series A Common Stock have the right not to tender
their shares pursuant to the tender offer;
- the fact that the tender offer price of $0.655 per share is lower than
the current and recent historical market price for the Series A Common
Stock, including the fact that the closing sale price for the Series A
Common Stock on the NYSE on September 15, 1999 was $1.00 per share. While
this factor, alone, would appear to weigh against the fairness of the
tender offer, the Special Committee also considered, in connection with
this factor, that the current market price of the Series A Common Stock
reflects limited trading volume and that the market for the Series A
Common Stock would not likely sustain a price comparable to the current
market price and at the same time provide liquidity for the up to
10,678,792 shares sought in the tender offer;
- the limited trading volume of the Series A Common Stock, including the
fact that the average daily trading volume of the Series A Common Stock
over the previous three months ended on September 16, 1999 was 73,045
shares per day and in connection with this, the added liquidity that the
tender offer would present to Presley's Series A Stockholders;
- the fact that the tender offer is not for all of the shares of Series A
Common Stock and that any purchase of shares of Series A Common Stock
pursuant to the tender offer is subject to prorationing if more than
10,678,792 shares of Series A Common Stock are tendered. While this
factor, alone, would appear to weigh against the fairness of the
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tender offer because it provides for less liquidity than would a tender offer
for all outstanding shares, the up to 10,678,792 shares the Lyons will offer to
purchase approximate the greatest number of shares they could purchase in the
tender offer and, at the same time, preserve Presley's significant tax net
operating losses by avoiding an "ownership change" for tax purposes, after
purchasing a number of shares of Series B Common Stock sufficient to
reduce the holdings of all Series B Stockholders to no greater than 5% of
Presley's outstanding common stock, which purchases are also to help
prevent an "ownership change" for tax purposes;
- that the liquidity of the common stock of Merger Sub, as the surviving
corporation in the merger, may be limited as a result of the fact that
the Lyons and William Lyon Homes will together hold up to 49.9% of such
common stock and as a result of the imposition of the transfer
restrictions on such common stock after the merger. While this factor,
alone, would appear to weigh against the fairness of the tender offer,
the Special Committee also considered, in connection with this factor,
the liquidity that the tender offer presents to the Series A Stockholders
and that the Lyon affiliates' ownership of between 45% and 49.9% of
Presley's Common Stock was a condition to all of the transactions
contemplated by the Purchase Agreement;
- the fact that the transactions contemplated by the Purchase Agreement
will not result in the refinancing or restructuring of the Senior Notes,
including that the Senior Notes will continue to require the purchase of
$20 million of the Senior Notes every six months for so long as Presley's
consolidated tangible net worth is less than $60 million and that the
transactions contemplated by the Purchase Agreement will not have the
effect of increasing Presley's consolidated tangible net worth to $60
million or above. This factor is not believed to weigh against the
fairness of the transactions contemplated by the Purchase Agreement
because this obligation would remain if Presley were not to engage in the
transactions contemplated by the Purchase Agreement and, while the
December 1998 proposal required the restructuring of the Senior Notes to
eliminate this obligation, the Special Committee did not believe that the
holders of the requisite percentage of the Senior Notes were likely to
agree to such a modification. In addition, the Special Committee
determined that the terms of the December 1998 proposal were inferior to
the terms of William Lyon Homes' proposal;
- that the transactions contemplated by the Purchase Agreement are
structured in a way so as to not require the approval or consent of the
holders of the Senior Notes;
- that the transactions contemplated by the Purchase Agreement provide
Presley's stockholders with the opportunity to share in any enhancement
of value of Presley's Common Stock that may result from such
transactions;
- that the transactions contemplated by the Purchase Agreement should not
inhibit the ability of Presley to utilize the tax benefits associated
with its tax net operating loss carryforwards;
- the fact that the tender offer and the transactions are structured in a
way as to allow Presley to implement transfer restrictions intended to
decrease the risk that an ownership change could occur that would
severely limit Presley's ability to use the tax benefits associated with
its tax net operating loss carryforwards in offsetting future taxable
income;
- the fact that the merger, as it is to be presented to Presley's
stockholders for their approval at a special meeting of stockholders, is
conditioned upon the consummation of the asset purchase and the purchase
of shares of Series A Common Stock pursuant to the tender offer and,
therefore, the merger may not be consummated if a sufficient
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number of shares of Series A Common Stock are not tendered pursuant to
the tender offer;
- that the consummation of the Series B Purchase Agreements, which are
conditioned upon the consummation of the asset purchase, the purchase of
shares pursuant to the offer, and the receipt of stockholder approval of
the merger, are expected to reduce the holdings of such holders of Series
B Common Stock to below 5% of Presley's outstanding common stock, which
may help to reduce the likelihood of an ownership change of Presley for
tax purposes which would otherwise restrict Presley's ability to utilize
its tax net operating loss carryforwards;
- the scope and detail of the negotiating process that led to the
finalization of the Purchase Agreement;
- the scope and detail of the limited auction process undertaken by the
Special Committee seeking proposals for strategic alternatives with
Presley;
- the fact that, in the Special Committee's view, an auction process more
extensive than the limited auction process undertaken by the Special
Committee would not have likely resulted in proposals more favorable to
Presley and its stockholders than those received by the Special
Committee;
- the fact that, in the Special Committee's and management's view, an
auction process more extensive than the limited auction process
undertaken by the Special Committee could cause harm to Presley and
significant disruption in Presley's operations;
- Warburg Dillon Read's view that the eighteen parties contacted by Warburg
Dillon Read represented the most likely parties for a transaction with
Presley involving a strategic alternative and that, of the eighteen
parties contacted, only one party other than William Lyon Homes submitted
a proposal for a transaction with Presley after such solicitation;
- the Special Committee's determination that William Lyon Homes' proposal
was superior to each of the December 1998 proposal and the unsolicited
July 1998 proposal based on, among other things, the fact that William
Lyon Homes' proposal provided for a higher price per share for the Series
A Common Stock than did the other proposals received and the Special
Committee's determination that the conditions and other contingencies
associated with William Lyon Homes' proposal were more likely to be
satisfied than were the conditions and contingencies associated with the
other proposals received;
- that, despite the fact that Presley had announced the formation of the
Special Committee to explore strategic alternatives and the receipt of
William Lyon Homes' initial proposal on June 30, 1998, the Company had
received no proposals for a transaction involving a strategic alternative
with Presley other than the proposals made by William Lyon Homes, the
December 1998 proposal and the unsolicited July 1998 proposal;
- the fact that the Special Committee received no proposals for a
transaction with Presley involving a strategic alternative other than
those identified above despite the fact that the letters of intent
entered into with William Lyon Homes allowed Presley to, subject to
certain conditions, receive and consider competing proposals from third
parties, subject to certain exclusive negotiating agreements contained
therein and subject to Presley's agreement to pay William Lyon Homes'
fees and expenses incurred in connection with the proposed transactions
in the event that Presley entered into a definitive agreement with a
third party for a competing transaction; the letters of intent with
William Lyon Homes were publicly announced by Presley; and such letters
of
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intent were filed as exhibits to Presley's filings with the Securities
and Exchange Commission;
- the fact that the Purchase Agreement may be terminated by Presley and
Presley Homes in connection with entering into a competing definitive
agreement with a third party without any obligation to pay any
"termination fee" or "break-up fee" to William Lyon Homes, other than
Presley's agreement to pay William Lyon Homes' fees and expenses incurred
in connection with the Purchase Agreement upon entering into such a
competing definitive agreement;
- other information with respect to the financial condition, results of
operations and business of Presley, on both a historical and a
prospective basis, current industry, economic and market conditions and
trends, including increased competition, historical market prices, price
to earnings multiples and recent trading patterns of the Series A Common
Stock, market prices and financial data relating to other companies
engaged in the same or similar businesses as Presley.
The foregoing discussion of the information and factors considered and
given weight by the Special Committee is not intended to be exhaustive. In view
of the wide variety of factors considered in connection with its evaluation of
the tender offer and the transactions, the Special Committee did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determinations. In
addition, individual members of the Special Committee may have given different
weights to different factors.
OPINION OF WARBURG DILLON READ LLC
In May 1998, Presley retained Warburg Dillon Read to explore various
strategic alternatives, including the refinancing/restructuring of its
outstanding debt obligations, merger, reorganization, the sale of certain, or
substantially all of its assets or other similar transaction. The Special
Committee of the Board of Directors of Presley retained Warburg Dillon Read to
act as its financial advisor in connection with certain aspects of the
transactions.
At the meeting of the Special Committee held on September 16, 1999, Warburg
Dillon Read delivered its written opinion, attached hereto as Appendix D, to the
Special Committee. As of October 7, 1999, after reviewing management's updated
projection for Presley with management, Warburg Dillon Read confirmed, as of
such date, its fairness opinion dated September 16, 1999.
The opinion states that based upon and subject to the assumptions,
limitations and qualifications set forth therein, the consideration to be
received by the holders of Series A Common Stock of Presley, other than William
Lyon, William H. Lyon, GS Credit Partners, L.P., ING (U.S.) Capital, L.L.C. and
The Chase Manhattan Bank, as Trustee for First Plaza Group Trust (collectively,
the "Contractually Non-Tendering Holders"), after giving effect to the asset
acquisition, the tender offer, the Series B Purchase Agreements and the merger,
is fair to the holders of Series A Common Stock of Presley, other than the
Contractually Non-Tendering Holders, from a financial point of view.
The consideration to be received by the holders of Series A Common Stock of
Presley, other than the Contractually Non-Tendering Holders, will consist of 0.2
share of Merger Sub common stock for each share of Series A Common Stock owned
immediately prior to the merger or, to the extent any such holder of Series A
Common Stock tenders shares of Series A Common Stock in the tender offer, cash
for those shares at a price of $0.655 per share, subject to the pro ration
provisions of the tender offer. The shares of common stock of Merger Sub and/or
cash that may be received by each holder of Series A Common Stock of Presley,
other
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than the Contractually Non-Tendering Holders, after giving effect to the
transactions is referred to in this description of Warburg Dillon Read's opinion
as the "transaction consideration."
The following summary of the Warburg Dillon Read opinion is qualified in
its entirety by reference to the full text of the opinion. The full text of
Warburg Dillon Read's opinion sets forth the assumptions made, matters
considered and limitations on the scope of review undertaken and is attached as
Appendix D to this document. We urge you to carefully read the Warburg Dillon
Read opinion in its entirety.
The Warburg Dillon Read opinion:
- is directed to the Special Committee of the Presley Board of Directors;
- does not constitute a recommendation to any holder of Series A Common
Stock as to whether to tender shares in the tender offer;
- does not constitute a recommendation to any holder of Series A Common
Stock as to whether to vote in favor of the merger;
- does not address Presley's underlying business decision to effect the
transactions;
- does not imply any conclusion or offer any opinion as to the trading
price of the common stock of Merger Sub following the transactions;
- is based upon economic, monetary, market and other considerations as in
effect on, and the information made available to Warburg Dillon Read as
of, September 16, 1999; and
- does not offer any opinion as to the material terms of the Series B
Purchase Agreements, or, except as is provided in the Warburg Dillon Read
opinion, the Purchase Agreement or the form of any of the transactions.
In rendering the Warburg Dillon Read opinion, Warburg Dillon Read, with the
consent of the Special Committee of the Board of Directors of Presley, assumed
that:
- the consideration to be paid by Presley for the assets of William Lyon
Homes and of certain partnerships and limited liability companies
pursuant to the Purchase Agreement is fair to Presley and Presley Homes
from a financial point of view;
- the consummation of the transactions will not restrict or adversely
affect the utilization by Presley of its tax net operating loss
carryforwards;
- after giving effect to the transactions, the common stock of Merger Sub
will remain eligible for listing on the New York Stock Exchange;
- the final executed form of the Purchase Agreement will not differ from
the draft Warburg Dillon Read examined;
- each party to the Series B Purchase Agreements and the Purchase Agreement
complies in all material respects with its respective obligations
thereunder;
- the transactions contemplated by the Series B Purchase Agreements and the
Purchase Agreement will be consummated in accordance with the respective
terms thereof, with no modification or waiver of any material term or
condition thereunder, including the conditions to the tender offer; and
- the consummation of the transactions in the manner contemplated by the
Series B Purchase Agreements and the Purchase Agreement complies with all
applicable laws.
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<PAGE> 41
In connection with rendering its opinion, Warburg Dillon Read:
- reviewed certain publicly available business and historical information
relating to Presley;
- reviewed certain internal financial information and other financial data
provided to Warburg Dillon Read by Presley and William Lyon Homes, that
is not publicly available relating to the business and financial
prospects of Presley and of the assets to be acquired from William Lyon
Homes and certain partnerships and limited liability companies pursuant
to the Purchase Agreement, including estimates and financial projections
prepared by the management of Presley and William Lyon Homes;
- conducted discussions with members of the senior management of Presley
and William Lyon Homes;
- reviewed publicly available financial and stock market data with respect
to certain other companies in lines of business Warburg Dillon Read
believed to be generally comparable to those of Presley (the
"Comparables");
- considered certain pro forma effects of the transactions on Presley's
financial statements;
- reviewed the historical market prices and trading volumes of the Series A
Common Stock and the common stocks of the Comparables reviewed by Warburg
Dillon Read;
- reviewed the Series B Purchase Agreements and the drafts of the Purchase
Agreement and other ancillary documents;
- considered the results of solicitations of interest from and discussions
with third parties regarding potential business combinations involving
Presley; and
- conducted such other financial studies, analyses and investigations, and
considered such other information, as Warburg Dillon Read deemed
necessary or appropriate.
In connection with its review, with the consent of the Special Committee of
the Board of Directors of Presley, Warburg Dillon Read:
- did not assume any responsibility for independent verification of any of
the foregoing information received by it for the purpose of its opinion;
- relied on such information being complete and accurate in all material
respects;
- did not make any independent evaluation or appraisal of any of the assets
or liabilities, contingent or otherwise, of Presley, William Lyon Homes
or certain partnerships and limited liability companies referred to
above; and
- assumed that the financial projections referred to above had been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the managements of Presley and William Lyon
Homes, as applicable, as to the future financial performance of Presley,
the assets of William Lyon Homes and of certain partnerships and limited
liability companies to be acquired pursuant to the Purchase Agreement.
In connection with its opinion, Warburg Dillon Read performed certain
financial analyses which it discussed with the Special Committee of the Board of
Directors of Presley. The material portion of the analyses performed by Warburg
Dillon Read in connection with rendering its opinion are summarized below.
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<PAGE> 42
In delivering the Warburg Dillon Read opinion and making its presentation
to Presley's Special Committee of the Board of Directors, representatives of
Warburg Dillon Read considered and discussed various financial and other matters
that it deemed relevant. General valuation considerations deemed relevant by
Warburg Dillon Read include, without limitation:
- Presley's obligation, in accordance with the trust indenture governing
its 12 1/2% Senior Notes to purchase $20 million principal amount of the
Senior Notes each six months as long as Presley's consolidated tangible
net worth is less than $60 million, which has restricted its ability to
acquire, hold and develop real estate projects and has caused Presley to
realign its operating strategy to finance certain of its projects by
forming joint ventures with venture partners that would provide a
substantial amount of the capital necessary to develop these projects;
- Presley, in accordance with the trust indenture governing the Senior
Notes, will purchase $20 million principal amount of the Senior Notes on
or before December 4, 1999, as indicated in the projections provided by
management, and all valuation methodologies contemplate such purchase of
the Senior Notes as of December 4, 1999;
- the recent historical market price and trading volume of the Series A
Common Stock;
- the results of solicitations of interest from and discussions with third
parties regarding potential business combinations involving Presley;
- that the proposed transactions would not require the consent or approval
of the holders of the Senior Notes under the trust indenture governing
the Senior Notes;
- that due to Presley's current financial condition, the shift in operating
strategy and reduction in wholly-owned projects as a percentage of total
projects Presley will develop going forward, and the fact that most of
the publicly-traded companies and companies that have recently been
acquired with businesses comparable to that of Presley have or had
different operating, financial and/or growth characteristics to those of
Presley, certain traditional valuation methodologies have limited
applicability in valuing Presley; and
- management projections prepared by Presley's management and provided to
Warburg Dillon Read that are otherwise not publicly available, other than
as disclosed in the Proxy Statement/Prospectus.
DISCOUNTED CASH FLOW ANALYSIS. Warburg Dillon Read performed a discounted
cash flow analysis of Presley using projections provided by Presley's
management, which were based upon Presley as a stand-alone entity ("Presley
Stand-Alone") and the combination of the operations of Presley and certain
assets and liabilities of William Lyon Homes and of certain partnerships
referred to above ("Presley/WLH Combined") purchased and assumed in the
transactions. In performing its discounted cash flow analysis, Warburg Dillon
Read considered various assumptions and applied valuation parameters that it
deemed appropriate to the Presley Stand-Alone projections and the Presley/WLH
Combined projections. Utilizing both sets of projections and relevant
assumptions, Warburg Dillon Read calculated the theoretical discounted present
value for Presley Stand-Alone and Presley/WLH Combined as of December 31, 1999,
by adding together:
- the projected stream of future unlevered free cash flows through a
forecast horizon, the fiscal years ending December 31, 2000 through
December 31, 2003, discounted to the present; and
- the projected value of the entity at the end of the fiscal year ending
December 31, 2003 (the "Terminal Value") discounted to the present.
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<PAGE> 43
The Discounted Cash Flow Analysis of Presley Stand-Alone, net of projected
net debt as of December 31, 1999 of $116 million, results in an implied equity
value at an approximate midpoint of the valuation range of $16.7 million, or
$0.32 per share.
The Discounted Cash Flow Analysis of Presley/WLH Combined, using the EBITDA
multiple range of 5.0x to 6.0x, net of the projected net debt as of December 31,
1999 of $197 million, results in an implied equity value at the approximate
midpoint of the valuation range of $74.4 million, or $1.43 per share, and using
the net asset multiple range of 0.55x to 0.65x, results in an implied equity
value at the approximate midpoint of the valuation range of $7.8 million, or
$0.15 per share.
VALUATION METHODOLOGY AND SUMMARY
<TABLE>
<CAPTION>
VALUATION METHODOLOGY TOTAL ENTERPRISE VALUE
--------------------- ----------------------
<S> <C>
Discounted Cash Flow Analysis Presley................ $120 million to $140 million
Discounted Cash Flow Analysis Presley-William Lyon
Homes Combined..................................... $245 million to $300 million
</TABLE>
For Presley Stand-Alone, the Terminal Value was calculated based on a
terminal net asset multiple range of 0.55x to 0.65x. The cash flow streams and
the Terminal Values were then discounted to present values using a range of
discount rates from 12% to 16%. For Presley/ WLH Combined, the Terminal Value
was calculated using two approaches: an EBITDA, as defined below, multiple range
of 5.0x to 6.0x and a net asset multiple range 0.55x to 0.65x. The cash flow
streams and the Terminal Values were then discounted to present values using a
range of discount rates from 10% to 14% and 12% to 16%, respectively.
For Presley Stand-Alone, Warburg Dillon Read arrived at an implied total
enterprise value of approximately $120 million to $140 million, which, net of
the projected net debt as of December 31, 1999 of $116 million, resulted in an
implied equity value at an approximate midpoint of the valuation range of $16.7
million, or $0.32 per share. For Presley/WLH Combined, Warburg Dillon Read
arrived at implied equity values based on the two approaches described above:
- using the EBITDA multiple range of 5.0x to 6.0x to calculate the Terminal
Value, a total enterprise value range of approximately $245 million to
$300 million was calculated which, net of the projected net debt as of
December 31, 1999 of $197 million, resulted in an implied equity value at
the approximate midpoint of the valuation range of $74.4 million, or
$1.43 per share, and
- using the net asset multiple range of 0.55x to 0.65x to calculate the
Terminal Value, an implied equity value was calculated at the approximate
midpoint of the valuation range of $7.8 million or $0.15 per share.
Warburg Dillon Read analyzed a range of possible outcomes for the holders
of Series A Common Stock of Presley, other than the Contractually Non-Tendering
Holders, after giving effect to:
- the Transactions;
- the range of possible levels of participation in the tender offer;
- the effect of the pro ration provisions of the tender offer, if any; and
- the range of values per share calculated for Presley/WLH Combined.
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<PAGE> 44
In the event that:
- a holder of Series A Common Stock declines to participate in the tender
offer, such holder will receive for each share of Series A Common Stock
held 0.2 shares in Merger Sub common stock, which range in value from
$0.15 to $1.43 per share of Series A Common Stock based on the midpoint
of the two valuation approaches described above;
- a holder tenders all of his shares, and all shares are accepted with no
pro ration, the value per share of Series A Common Stock received will be
$0.655 per share; and
- all holders of the Series A Common Stock (other than the Contractually
Non-Tendering Holders) tender their shares, resulting in a pro ration of
approximately 42% of shares eligible for tender being accepted in the
tender offer, the value per share of Series A Common Stock received will
range in value from $0.36 to $1.10 in a mixture of cash and stock based
on the midpoint of the two valuation approaches described above.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. Using publicly
available information, Warburg Dillon Read compared selected financial data of
Presley with similar data of selected companies, the securities of which are
publicly traded and which are engaged in businesses that Warburg Dillon Read
believed to be generally comparable in certain respects to those of Presley (the
"Comparables"). The following table summarizes the market value of the equity of
the comparable public homebuilding companies:
<TABLE>
<CAPTION>
MARKET VALUE
PUBLIC HOMEBUILDING COMPANIES OF EQUITY(1)(2)
----------------------------- ---------------
<S> <C>
Capital Pacific Holdings.................................... $ 43.6
Dominion Homes.............................................. 44.3
Engle Homes................................................. 112.7
Hovnanian Enterprises....................................... 179.3
M/I Schottenstein Homes..................................... 165.1
Meritage Corporation........................................ 72.4
Newmark Homes Corporation................................... 80.5
Schuler Homes............................................... 137.8
Washington Homes............................................ 52.1
Zaring National Corporation................................. 31.6
------
High........................................................ 179.3
Low......................................................... 31.6
Average..................................................... 91.9
Median...................................................... 76.4
------
Presley..................................................... $ 48.9
======
</TABLE>
- ---------------
(1) Based on stock prices as of September 13, 1999.
(2) Includes unconsolidated joint ventures.
Warburg Dillon Read determined the total equity value, defined as shares
outstanding multiplied by the share price as of September 13, 1999, and derived
an unlevered value, defined as total equity value plus the book value of debt,
preferred stock and minority interest less cash and cash equivalents, for each
of the comparable companies. Warburg Dillon Read calculated a range of such
total equity value as a multiple of latest twelve months net income and book
value and projected net income, on a per share basis, for the year ended
December 31, 1999 and 2000, using mean earnings estimates for calendar year 1999
and 2000 as reported by Institutional Brokers Estimate System. Warburg Dillon
Read also calculated a range of such unlevered value as a multiple of last
twelve months sales, earnings before interest, taxes,
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<PAGE> 45
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT") and net assets.
Total equity value as a multiple of last twelve months net income averaged
6.5x and total equity value as a multiple of projected net income for calendar
years ended December 31, 1999 and 2000 averaged 5.3x and 4.3x, respectively.
Total equity value as a multiple of book value averaged 0.8x. Unlevered values
as a multiple of last twelve months sales, EBITDA, EBIT and net assets were also
calculated. For the Comparables, unlevered value as a multiple of last twelve
months sales averaged 0.6x; unlevered value as a multiple of last twelve months
EBITDA averaged 6.0x; unlevered value as a multiple of last twelve months EBIT
averaged 6.5x; and unlevered value as a multiple of net assets averaged 0.9x.
Warburg Dillon Read noted that, based on current trading data, total equity
value for Presley as a multiple of last twelve months net income, projected net
income for the calendar years ending December 31, 1999 and December 31, 2000,
were 2.1x, 2.0x and 2.7x, respectively. Unlevered value for Presley represented
0.5x last twelve months sales, 3.2x last twelve months EBITDA, 3.3x last twelve
months EBIT and 1.1x net assets. However, due to Presley's current financial
condition, recent trading price range and volume, and Presley's shift in its
operating strategy to finance certain of its projects by forming joint ventures
with venture partners that would provide a substantial amount of the capital
necessary to develop these projects, traditional valuation methodologies based
on publicly traded comparable companies are of limited applicability in valuing
Presley.
ANALYSIS OF SELECTED COMPARABLE ACQUISITIONS. Using publicly available
information, Warburg Dillon Read compared selected financial data of Presley
with similar data of numerous companies and/or businesses that have been
involved in acquisitions in the past six years engaged in businesses that
Warburg Dillon Read believed to be relevant or comparable in certain respects to
that of Presley. However, due to Presley's current financial condition, recent
trading price range and volume, and Presley's shift in its operating strategy to
finance certain of its projects by forming joint ventures with venture partners
that would provide a substantial amount of the capital necessary to develop
these projects, traditional valuation methodologies based on comparable
acquisitions are of limited applicability in valuing Presley.
No company, transaction or business used in the analyses described under
"Analysis of Selected Publicly Traded Comparable Companies" and "Analysis of
Selected Comparable Acquisitions" is identical to Presley or the Transactions.
Accordingly, an analysis of the results thereof necessarily involves complex
considerations and judgments concerning the differences in financial and
operating characteristics and other factors that could affect the transaction or
the public trading price or other values of the company or companies or
businesses to which they are being compared. Mathematical analysis, such as
determining the average or median, is not in itself a meaningful method of using
selected publicly traded comparable company or selected comparable acquisition
data.
FAIRNESS OPINION PROCESS. The preparation of a fairness opinion is a
complex process not susceptible to partial analysis or summary description.
Warburg Dillon Read believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create an incomplete view of the process underlying the analysis set forth
in its opinion.
In performing its analyses, Warburg Dillon Read made numerous assumptions
with respect to industry performance, general business, financial, market and
economic and other matters, many of which are beyond the control of Presley. The
analyses Warburg Dillon Read performed are not necessarily indicative of actual
values or actual future values, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of Warburg Dillon Read's analysis of the fairness, from a
financial point of view, of the Transaction Consideration to be received by the
holders of Series A Common
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<PAGE> 46
Stock, other than the Contractually Non-Tendering Holders, after giving effect
to the Transactions. The analyses do not purport to be appraisals or to reflect
the prices at which a company might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future.
FEES PAYABLE TO WARBURG DILLON READ. Pursuant to an engagement letter dated
May 5, 1998, as amended, Warburg Dillon Read will be paid:
- fees totaling $850,000 as of September 16, 1999; and
- fees totaling $1,900,000 upon consummation of the Transactions.
Presley has also agreed to reimburse Warburg Dillon Read for certain
out-of-pocket expenses and, under certain circumstances, to indemnify Warburg
Dillon Read and certain related persons against certain liabilities, including
liabilities under federal securities laws, relating to or arising out of its
engagement.
Warburg Dillon Read is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Warburg Dillon Read:
- regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and other purposes; and
- in the ordinary course of business, may actively trade securities of
Presley for its own account or for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such
securities.
Warburg Dillon Read and its affiliates, including UBS AG, may have other
business relationships with Presley, William Lyon Homes and their affiliates.
The Special Committee of the Board of Directors of Presley retained Warburg
Dillon Read based on Warburg Dillon Read's familiarity with Presley as well as
its substantial experience in acting as financial advisor in connection with
extraordinary business transactions.
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
The Special Committee of the Board of Directors of Presley retained
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. pursuant to an engagement
letter dated January 21, 1999, to render a fairness opinion, from a financial
point of view to Presley and Presley Homes, of the consideration to be paid and
obligations to be incurred by them in connection with the asset purchase. The
fairness opinion of Houlihan Lokey was obtained by the Special Committee to
satisfy a covenant in the Trust Indenture, dated as of June 29, 1994 with
respect to the Senior Notes of Presley.
Houlihan Lokey is a nationally recognized investment banking firm, and was
selected by the Special Committee based on Houlihan Lokey's reputation and
experience in investment banking in general and its recognized expertise in the
valuation of assets and businesses related to the real estate industry.
On September 16, 1999, at a meeting of the Special Committee, Houlihan
Lokey delivered to the Special Committee its written opinion, attached hereto as
Appendix E, that the consideration to be paid, including the assumption of
substantially all of the liabilities of William Lyon Homes, pursuant to the
asset purchase is fair to Presley and Presley Homes from a financial point of
view.
The opinion of Houlihan Lokey does not address Presley's underlying
business decision to effect the asset purchase. Houlihan Lokey has not been
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of Presley. Furthermore, at the request
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<PAGE> 47
of the Special Committee of Presley, Houlihan Lokey has not negotiated the asset
purchase contemplated by the Purchase Agreement or advised the Special Committee
with respect to alternatives to it.
Houlihan Lokey considered the following background factors and sequence of
events in preparing the fairness opinion. Houlihan Lokey did not specifically
weigh each factor considered, and some factors did not impact its determination
of fairness of the consideration to be paid pursuant to the Purchase Agreement.
Although Houlihan Lokey ultimately based its opinion on the economic analysis of
the assets purchased and liabilities assumed from William Lyon Homes, it did,
however, consider the following general background factors:
- the declining real estate markets began to affect Presley's home building
markets in California during 1989 and continued on and off since that
time;
- as a result of substantial declines in the value of certain of Presley's
real estate assets since 1992, Presley was required to write down the
book value of these real estate assets as of December 31, 1997;
- the write-down of these real estate assets caused Presley to violate a
consolidated tangible net worth covenant in its Trust Indenture pursuant
to which the Senior Notes were issued;
- this violation of the consolidated tangible net worth covenant required
Presley to offer to purchase $20 million of Senior Notes every six months
until the violation is cured, which cure has not occurred to date;
- during late 1997 and early 1998 Presley informally solicited buyers and
met with several prospects with no success;
- on May 5, 1998, Presley announced that it had engaged Warburg Dillon Read
to explore various strategic alternatives including the
refinancing/restructuring of its outstanding debt obligations or the sale
of certain, or substantially all, of its assets;
- in conjunction with the engagement of Warburg Dillon Read, as Presley's
financial advisor, a Special Committee comprised of Presley's independent
directors was formed to evaluate strategic alternatives; and
- Presley's actions were a direct result of the severe economic conditions
encountered during the past several years, together with Presley's highly
leveraged capital structure.
In connection with its fairness opinion, Houlihan Lokey made such reviews,
analyses and inquiries as it deemed necessary and appropriate under the
circumstances. Among other things, Houlihan Lokey:
- reviewed Presley's annual report on Form 10-K for the fiscal years ended
December 31, 1998 and quarterly report on Form 10-Q for the quarter ended
June 30, 1999;
- reviewed the Trust Indenture governing Presley's Senior Notes;
- reviewed a preliminary draft of this Proxy Statement/Prospectus;
- met with the senior management of Presley and William Lyon Homes to
discuss the asset purchase, the operations, financial condition, future
prospects and performance of Presley and William Lyon Homes;
- reviewed the letter of intent, dated May 3, 1999, between Presley and
William Lyon Homes, as amended on July 15, 1999;
- reviewed the Purchase Agreement;
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<PAGE> 48
- reviewed the specific project status and business plans for William Lyon
Homes' assets with the management of William Lyon Homes;
- reviewed William Lyon Homes' audited financial statements for the two
years ended December 31, 1998 and December 31, 1997, respectively;
- reviewed William Lyon Homes' forecasted business plan for the three years
ended December 31, 2001;
- reviewed the February 17, 1999 property information binders prepared by
the management of William Lyon Homes, which includes property
descriptions, historical and projected sales, pricing and absorption
figures for each of William Lyon Homes' projects;
- reviewed the William Lyon Homes materials summarizing current operations,
organizational structure, the management team and historical overview of
William Lyon Homes;
- reviewed representative market data and economic analysis for the Orange
County markets as provided by William Lyon Homes and other third party
market research organizations;
- reviewed the individual cash flow projections for each of the William
Lyon Homes projects and the resulting net present value calculations
prepared by Presley;
- reviewed the appraisal reports of William Lyon Homes' real estate assets
prepared by a nationally-recognized real estate appraisal firm;
- reviewed publicly available information on companies deemed comparable to
William Lyon Homes; and
- conducted such other analyses, studies and investigations as it deemed
appropriate under the circumstances for rendering its opinion.
Except as expressly set forth above, Houlihan Lokey was not provided with, and
did not review, any documentation, preliminary or otherwise, regarding the
valuation of the individual assets of William Lyon Homes.
Houlihan Lokey did not independently verify the accuracy and completeness
of the information supplied to it with respect to Presley, Presley Homes or
William Lyon Homes and did not assume any responsibility with respect to it.
Houlihan Lokey did not make any physical inspection or independent appraisal of
any of the properties or assets of Presley, Presley Homes or William Lyon Homes.
The Houlihan Lokey opinion is necessarily based on business, economic, market
and other conditions as they existed and could be evaluated by Houlihan Lokey at
the date of the opinion.
The Houlihan Lokey opinion was prepared for the information of the Special
Committee in connection with its evaluation of the asset purchase and did not
constitute a recommendation to Presley, Presley Homes or any holder of shares of
the Common Stock of Presley as to whether to enter into the Purchase Agreement
or to take other action in connection with the asset purchase. A copy of the
opinion will be delivered, by Presley, to the Indenture Trustee in accordance
with the requirements of the Trust Indenture, dated as of June 29, 1994, with
respect to the Senior Notes. The opinion speaks only as of its date and Houlihan
Lokey is under no obligation, and did not undertake any obligation, to update
the opinion at any time after the date thereof.
Houlihan Lokey cautioned that Presley, Presley Homes and William Lyon
Homes, like other companies and any business entities analyzed by Houlihan Lokey
or which are otherwise involved in any manner in connection with this opinion,
could be materially affected by complications that may occur, or may be
anticipated to occur, in computer-related applications
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<PAGE> 49
as a result of the year change from 1999 to 2000, known as the Year 2000
problem. In accordance with long-standing practice and procedure, Houlihan
Lokey's services are not designed to detect the likelihood and extent of the
effect of the Year 2000 problem, directly or indirectly, on the financial
condition and/or operations of a business. Further, Houlihan Lokey has no
responsibility with regard to the efforts of Presley, Presley Homes and William
Lyon Homes to make their systems or any other systems, including its vendors and
service providers, Year 2000 compliant on a timely basis. Accordingly, Houlihan
Lokey shall not be responsible for any effect of the Year 2000 problem on the
matters set forth in the opinion.
Presley has paid Houlihan Lokey fees of $150,000 for its services in
connection with the engagement letter, plus reasonable out-of-pocket expenses
incurred by Houlihan Lokey in connection therewith, including reasonable fees
and expenses of its legal counsel not to exceed $2,500 except upon prior written
approval by Presley which shall not be unreasonably withheld or delayed. The
quoted fee above was offered on the condition that the accompanying engagement
letter pertaining to Houlihan Lokey's retention to provide a solvency opinion to
Presley is executed contemporaneously with the engagement letter. Partial
payment to Houlihan Lokey was made in the amount of $50,000 upon signing of the
engagement letter. The remainder of $100,000 became due and payable upon
Houlihan Lokey's delivery of the opinion as of September 16, 1999, which fees
have been paid. No portion of the fee is contingent upon the consummation of the
asset purchase or the conclusions reached in the opinion.
Company-Specific Valuation Considerations
According to Houlihan Lokey, analyzing company-specific factors serves as a
basis for the comparison of the subject company to other industry participants
as to which homebuilding firms are best positioned. Factors examined include
demographics, product demand, quality of management, and diversity of
operations. The best-positioned firms should exceed industry norms in both good
times and bad, while the worst positioned firms will experience sub-par
performance. Houlihan Lokey considered the following company-specific valuation
considerations:
Demographics
- The age and income levels of residents in the builder's region are the
most significant factors to consider in analyzing a homebuilder.
- A builder concentrating on locations whose population growth is supported
by strong employment and solid regional economies, regardless of overall
industry conditions, is best situated.
- According to most industry analysts, Orange County is one of the
strongest markets in terms of employment, population growth, and
affluence in the country.
- Favorable demographics could lead to much more competition.
Houlihan Lokey concluded that with its niche market presence in Orange County
and selected areas of Northern California, William Lyon Homes commands favorable
market demographics.
Product Demand
- The type of house sold by homebuilders is important to analyze.
- Different home types, for example, starter, trade-ups and luxury homes,
may meet various market receptions based on population trends, economic
trends, and the recent history of home prices.
Houlihan Lokey concluded that William Lyon Homes's current product is primarily
starter homes. Given the markets on which William Lyon Homes is focused, the
product is satisfactory.
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<PAGE> 50
Quality of Management
- A strong management team can often keep its company at the top of the
homebuilding universe.
- Given the cyclical business of the homebuilding industry, a strong
management team is required to stay on top of both boom and bust markets.
Houlihan Lokey concluded that William Lyon Homes' management team has depth and
experience. As a result, after the pending acquisition of William Lyon Homes by
Presley Homes is consummated, the William Lyon Homes management team is expected
to exert significant influence over Presley.
Diversity of Operations
- Homebuilders can take various steps to limit their earnings cyclicality.
- Well-run supplemental operations such as mortgage capability provide
greater stability in earnings through tough industry times.
Houlihan Lokey concluded that William Lyon Homes has no diversity in its
homebuilding operations.
Access to Capital
- Homebuilding is a very capital-intensive business. The ability to raise
equity and debt capital is critical to financing construction of new
products and the continuation of the land acquisition process.
Houlihan Lokey concluded that William Lyon Homes has raised approximately $430
million in debt and $145 million in equity for the six years ended December 31,
1998. William Lyon Homes is well positioned to capitalize on existing financial
relationships to continue to fund its development and growth requirements.
Acquisition and Entitlement Process
- The ability to target and acquire new projects is a significant challenge
to homebuilders. Much of a homebuilder's profit is made on the buy and
created through the entitlement process.
Houlihan Lokey concluded that William Lyon Homes has demonstrated an ability to
acquire and entitle well-located parcels of land. Although William Lyon Homes
does not have a large "land bank," there are numerous projects in the
acquisition pipeline. Given William Lyon Homes' track record, reputation,
landowner relationships, management expertise and capital sources, William Lyon
Homes is well positioned to continue to grow through acquiring and entitling
land.
Valuation Methodology
Houlihan Lokey utilized several valuation methodologies in its analysis of
the fairness of the consideration to be paid by Presley and Presley Homes for
William Lyon Homes. These approaches are summarized below.
Appraisal Net Asset Value. In using the "Appraisal Net Asset Value"
approach, Houlihan Lokey relied on the project appraisals prepared by CB Richard
Ellis, Inc. as of December 31, 1998, and on an "as-is" basis, for the William
Lyon Homes properties. The aggregate appraisal values as of December 31, 1998
and "as-is" of $124,462,000 and $148,900,000, respectively, were based on the CB
Richard Ellis appraisals. In arriving at its control market value of equity
under this approach, Houlihan Lokey adjusted the aggregate appraisal values
upward for cash, other assets and deposits on future projects and downward for
accounts payable, accrued liabilities, notes payable, minority interests and
lender participation and applied a 20% control premium. CB Richard Ellis was
engaged by a financial institution in connection with a possible replacement of
Presley's working capital facility. Presley subsequently determined to not
replace
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<PAGE> 51
its existing working capital facility at such time. In connection therewith,
Presley sought permission to use the appraisals for purposes of satisfying a
specific condition in the Trust Indenture governing its senior notes. While
Houlihan Lokey relied upon, without formally reviewing, the CB Richard Ellis
appraisals in connection with rendering its opinion, the individual appraisals
were not separately presented to the Special Committee. The Special Committee
did note that such appraisals must be provided to the Trustee pursuant to the
Trust Indenture and that Houlihan Lokey relied upon the appraisals in connection
with rendering its fairness opinion. Appraisals were completed on substantially
all of the properties of William Lyon Homes, including all the properties to be
acquired by Presley. The properties to be acquired are real estate homebuilding
projects located in California.
Project Level Discounted Cash Flow. In using the "Project Level Discounted
Cash Flow" approach, Houlihan Lokey discounted the individual project cash
flows, prepared by William Lyon Homes, at rates ranging from 19% to 27% to
consider the risk of the various properties and the time value of money to
arrive at a total portfolio value of $155,334,000. In arriving at its control
market value of equity under this approach, Houlihan Lokey adjusted the total
portfolio value upward for cash, other assets and deposits on future projects
and downward for accounts payable, accrued liabilities, notes payable, minority
interests and lender participation and applied a 20% control premium.
Market Comparable. In using the "Market Comparable" approach, Houlihan
Lokey applied market based multiples of comparable public companies to
representative projected earnings levels of William Lyon Homes and applied a 10%
control premium to arrive at its control market value of equity range.
Enterprise Discounted Cash Flow. In using the "Enterprise Discounted Cash
Flow" approach, Houlihan Lokey, discounted the projected earnings of William
Lyon Homes at rates ranging from 14% to 15% to consider the risk of the cash
flows and the time value of money to arrive at a range of enterprise values
between $113,677,000 and $134,853,000. In arriving at its control market value
of equity range under this approach, Houlihan Lokey adjusted the range of
enterprise values downward for debt and applied a 20% control premium.
WILLIAM LYON HOMES VALUATION SUMMARY
<TABLE>
<CAPTION>
CONTROL MARKET
VALUATION METHODOLOGY VALUE OF EQUITY
--------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Appraisal Net Asset Value Approach
- as of December 31, 1998................................. $50,990
- "As-Is"................................................. $53,146
Project Level Discounted Cash Flow Approach as of June 30,
1999...................................................... $47,248
Market Comparable Approach (Current)........................ $56,350 to $68,872
Enterprise Discounted Cash Flow Approach.................... $44,158 to $67,453
------------------
Concluded Control Market Value of Equity.................... $51,900 to $56,900
</TABLE>
Houlihan Lokey has relied upon and assumed, without independent
verification, that the financial forecasts and projections contained in the
following section and provided to Houlihan Lokey have been reasonably prepared
and reflects the best currently available estimates of the future financial
results and condition of Presley, Presley Homes and William Lyon Homes, and that
there has been no material change in the assets, financial condition, business
or prospects of the Presley, Presley Homes or William Lyon Homes since the date
of the most recent financial statements made available to us.
Houlihan Lokey concluded that the "Control Market Value of Equity" for
William Lyon Homes was approximately $51,900,000 to $56,900,000. On this basis,
Houlihan Lokey
44
<PAGE> 52
concluded that the consideration of $48,000,000 for the acquisition of
substantially all of the assets of William Lyon Homes, together with the
assumption of substantially all of the liabilities of William Lyon Homes, is
fair from a financial point of view.
The foregoing discussion of the information and factors considered and
given weight by the Special Committee is not intended to be exhaustive. In view
of the wide variety of factors considered in connection with its evaluation of
the tender offer and the transactions, the Special Committee did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determinations. In
addition, individual members of the Special Committee may have given different
weights to different factors.
FINANCIAL FORECASTS AND PROJECTION
Presley does not, as a matter of course, publicly disclose internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information. The forecasts and projection summarized
below were not prepared with a view to public disclosure or compliance with the
published guidelines of the Securities and Exchange Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
forecasts and projections. The internal operating forecasts and projections are,
in general, prepared solely for internal use and are subjective in many respects
and thus susceptible to various interpretations and periodic revision based on
actual experience and business developments. The forecasted and projected
financial data set forth below reflects information which was contained in the
forecasts and projection prepared by management of Presley and William Lyon
Homes which were provided to and utilized by Warburg Dillon Read and Houlihan
Lokey and only for that reason are they being included in this Proxy
Statement/Prospectus. The forecasts and projection were based upon a variety of
estimates and assumptions. The estimates and assumptions underlying the
forecasts and projection involved judgments with respect to, among other things,
future economic, competitive, and financial market conditions and future
business decisions which may not be realized and are inherently subject to
significant business, economic and competitive uncertainties, all of which are
difficult to predict and many of which are beyond the control of Presley and
William Lyon Homes. While Presley and William Lyon Homes believe that these
estimates and assumptions are reasonable, there can be no assurance that the
forecasts and projection will be accurate, and actual results may vary
materially from those shown. Neither the independent auditors of Presley and
William Lyon Homes, nor any other independent accountants, have examined or
compiled the forecasts or projections and accordingly do not provide any form of
assurance with respect to such forecasts or projections. In light of the
uncertainties inherent in forward looking information of any kind, the inclusion
of the forecasts and projection herein should not be regarded as a
representation by Presley, William Lyon Homes or any other person that the
anticipated results will be achieved or that the forecasts or projections are a
reliable prediction of future events and investors are cautioned not to place
undue reliance on such information. See "RISK FACTORS" on page 8 and "CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS" on page 13.
Presley and William Lyon Homes do not intend to update or otherwise revise
the information set forth below to reflect circumstances existing after the date
of the most recent financial statements incorporated by reference in this Proxy
Statement or to reflect the occurrence of unanticipated events. The information
set forth below should be read together with the information contained in
Presley's Annual Report on Form 10-K/A for the year ended December 31, 1998 and
the other information included or incorporated by reference in this Proxy
Statement/Prospectus.
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<PAGE> 53
Warburg Dillon Read was provided a forecast of Presley on a stand-alone
basis. This forecast, discloses among other things, the following:
FORECASTED STAND-ALONE PRESLEY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT HOMES CLOSED AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total homes closed...................... 2,107 2,095 2,629 2,330 2,230
Sales................................... $337.4 $256.1 $230.9 $188.9 $166.1
Gross profit............................ $ 54.1 $ 35.5 $ 33.1 $ 27.0 $ 24.0
Net income.............................. $ 24.8 $ 18.2 $ 25.9 $ 19.9 $ 19.9
Earnings per share(1)................... $ 2.38 $ 1.74 $ 2.48 $ 1.91 $ 1.91
Total assets............................ $199.7 $179.6 $171.5 $170.7 $169.9
</TABLE>
Warburg Dillon Read was also provided a projection of Presley and William
Lyon Homes on a combined basis, including the effect of the acquisition of
William Lyon Homes by Presley. This projection discloses, among other things,
the following:
PROJECTED COMBINED PRESLEY AND WILLIAM LYON HOMES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT HOMES CLOSED AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total homes closed...................... 2,625 3,311 3,265 3,440 3,340
Sales................................... $412.9 $406.4 $349.4 $299.1 $226.4
Gross profit............................ $ 59.0 $ 52.1 $ 51.0 $ 43.2 $ 32.8
Net income.............................. $ 28.4 $ 30.2 $ 32.4 $ 35.6 $ 33.7
Earnings per share(1)................... $ 2.72 $ 2.89 $ 3.10 $ 3.41 $ 3.23
Total assets............................ $288.2 $290.6 $264.7 $253.5 $250.7
</TABLE>
Warburg Dillon Read was also provided an updated projection dated October
4, 1999 of Presley and William Lyon Homes on a combined basis, including the
effect of the acquisition of William Lyon Homes by Presley. This updated
projection discloses, among other things, the following:
UPDATED PROJECTED COMBINED PRESLEY AND WILLIAM LYON HOMES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT HOMES CLOSED AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total homes closed...................... 2,585 3,301 3,566 3,527 3,600
Sales................................... $417.8 $456.4 $352.7 $281.4 $256.7
Gross profit............................ $ 63.4 $ 64.2 $ 48.3 $ 40.9 $ 37.4
Net income.............................. $ 34.4 $ 32.5 $ 34.4 $ 36.8 $ 34.6
Earnings per share(1)................... $ 3.30 $ 3.11 $ 3.30 $ 3.53 $ 3.31
Total assets............................ $265.3 $248.2 $243.3 $271.5 $291.3
</TABLE>
- ------------------------------
(1) Reflects the merger of Presley with and into its wholly-owned subsidiary,
Merger Sub, including one-for-five common stock exchange as if it occurred
at the beginning of the periods presented.
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<PAGE> 54
Houlihan Lokey was provided a forecast of William Lyon Homes on a
stand-alone basis, as if it were continuing as an independent entity, excluding
any effect of the proposed asset purchase by Presley. The forecast discloses,
among other things, the following:
FORECASTED STAND-ALONE WILLIAM LYON HOMES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 2000 2001
--------- --------- ---------
(IN MILLIONS, EXCEPT HOMES CLOSED)
<S> <C> <C> <C>
Total homes closed............................ 835 1,263 1,497
Sales......................................... $234.2 $394.1 $427.6
Gross profit.................................. 41.2 68.0 66.6
Net income.................................... 17.2 25.0 19.2
</TABLE>
PRESERVATION OF TAX BENEFITS
Presley believes it is currently entitled to substantial tax benefits from
the tax net operating loss carryforwards. The availability of Presley's tax
benefits would be jeopardized if an ownership change were to occur in the
future. There is a risk that an ownership change could result if, among other
possibilities, persons acquire 5% or more of Presley Common Stock, or
stockholders that already own 5% or more of Presley Common Stock buy or sell
shares of Presley Common Stock.
The extent of the actual value of Presley's tax benefits is subject to
inherent uncertainty, because the value depends on the amount of otherwise
taxable income against which Presley, or Merger Sub after the merger, will be
able to utilize the tax net operating loss carryforwards in future years. In
addition, the IRS could challenge the amount of the tax net operating loss
carryforwards calculated by Presley. Assuming Presley does not experience an
ownership change, tax net operating loss carryforwards not fully utilized in a
given year may be carried over and utilized in subsequent years, subject to
their expiration. Based on information currently available to Presley, it had,
as of December 31, 1998, tax benefits which included:
- a federal tax net operating loss carryforward ("NOL") of approximately
$126.2 million, of which $5.1 million expires in 2007, $17.5 million
expires in 2008, $27.4 million expires in 2009, $35.8 million expires in
2010, $13.7 million expires in 2011, $16.4 million expires in 2012, and
$10.3 million expires in 2018; and
- a California tax net operating loss carryforward of $39.4 million.
Included in the $126.2 million are $33.1 million of NOLs that are limited under
Section 382 due to a prior ownership change.
NOLs offset federal taxable income in future years and eliminate income
taxes otherwise payable on such taxable income, with certain adjustments and
eliminations for purposes of calculating alternative minimum tax liability.
LIMITATIONS ON USE OF NOLS
If Presley underwent an ownership change, Section 382 would impose an
annual limit on the amount of the taxable income that may be offset by Presley's
NOLs generated prior to the ownership change. If an ownership change were to
occur, a significant portion of Presley's NOLs will not be able to be used to
offset taxable income.
The Section 382 annual limit on the use of NOLs would be equal to the value
of Presley Common Stock, subject to certain adjustments provided in Section 382,
immediately before the ownership change multiplied by the "long-term tax-exempt
rate" in effect at the time of the ownership change. The "long-term tax-exempt
rate" is published monthly by the Internal Revenue Service, and as of September
1999, was 5.26%. For example, if Presley had an
47
<PAGE> 55
ownership change during September 1999 and it had an equity value of $30
million, as adjusted, then Presley would have a Section 382 annual limit of
approximately $1.6 million per year of NOLs to offset taxable income for 20
years, or an aggregate maximum potential amount of approximately $32 million of
NOLs that could be utilized. Any NOLs generated prior to the ownership change
date in excess of this amount would expire unused. This assumes that Presley
would otherwise have income against which the reduced amount of tax benefits
could be utilized. If Presley did not continue its business enterprise for at
least two years after an ownership change, Presley's Section 382 annual limit
would be zero.
In addition, losses that are not realized at the time of the ownership
change, but are recognized within 5 years of the ownership change are also
included in the amount of losses subject to the Section 382 annual limit.
In general, an ownership change occurs when, as of any testing date, the
aggregate of the increase in percentage points of the total amount of a
corporation's stock owned by each of those "5-percent shareholders" within the
meaning of Section 382 whose percentage ownership of the stock has increased as
of such date over the lowest percentage of the stock owned by each such
"5-percent shareholder" at any time during the three-year period preceding such
date is more than 50%. In general, under Section 382 persons who own 5% or more
of a company's stock are "5-percent shareholders," and all other persons who own
less than 5% of a company's stock are treated, together, as a single, public
group "5-percent shareholder," regardless of whether they own an aggregate of 5%
of Presley Common Stock. For purposes of determining percentage ownership,
Section 382 generally defines stock to include all issued and outstanding stock,
except certain preferred stock. In addition, Treasury Regulations provide that
certain stock that may be acquired pursuant to warrants, options, rights to
purchase stock, rights to convert other instruments into stock, and options or
other rights to acquire any such interest may under certain circumstances be
deemed to have been acquired for purposes of determining the occurrence of an
ownership change under Section 382 of the Internal Revenue Code.
Section 382 employs complicated attribution, aggregation and segregation
rules to identify "5-percent shareholders." The attribution rules require, among
other things, that stock ownership be attributed from entities to their
beneficial owners until the stock ownership has been attributed to individuals.
Any individual who indirectly owns 5% of Presley is treated as a "5-percent
shareholder" of Presley. The aggregation rules cause certain shareholders to be
aggregated into one or more public group "5-percent shareholders." The
segregation rules cause the public group "5-percent shareholders" to be
fragmented into multiple public group "5-percent shareholders" and have the
effect of increasing the probability that an ownership change will occur. The
segregation rules generally apply, with certain exceptions, to issuances and
redemptions of stock by Presley, certain mergers involving Presley, dispositions
of stock by certain "5-percent shareholders" and the deemed exercise of options
and similar instruments to buy Presley Common Stock. For example, under these
segregation rules, if Presley purchased Presley Common Stock from its
stockholders, the ownership of the remaining Presley stockholders would be
deemed to increase and Presley would be closer to undergoing an ownership
change.
Calculating whether an ownership change has occurred is subject to inherent
uncertainty. This uncertainty results from the complexity and ambiguity of the
Section 382 provisions as well as the limitations on a publicly-traded
corporation's knowledge concerning the ownership of, and transactions in, its
securities. As of the date of this Proxy Statement/Prospectus, Presley is
unaware of any facts indicating that an ownership change has occurred with
respect to Presley since its last ownership change in 1994. As indicated above,
certain transfers of Presley Common Stock by or to "5-percent shareholders"
could result in an ownership change. Presley does not currently have the ability
to restrict transactions that could result in an ownership change.
48
<PAGE> 56
SUMMARY OF TRANSFER RESTRICTIONS
GENERAL. The following is a summary of the material transfer restrictions,
which are set forth in Article VIII of Merger Sub's certificate of incorporation
to be in effect immediately prior to the merger. See Appendix B. The following
summary is subject in its entirety to Appendix B to this Proxy
Statement/Prospectus. The transfer restrictions apply to transfers of Merger Sub
common stock and any other instrument that would be treated as "stock," as
determined under applicable Treasury Regulations. The transfer restrictions will
apply until the earlier of:
- the day after the third anniversary of the effective date of the merger;
- the repeal of Section 382 if Merger Sub's Board of Directors determines
the transfer restrictions are no longer necessary for the preservation of
the tax benefits; or
- the beginning of a taxable year of Merger Sub to which Merger Sub's Board
determines that no tax benefits may be carried forward.
However, Merger Sub's Board of Directors will have the power to accelerate or
extend the expiration date of the transfer restrictions if it determines in
writing that such action is reasonably necessary or desirable to preserve the
tax benefits or that the continuation of the transfer restrictions is no longer
reasonably necessary for the preservation of the tax benefits, as the case may
be. This power is vested in Merger Sub's Board of Directors to ensure that
Merger Sub retains the power to make in light of all relevant circumstances,
including positions that might be taken by tax authorities and contested by
Merger Sub, the complex determination whether or not the tax benefits have been
fully utilized or are otherwise available.
PROHIBITED TRANSFERS. The transfer restrictions will generally prohibit,
from the effective time of the merger, any "transfer" by any person to any other
person. The term "transfer" being broadly defined to include any conveyance, by
any means, of legal or beneficial ownership, directly or indirectly, including
indirect transfers of Merger Sub stock accomplished by transferring interests in
other entities that own Merger Sub stock to the extent that the transfer, if
effective, would:
- give rise to a "prohibited ownership percentage," which is defined by
reference to complex federal tax laws and regulations, but generally
means any direct or indirect ownership that would cause any person,
including a "public group," as defined in Section 382, with certain
modifications, to be considered a "5-percent shareholder" of Merger Sub
under Section 382. By way of example, if stockholder A owns 4% of Merger
Sub's outstanding shares of common stock, and stockholder B attempted to
sell 2% of Merger Sub's outstanding shares to stockholder A, the transfer
restrictions would prohibit the sale of approximately 1.1% of the shares
out of the 2% attempted to be sold.
- increase the ownership percentage of any person (including a public
group) that is already a "5-percent shareholder" of Merger Sub under
Section 382, with certain modifications. Thus, no stockholder will be
permitted to sell any shares to William Lyon; or
- create a new "public group" of Merger Sub as defined in Section 382. For
example, the transfer of stock by an existing "5-percent shareholder" to
the public would be deemed to result in the creation of a separate,
segregated "public group" that would be a new "5-percent shareholder,"
each as defined in Section 382.
Merger Sub will be entitled to require, as a condition to the registration
of any transfer of stock, that the proposed transferee furnish to Merger Sub all
information reasonably requested
49
<PAGE> 57
by it with respect to all the direct and indirect beneficial or legal ownership
interest in, or options to acquire stock of the proposed transferee and its
affiliates.
EXEMPTIVE POWER OF MERGER SUB'S BOARD. Merger Sub's Board of Directors
will have the power to approve any otherwise-prohibited transfer, conditionally
or unconditionally, if it determines that a specific proposed transaction will
not jeopardize Merger Sub's full utilization of the tax benefits. In addition,
the Merger Sub's Board of Directors will have the power to waive any of the
transfer restrictions in any instance where it determines that a waiver would be
in the best interests of Merger Sub notwithstanding the effect of such waiver on
the tax benefits.
CONSEQUENCES OF PURPORTED PROHIBITED TRANSFER. Any non-exempt purported
transfer in excess of the shares of Merger Sub stock that could be transferred
without restriction will not be effective to transfer ownership of such excess
shares, and the purported acquiror thereof will not be entitled to any rights as
a stockholder of Merger Sub with respect to the prohibited shares.
In the case of a purported transfer that is prohibited under the provisions
summarized in the first two bullet points of the paragraph set forth above under
the sub-caption "Prohibited Transfers", but not the third bullet point of such
paragraph, or in the case of a transfer of Merger Sub common stock that would
cause a person or public group to become a "Prohibited Party" as discussed
below, Merger Sub will have the right and an obligation to exercise such right
within 30 business days of learning of such prohibited transfer, although
failure to act within such period will not constitute a waiver of any of Merger
Sub's rights, to demand that the purported acquiror or group affiliated with the
Prohibited Party transfer any certificate or other evidence of purported
ownership of the prohibited shares within the purported acquiror's or group
affiliated with the Prohibited Party's possession or control, along with any
dividends or other distributions received thereon from Merger Sub, to an agent
designated by Merger Sub who will be required to sell the prohibited shares in
an arm's-length transaction, through the New York Stock Exchange, if possible,
but in any event consistent with applicable law, with the sale proceeds in
excess of the agent's expenses plus the purchase price paid by the purported
acquiror for the prohibited shares or the fair market value of the prohibited
shares if they were the subject of a gift or inheritance in favor of the
purported acquiror, as well as all prohibited distributions, being required to
be paid to a tax-exempt charitable organization designated by Merger Sub. If the
purported acquiror has sold the prohibited shares to an unrelated party in an
arm's-length transaction, the purported acquiror will be deemed to have done so
for the agent, who will have the right to allow the purported acquiror to retain
a portion of the resale proceeds not exceeding the amount that the agent would
have been required to remit to the purported acquiror out of the proceeds of a
resale by the agent. Any purported transfer of the prohibited shares by the
purported acquiror (other than a transfer which (i) is described in the
preceding sentences of this paragraph and (ii) does not itself violate the
transfer restrictions) will not be effective to transfer any ownership of the
prohibited shares.
In addition to its above-described powers, if the Merger Sub's Board of
Directors determines that a purported prohibited transfer or other action in
violation of the transfer restrictions has occurred or is proposed, it may take
such action as it deems advisable to prevent or refuse to give effect to such
purported transfer or other action, including refusing to give effect to such
purported transfer or other action on Merger Sub's books or instituting
injunctive proceedings.
If any person knowingly violates the transfer restrictions or knowingly
causes any entity under such person's control to do so, such person and, if
applicable, the controlled entity will be jointly and severally liable to Merger
Sub in such amount as will, on an after-tax basis, put Merger Sub in the same
financial position as it would have been had such violation not occurred.
50
<PAGE> 58
With respect to any transfer of Merger Sub common stock which does not
involve a transfer of "securities" of Merger Sub within the meaning of the
Delaware corporate law, but which would cause any person or public group to
violate the provisions summarized in the first two bullet points of the
paragraph set forth above under the sub-caption "Prohibited Transfers," the
following procedure will apply. The prohibited party and/or any person or public
group whose ownership of Merger Sub stock is attributed to the prohibited party
under Section 382 will be deemed to have disposed of, and will be required to
dispose of, sufficient shares, simultaneously with the transfer, to cause the
prohibited party not to be in violation of the provisions summarized in either
of those clauses, and such shares will be treated as prohibited shares to be
disposed of through the agent under the provisions summarized above, with the
maximum amount payable to the prohibited party from the proceeds of sale by the
agent being the fair market value of the prohibited shares at the time of the
prohibited transfer.
Notwithstanding the above-described enforcement provisions, nothing in the
transfer restrictions will preclude the settlement of any transaction involving
Merger Sub common stock entered into through the facilities of the New York
Stock Exchange or any other national securities exchange.
OTHER POWERS OF MERGER SUB'S BOARD. Merger Sub's Board will have the power
to accelerate or extend the expiration date of the transfer restrictions, modify
the definitions of any terms set forth in the certificate of incorporation with
respect to the transfer restrictions or conform certain provisions to make them
consistent with any future changes in federal tax law, in the event of a change
in law or regulation or if it otherwise believes such action is in the best
interests of Merger Sub, provided Merger Sub's Board of Directors determines in
writing that such action is reasonably necessary or desirable to preserve the
tax benefits or that continuation of the transfer restrictions is no longer
reasonably necessary for the preservation of the tax benefits. In addition,
Merger Sub's Board of Directors will have the power to adopt bylaws, regulations
and procedures, not inconsistent with the transfer restrictions, for purposes of
determining whether any acquisition of Merger Sub common stock would jeopardize
the ability of Merger Sub to preserve and use the tax benefits and for the
orderly application, administration and implementation of the transfer
restrictions. Merger Sub's Board of Directors will also have the exclusive power
and authority, which it will be empowered to delegate in whole or part to a
committee of Merger Sub's Board of Directors, to administer, interpret and make
calculations under the transfer restrictions, which actions shall be final and
binding on all parties if made in good faith.
ANTI-TAKEOVER EFFECT OF TRANSFER RESTRICTIONS. The transfer restrictions
may:
- have the effect of impeding the attempt of a person or entity to acquire
a significant or controlling interest in Merger Sub;
- render it more difficult to effect a merger or similar transaction even
if such transaction is favored by a majority of the independent
stockholders; and
- serve to entrench management.
In addition to the transfer restrictions, Merger Sub will be subject to certain
other provisions of Merger Sub's certificate of incorporation, to which Presley
is currently subject, that may have the effect of discouraging a takeover or
similar transaction, including the authority, vested in Merger Sub's Board of
Directors, to issue up to 5 million shares of preferred stock and to fix the
preferences and rights thereof.
The purpose of the transfer restrictions is to help preserve the tax
benefits rather than to have an anti-takeover effect, which is an incidental
result. Presley's Board of Directors and Merger Sub's Board of Directors
believes that the benefits of the transfer restrictions outweigh any
anti-takeover effect that they may have.
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<PAGE> 59
CONDITIONS TO THE MERGER AND ABANDONMENT
The certificate of ownership and merger provides that it will not become
effective until after all of the following have occurred:
- the consents, approvals or authorizations that Presley deems necessary or
appropriate for the merger have been obtained;
- the certificate of ownership and merger has been approved by a vote of
the holders of a majority of the issued and outstanding Presley Common
Stock;
- Presley has received, in form and substance satisfactory to it, an
opinion from counsel with respect to certain federal income tax effects
of the merger and the provisions of the transfer restrictions and that
Presley has determined that this condition has been satisfied; see "THE
MERGER -- Federal Income Tax Consequences";
- the closing of the purchase and sale of certain assets of William Lyon
Homes;
- the purchase by William Lyon and his son of a portion of Presley's
outstanding Common Stock pursuant to the tender offer; and
- the purchase by William Lyon Homes and/or its permitted assigns of the
Series B Common Stock pursuant to the Series B Purchase Agreements.
It currently is anticipated that none of these conditions will be waived by
Merger Sub or Presley and that each of them will be satisfied. Further, the
condition of stockholder approval can not be waived under Delaware law. The
condition that Presley receive a tax opinion from its tax counsel has been
fulfilled. No material federal or state regulatory approvals are required in
connection with the merger. In the event that any of the following transactions
are not closed and these conditions are waived, Presley intends to amend this
Proxy Statement and resolicit stockholders:
- the closing of the purchase and sale of certain assets of William Lyon
Homes;
- the purchase by William Lyon and his son of up to 10,678,792 shares,
representing 20.46%, of Presley's outstanding Common Stock pursuant to
the tender offer; and
- the purchase by William Lyon Homes and/or its permitted assigns of the
Series B Common Stock pursuant to the Series B Purchase Agreements.
However, Presley does not intend to resolicit stockholders in the event the
Lyons and/or William Lyons Homes waive any condition to its or their obligations
to close the Purchase Agreement, tender offer, including the minimum condition,
or the Series B Purchase Agreements.
If stockholders of Presley approve the certificate of ownership and merger
at the special meeting, the merger is expected to become effective as soon as
practicable after the other conditions to consummation of the merger have either
been satisfied or waived. If the merger is not approved by Presley's
stockholders, Presley will continue to operate without the transfer restrictions
and the proposed transactions with William Lyon Homes may not be consummated.
All expenses which relate to the merger will be paid by Presley whether or not
the merger is approved by its stockholders and the merger is completed.
The certificate of ownership and merger provides that Presley's Board of
Directors may amend, modify or supplement the certificate of ownership and
merger, or abandon the merger at any time prior to the effective time, even
following stockholder approval. However, Presley's
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<PAGE> 60
Board of Directors may not amend the certificate of ownership and merger
following its adoption by Presley's stockholders to alter or change:
- the amount or kind of shares to be received in exchange for the shares of
Presley's Common Stock;
- any term of Merger Sub's certificate of incorporation; or
- any term of the certificate of ownership and merger if the alteration or
change would adversely affect the holders of any series of Presley's
Common Stock.
In addition, the certificate of ownership and merger provides that
Presley's Board of Directors or any authorized officer of Presley may defer
consummation of the merger for a reasonable period of time if they determine
that the deferral would be in the best interests of Presley and its
stockholders.
DESCRIPTION OF THE CAPITAL STOCK OF MERGER SUB
The authorized capital stock of Merger Sub consists of 30 million shares of
common stock and 5 million shares of preferred stock, $0.01 par value per share.
The following description of Merger Sub's capital stock is qualified in all
respects by reference to Merger Sub's certificate of incorporation and bylaws,
the full text of which are attached as Appendices B and C, respectively, to this
Proxy Statement/Prospectus.
MERGER SUB COMMON STOCK. The holders of outstanding shares of Merger Sub
common stock are entitled to receive dividends out of assets legally available
therefor at such times and in such amounts as Merger Sub's Board of Directors
may, from time to time, determine, subject to any preferences which may be
granted to the holders of preferred stock. Holders of Merger Sub common stock
are entitled to one vote per share on all matters which the holders of Merger
Sub common stock are entitled to vote. Merger Sub common stock is not entitled
to preemptive rights and is not subject to redemption or conversion. Upon
liquidation, dissolution or winding-up of Merger Sub, the assets, if any,
legally available for distribution to stockholders are distributable ratably
among the holders of Merger Sub common stock after payment of all debt and
liabilities of Merger Sub and the liquidation preference of any outstanding
class or series of Merger Sub preferred stock. All outstanding shares of Merger
Sub are, and the shares to be issued upon conversion of the Presley Common Stock
will be, when issued and delivered, validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders of Merger Sub
common stock are subject to any series of Merger Sub preferred stock that Merger
Sub may issue in the future.
MERGER SUB PREFERRED STOCK. Merger Sub preferred stock may be issued from
time to time in one or more series, and Merger Sub's Board of Directors, without
action by the holders of the Merger Sub common stock, may fix or alter the
voting rights, redemption provisions, sinking fund provisions, dividend rights,
dividend rates, liquidation preferences, conversion rights and any other rights,
preferences privileges and restrictions of any wholly unissued series of Merger
Sub preferred stock. No shares of Merger Sub preferred stock are presently
outstanding, and Merger Sub has no present plans to issue any such shares. The
issuance of shares of Merger Sub preferred stock could adversely affect the
voting power of holders of Merger Sub common stock and could have the effect of
delaying, deferring or preventing a change in control of Merger Sub or other
corporate action.
CERTAIN PROVISIONS OF DELAWARE CORPORATE LAW AND CHARTER DOCUMENTS
Section 203 of the Delaware corporate law is an anti-takeover law and in
general, Section 203 prevents an "interested stockholder," defined generally as
a person owning 15% or more of a corporation's outstanding voting stock, from
engaging in a business combination with a Delaware corporation for three years
following the date such person became an interested
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<PAGE> 61
stockholder, subject to certain exceptions such as the approval of the board of
directors and of the holders of at least two-thirds of the outstanding shares of
voting stock not owned by the interested stockholder. The existence of this
provision can be expected to have an anti-takeover effect, including attempts
that might result in a premium over the market price of the shares of Merger Sub
common stock held by stockholders.
As permitted by the Delaware corporate law, Merger Sub has included in its
certificate of incorporation a provision to eliminate the personal liability of
its officers and directors for monetary damages for breach or alleged breach of
their fiduciary duties as officers and directors to the extent permitted by the
Delaware corporate law. In addition, the bylaws of Merger Sub provide that
Merger Sub is required to indemnify its officers and directors under certain
circumstances, including the circumstances in which indemnification would
otherwise be discretionary, and Merger Sub is required to advance expenses to
its officers and directors as incurred in connection with proceedings against
them for which they may be indemnified.
Merger Sub expects to enter into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware corporate
law. The indemnification agreements will require Merger Sub, among other things,
to indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers to the
fullest extent permitted by Delaware law and to advance their expenses incurred
as a result of any proceedings against them as to which they could be
indemnified. Merger Sub also expects to obtain directors' and officers'
liability insurance. The foregoing provisions of Merger Sub's bylaws and
indemnification agreements would be available for indemnification of, and
advancing of expenses to, officers and directors of Merger Sub in connection
with liabilities under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of Merger Sub pursuant to Merger Sub's bylaws
and/or indemnification agreements, or otherwise, Merger Sub has been advised
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. At present,
Merger Sub is not aware of any pending or threatened litigation or proceeding
involving a director, officer, employee or agent of Merger Sub in which
indemnification would be required or permitted. Merger Sub believes that its
charter provisions and indemnification agreements are necessary to attract and
retain qualified persons as directors and officers.
COMPARISON OF CERTIFICATE OF INCORPORATION AND BYLAWS
The following is a summary of the material differences between Merger Sub's
certificate of incorporation and Merger Sub's bylaws to be in effect immediately
prior to the merger, on the one hand, and the Presley certificate of
incorporation and the Presley bylaws, on the other. The full text of Merger
Sub's certificate of incorporation and Merger Sub's bylaws to be in effect
immediately prior to the merger are attached as Appendices B and C,
respectively, to this Proxy Statement/Prospectus, and any discussion of Merger
Sub's certificate of incorporation and Merger Sub's bylaws contained herein,
including the discussion below, is qualified in its entirety by reference
thereto.
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<PAGE> 62
The Common Stock of Presley is presently divided into two series,
designated "Series A" and "Series B." Upon consummation of the merger, shares of
Series A Common Stock and Series B Common Stock will be converted into shares of
Merger Sub common stock which is not divided into series. Consequently, Merger
Sub's certificate of incorporation does not include those provisions in Article
Four of Presley's existing certificate of incorporation relating to the separate
powers, rights and privileges of Presley's Series A Common Stock and Series B
Common Stock, including the following:
- Paragraph A relating to a stock split, reverse stock split, or similar
event or dividend or distribution;
- Paragraph B relating to the number, classification, filling of vacancies
and election of each class of directors and quorum for meetings of
directors;
- Paragraph C relating to conversion of the Series B Common Stock; and
- Paragraph D relating to amendment of Article Four.
In addition, Merger Sub's certificate of incorporation will differ from
Presley's in that the number of directors shall be fixed and may be altered as
set forth in the bylaws (Article V).
Merger Sub's bylaws will be substantially identical to the Presley bylaws
as in effect immediately before the effective time of the merger, with the
following exception: that the provision currently in Presley's bylaws relating
to the obligations of Presley and its transfer agent with respect to transfers
of stock of Presley will be included in Merger Sub's bylaws but will contain a
qualifying provision by reference to the transfer restrictions and to any bylaws
or other written rules adopted pursuant thereto.
APPRAISAL RIGHTS
No holder of Presley Common Stock will have appraisal rights in connection
with the merger, because the merger will be a merger of a parent corporation
with and into its wholly owned subsidiary pursuant to Section 253 of the
Delaware corporate law.
Delaware corporate law does not grant or require appraisal rights on the
part of a corporation's stockholders in connection with the tender offer for
Presley's Series A Common Stock or Presley's purchase of assets from William
Lyon Homes.
BOARD OF DIRECTORS AND MANAGEMENT OF MERGER SUB
BOARD OF DIRECTORS. Merger Sub's Board of Directors will consist of the
same eight individuals who comprise Presley's Board of Directors immediately
before the effective time of the merger, but Merger Sub's Board of Directors
will not be classified. Each director will be elected at the annual meeting of
stockholders to hold office until their successors are elected and qualified.
The persons who will serve as directors of Merger Sub will be as follows:
General William Lyon, age 76, was elected a director and Chairman of the
Board of Presley in 1987. Additionally, General Lyon serves on Presley's
Compensation Committee. General Lyon has served as the Chairman of the Board,
President and Chief Executive Officer of William Lyon Homes, Inc. General Lyon
is a retired USAF Major General and was Chief of the Air Force Reserve from 1975
to 1979. General Lyon is a director of Fidelity Financial Services, Inc. and
Kellstrom Industries.
Wade H. Cable, age 51, has served as President and Chief Executive Officer
of Presley and has been a director of Presley since 1985. Prior to joining
Presley, he worked for thirteen years with Pacific Enterprises as a senior
executive in various of its real estate operations, including two years as an
Executive Vice President of Pacific Lighting Real Estate Group and four years as
the President of Fredericks Development Company, a residential developer and
home builder.
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<PAGE> 63
General James E. Dalton, USAF (Ret.), age 68, was elected to Presley's
Board in 1991. He serves as Chairman of Presley's Audit Committee and Special
Committee and is a member of the Stock Option Committee and the Compensation
Committee. General Dalton was the President of Logicon R&D Associates, a
subsidiary of Logicon Corporation (a defense contractor providing advanced
technology systems and services), a position he held since 1985 until his
retirement in December 1998. He also has served as General Manager of Logicon's
Defense Technology Group since 1995 until his retirement in December 1998.
Logicon was acquired by Northrop Grumman in 1997. General Dalton currently acts
as an independent consultant to several companies in the defense industry and is
a director of Defense Group, Inc.
Gregory P. Flynn, age 43, was elected to Presley's Board in 1994. Mr. Flynn
is a member of Presley's Compensation Committee and Stock Option Committee, and
was a member of Presley's Special Committee until his resignation in March 1999.
He is a Managing Partner of Hampshire Equity Partners (formerly known as ING
Equity Partners), where he has worked since 1994. From 1989 to 1994, Mr. Flynn
worked with ING Capital Holdings, a wholly owned subsidiary of Internationale
Nederlanden Groep, a diversified financial services company based in Amsterdam.
From 1981 to 1988, Mr. Flynn was employed by The Chase Manhattan Bank.
Steven B. Sample, age 58, was elected to Presley's Board in 1991 and is a
member of Presley's Audit Committee, the Stock Option Committee, Special
Committee and the Compensation Committee. Dr. Sample is the President of the
University of Southern California, a position he has held since March 1991. He
was the President of the State University of New York at Buffalo from 1982 to
1991. Dr. Sample is a director of UNOVA, Inc., the Santa Catalina Island
Company, the Wm. Wrigley Jr. Company and Advanced Bionics Corp.
Karen S. Sandler, age 40, was elected to Presley's Board in 1995. Ms.
Sandler is a member of Presley's Compensation Committee and Stock Option
Committee, and was a member of Presley's Special Committee until her resignation
in December 1998. She is a Senior Vice President of Foothill Capital
Corporation. Ms. Sandler serves on many lender and creditor committees. Prior to
joining Foothill, she worked at Price Waterhouse and Security Pacific Bank.
Marshall E. Stearns, age 39, was elected to Presley's Board in 1997. Mr.
Stearns was a member of Presley's Special Committee until his resignation in
December 1998. Mr. Stearns is a Senior Vice President of Foothill Capital
Corporation. Prior experience includes development of multi-family real estate.
Ray A. Watt, age 80, was elected to Presley's Board in 1997. Mr. Watt is a
member of Presley's Audit Committee, Compensation Committee, Stock Option
Committee and Special Committee. Mr. Watt is the Founder and Chairman of the
Board of Watt Group, Inc., a commercial and residential real estate development
and building company. Mr. Watt has served on the Boards of several civic
organizations.
Merger Sub's Board of Directors will establish audit, compensation and
stock option committees, which have the same members as the current comparable
committees of Presley's Board of Directors.
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<PAGE> 64
MANAGEMENT. The same individuals who are executive officers of Presley
immediately before the effective time of the merger will be the only executive
officers of Merger Sub immediately following the effective time of the merger,
holding corresponding offices. The executive officers of Merger Sub and Presley
currently are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
General William Lyon........ 76 Director and Chairman of the Board
Wade H. Cable............... 51 Director, Chief Executive Officer and President
David M. Siegel............. 57 Senior Vice President, Chief Financial Officer and Treasurer
Nancy M. Harlan............. 52 Senior Vice President and General Counsel
Linda L. Foster............. 51 Vice President and Corporate Secretary
W. Douglass Harris.......... 56 Vice President and Corporate Controller
</TABLE>
General William Lyon was elected a director and Chairman of the Board of
Presley in 1987. Additionally, General Lyon serves on Presley's Compensation
Committee. General Lyon also is the Chairman of the Board, President and Chief
Executive Officer of William Lyon Homes, Inc. General Lyon is a retired Major
General and was Chief of the Air Force Reserve from 1975 to 1979. General Lyon
is a director of Fidelity Financial Services, Inc. and Kellstrom Industries.
Wade H. Cable has served as President and Chief Executive Officer of
Presley and has been a director of Presley since 1985. Prior to joining Presley,
he worked for thirteen years with Pacific Enterprises as a senior executive in
various of its real estate operations, including two years as an Executive Vice
President of Pacific Lighting Real Estate Group and four years as the President
of Fredricks Development Company, a residential developer and homebuilder.
David M. Siegel, a Senior Vice President, has been Chief Financial Officer
and Treasurer of Presley since February 1985. Prior to joining Presley, Mr.
Siegel was Executive Vice President and Chief Financial Officer for two
homebuilding companies. Mr. Siegel, a certified public accountant, was also a
partner with Kenneth Leventhal & Company, Certified Public Accountants, from
1972 to 1978, and has been involved with the real estate development and
homebuilding industry for more than 30 years.
Nancy M. Harlan, a Senior Vice President and General Counsel, joined
Presley in October 1987 after six years with Pacific Enterprises as Counsel to
its Real Estate Development subsidiaries. Ms. Harlan has been involved with the
real estate development and homebuilding industry for more than 20 years.
Linda L. Foster, Vice President and Corporate Secretary since 1987, has
been employed by Presley since 1979 as Corporate Secretary and in other
administrative positions. Ms. Foster has been involved with the real estate
development and homebuilding industry for 20 years.
W. Douglass Harris, Vice President and Corporate Controller, joined Presley
in June 1992, after seven years with Shapell Industries, Inc., another major
California home builder, as its vice president and corporate controller. Mr.
Harris has been involved with the real estate development and homebuilding
industry for more than 20 years.
The directors and officers of Merger Sub will continue to receive the same
aggregate compensation and benefits as they presently receive from Presley,
unless and until such compensation and benefits are changed at some future time
following the effective time of the merger by Merger Sub's Board of Directors.
Further, no change is contemplated in the compensation philosophy established by
Merger Sub's Board of Directors sitting as the compensation committee.
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<PAGE> 65
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information concerning the number of
shares of Presley's Series A Common Stock and Series B Common Stock beneficially
owned as of September 30, 1999 and as adjusted to give effect to the
cancellation of options to purchase 750,000 shares of Series A Common Stock held
by William Lyon and the following:
- The purchase of 1,989,180 shares of Series A Common Stock pursuant to the
tender offer and 15,566,837 shares of Series B Common Stock pursuant to
the Series B Purchase Agreements (Minimum Tender); and
- The purchase of 10,678,792 shares of Series A Common Stock pursuant to
the tender offer and 9,434,813 shares of Series B Common Stock pursuant
to the Series B Purchase Agreements (Maximum Tender).
If less than 10,678,792 shares of Series A Common Stock are validly
tendered and not withdrawn prior to the expiration of the tender offer, William
Lyon Homes has agreed to purchase and the three holders of Series B Common Stock
that have executed the Series B Purchase Agreements have agreed to sell a
sufficient number of shares of Series B Common Stock so as to enable William
Lyon Homes and its affiliates to own approximately 49% of Presley's outstanding
shares of Common Stock. Accordingly, the actual number of shares of Series B
Common Stock purchased and sold pursuant to the Series B Purchase Agreement will
depend upon the number of shares purchased in the tender offer. The Series B
Common Stock is convertible into a like number of shares of Series A Common
Stock and has the same voting rights as the shares of Series A Common Stock
except for voting as separate classes on the election of directors and certain
charter amendments. The following table does not give effect to the conversion
of outstanding shares of Presley Common Stock to shares of Merger Sub common
stock on a one for five basis in the Merger. The following table includes
information for each person or group that is known to Presley to be the
beneficial owner of more than 5% of the outstanding shares of Presley's Common
Stock; each of Presley's Directors; each executive officer of Presley; and all
officers and directors as a group.
<TABLE>
<CAPTION>
AS ADJUSTED
----------------------------------------------------------
AS OF SEPTEMBER 30, 1999 MINIMUM TENDER(10) MAXIMUM TENDER(10)
-------------------------- --------------------------- --------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES OF ALL SHARES OF ALL SHARES OF ALL
BENEFICIALLY COMMON BENEFICIALLY COMMON BENEFICIALLY COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(8) STOCK(9) OWNED(8) STOCK(9) OWNED(8) STOCK(9)
- ------------------------------------ ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
SERIES A COMMON STOCK
General William Lyon and William H.
Lyon(1)(2)...................... 6,682,039 12.8% 23,488,056(11) 45.00% 26,045,644(12) 49.90%
(21,498,876)(13) (41.18)%(13)
Wade H. Cable and Susan M. Cable,
Trustees of The Cable Family Trust
Est. 7-11-88(3)................. 463,527(14) * 463,527(14) * 463,527(14) *
Wade H. Cable(3).................. 525,000 * 525,000 * 525,000 *
General James E. Dalton(3)........ 2,000 * 2,000 * 2,000 *
Gregory P. Flynn(3)............... 0 N/A 0 N/A 0 N/A
Nancy M. Harlan and John H. Harlan,
Trustees of The Harlan Family
Revocable Living Trust Est.
7-24-96(3)...................... 401(15) * 401(15) * 401(15) *
Nancy M. Harlan(3)................ 15,000 * 15,000 * 15,000 *
W. Douglass Harris(3)............. 15,000 * 15,000 * 15,000 *
Steven B. Sample(3)............... 500 * 500 * 500 *
Karen S. Sandler(3)............... 10,253(16) * 10,253(16) * 10,253(16) *
David M. Siegel and Linda A. Siegel,
Trustees of The Siegel Family
Trust U/D/T Est. 6-20-89(3)..... 133,479(17) * 133,479(17) * 133,479(17) *
</TABLE>
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<TABLE>
<CAPTION>
AS ADJUSTED
----------------------------------------------------------
AS OF SEPTEMBER 30, 1999 MINIMUM TENDER(10) MAXIMUM TENDER(10)
-------------------------- --------------------------- --------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES OF ALL SHARES OF ALL SHARES OF ALL
BENEFICIALLY COMMON BENEFICIALLY COMMON BENEFICIALLY COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(8) STOCK(9) OWNED(8) STOCK(9) OWNED(8) STOCK(9)
- ------------------------------------ ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
David M. Siegel(3)................ 200,000 * 200,000 * 200,000 *
Marshall E. Stearns(3)............ 2,229(16) * 2,229(16) * 2,229(16) *
Ray A. Watt(3).................... 0 N/A 0 N/A 0 N/A
First Plaza Group Trust (Mellon
Bank, N.A., acting as trustee as
directed by General Motors
Investment Management
Corporation)(4)................. 1,697,325 3.25% 1,697,325 3.25% 1,697,325 3.25%
All directors and executive officers
of the Company as a group (14
persons)(2)..................... 8,049,428 15.42% 24,855,445 47.62% 27,413,033 52.52%
SERIES B COMMON STOCK
Pearl Street, L.P.(5)............. 5,920,362(18) 11.34% 0 N/A 2,609,783(18) 4.99%
First Plaza Group Trust (Mellon
Bank, N.A., acting as trustee as
directed by General Motors
Investment Management
Corporation)(4)................. 5,099,206(19) 9.77% 0 N/A 912,458(19) 1.75%
International Nederlanden (U.S.)
Capital Corporation(6).......... 4,547,269 8.71% 0 N/A 2,609,783 4.99%
Foothill Capital Corporation(7)... 1,836,109(20) 3.52% 1,836,109(20) 3.52% 1,836,109(20) 3.52%
</TABLE>
- ---------------
* Less than 1%
(1) Stockholder is at the following address: c/o William Lyon Homes, Inc., 4490
Von Karman, Newport Beach, CA 92660
(2) Includes 492,450 shares of Series A Common Stock held in a trust of which
William H. Lyon is the beneficiary. William H. Lyon does not have or share,
directly or indirectly, the power to vote or to direct the vote of those
shares. Does not include the shares that William Lyon and his affiliates
may have the right to acquire pursuant to the Series B Purchase Agreements.
William H. Lyon is not an officer or director of Presley.
(3) Stockholder is at the following address: c/o The Presley Companies, 19
Corporate Plaza, Newport Beach, CA 92660
(4) Stockholder is at the following address: 767 Fifth Avenue, New York, NY
10153
(5) Stockholder is at the following address: c/o Goldman Sachs & Co., 85 Broad
Street, New York, NY 10004
(6) Stockholder is at the following address: 135 East 57th Street, New York, NY
10022
(7) Stockholder is at the following address: 11111 Santa Monica Boulevard, Los
Angeles, CA 90025
(8) Includes the number of shares that could be purchased by exercise of
options available within sixty days under Presley's 1991 Stock Option Plan
as follows: 750,000, 525,000, 15,000, 15,000, and 200,000 shares of Series
A Common Stock acquirable by William Lyon, Wade H. Cable, Nancy M. Harlan,
W. Douglass Harris and David M. Siegel, respectively. Pursuant to the
Purchase Agreement, William Lyon will cancel his outstanding options to
purchase 750,000 shares of Series A Common Stock, and thus, these options
are not counted towards the Lyons' beneficial ownership, as adjusted.
(9) Shares of Common Stock subject to options that are currently exercisable or
exercisable within sixty days are deemed to be outstanding and beneficially
owned by the person holding such options for the purpose of computing the
percentage ownership of such person, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
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(10) Assumes that no shares of Common Stock will be sold pursuant to the tender
offer by an officer or director of Presley or Foothill Capital Corporation,
which is not a party to the Series B Purchase Agreements.
(11) Includes 15,566,837 shares of Series B Common Stock.
(12) Includes 9,434,813 shares of Series B Common Stock.
(13) Sets forth the Lyons' beneficial ownership and percentage ownership
assuming that no shares of Series A Common Stock are tendered pursuant to
the tender offer and the Lyons waive the minimum condition.
(14) Does not include 6,017 shares directly owned by children of Mr. Cable, as
to which shares Mr. Cable disclaims beneficial ownership.
(15) Does not include 100 shares held as trustee for benefit of a daughter, as
to which shares Ms. Harlan disclaims beneficial ownership, but includes one
share owned directly by Ms. Harlan.
(16) Ms. Sandler and Mr. Stearns are Senior Vice Presidents of Foothill Capital
Corporation.
(17) Does not include 400 shares directly owned by children and family of Mr.
Siegel, as to which shares Mr. Siegel disclaims beneficial ownership, but
includes one share owned directly by Mr. Siegel.
(18) Pursuant to Amendment No. 3 to Schedule 13G, dated February 14, 1999, filed
with the Securities and Exchange Commission, as of December 31, 1998,
Goldman Sachs & Co. and The Goldman Sachs Group, L.P. had shared voting
power and dispositive power with respect to these shares.
(19) Pursuant to a Schedule 13D, dated May 20, 1994, filed with the Securities
and Exchange Commission, General Motors Investment Management Corporation
had shared voting power and dispositive power with respect to these shares.
(20) Pursuant to Amendment No. 2 to Schedule 13D, dated July 10, 1998, filed
with the Securities and Exchange Commission, Foothill Capital Corporation
and its parent, Foothill Group, Inc., have shared voting power and shared
dispositive power with respect to 1,836,109 shares of Series B Common Stock
that are convertible into a like number of shares of Series A Common Stock;
and Foothill Group, Inc. has sole voting power and sole dispositive power
with respect to 71,965 shares of Series A Common Stock.
Except as otherwise indicated in the above notes, shares shown as
beneficially owned are those as to which the named person possesses sole voting
and investment power. However, under California law personal property owned by a
married person may be community property which either spouse may manage and
control, and Presley has no information as to whether any shares shown in this
table are subject to California community property law.
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CONVERSION OF SECURITIES IN THE MERGER
Each share of Presley Common Stock outstanding immediately prior to the
merger will be converted, by reason of the merger, pursuant to the certificate
of ownership and merger and without any action by the holder thereof, into the
right to receive 0.2 share of Merger Sub common stock.
Upon completion of the merger, Presley's outstanding options will be
assumed by Merger Sub and will become options to purchase Merger Sub common
stock, at the same one-for-five conversion rate.
In case of any fractional interests, you will have the right for 30 days to
purchase the additional fractional interests necessary to make up full shares or
to sell your fractional interests. An agent appointed by Presley will buy and
sell fractional interests for your account. At the end of 45 days, the agent
will deliver the full shares and sale proceeds.
LISTING ON NYSE
The Series A Common Stock is presently listed on the New York Stock
Exchange under the symbol "PDC." Following the merger, the Series A Common Stock
will cease to be so listed. Merger Sub filed a technical original listing to the
listing application of Presley with the New York Stock Exchange which has been
approved to list the Merger Sub common stock under the same symbol, "PDC." On
October 6, 1999, the last full trading day on which shares of the Series A
Common Stock were traded prior to the announcement of the execution of the
Purchase Agreement, the highest and lowest sale price and the closing price of a
share of Presley Common Stock reported on the New York Stock Exchange was,
respectively, $0.8125, $0.7500 and $0.8125.
EXCHANGE OF CERTIFICATES
At the effective time of the merger, holders of certificates representing
Presley Common Stock will cease to have any rights with respect to such shares
of Presley Common Stock and each such certificate will be deemed to evidence the
right to receive 0.2 share of Merger Sub common stock. The stock transfer books
of Presley will be closed at the close of business on the business day
immediately preceding the effective time, and the holders of record of Presley
Common Stock as of the effective time will be the holders of record of Merger
Sub common stock immediately after the effective time.
As soon as practicable after the effective time, Merger Sub will furnish a
letter of transmittal to stockholders for use in exchanging their stock
certificates, which will contain instructions with respect to the surrender of
Presley Common Stock certificates and the distribution of Merger Sub common
stock certificates. Presley's stockholders should not send in certificates until
they receive the letter of transmittal.
Presley's stockholders who fail to exchange their Presley Common Stock
certificates on or after the effective time by surrendering such certificates,
together with a properly completed letter of transmittal, to an exchange agent
designated by Presley and Merger Sub, will not receive certificates representing
their Merger Sub common stock. Any dividends declared or distributions made on
shares of Merger Sub common stock which such holders have a right to receive
will be retained by Merger Sub until such holders surrender their Presley Common
Stock certificates in exchange for Merger Sub common stock certificates or until
paid to a public official pursuant to applicable abandoned property, escheat or
similar laws. No interest will accrue or be payable with respect to any
dividends or distributions retained on unissued Merger Sub common stock
certificates. In no event will the exchange agent, Presley or Merger Sub be
liable to any holder of Presley Common Stock for dividends or distributions on
shares
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of Merger Sub common stock delivered in good faith to a public official pursuant
to any applicable abandoned property, escheat or similar law.
After the effective time, there shall be no transfers on the stock transfer
books of Presley of the shares of Presley Common Stock which were issued and
outstanding immediately prior to the effective time. If, after the effective
time, certificates representing shares of Presley Common Stock are presented for
transfer, no transfer shall be effected on the stock transfer books of Merger
Sub with respect to such shares and no certificate shall be issued representing
the shares of Merger Sub common stock exchangeable for such shares of Presley
Common Stock unless and until the Presley Common Stock certificate representing
such shares of Presley Common Stock is delivered to the exchange agent together
with a properly completed letter of transmittal, or the documents required by
Merger Sub and the exchange agent in their discretion. In addition, it will be a
condition to the issuance of any certificate for any shares of Merger Sub common
stock in a name other than the name in which the surrendered Presley Common
Stock certificate is registered, that the person requesting the issuance of such
certificate either pay to the exchange agent any transfer or other taxes
required by reason of the issuance of a certificate of Merger Sub common stock
in a name other than the registered holder of the certificate surrendered, or
establish to the satisfaction of the exchange agent that such tax has been paid
or is not applicable.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the opinion of Irell & Manella
LLP, counsel to Presley, as to the material federal income tax consequences of
the merger to the holders of Presley Common Stock, Presley and Merger Sub. This
discussion is qualified in its entirety by reference to, and is based upon,
laws, regulations, rulings and decisions now in effect, all of which are subject
to change, and such changes may or may not be retroactive. This discussion does
not discuss all aspects of federal income taxation that may be relevant to a
particular stockholder or to certain types of stockholders that are subject to
special treatment under the federal income tax laws such as banks, insurance
companies, tax-exempt organizations, dealers in securities, stockholders who
received Presley Common Stock as compensation or upon the exercise of options
received as compensation, stockholders who hold Presley Common Stock as part of
a hedge, straddle or conversion transaction, or foreign taxpayers, or any aspect
of state, local or foreign tax laws. This discussion only applies to
stockholders who hold Presley Common Stock and will hold Merger Sub common stock
as a capital asset. There can be no assurance that the IRS will not take a
contrary view with respect to any of the items discussed herein, and no ruling
from the IRS has been or will be sought.
EACH STOCKHOLDER SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR TO DETERMINE
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER.
HOLDERS OF COMMON STOCK. As a result of the merger, the holders of Presley
Common Stock will:
- recognize no gain or loss upon the receipt of Merger Sub common stock in
exchange for their Presley Common Stock, excluding the impact of cash
received in exchange for fractional interests from the agent designated
by Presley;
- have an initial tax basis in Merger Sub common stock received that is the
same as their adjusted tax basis in Presley Common Stock exchanged
therefor; and
- have a holding period for Merger Sub common stock received that includes
their holding period for their Presley Common Stock exchanged therefor.
- to the extent that you receive cash in exchange for fractional interests,
you will recognize gain or loss equal to the difference between your
basis in such fractional interest and the amount of cash received with
respect to such fractional interests. Such
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gain or loss will be treated as capital gain or loss, with gain resulting
from fractional interests held for more than one year taxed at a maximum
rate of 20% and gain resulting from fractional interests held for one
year or less taxed at a maximum rate of 39.6%.
No opinion is expressed as to any compensation income that might be
realized by any stockholders or option holders of Presley in respect of their
shares of Presley, whether vested or unvested, as a consequence of the merger.
PRESLEY AND MERGER SUB. Presley and Merger Sub will not recognize any taxable
gain or loss as a result of the merger, and neither the merger nor the adoption
of the transfer restrictions, by themselves, will impair the ability of Merger
Sub, Presley and other members of their affiliated group which file a
consolidated federal income tax return, to utilize Presley's federal tax net
operating loss carryforwards, federal investment tax credit carryforwards and
other material federal tax benefits.
The merger is conditioned upon the receipt of an opinion of Irell & Manella
LLP, counsel to Presley, based upon a requested officer's certificate, to the
effect that the merger will constitute a "reorganization" for federal income tax
purposes within the meaning of section 368(a) of the Internal Revenue Code of
1986, as amended, which opinion has been received.
PRO FORMA AND COMPARATIVE FINANCIAL INFORMATION
Under generally accepted accounting principles, the merger will be
accounted for on an historical cost basis whereby the consolidated assets and
liabilities of Merger Sub will be recorded at the historical cost of Presley as
reflected on Presley's consolidated financial statements prior to the merger.
Accordingly, the consolidated financial statements of Merger Sub immediately
following the merger will be the same as the consolidated financial statements
of Presley immediately prior to the merger. For this reason, only pro forma and
comparative earnings per common share information regarding Merger Sub and its
consolidated subsidiaries giving effect to the merger have been included herein.
Additionally, no selected historical pro forma and other financial data have
been included, because the merger will have no effect on Presley's historical
consolidated financial statements.
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The following represents the basic and diluted earnings per share of Common
Stock of Presley:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------ ENDED
1996 1997 1998 JUNE 30, 1999
----- ------ ----- -------------
<S> <C> <C> <C> <C>
Before extraordinary item................... $ -- $(1.72) $0.14 $0.25
Extraordinary item.......................... -- -- 0.05 0.03
----- ------ ----- -----
After extraordinary item.................... $ -- $(1.72) $0.19 $0.28
===== ====== ===== =====
Pro forma merger(1):
Before extraordinary item................. $0.68 $1.25
Extraordinary item........................ 0.26 0.17
----- -----
After extraordinary item.................. $0.94 $1.42
===== =====
Pro forma merger and William Lyon Homes
acquisition(2):
Before extraordinary item................. $0.58 $1.19
Extraordinary item........................ 0.26 0.17
----- -----
After extraordinary item.................. $0.84 $1.36
===== =====
</TABLE>
- ---------------
(1) Reflects the merger of Presley with and into its wholly owned subsidiary,
Merger Sub, including a one-for-five common stock exchange as if it occurred
at the beginning of the periods presented.
(2) Reflects the merger described in (1) above and the acquisition of
substantially all of the assets of William Lyon Homes as if it occurred at
the beginning of the periods presented. Presley expects that the purchase of
substantially all of the assets of William Lyon Homes will be consummated
after the special meeting of Presley's stockholders and before the effective
time of the merger. The unaudited pro forma combined financial information
giving effect to the asset purchase and the consolidated financial
statements are included at pages F-2 through F-20.
EFFECT OF AGREEMENTS TO PURCHASE SHARES OF SERIES B COMMON STOCK AND TENDER
OFFER FOR SERIES A COMMON STOCK
William Lyon Homes has entered into agreements dated as of July 6, 1999,
with three of the holders of Presley's Series B Common Stock, GS Credit
Partners, LP, The Chase Manhattan Bank, as Trustee for First Plaza Group Trust,
and ING (U.S.) Capital LLC. Gregory P. Flynn, a director of Presley, is a
managing partner of Hampshire Equity Partners (formerly known as ING Equity
Partners) which is an affiliate of ING (U.S.) Capital LLC. Pursuant to these
agreements, and subject to the conditions stated therein, including approval by
the Presley stockholders of the certificate of ownership and merger and the
completion of the asset purchase and tender offer, William Lyon Homes and/or its
permitted assigns has agreed to purchase an aggregate of 9,434,813 shares,
subject to adjustment, of Presley's Series B Common Stock. In addition, the
Purchase Agreement contemplates that William Lyon and one or more of his
affiliates will offer to purchase up to 10,678,792 shares of Presley's Series A
Common Stock, representing up to 20.46% of the outstanding Common Stock of
Presley, pursuant to a tender offer. If the tender offer is undersubscribed, the
three holders of Presley Series B Common Stock have agreed to sell an additional
number of shares of Series B Common Stock to William Lyon Homes on a pro rata
basis. If these stock purchases and the tender offer are completed, assuming
that the minimum condition is not waived, Presley estimates that its aggregate
percentage point change in ownership over the three-year period ending on such
date, assuming no other changes in ownership, would be 45.6%.
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PURCHASE AGREEMENT
Presley and Presley Homes, a California corporation and wholly owned
subsidiary of Presley, have entered into a Purchase Agreement and Escrow
Instructions with William Lyon Homes, William Lyon and his son, William H. Lyon.
The following is a brief summary of the principal provisions of the Purchase
Agreement, which has been filed and included as an exhibit to the Registration
Statement on Form S-4, filed by Merger Sub, in which this Proxy
Statement/Prospectus is contained, which agreement is incorporated herein by
this reference. Because the following is a summary description only, it does not
include the specific terms and provisions of the Purchase Agreement.
Accordingly, this summary is qualified in its entirety by reference to the
Purchase Agreement.
Pursuant to the terms of the Purchase Agreement, Presley Homes or its
permitted assigns will purchase and William Lyon Homes will sell all, or
substantially all, of the real property of William Lyon Homes, as well as
causing any partnership or limited liability company in which William Lyon Homes
is a partner or member, together with certain tangible and intangible personal
property and other property used in connection or associated with such real
property, for a cash purchase price of $48 million, subject to the adjustments
described below, and the assumption by Presley Homes of all, or substantially
all, of the liabilities of William Lyon Homes.
The closing of the purchase and sale of assets pursuant to the Purchase
Agreement is expected to occur prior to the completion of the tender offer by
the Lyons and the completion of the merger between Presley and Merger Sub. The
completion of the asset purchase is a condition precedent to the completion of
the tender offer and merger.
Assets to be Acquired by Presley Homes
Subject to the terms and conditions in the Purchase Agreement, William Lyon
Homes will sell, or will cause any partnership or limited liability company
through which William Lyon Homes owns real property to sell, to Presley Homes or
its permitted assigns all, or substantially all, of the assets and properties of
William Lyon Homes or any such partnership or limited liability company,
including without limitation the following assets:
- Substantially all real property located in the State of California that
is owned by William Lyon Homes and partnerships and limited liability
companies of which William Lyon Homes is a partner or a member, in each
case, as identified on an exhibit to the Purchase Agreement inclusive of
any and all buildings and improvements located on such real property and
all associated rights, privileges and easements appurtenant to such real
property;
- Substantially all personal property of any kind that is owned by William
Lyon Homes or any partnerships or limited liability companies and used in
connection with or related to the real property being sold to Presley
Homes; and
- All receivables, escrow proceeds, deposits and other assets arising out
of or related to the real property and the personal property, being sold
by William Lyon Homes or the selling partnerships and limited liability
companies to Presley Homes.
Pursuant to the Purchase Agreement, neither William Lyon Homes nor the
partnerships or limited liability companies through which William Lyon Homes
owns the assets, will transfer to Presley Homes the following assets:
- any rights and claims to tax refunds and adjustments of any kind owned or
held by William Lyon Homes or the partnership or limited liability
company, other than those relating to property taxes paid or payable with
respect to property owned as of December 31, 1998 or acquired after that
date;
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- the cash consideration to be paid by Presley Homes to William Lyon Homes
pursuant to the Purchase Agreement;
- the company records and all income tax records and non-transferable
licenses and permits held by William Lyon Homes or the partnerships or
limited liability companies;
- any assets acquired by William Lyon Homes or the partnerships or limited
liability companies after the closing date of the Purchase Agreement
except for assets that are acquired with proceeds constituting part of
the assets transferred to Presley Homes;
- any cash reserves in respect of or relating to any of the excluded
liabilities that are not assumed by Presley Homes under the Purchase
Agreement; and
- all assets scheduled as excluded under the Purchase Agreement.
Adjustments to the Purchase Price
The purchase price for the real property of $48 million was determined
based on the value of the real property and related assets owned directly or
indirectly by William Lyon Homes and the selling partnerships and limited
liability companies as of December 31, 1998. The parties intend that these
assets, together with all income, receivables, escrow and other proceeds,
purchase deposits, cash and other assets earned or received by William Lyon
Homes or the selling partnerships and limited liability companies from the sale
of any of these assets, including any assets acquired with sales proceeds, in
the ordinary course of business since January 1, 1999 and through the closing
date of the asset purchase will inure to Presley. The amounts so inuring to
Presley are to be net of any amounts that have been used to pay or satisfy land
acquisition or development costs, capital expenditures, principal or interest on
indebtedness, accounts payable, accrued liabilities, employee wages and
benefits, taxes and other liabilities and operating expenses existing at
December 31, 1998 and incurred in the ordinary course of business.
The cash portion of the purchase price will be reduced by the following:
- Any dividends or similar payments or distributions during the period
except to the extent recorded on the books of William Lyon Homes or the
selling partnerships or limited liability companies at December 31, 1998;
- Except to the extent recorded on the books of William Lyon Homes or the
selling partnerships or limited liability companies at December 31, 1998,
the unpaid balance of any loans or other advances made during the period
to or for the personal benefit of its shareholders or affiliates or by
the partnerships or limited liability companies to or for the personal
benefit of any partner or affiliate other than William Lyon Homes, but
excluding loans or other advances, the right to receive payment is being
transferred to Presley Homes any advances or payments made in the form of
salary or other compensation for services rendered in the ordinary course
of business;
- The amount of any payments made or liabilities accrued by William Lyon
Homes or the selling partnerships or limited liability companies during
the period in respect of the following amounts to the extent the payment
or other liability had not been recorded as of December 31, 1998:
- Bonuses and other compensation to directors, officers and employees
for services rendered prior to December 31, 1998;
- Warranty expenses related to real estate assets sold and closed prior
to December 31, 1998;
- Payments and related legal fees made in settlement of legal claims,
other than claims relating to the assets being purchased or the
liabilities being assumed; and
- Significant and unusual charitable contributions during the period;
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- The value of any real estate assets scheduled as assets excluded from
purchase;
- The amount of any costs and operating expenses incurred or accrued by
William Lyon Homes or any of the selling partnerships or limited
liability companies during the period in respect of or relating directly
to any of the excluded assets;
- The amount of any non-cash adjustments made on the books and records of
William Lyon Homes or any of the selling partnerships or limited
liability companies during the period for write-offs or abandonment of
assets to be purchased that were recorded on the books at December 31,
1998, but only to the extent that amount exceeds $500,000 in the
aggregate;
- The amount of any cash reserves to be retained in respect of liabilities
that are not being assumed by Presley Homes; and
- Any amounts paid or incurred by William Lyon Homes or any of the selling
partnerships and limited liability companies, except to the extent that a
corresponding liability was recorded on the books as of December 31,
1998, to the extent the amounts were paid or incurred in respect of
legal, financial and tax accounting, appraisal or financial advisory fees
and expenses incurred in connection with the transactions contemplated by
the Purchase Agreement which are in the aggregate greater than
$1,250,000.
The cash portion of the purchase price will be increased by the aggregate
of the following:
- Any capital contribution or other equity investment made in William Lyon
Homes by any of its shareholders, provided that Presley Homes has
approved any contribution or investment made after the date of the
Purchase Agreement;
- Any capital contribution to, or other equity investment made in, any of
the selling partnerships or limited liability companies during the period
by any of the partners or members, provided Presley Homes has approved
any contribution or investment made after the date of the Purchase
Agreement;
- Any accounts payable, accrued liabilities or indebtedness secured by or
relating to any of the assets not being purchased;
- Warranty reserves reflected on the books and records as of the closing
date retained by William Lyon Homes; and
- Tax refunds, insurance recoveries, utility deposits and other assets
acquired by William Lyon Homes or any of the selling partnerships or
limited liability companies during the period in exchange for or in
respect of any claims or other assets that were not reflected on their
books as of December 31, 1998.
Any adjustment to the purchase price will be determined by Ernst & Young
LLP or other independent accounting firm acceptable to Presley Homes and William
Lyon Homes based on a review of the books and records of the selling parties.
The independent auditor will perform a preliminary review and notify the parties
and the escrow holder not later than five business days prior to the closing
date of its estimate of any proposed adjustment. Unless either Presley Homes or
William Lyon Homes objects, the adjustment will be made to the purchase price at
the closing through escrow. If either objects, the escrow holder is required to
withhold the amount of the proposed adjustment until the amount of the
adjustment is finally determined.
After the closing, the independent auditor will complete a review and
deliver to the parties its final determination of any adjustment to the purchase
price within 30 calendar days of the closing date. If the parties agree or fail
to timely object, the determination will be final and conclusive. If either
party disagrees and makes a timely objection, the parties are required to make a
good faith attempt to resolve any differences. If the parties can't resolve the
matter, it
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will be directed to Arthur Andersen LLP or another independent accounting firm
acceptable to the parties whose determination shall be binding and conclusive.
Liabilities to be Assumed by Presley Homes
Pursuant to the Purchase Agreement, Presley Homes and its permitted assigns
will assume and agree to pay, perform and discharge all obligations and
liabilities of William Lyon Homes and the partnerships and limited liability
companies related to the assets purchased pursuant to the Purchase Agreement,
other than those obligations and liabilities excluded from assumption, including
but not limited to the following:
- the subcontract agreements on the standard form contracts for services,
materials or supplies to be incorporated into the works of improvement on
the real property;
- the purchase agreements on the standard form contracts for the sale of
individual lots to homebuyers which sales have not closed escrow on or
before the closing date;
- the subdivision agreements, development agreements and other entitlement
agreements with governmental entities relating to the real property;
- the contracts listed on an exhibit to the Purchase Agreement;
- the accounts payable and accrued liabilities of William Lyon Homes and
the partnerships and limited liability companies arising in the normal
course of business; and
- any obligation of William Lyon Homes and the partnerships and limited
liability companies to pay compensation, salaries or other benefits to
employees of William Lyon Homes, or the partnerships and limited
liability companies, who are hired by Presley Homes.
Presley Homes will not assume or be responsible for any of the liabilities
or obligations of William Lyon Homes and the partnerships or limited liability
companies which are identified below:
- any liabilities or obligations resulting from any alleged or actual
defect or breach of warranty claim with respect to any portion of the
real property, including all improvements thereon, for work done by
William Lyon Homes or the partnerships or limited liability companies on
the real property prior to the closing date;
- any liabilities or obligations resulting from any claim or other
proceeding made by or against William Lyon Homes or the partnerships or
limited liability companies, either before the closing date or after the
closing date, with respect to events that occurred or conditions that
existed before the closing date, except for those liabilities or
obligations expressly assumed by Presley Homes;
- any obligation, liability or expense of William Lyon Homes or the
partnerships or limited liability companies for income taxes;
- any obligation, liability or expense relating to or arising out of the
excluded assets that are not being purchased by Presley Homes and will
remain with William Lyon Homes or the partnerships or limited liability
companies;
- any liabilities or obligations of William Lyon Homes or the partnerships
or limited liability companies which arise after the closing date in
connection with the Purchase Agreement;
- any liabilities or obligations of William Lyon Homes or the partnerships
or limited liability companies to its stockholders in respect of its
ownership interest in William Lyon Homes or the partnerships or limited
liability companies;
- any liabilities or obligations for indebtedness secured by mortgages or
other security interests on the assets purchased to which William Lyon
Homes or the partnerships or
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limited liability companies are not directly or indirectly liable or do
not provide credit support;
- any liabilities or obligations of William Lyon Homes or the partnerships
or limited liability companies to the extent that the selling party has
the right to be indemnified or reimbursed by an insurer or other third
party with respect to those liabilities or obligations; and
- all other excluded liabilities scheduled in the Purchase Agreement.
As soon as reasonably possible after the execution of the Purchase
Agreement, the parties will open an escrow with First American Title Insurance
Company, the escrow holder. The closing of the purchase and sale of the real
property and related assets will take place through the escrow when all the
conditions to closing have been satisfied, but in no event later than November
30, 1999; provided, however, that if the closing of the transactions has not
occurred by November 30, 1999 due to delays in obtaining governmental or
regulatory approvals of the transactions, then the parties have agreed to extend
the closing date for up to an additional thirty (30) calendar days to obtain
such approvals. The close of escrow shall occur when Presley Homes deposits the
purchase price into escrow and the grant deeds held by William Lyon Homes
conveying the real property to Presley Homes are recorded through escrow in the
official records of the counties in which each respective parcel of real
property is located.
Tender Offer
Following execution of the Purchase Agreement and provided that it shall
not have been terminated prior to the closing date, as promptly as practicable,
but in no event later than five (5) business days after the public announcement
of the execution of the Purchase Agreement, William Lyon and his son, William H.
Lyon, will commence a cash tender offer to acquire up to 10,678,792 shares,
subject to adjustment, of the Series A Common Stock of Presley at $0.655 per
share. The Lyons will complete the tender offer in accordance with its terms and
accept for payment and pay for the shares of Series A Common Stock tendered
pursuant to the tender offer as soon as they are legally permitted to do so
under applicable law. The tender offer will be subject to various conditions set
forth in the Purchase Agreement, including a minimum condition that there be
validly tendered and not withdrawn prior to and as of the expiration date of the
tender offer at least 1,989,180 shares of Series A Common Stock. The Lyons may
decrease or waive the minimum condition but shall not decrease the tender offer
price, or decrease the number of shares of Series A Common Stock sought, or
amend any other condition of the tender offer in any manner adverse to the
holders of the shares of Series A Common Stock without the prior written consent
of Presley.
In the event that Presley determines that consummation of the tender offer
or the Series B Purchase Agreements would result in an "ownership change" under
applicable federal income tax laws and regulations or other adverse tax
consequences, the Lyons have agreed to amend the tender offer to decrease the
number of shares of Series A Common Stock being sought but not below the number
of shares required to satisfy the minimum specified in the Purchase Agreement.
If on the initial scheduled expiration date of the tender offer, which
shall be no earlier than 20 business days after the date upon which the tender
offer is commenced, any of the following shall have occurred and is continuing:
- the minimum condition described above shall not have been satisfied or
waived by the Lyons, or
- either the asset purchase shall not have been consummated or the
stockholders shall not have approved the merger, or such conditions shall
not have been waived by the Lyons
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due to delays in obtaining the necessary governmental or third party
consents or obtaining the necessary financing or releases.
Then the Lyons shall extend the tender offer from time to time as may be
necessary to satisfy the conditions to the tender offer to be substantially
co-terminous with the closing of the other transactions under the Purchase
Agreement provided, however, the tender offer shall not be extended beyond
November 30, 1999, or 30 calendar days thereafter in the event the closing of
the asset purchase is delayed due to delays in obtaining governmental approvals.
Notwithstanding the above, the conditions to the tender offer set forth in
the Purchase Agreement, other than actions by governmental entities that would
prohibit completion of the tender offer, shall be deemed to have been satisfied
upon completion of the asset purchase by Presley Homes.
The Lyons will take all steps necessary to cause the offer to purchase,
form of letter of transmittal and other exhibits to the Schedule 14D-1 to be
filed with the Securities and Exchange Commission and to be distributed to the
holders of the Series A Common Stock of Presley as required by applicable
federal securities laws.
Presley represents that a Special Committee of independent directors of
Presley's Board of Directors has determined that the Purchase Agreement and the
transactions contemplated in it, taken together, are fair to and in the best
interests of Presley and the holders of the Series A Common Stock, other than
the Lyons, provided that each holder is advised to consult with their financial
and tax advisors. Presley has received an opinion from Warburg Dillon Read,
financial advisor to the Special Committee, that after giving effect to the
asset purchase, the tender offer, the merger and the Series B Purchase
Agreements the shares of common stock of Merger Sub to be issued in the merger
to Presley's stockholders and the cash that may be received by each such
tendering holder of Series A Common Stock in the tender offer, is fair to the
holders of the Series A Common Stock, other than the Lyons and those selling
Series B Common Stockholders, from a financial point of view. The Special
Committee has approved the transactions contemplated in the Purchase Agreement
and resolved to recommend that the Series A stockholders, other than the Lyons
and holders of the Series B Common Stock that have entered into the Series B
Purchase Agreements, accept the Lyons' tender offer, provided that they should
consult with their financial and tax advisors prior to tendering their shares
and that the recommendation may be withdrawn, modified or changed if in their
opinion, after consultation with counsel, the failure to take that action would
be inconsistent with their fiduciary duties.
As soon as practicable on or after the tender offer is commenced, Presley
will file with the Securities and Exchange Commission a
solicitation/recommendation statement on Schedule 14D-9, which will contain
Presley's recommendation with respect to the tender offer. At the time that the
tender offer documents are first mailed by the Lyons to the holders of the
Series A Common Stock, or as soon as practicable thereafter, Presley will
distribute to the holders of the Series A Common Stock the Schedule 14D-9,
together with the tender offer documents.
In the event that the tender offer is oversubscribed, the Lyons will
purchase the shares of Series A Common Stock from each tendering holder on a pro
rata basis up to the amount of the tender offer. In the event that the tender
offer is undersubscribed, the Lyons will purchase additional shares of Common
Stock at $0.655 per share from each holder of the Series B Common Stock on a pro
rata basis pursuant to the Series B Purchase Agreements, such that the Lyons
will own not more than 49.9% of the issued and outstanding shares of Presley
Common Stock. The Lyons will in no event purchase a number of shares of Common
Stock of Presley such that an "ownership change" would occur with respect to
Presley under applicable federal income tax laws and other regulations.
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Representations and Warranties
William Lyon Homes makes the following representations and warranties to
Presley Homes in the Purchase Agreement:
- Good standing and corporate formation of William Lyon Homes, including
the selling partnerships and limited liability companies;
- Corporate authority to enter into the Purchase Agreement, Series B
Purchase Agreements and to complete the transactions contemplated
therein;
- The authority of the individuals executing the Purchase Agreement, the
Series B Purchase Agreements and the completion of the transactions
contemplated therein;
- The Purchase Agreement and the Series B Purchase Agreements are valid and
binding obligations of William Lyon Homes and enforceable against William
Lyon Homes;
- The partnerships and limited liability companies identified on an exhibit
to the Purchase Agreement are the only such equity interests owned by
William Lyon Homes;
- The California residency of William Lyon Homes for California tax
purposes and its status as not being a foreign entity for federal tax
purposes;
- The condition and marketability of title of the personal property assets
being sold to Presley Homes by William Lyon Homes;
- The delivery and accuracy of the financial statements of William Lyon
Homes and a representation that William Lyon Homes has conducted its
business in the ordinary course and has not paid dividends nor redeemed
or made other distributions in respect of its outstanding common stock
since December 31, 1998;
- The validity and the absence of breach or default under contracts being
assumed by Presley Homes;
- The status of zoning regulations affecting the real property sold to
Presley Homes;
- The receipt or existence of governmental notices affecting the real
property sold to Presley Homes;
- The absence of undisclosed defects to the real property sold to Presley
Homes;
- The absence of unrecorded interests on the real property sold to Presley
Homes;
- The compliance with all regulations, covenants, conditions, restrictions,
easements and similar matters affecting the real property;
- The absence of public improvements affecting the real property sold to
Presley Homes;
- The absence of any other agreements, to which William Lyon Homes is a
party, that would affect the ownership of the real property by Presley
Homes or the proposed development of the real property;
- The absence of any material litigation which adversely affects the
Purchase Agreement, the Series B Purchase Agreements or the ownership and
development of the real property sold to Presley Homes;
- The compliance with environmental laws, the absence of any communications
or claims alleging non-compliance with environmental laws, and the
presence, discharge or storage of any environmental pollutants;
- The absence of any endangered or threatened species that would adversely
impact the development of the real property;
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- The validity and collectibility of accounts receivable;
- The disclosure of all employment contracts and employee benefit plans and
compliance with the obligations under ERISA;
- The maintenance of adequate insurance policies;
- The absence of any breach or conflict with any of the organizational
documents or any indebtedness of William Lyon Homes, or any action that
would result in the imposition of a lien on the assets;
- The lack of any intent to implement a "plant closing" or "mass lay off"
under the WARN Act; and
- The disclosure or absence of any brokers' or finders' fees.
Presley and Presley Homes make the following representations and warranties
to William Lyon Homes in the Purchase Agreement:
- Corporate authority to enter into the Purchase Agreement and to complete
the transactions contemplated therein;
- Completion of all requisite corporate or other action by Presley and
Presley Homes to enter into the Purchase Agreement and the completion of
the transactions contemplated therein;
- The authority of the individuals executing the Purchase Agreement and the
completion of the transactions contemplated therein;
- The absence of any breach or conflict with any of the organizational
documents of Presley or Presley Homes, any law to which they are subject,
or any material contract that is material to the financial condition,
results of operations, business, assets, liabilities or prospects of
Presley or Presley Homes;
- The disclosure or absence of any brokers' or finders' fees;
- The absence of any legal proceedings that could reasonably be expected to
have a material adverse effect on the ability of Presley or Presley Homes
to complete the transactions contemplated by the Purchase Agreement; and
- The lack of any intent to implement a "plant closing" or "mass lay off"
under the WARN Act within 150 days of the closing date.
Indemnification and Survival of Representations
The representations and warranties of William Lyon Homes made in the
Purchase Agreement will survive for a period of one year after the closing date.
From and after the closing date, William Lyon Homes will indemnify and hold
Presley and Presley Homes harmless from any losses resulting from any breach of
representation, any breach of a covenant, and any of the excluded liabilities.
The indemnity liability will be reduced to the extent that the underlying loss
already resulted in an adjustment to the purchase price as provided for in the
Purchase Agreement. William Lyon Homes will not be obligated to indemnify
Presley or Presley Homes for losses resulting from any breach of representation
or covenant, unless the losses in the aggregate exceed $500,000 and in no event
will William Lyon Homes be obligated to cover losses, that are not covered by
insurance, in excess of $2,400,000.
From and after the closing date, Presley and Presley Homes will indemnify
and hold William Lyon Homes harmless from any losses resulting from any breach
of representation, any breach of a covenant, and any of the assumed liabilities.
The indemnity liability will be reduced to the extent that the underlying loss
already resulted in an adjustment to the purchase price as
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<PAGE> 80
provided for in the Purchase Agreement. Presley and Presley Homes will not be
obligated to indemnify William Lyon Homes for losses resulting from any breach
of representation or covenant, unless the losses in the aggregate exceed
$500,000 and in no event will Presley or Presley Homes be obligated to cover
losses in excess of $2,400,000.
The Lyons and William Lyon Homes agree to maintain the corporate existence
of William Lyon Homes for a period of one year after closing and to maintain a
tangible net worth of not less than $2.4 million dollars and for such longer
period thereafter as the representations and warranties may be extended pursuant
to the Purchase Agreement. Neither William Lyon nor his son have personally
guaranteed the obligations of William Lyon Homes under the Purchase Agreement.
Interim Covenants
For the period between executing the Purchase Agreement and the closing
date, William Lyon Homes agrees to provide Presley Homes with reasonable access
to the assets and the books and records of William Lyon Homes, to use best
efforts to maintain and preserve the assets being sold to Presley Homes and to
manage the assets reasonably consistent with past practices in the ordinary
course of business and to cooperate in the obtaining of governmental or third
party consents necessary to complete the transactions.
For the period between executing the Purchase Agreement and the closing
date, Presley and Presley Homes agree to cooperate in the obtaining of any
governmental or third party consents necessary to complete the transactions,
maintain and preserve the business operations of Presley Homes in accordance
with past practices and use reasonable efforts to obtain financing without
triggering a default under the senior notes of Presley Homes.
Conditions to the Purchase Agreement
The conditions precedent to the obligations of Presley and Presley Homes
under the Purchase Agreement are as follows:
- The accuracy of the representations and warranties by William Lyon Homes
and the performance of all covenants by William Lyon Homes and the Lyons;
- The receipt of all required regulatory approvals and third party
consents;
- The absence of any material adverse change to the assets or assumed
liabilities;
- The receipt of a legal opinion from O'Melveny & Myers LLP, counsel for
William Lyon Homes, with respect to the following:
- The incorporation, valid existence and good standing of William Lyon
Homes;
- Due authorization, execution and delivery of the Purchase Agreement;
- The enforceability of the Purchase Agreement against William Lyon
Homes, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally and by general principles of equity and
the possible unavailability of specific performance or injunctive
relief, regardless of whether the proceeding is in law or equity;
- No consents of California or federal authorities that the counsel has,
in the exercise of customary professional diligence, recognized as
applicable to transactions of the type contemplated by the Purchase
Agreement for the execution and delivery of, and the performance by
William Lyon Homes under, the Purchase Agreement, except for those
that have been obtained; and
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- William Lyon Homes' execution, delivery, and performance of the
Purchase Agreement does not violate its charter documents; violate,
breach or result in a default under any agreement identified in good
faith to counsel on a schedule; or breach or otherwise violate any
judgment or decree of any California or Federal court or governmental
authority binding William Lyon Homes and identified on a schedule.
Counsel is not required to express any opinion as the effect of
Presley or Presley Homes' performance under the Purchase Agreement on
their compliance with financial covenants in any loan agreement;
- The absence of any litigation affecting the assets or the completion of
the asset purchase;
- The issuance of acceptable policies of title insurance in favor of
Presley Homes;
- The assignment of all necessary real property documents to Presley Homes;
- The receipt of a solvency opinion by Presley from Houlihan Lokey Howard &
Zukin, financial adviser to Presley;
- The receipt of adequate financing;
- The absence of any default under the senior notes of Presley;
- The determination by Presley of the absence of an "ownership change"
under applicable federal income tax laws;
- The conditions to the Series A tender offer, other than the condition
relating to the asset purchase itself, shall have been satisfied or
waived;
- The approval of the stockholders of Presley of the merger between Presley
and Merger Sub;
- Each of the Series B Purchase Agreements shall be in full force and
effect against the Series B Common Stockholders in accordance with their
terms; and
- The cancellation by William Lyon of all of his outstanding options to
acquire 750,000 shares of Presley's Series A Common Stock.
The conditions precedent to the obligations of William Lyon Homes under the
Purchase Agreement are as follows:
- The accuracy of the representations and warranties and the performance of
all covenants by Presley and Presley Homes;
- The receipt of all required regulatory approvals and third party
consents;
- The receipt of legal opinions from each of Irell & Manella LLP and
Morris, Nichols, Arsht & Tunnell, counsel for Presley and Presley Homes,
and of Nancy M. Harlan, Esq., Senior Vice President and General Counsel
of Presley collectively with respect to the following:
- The incorporation, valid existence and good standing of Presley and
Presley Homes;
- Due authorization, execution and delivery of the Purchase Agreement;
- The enforceability of the Purchase Agreement against Presley and
Presley Homes, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally and by general principles of equity and
the possible unavailability of specific performance or injunctive
relief, regardless of whether the proceeding is in law or equity;
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- No consents of California or federal authorities that the counsel has,
in the exercise of customary professional diligence, recognized as
applicable to transactions of the type contemplated by the Purchase
Agreement for the execution and delivery of, and the performance by
Presley and Presley Homes under the Purchase Agreement, except for
those that have been obtained; and
- Presley and Presley Homes' execution, delivery, and performance of the
Purchase Agreement do not violate their respective charter documents;
violate, breach or result in a default under any agreement identified
to counsel in an officers' certificate as being material to Presley or
Presley Homes; or breach or otherwise violate any judgment or decree
of any California or Federal court or governmental authority binding
on Presley or Presley Homes and identified in an officer's
certificate. Counsel is not required to express any opinion as the
effect of Presley or Presley Homes' performance under, the Purchase
Agreement on their compliance with financial covenants in any loan
agreement;
- The absence of any litigation affecting the completion of the asset
purchase;
- The conditions to the Series A tender offer, other than the condition
relating to the asset purchase itself, shall have been satisfied or
waived;
- The approval of the stockholders of Presley of the merger between Presley
and Merger Sub;
- The release of William Lyon Homes from its contracts and obligations
assumed by Presley Homes;
- The Series B Purchase Agreements shall continue in full force and effect
and shall be enforceable against the Series B Common Stockholders in
accordance with their terms, except that this condition shall be
satisfied if any failure is due solely to a breach of the Series B
Purchase Agreements by William Lyon Homes; and
- The determination by William Lyon Homes and its affiliates of the absence
of an "ownership change" under applicable federal income tax laws.
Escrow
As soon as reasonably possible after the execution of the Purchase
Agreement, Presley, Presley Homes and William Lyon Homes shall open an escrow
with First American Title Insurance Company as escrow holder.
Subject to the conditions in the Purchase Agreement, William Lyon Homes
will deliver, and will cause each of the partnerships and limited liability
companies to deliver, to the escrow holder, on or prior to the closing date,
each of the following documents:
- grant deeds conveying the real property to Presley Homes;
- assignments of all of William Lyon Homes', the partnerships' and the
limited liability companies' interests in and to any purchase agreements
and other agreements;
- two copies of the assignment of plans and warranties executed by William
Lyon Homes and the partnerships and limited liability companies;
- two copies of each bill of sale conveying the personal property and other
instruments of transfer as required by law or Presley Homes;
- two copies of any other assignments or instruments of transfer, including
those required by law;
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- two copies of each assignment and assumption of leasehold, accompanied by
all required consents, executed by William Lyon Homes and the
partnerships and limited liability companies;
- affidavits of William Lyon Homes; and
- two copies of the assignment and assumption agreement executed by William
Lyon Homes and the partnerships and limited liability companies.
Subject to the conditions in the Purchase Agreement, Presley Homes will
deliver to the escrow holder, on or prior to the closing date, each of the
following items:
- the purchase price, together with Presley Homes' share of any escrow
closing costs;
- two copies of the assignment of plans and warranties executed by Presley
Homes;
- two copies of the assignment and assumption agreement executed by Presley
Homes; and
- two copies of each assignment and assumption of leasehold executed by
Presley Homes.
Upon the close of escrow, when all funds and documents have been deposited
into escrow, the escrow holder shall promptly undertake all of the following, in
the following order:
- cause the grant deeds to be recorded in the official place of records for
the county in which the real property is located;
- disburse all funds to William Lyon Homes after deducting escrow costs and
all items chargeable to the account of William Lyon Homes;
- deliver the affidavits to Presley Homes;
- deliver one copy of each document identified above to each of William
Lyon Homes and Presley Homes; and
- cause the title policy, which the escrow holder is obligated to issue and
provide to Presley Homes, to be delivered to Presley Homes.
The escrow instructions do not contemplate any procedure to address
breaches of representations, warranties or covenants, or obligations arising
under the indemnification provisions in the Purchase Agreement.
Post Closing Obligations
After the closing date, Presley Homes agrees to offer continued employment
to the officers, employees and sales agents of William Lyon Homes on an "at
will" basis. Presley Homes agrees for purposes of the WARN Act to consider any
employee of William Lyon Homes who accepts employment with Presley Homes as an
employee of Presley Homes immediately prior to the closing date. William Lyon
Homes will comply with applicable COBRA requirements and those of any comparable
state or local law with respect to the termination of employees in connection
with the transactions contemplated by the Purchase Agreement. William Lyon
Homes, the partnerships, limited liability companies, and their ERISA affiliates
will continue any group health plan coverage to their employees to the extent
necessary to prevent Presley Homes from being deemed a successor employer of
William Lyon Homes, the partnerships, limited liability companies, or their
ERISA affiliates under applicable law or regulation.
William Lyon Homes will remain liable and indemnify and defend Presley
Homes for any claims relating to homes which close escrow prior to the closing
date for this transaction. Presley Homes will be liable and indemnify and defend
William Lyon Homes for any claims relating to homes where no work had commenced
prior to the closing date. To the extent that
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<PAGE> 84
construction has begun on any improvements prior to the closing date, or a home
has been started but has not yet closed escrow, Presley Homes and William Lyon
Homes will each remain liable for any claims for alleged construction defects
for any work done by or for them, respectively, on the real property and each
shall indemnify the other in accordance with the Purchase Agreement. The overall
intent of the Purchase Agreement is to maximize insurance coverage, whether
purchased for the benefit of William Lyon Homes or Presley Homes, and nothing
contained in the Purchase Agreement will be construed to reduce or change
coverage to the detriment of either Presley Homes or William Lyon Homes, as
applicable.
Following the closing, Presley Homes will manage and provide other services
as William Lyon Homes may request with respect to certain real estate
development projects identified on a schedule, regardless of the fact that such
projects are excluded from the assets being purchased by Presley Homes. William
Lyon Homes will reimburse Presley Homes for all costs incurred in providing
these services.
After the closing date, William Lyon Homes agrees to cooperate, and to
cause the partnerships and the limited liability companies through which it owns
real property to cooperate, in the transfer and delivery of the assets being
purchased by Presley Homes and to maintain adequate levels of insurance coverage
to protect the assets being purchased by Presley Homes.
Termination
The Purchase Agreement may be terminated under the following circumstances:
- By mutual consent of the parties;
- By Presley Homes, Presley or William Lyon Homes if any governmental
entity issues an order, decree or ruling which permanently restrains or
otherwise prohibits the purchase of the shares pursuant to the Series A
tender offer or the Series B Purchase Agreements;
- By Presley Homes, Presley or William Lyon Homes if the closing of the
asset purchase has not occurred, other than through the failure of any
party seeking to terminate to comply fully with its obligations under the
Purchase Agreement, on or before November 30, 1999; provided that if the
closing has not occurred by that date due to delays in obtaining
government approvals, then the parties agree to extend the closing date
for up to an additional 30 days;
- By Presley Homes or Presley if the Lyons fail to commence the Series A
tender offer within the time set forth in the Purchase Agreement,
provided that Presley Homes is not in material breach at that time;
- By Presley Homes or Presley in connection with entering into a definitive
agreement with a third party as permitted under the Purchase Agreement in
respect of Presley's board of directors' fiduciary duties to Presley's
stockholders, provided that Presley Homes has complied with all
provisions of the Purchase Agreement;
- By Presley Homes or Presley if William Lyon Homes shall have breached in
any material respect any of its representations, warranties or agreements
if the breach cannot be or has not been cured within 30 days after
written notice of the breach;
- By William Lyon Homes if due to an occurrence not involving a breach by
it of its obligations under the Purchase Agreement, which makes it
impossible to satisfy any of the conditions to the Series A tender offer,
William Lyon and one or more of his affiliates or associates shall have
failed to commence the Series A tender offer within the time specified in
the Purchase Agreement;
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- By William Lyon Homes if, prior to the purchase of Presley's Series A
Common Stock by William Lyon and one or more of his affiliates or
associates pursuant to the Series A tender offer, Presley's Board of
Directors shall have withdrawn, modified or changed in a manner adverse
to William Lyon and one or more of his affiliates or associates its
approval or recommendation of the tender offer or shall have recommended
an acquisition proposal or executed an agreement relating to an
acquisition proposal or similar business combination with a person or
entity other than William Lyon Homes or its affiliates; or
- By William Lyon Homes if Presley Homes or Presley shall have breached any
representation, warranty or covenant in the Purchase Agreement which
cannot be or has not been cured within 30 days after notice.
If the Purchase Agreement is terminated, all further obligations of the
parties shall terminate, provided that the termination will not relieve any
party of any liability that it may have for breach of any representation or
warranty or nonperformance of any covenant or constitute a waiver of any
available remedy for breach or nonperformance.
No Solicitation
Each of the parties to the Purchase Agreement has agreed that prior to the
closing neither it nor any of its representatives will:
- Solicit or encourage the submission of an acquisition proposal other than
from a party to the Purchase Agreement; or
- Provide any information concerning it or the assets to any other person
or permit any other person to visit its premises in connection with or
for the purpose of soliciting or facilitating an acquisition proposal.
In the event any other potential acquiror contacts a party to the Purchase
Agreement, that party is required to inform the other parties and to inform the
potential acquirer of the period of exclusive negotiations. If the board of
directors of Presley or William Lyon Homes, after receiving advice from counsel,
determines that a failure to act would be inconsistent with the board's
fiduciary duties, they may furnish information pursuant to confidentiality
agreements and participate in discussions and negotiations. A party receiving a
competing acquisition proposal is required to promptly notify the other party of
the proposal. If a party enters into a definitive agreement with respect to a
competing proposal, that party is required to concurrently pay all fees and
expenses incurred by the other party through that date in connection with the
Purchase Agreement.
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INFORMATION ABOUT WILLIAM LYON HOMES
SELECTED FINANCIAL DATA OF WILLIAM LYON HOMES
The following selected consolidated financial data of William Lyon Homes
has been derived from the Consolidated Financial Statements of William Lyon
Homes and other available information. The summary should be read in conjunction
with the William Lyon Homes Consolidated Financial Statements and the Notes
thereto appearing on pages F-8 to F-20.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
------- ------- ------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales
Homes.............. $ 7,665 $25,505 $42,480 $ 23,569 $ 67,759 $ 48,129
Lots, land and
other............ -- -- 3,660 -- -- --
------- ------- ------- -------- -------- --------
Total sales........ 7,665 25,505 46,140 23,569 67,759 48,129
Income (loss) from
unconsolidated
joint ventures..... 1,865 1,770 1,275 4,183 3,649 (7)
Income before income
taxes.............. 1,764 1,282 1,477 3,900 6,409 1,333
Provision for income
taxes.............. 27 19 22 58 96 20
Net income............ $ 1,737 $ 1,263 $ 1,455 $ 3,842 $ 6,313 $ 1,313
BALANCE SHEET DATA:
Real estate
projects........... $19,451 $24,970 $11,606 $ 26,958 $ 79,385 $114,376
Total assets.......... 28,833 35,113 25,442 38,963 90,440 128,265
Notes payable......... 15,832 20,590 8,299 18,086 56,142 90,405
Stockholders'
equity............. 10,908 12,171 13,626 17,967 22,780 24,093
OPERATING DATA
(including
unconsolidated joint
ventures):
Number of homes sold.. 261 341 468 617 389 489
Number of homes
closed............. 224 407 443 504 488 224
Average sales prices
of homes closed.... $ 202 $ 201 $ 242 $ 252 $ 249 $ 246
CONSOLIDATED OPERATING DATA:
Number of homes sold.. 22 129 159 174 349 447
Number of homes
closed............. 37 106 171 123 330 205
Average sales prices
of homes closed.... $ 207 $ 241 $ 248 $ 192 $ 205 $ 235
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF WILLIAM LYON HOMES
GENERAL
William Lyon Homes designs, builds and sells single family homes in
Southern and Northern California. During the year ended December 31, 1998,
William Lyon Homes had sales of $67.8 million and net income of $6.3 million, on
closings of 330 consolidated homes and 158 unconsolidated homes. Homes sold by
William Lyon Homes are designed to appeal primarily to entry-level and first
time move-up buyers, and are offered for sale in advance of their construction.
The majority of homes are sold pursuant to standard sales contracts entered into
prior to completion of construction. Such sales contracts are subject to certain
contingencies such as the buyers ability to qualify for financing. Homes covered
by such sales contracts constitute William Lyon Homes' "backlog." William Lyon
Homes does not recognize revenue on homes until the sales are closed and the
risks of ownership have been transferred to the buyer.
SEASONALITY
William Lyon Homes has historically experienced significant seasonality and
quarter-to-quarter variability in homebuilding activity levels. The annual
operating cycle generally reflects escalating new orders in William Lyon Homes'
second and third fiscal quarters. Since closings usually trail home sales by
three to six months, closings typically are lowest in the first quarter of the
fiscal year, and revenues from home closings usually peak in the third and
fourth quarters of the fiscal year. William Lyon Homes believes that this
seasonality reflects the preference of home buyers to shop for a new home in the
spring, as well as the scheduling of construction to accommodate seasonal
weather conditions. This trend, however, may be altered in periods of extreme
fluctuations in economic conditions, such as interest rates and general consumer
confidence. William Lyon Homes' operations can also be affected by inflation.
All costs and expenses including land, raw materials, subcontracted labor and
interest would increase in an inflationary period and, as a result, William Lyon
Homes' margins could decrease unless the increased costs were recovered through
higher sales prices.
RESULTS OF OPERATIONS
Homes sold, closed and in backlog as of and for the periods presented are
as follows:
<TABLE>
<CAPTION>
AS OF AND FOR YEARS SIX MONTHS
ENDED DECEMBER 31, ENDED
--------------------- JUNE 30,
1996 1997 1998 1999
----- ----- ----- ----------
<S> <C> <C> <C> <C>
Number of homes sold
William Lyon Homes..................... 159 174 349 447
Unconsolidated joint ventures.......... 309 443 40 42
----- ----- ----- ------
468 617 389 489
===== ===== ===== ======
Number of homes closed
William Lyon Homes..................... 171 123 330 205
Unconsolidated joint ventures.......... 272 381 158 19
----- ----- ----- ------
443 504 488 224
===== ===== ===== ======
Backlog of homes sold but not closed at
end of period
William Lyon Homes..................... 18 69 88 330
Unconsolidated joint ventures.......... 62 124 6 29
----- ----- ----- ------
80 193 94 359
===== ===== ===== ======
</TABLE>
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Homes in backlog are generally closed within three to six months. The
cancellation rate of buyers who contracted to buy a home but did not close
escrow was approximately 30% during 1998.
The number of homes closed in 1998 decreased 3.2% to 488 from 504 in 1997.
The backlog of homes sold as of December 31, 1998 was 94, down 51.3% from 193
units as of December 31, 1997. William Lyon Homes' inventory of completed and
unsold homes as of December 31, 1998 decreased to 24 units from 27 units as of
December 31, 1997.
The decline in net new home orders, closings and backlog for 1998 as
compared with 1997 is primarily the result of a decrease in available product
and the timing of closings.
Comparison of Years Ended December 31, 1998 and 1997. Total sales, which
represent recorded revenues from closings, for the year ended December 31, 1998
were $67.8 million, an increase of $44.2 million, or 187.3%, from sales of $23.6
million for the year ended December 31, 1997. This increase was due primarily to
a 168.3% increase in the number of consolidated homes closed to 330 in 1998 from
123 in 1997, and an increase in the average sales prices of such homes to
$205,000 in 1998 from $192,000 in 1997.
The excess of revenue from sales of homes over the related cost of sales
(gross profit) increased by $8.4 million, to $11.4 million in 1998 from $3.0
million in 1997. This increase was primarily due to (1) a 168.3% increase in the
number of consolidated homes closed to 330 in 1998 from 123 in 1997, (2) changes
in product delivered in 1998 compared to 1997 comprised of 6 new products
introduced in 1998 with average gross margins of 15.5% on 187 homes closed and
(3) an increase of average gross margins for continuing products delivered in
both 1998 and 1997 to 18.6% from 13.1%. Sales and marketing expenses increased
by $1.5 million, or 107.1%, to $2.9 million in 1998 from $1.4 million in 1997
primarily as a result of an increase in the number of consolidated homes closed
to 330 in 1998 from 123 in 1997 and increases in advertising and sales
office/model operation expenses. General and administrative expenses increased
by $2.5 million to $8.2 million in 1998 from $5.7 million in 1997 primarily as a
result of an increase in staffing and related compensation due to the increased
volume of operations.
Income from unconsolidated joint ventures decreased by $0.5 million to $3.7
million in 1998 from $4.2 million in 1997 primarily as a result of the decrease
in the number of homes closed and the dissolution of certain joint ventures
after all related homes were sold.
Total interest incurred during 1998 increased $2.0 million to $3.1 million
from $1.1 million in 1997 as a result of an increase in the average amount of
outstanding debt relating to the increase in real estate inventories.
Management fee income decreased $1.7 million from $2.8 million in 1997 to
$1.1 million in 1998 primarily due to a decrease in the development activities
being managed.
Other and interest income increased $0.5 million from $1.1 million in 1997
to $1.6 million in 1998 primarily due to an increase in advisory fee income
earned from unaffiliated entities.
Comparison of Years Ended December 31, 1997 and 1996. Total home sales,
which represent recorded revenues from closings, for the year ended December 31,
1997 were $23.6 million, a decrease of $18.9 million, or 80.1%, from sales of
$42.5 million for the year ended December 31, 1996. This decrease was due
primarily to a 28.1% decrease in the number of consolidated homes closed to 123
in 1997 from 171 in 1996, along with a decrease in the average sales prices of
such homes to $192,000 in 1997 from $248,000 in 1996. Revenue from lots, land
and other was $3.7 million in 1996, with no corresponding amount in the
comparable period for 1997.
The excess of revenue from sales of homes over the related cost of sales
(gross profit) increased by $0.1 million, to $3.0 million in 1997 from $2.9
million in 1996. These increases were primarily due to (1) a 28.1% decrease in
the number of consolidated homes closed to 123
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<PAGE> 89
in 1997 from 171 in 1996, and (2) changes in product delivered in 1997 compared
to 1996 comprised of 2 new products introduced in 1997 with average gross
margins of 19.0% on 87 homes closed, compared with 2 old products closed out in
1996 with average gross margins of 6.8% on 152 homes closed. Sales and marketing
expenses decreased by $0.4 million, or 22.2%, to $1.4 million in 1997 from $1.8
million in 1996 primarily as a result of a decrease in the number of
consolidated homes closed to 123 in 1997 from 171 in 1996. General and
administrative expenses increased by $0.9 million, or 18.8%, to $5.7 million in
1997 from $4.8 million in 1996, primarily as the result of additional staffing
and related compensation in preparation of increased volume of operations.
Income from unconsolidated joint ventures increased by $2.9 million to $4.2
million in 1997 from $1.3 million in 1996 primarily as a result of an increase
in the number of homes closed by the joint ventures to 381 in 1997 from 272 in
1996 and the related increase in joint venture earnings which increased the
earnings allocated to William Lyon Homes.
Total interest incurred during 1997 decreased $0.6 million, 35.3%, to $1.1
million from $1.7 million in 1996 primarily as a result of a decrease in the
average amount of outstanding debt and a decrease in the average effective
interest rate on the outstanding debt.
Management fee income decreased $0.6 million from $3.4 million in 1996 to
$2.8 million in 1997 primarily due to a decrease in the development activities
being managed.
Other and interest income increased $0.5 million from $0.6 million in 1996
to $1.1 million in 1997 primarily as the result of design center income.
Comparison of Six Months Ended June 30, 1999 to Six Months Ended June 30,
1998. Total sales, which represent recorded revenues from closings, for the six
months ended June 30, 1999 were $48.1 million, an increase of $32.5 million, or
208.3%, from sales of $15.6 million for the six months ended June 30, 1998. This
increase was due primarily to a 133.0% increase in the number of consolidated
homes closed to 205 during the 1999 period from 88 during the 1998 period, and
an increase in the average sales prices of such homes to $235,000 in the 1999
period from $178,000 in the 1998 period.
The excess of revenue from sales of homes over the related cost of sales
(gross profit) increased by $4.8 million, to $7.6 million in the 1999 period
from $2.8 million in the 1998 period. This increase was primarily due to (1)
increased average sales prices, (2) changes in product delivered during the 1999
period compared to the 1998 period comprised of 7 new products introduced during
the 1999 period with average gross margins of 15.6% on 155 homes closed,
compared with products closed out in the 1998 period with average gross margins
of 18.7% on 78 homes closed, and (3) an increase of average gross margins for
continuing products delivered in both the 1999 period and the 1998 period to
17.8% from 13.8%. Sales and marketing expenses increased by $1.2 million to $2.0
million in the 1999 period from $.8 million in the 1998 period primarily as a
result of an increase in the number of consolidated homes closed to 205 during
the 1999 period from 88 during the 1998 period and increases in advertising and
sales office/model operation expenses. General and administrative expenses
increased by $0.7 million to $4.7 million in the 1999 period from $4.0 million
in the 1998 period, primarily as a result of increased staffing and related
compensation due to the increased volume of operations.
Income from unconsolidated joint ventures decreased by $3.3 million in the
1999 period as a result of a decrease in the number of homes closed to 19 in
1999 from 130 in the 1998 period.
Total interest incurred increased $2.6 million, or 260%, from $1.0 million
in the 1998 period to $3.6 million in the 1999 period as a result of an increase
in the average amount of outstanding debt resulting from an increase in real
estate inventories.
82
<PAGE> 90
Management fee income decreased $0.6 million from $0.8 million in the 1998
period to $0.2 million in the 1999 period primarily due to a decrease in the
development activities being managed.
Other and interest income decreased $0.2 million from $0.5 million in 1998
to $0.3 million in 1999 primarily due to a decrease in advisory fee income
earned from unaffiliated entities.
LIQUIDITY AND CAPITAL RESOURCES
The residential real estate development business is inherently capital
intensive. Significant cash expenditures are typically needed to acquire and
develop land, construct homes and establish marketing programs for periods of
time in advance of revenue realization. William Lyon Homes generally finances
its operations with secured borrowings from commercial banks, financial
institutions, and cash flow from operations.
William Lyon Homes' financing needs depend primarily upon sales volume,
asset turnover and land acquisitions. When liquidating inventory through home
closings William Lyon Homes generates cash. When building inventory, William
Lyon Homes uses substantial amounts of cash obtained through borrowings, cash
flow from operations, and equity contributions.
At December 31, 1998, William Lyon Homes had commitments for $167.9 million
under several project specific credit facilities with commercial banks and
financial institutions of which $65.4 million was outstanding. The commitment
and borrowings under the credit facilities secured by liens on specific real
property owned by William Lyon Homes was $156.8 million and $44.5 million,
respectively, as of December 31, 1998.
The commitment and outstanding balance of notes that were subordinated to
construction financing to William Lyon Homes was $11.1 million and $8.8 million,
respectively, as of December 31, 1998.
Additionally, William Lyon Homes has an $8.0 million unsecured revolving
line of credit of which $2.8 million was outstanding at December 31, 1998.
To date, William Lyon Homes has been able to obtain acceptable land
acquisition and construction financing. William Lyon Homes currently intends to
continue utilizing conventional bank financing to fund land acquisitions and
finance construction. Under William Lyon Homes' present credit facilities it is
required to use its own cash to fund a portion of the total project and
acquisition costs in order to obtain that financing.
There can be no assurance that the impact of market conditions affecting
the demand for homes or the availability of debt financing will not adversely
affect William Lyon Homes' future needs for capital. However, William Lyon Homes
expects that available capital resources will be sufficient to meet its normal
operating requirements over the near term.
INFLATION
Although inflation rates have been low in recent years, William Lyon Homes'
revenues and profitability may be affected by increased inflation rates and
other general economic conditions. In periods of high inflation, demand for
William Lyon Homes' homes may be reduced by increases in mortgage interest
rates. Further, William Lyon Homes' profits will be affected by its ability to
recover through higher sales prices increases in the costs of land,
construction, labor and administrative expenses. William Lyon Homes' ability to
raise prices at such times will depend upon demand and other competitive
factors.
83
<PAGE> 91
LEGAL MATTERS
The validity of the securities being distributed hereby has been passed
upon for Merger Sub by Irell & Manella LLP, Newport Beach, California. Irell &
Manella LLP has also rendered an opinion to Merger Sub and Presley as to certain
federal income tax consequences of the merger.
Morris, Nichols, Arsht & Tunnell LLP has rendered an opinion to Presley and
Merger Sub as to the enforceability of the transfer restrictions.
84
<PAGE> 92
OTHER MATTERS
INDEPENDENT AUDITORS
Ernst & Young LLP were Presley's auditors for 1998 and have been appointed
to serve as auditors during 1999. A representative of Ernst & Young LLP is
expected to be present at the special meeting with the opportunity to make a
statement if the representative desires to do so and to be available to respond
to appropriate questions. In the event the merger is consummated, it is
contemplated that Ernst & Young LLP will serve as the independent auditors of
Merger Sub after the effective time of the merger.
STOCKHOLDER PROPOSALS
Under the rules of the SEC, proposals by stockholders intended to be
presented at the next annual meeting of Presley in 2000 must be sent in writing
to the Vice President and Corporate Secretary of Presley at Presley's principal
executive offices and received by December 19, 1999 to be considered for
inclusion in Presley's proxy material. In addition, the proxy statement for next
year's annual meeting will confer discretionary authority to the Board of
Directors to vote on any stockholder proposals presented unless Presley receives
notice of such stockholder proposal on or before March 2, 2000.
By Order of the Board of Directors,
[Foster signature]
Linda L. Foster
Vice President and Corporate Secretary
Dated: October 7, 1999
85
<PAGE> 93
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE PRESLEY COMPANIES
Unaudited Pro Forma Condensed Combined Financial
Statements................................................ F-2
Unaudited Pro Forma Condensed Combined Balance Sheet as of
June 30, 1999.......................................... F-3
Unaudited Pro Forma Condensed Combined Statement of Income
for the Year Ended December 31, 1998................... F-4
Unaudited Pro Forma Condensed Combined Statement of Income
for the Six Months Ended June 30, 1999................. F-5
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements............................................. F-6
WILLIAM LYON HOMES, INC.
Consolidated Financial Statements
Report of Independent Auditors............................ F-8
Consolidated Balance Sheets as of December 31, 1997 and
1998, and June 30, 1999 (Unaudited).................... F-9
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1997 and 1998, and the Six Months
Ended June 30, 1998 and 1999 (Unaudited)............... F-10
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998, and the
Six Months Ended June 30, 1999 (Unaudited)............. F-11
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998, and the Six Months
Ended June 30, 1998 and 1999 (Unaudited)............... F-12
Notes to Consolidated Financial Statements................ F-13
</TABLE>
F-1
<PAGE> 94
THE PRESLEY COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Board of Directors of The Presley Companies has approved the merger of
Presley with and into a wholly owned subsidiary, Presley Merger Sub, Inc. which
will be the surviving entity in the merger and will be renamed The Presley
Companies (the "Company"). The merger will result in the recordation of
Presley's assets and liabilities on the books of the Company at their historical
cost basis. Accordingly, the consolidated financial position of the Company
immediately following the merger will be the same as the consolidated financial
position of Presley immediately prior to the merger. Presley has entered into a
letter of intent with William Lyon Homes, Inc. ("WLHI") for the proposed
acquisition of substantially all of the assets of WLHI for an original cash
purchase price of approximately $48 million ($51 million including acquisition
costs) and the assumption of substantially all of the liabilities of WLHI (the
"Acquisition"). The Acquisition will be accounted for as a purchase and,
accordingly, the purchase price will be allocated based on the fair value of the
assets and liabilities acquired, with the excess of the purchase price over the
net assets acquired reflected as goodwill to be amortized on a straight-line
basis over an estimated useful life of seven years.
The following Unaudited Pro Forma Condensed Combined Financial Statements
are derived from the consolidated historical financial statements of Presley and
WLHI. The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30,
1999 and Combined Statements of Income for the year ended December 31, 1998 and
the six months ended June 30, 1999 are presented as if the Acquisition had been
completed on June 30, 1999 for purposes of the Combined Balance Sheet and
January 1, 1998 for purposes of the Combined Statements of Income. Pro forma
adjustments have been made in the accompanying statements to reflect the impact
of purchase accounting and other items that Presley's management believes
reasonable under the circumstances.
The Unaudited Pro Forma Condensed Combined Financial Statements should be
read in conjunction with the historical consolidated financial statements of
Presley, including the notes thereto, incorporated by reference in this
Registration Statement and the historical consolidated financial statements of
WLHI, including notes thereto, included in this Registration Statement. The
Unaudited Pro Forma Condensed Combined Financial Statements are presented for
illustrative purposes only and do not purport to represent the Company's
financial position as of June 30, 1999 or the results of operations for the year
ended December 31, 1998 and the six months ended June 30, 1999 that would
actually have occurred had the Acquisition been completed on the dates
indicated, nor do they represent a forecast of the Company's financial position
or results of operations as of any future date or any future period.
Furthermore, no effect has been given in the Unaudited Pro Forma Condensed
Combined Financial Statements for operating and synergistic benefits that may be
realized through the combination of entities.
F-2
<PAGE> 95
THE PRESLEY COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
WILLIAM LYON PRO FORMA PRO FORMA
THE COMPANY HOMES, INC. ADJUSTMENTS COMBINED
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 12,277,000 $ 8,274,000 $ 20,551,000
Receivables...................................... 13,601,000 $ 1,256,000(b) 14,857,000
Due from affiliates.............................. 79,000 79,000
Real estate inventories.......................... 176,522,000 114,376,000 20,655,000(a) 278,876,000
(32,677,000)(c)
Investments in and advances to unconsolidated
joint ventures................................. 34,949,000 3,788,000 5,269,000(c) 44,341,000
1,706,000(a)
(1,371,000)(d)
Property and equipment, less accumulated
depreciation................................... 2,534,000 357,000(b) 2,891,000
Deferred loan costs.............................. 2,441,000 2,441,000
Goodwill......................................... 3,000,000(a) 3,000,000
Other assets..................................... 3,908,000 1,747,000 (1,613,000)(b) 4,042,000
------------ ------------ -------------
$246,232,000 $128,264,000 $ 371,078,000
============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................. $ 15,929,000 $ 13,716,000 (2,718,000)(b) $ 26,927,000
Accrued expenses................................. 25,825,000 2,718,000(b) 28,543,000
Notes payable.................................... 61,290,000 90,405,000 48,083,000(a) 172,370,000
(27,408,000)(c)
12 1/2% Senior Notes due 2001.................... 120,000,000 120,000,000
Minority interest in consolidated joint
ventures....................................... 50,000 50,000
------------ ------------ -------------
223,044,000 104,171,000 347,890,000
------------ ------------ -------------
Stockholders' equity............................. 23,188,000 24,093,000 (22,722,000)(a) 23,188,000
------------ ------------ -------------
(1,371,000)(d)
$246,232,000 $128,264,000 $ 371,078,000
============ ============ =============
</TABLE>
F-3
<PAGE> 96
THE PRESLEY COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
WILLIAM LYON PRO FORMA PRO FORMA
THE COMPANY HOMES, INC. ADJUSTMENTS COMBINED
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales
Homes....................................... $ 348,352,000 $ 67,759,000 $ 416,111,000
Lots, land and other........................ 19,930,000 19,930,000
------------- ------------- -------------
368,282,000 67,759,000 436,041,000
------------- ------------- -------------
Operating costs
Cost of sales - homes....................... (297,781,000) (56,394,000) $ (4,965,000)(e) (359,140,000)
Cost of sales - lots, land and other........ (20,992,000) (20,992,000)
Sales and marketing......................... (21,463,000) (2,858,000) (24,321,000)
General and administrative expenses......... (15,965,000) (8,170,000) 119,000(b) (24,016,000)
Amortization of goodwill.................... (429,000)(f) (429,000)
------------- ------------- -------------
(356,201,000) (67,422,000) (428,898,000)
------------- ------------- -------------
Income from unconsolidated joint ventures..... 3,499,000 3,649,000 (1,935,000)(e) 5,213,000
------------- ------------- -------------
Operating income.............................. 15,580,000 3,986,000 12,356,000
Interest expense, net of amounts
capitalized................................. (9,214,000) (300,000)(g) (9,514,000)
Financial advisory expenses................... (1,286,000) (1,286,000)
Other income (expense), net................... 3,225,000 2,447,000 (119,000)(b) 5,553,000
Minority interest in consolidated joint
ventures' operations........................ (24,000) (24,000)
------------- ------------- -------------
Income before income taxes and extraordinary
item........................................ 8,305,000 6,409,000 7,085,000
Provision for income taxes.................... (1,191,000) (96,000) 274,000(h) (1,013,000)
------------- ------------- -------------
Net income (excluding extraordinary item)..... $ 7,114,000 $ 6,313,000 $ 6,072,000
============= ============= =============
Basic and diluted earnings per common share
(excluding extraordinary item).............. $ 0.14 $ 0.58
============= =============
Basic and diluted average shares
outstanding................................. 52,195,678 (41,756,542)(i) 10,439,135
============= =============
</TABLE>
F-4
<PAGE> 97
THE PRESLEY COMPANIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
WILLIAM LYON PRO FORMA PRO FORMA
THE COMPANY HOMES, INC. ADJUSTMENTS COMBINED
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Sales
Homes......................................... $ 174,056,000 $ 48,129,000 $ 222,185,000
Lots, land and other.......................... 3,956,000 3,956,000
------------- ------------ -------------
178,012,000 48,129,000 226,141,000
------------- ------------ -------------
Operating costs
Cost of sales - homes......................... (144,117,000) (40,503,000) $ (1,703,000)(e) (186,323,000)
Cost of sales - lots, land and other.......... (3,741,000) (3,741,000)
Sales and marketing........................... (8,460,000) (2,050,000) (10,510,000)
General and administrative expenses........... (7,873,000) (4,653,000) (12,526,000)
Amortization of goodwill...................... (214,000)(f) (214,000)
------------- ------------ -------------
(164,191,000) (47,206,000) (213,314,000)
------------- ------------ -------------
Income (loss) from unconsolidated joint
ventures...................................... 4,864,000 (7,000) 7,000(d) 4,864,000
------------- ------------ -------------
Operating income................................ 18,685,000 916,000 17,691,000
Interest expense, net of amounts capitalized.... (3,671,000) (150,000)(g) (3,821,000)
Financial advisory expenses..................... (1,280,000) (1,280,000)
Other income (expense), net..................... 1,541,000 434,000 1,975,000
Minority interest in consolidated joint
ventures' operations.......................... (17,000) (17,000)
------------- ------------ -------------
Income before income taxes and extraordinary
item.......................................... 15,275,000 1,333,000 14,548,000
Provision for income taxes...................... (2,191,000) (20,000) 131,000(h) (2,080,000)
------------- ------------ -------------
Net income (excluding extraordinary item)....... $ 13,084,000 $ 1,313,000 $ 12,468,000
============= ============ =============
Basic and diluted earnings per common share
(excluding extraordinary item)................ $ 0.25 $ 1.19
============= =============
Basic and diluted average shares outstanding.... 52,195,678 (41,756,542)(i) 10,439,135
============= =============
</TABLE>
F-5
<PAGE> 98
THE PRESLEY COMPANIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Recordation of the Acquisition using purchase accounting based upon the
following adjusted cash purchase price and estimated acquisition costs which
will be funded by the Company's Working Capital Facility:
<TABLE>
<S> <C>
Original cash purchase price................................ $48,000,000
Reduction to cash purchase price for the estimated fair
value of excluded assets and liabilities (see Note (d)
below).................................................... (2,917,000)
-----------
Adjusted cash purchase price................................ 45,083,000
Estimated acquisition costs................................. 3,000,000
-----------
Adjusted cash purchase price and estimated acquisition
costs..................................................... $48,083,000
===========
</TABLE>
The step-up in net assets acquired of $22,361,000 is based on the estimated
fair value of the assets acquired of $126,532,000 less liabilities assumed
of $104,171,000, in accordance with Accounting Principles Board Opinion No.
16, "Accounting for Business Combinations," as amended.
<TABLE>
<S> <C>
Step-up in net real estate inventories...................... $20,655,000
Step-up in investments in and advances to unconsolidated
joint ventures............................................ 1,706,000
-----------
22,361,000
Excess of purchase price over net assets acquired
(goodwill)................................................ 3,000,000
Equity of WLHI (after excluding historical cost of assets
not acquired of $1,371,000 -- see Note (d) below)......... 22,722,000
-----------
Adjusted cash purchase price and related acquisition
costs..................................................... $48,083,000
===========
</TABLE>
(b) Reclassification of WLHI amounts to conform with the Company's presentation.
(c) Adjustment to reclassify $5,269,000 of net assets relating to certain WLHI
assets ($32,677,000) and related liabilities ($27,408,000) which are
purchased by Presley and simultaneously contributed to joint ventures in
conjunction with the Acquisition. The net assets will be contributed to
joint ventures in which the Company will not have a majority interest at
their fair market value of $6,975,000, which represents a $1,706,000 step-up
to their historical cost basis of $5,269,000 (see note (a) above). The
$6,975,000 investment in these new joint ventures is reflected as
investments in unconsolidated joint ventures using the equity method.
(d) Adjustment to exclude investments in and advances to unconsolidated joint
ventures and their related income (loss) that will not be acquired
(historical cost $1,371,000).
(e) Increase to cost of sales - homes and decrease in income from unconsolidated
joint ventures resulting from the purchase accounting adjustment related to
the step-up in net assets acquired and the additional capitalized interest
related to the acquisition financing.
(f) Amortization of the excess of purchase price over net assets acquired
(goodwill) on a straight-line basis over an estimated useful life of seven
years.
(g) Interest related to the acquisition financing, net of amounts capitalized.
The total cash purchase price and estimated acquisition cost of $48,083,000
will be financed by borrowings under the Company's Working Capital Facility
which bears a variable rate of interest based on the "reference rate" of
Chase Manhattan Bank plus 2% or alternatively a specified overseas base rate
plus 4.44%, but not less than 8% (10.0% as of September 24, 1999). An
increase in the borrowing rate on all variable rate debt (the
F-6
<PAGE> 99
THE PRESLEY COMPANIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Company and WLHI) of 0.125% would total approximately $180,000 for the year
ended December 31, 1998 and $100,000 for the six months ended June 30, 1999.
(h) Pro forma effect on combined income taxes resulting from the operations of
WLHI and other pro forma adjustments based on the Company's effective tax
rate of 14.3% for the periods presented. The Company's effective tax rate of
14.3% has been utilized for pro forma purposes in place of the statutory tax
rate because the Company's historical effective tax rate is significantly
lower than the statutory tax rate due to substantial unrecognized net
operating loss carryforwards which will continue to be available in future
years. These net operating losses reduce Presley's effective tax rate.
(i) Reflects the merger of Presley with and into its wholly owned subsidiary,
Presley Merger Sub, Inc., and the related one-for-five common stock
exchange as if it occurred at the beginning of the periods presented.
F-7
<PAGE> 100
REPORT OF INDEPENDENT AUDITORS
To the Stockholders
William Lyon Homes, Inc.
We have audited the accompanying consolidated balance sheets of William
Lyon Homes, Inc. as of December 31, 1997 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the management of William Lyon Homes, Inc. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
William Lyon Homes, Inc. at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
Newport Beach, California
January 29, 1999
F-8
<PAGE> 101
WILLIAM LYON HOMES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 6,314,000 $ 7,800,000 $ 8,274,000
Due from affiliates (Note 8)......................... 118,000 81,000 79,000
Real estate projects (Notes 2, 5 and 8).............. 26,958,000 79,385,000 114,376,000
Investments in and advances to unconsolidated joint
ventures (Note 10)................................. 3,975,000 1,432,000 3,788,000
Other assets, net (Note 3)........................... 1,598,000 1,742,000 1,747,000
----------- ------------ ------------
$38,963,000 $ 90,440,000 $128,264,000
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities (Note 4).... $ 2,910,000 $ 11,489,000 $ 13,716,000
Notes payable secured by real estate projects (Note
5)................................................. 18,086,000 53,327,000 85,974,000
Note payable, unsecured (Note 5)..................... -- 2,815,000 4,431,000
Minority interest in consolidated joint ventures..... -- 29,000 50,000
----------- ------------ ------------
20,996,000 67,660,000 104,171,000
----------- ------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity
Common stock, stated value; 100,000 shares
authorized, 1,200 issued and outstanding........ 300,000 300,000 300,000
Additional paid-in capital......................... 6,200,000 6,200,000 6,200,000
Retained earnings.................................. 11,467,000 16,280,000 17,593,000
----------- ------------ ------------
17,967,000 22,780,000 24,093,000
----------- ------------ ------------
$38,963,000 $ 90,440,000 $128,264,000
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 102
WILLIAM LYON HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Sale of residential units...... $42,480,000 $ 23,569,000 $ 67,759,000 $15,620,000 $48,129,000
Sale of land and lots.......... 3,660,000 -- -- -- --
Income (loss) from
unconsolidated joint
ventures..................... 1,275,000 4,183,000 3,649,000 3,261,000 (7,000)
Management fee income.......... 3,437,000 2,758,000 1,061,000 759,000 209,000
Other income................... 297,000 738,000 1,323,000 358,000 176,000
Interest income................ 275,000 335,000 265,000 170,000 92,000
----------- ------------ ------------ ----------- -----------
51,424,000 31,583,000 74,057,000 20,168,000 48,599,000
----------- ------------ ------------ ----------- -----------
COSTS
Cost of residential units
sold......................... 39,540,000 20,577,000 56,394,000 12,773,000 40,503,000
Cost of land and lots sold..... 3,513,000 -- -- -- --
Marketing expense.............. 1,796,000 1,372,000 2,858,000 845,000 2,050,000
Management fee expense......... 33,000 64,000 69,000 26,000 --
General and administrative
expense...................... 4,802,000 5,656,000 8,170,000 4,029,000 4,653,000
Miscellaneous expenses......... 261,000 18,000 133,000 108,000 43,000
----------- ------------ ------------ ----------- -----------
49,945,000 27,687,000 67,624,000 17,781,000 47,249,000
----------- ------------ ------------ ----------- -----------
MINORITY INTEREST IN
CONSOLIDATED JOINT VENTURES'
OPERATIONS................... 2,000 (4,000) 24,000 (1,000) 17,000
----------- ------------ ------------ ----------- -----------
INCOME BEFORE INCOME TAXES..... 1,477,000 3,900,000 6,409,000 2,388,000 1,333,000
PROVISION FOR INCOME TAXES
(Note 7)..................... 22,000 58,000 96,000 36,000 20,000
----------- ------------ ------------ ----------- -----------
NET INCOME..................... $ 1,455,000 $ 3,842,000 $ 6,313,000 $ 2,352,000 $ 1,313,000
=========== ============ ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 103
WILLIAM LYON HOMES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
--------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE --
December 31, 1995................... 1,200 $300,000 $5,700,000 $ 6,170,000 $12,170,000
Net income............................ -- -- -- 1,455,000 1,455,000
----- -------- ---------- ----------- -----------
BALANCE --
December 31, 1996................... 1,200 300,000 5,700,000 7,625,000 13,625,000
Contribution from stockholders........ -- -- 500,000 -- 500,000
Net income............................ -- -- -- 3,842,000 3,842,000
----- -------- ---------- ----------- -----------
BALANCE --
December 31, 1997................... 1,200 300,000 6,200,000 11,467,000 17,967,000
Cash dividends declared and paid...... -- -- -- (1,500,000) (1,500,000)
Net income............................ -- -- -- 6,313,000 6,313,000
----- -------- ---------- ----------- -----------
BALANCE --
December 31, 1998................... 1,200 300,000 6,200,000 16,280,000 22,780,000
Net income (unaudited)................ -- -- -- 1,313,000 1,313,000
----- -------- ---------- ----------- -----------
BALANCE --
June 30, 1999 (unaudited)........... 1,200 $300,000 $6,200,000 $17,593,000 $24,093,000
===== ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 104
WILLIAM LYON HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ---------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income......................... $ 1,455,000 $ 3,842,000 $ 6,313,000 $ 2,352,000 $ 1,313,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Income (loss) from unconsolidated
joint ventures................... 1,275,000 4,183,000 3,649,000 3,261,000 (7,000)
Depreciation and amortization.... 37,000 39,000 70,000 25,000 67,000
(Increase) decrease in due from
affiliates.................... (50,000) (14,000) 37,000 (245,000) 2,000
Decrease (increase) in real
estate projects............... 13,365,000 (15,353,000) (52,427,000) (21,174,000) (34,991,000)
(Increase) decrease in other
assets, net................... (554,000) 157,000 (214,000) 1,107,000 (72,000)
Increase (decrease) in accounts
payable and accrued
liabilities................... 1,174,000 (601,000) 8,579,000 3,688,000 2,227,000
Minority interest in consolidated
joint ventures' operations.... 2,000 (4,000) 24,000 81,000 17,000
------------ ------------ ------------- ------------ ------------
Net cash provided by (used in)
operating activities............. 16,704,000 (7,751,000) (33,969,000) (10,905,000) (31,444,000)
------------ ------------ ------------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in investment in and
advances to unconsolidated joint
ventures......................... (1,517,000) (5,624,000) (1,106,000) (1,335,000) (2,349,000)
------------ ------------ ------------- ------------ ------------
Net cash used in investing
activities....................... (1,517,000) (5,624,000) (1,106,000) (1,335,000) (2,349,000)
------------ ------------ ------------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Minority interest contributions
(distributions), net............. (10,000) (4,000) 5,000 (66,000) 4,000
Borrowings on notes payable........ 29,868,000 35,511,000 106,137,000 35,786,000 85,328,000
Repayments on notes payable........ (42,160,000) (25,723,000) (68,081,000) (21,162,000) (51,065,000)
Contribution from stockholders..... -- 500,000 -- -- --
Dividends.......................... -- -- (1,500,000) (1,500,000) --
------------ ------------ ------------- ------------ ------------
Net cash (used in) provided by
financing activities............. (12,302,000) 10,284,000 36,561,000 13,058,000 34,267,000
------------ ------------ ------------- ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. 2,885,000 (3,091,000) 1,486,000 818,000 474,000
CASH AND CASH
EQUIVALENTS -- beginning of
period........................... 6,520,000 9,405,000 6,314,000 6,314,000 7,800,000
------------ ------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS -- end of
period........................... $ 9,405,000 $ 6,314,000 $ 7,800,000 $ 7,132,000 $ 8,274,000
============ ============ ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 105
WILLIAM LYON HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
William Lyon Homes, Inc. ("WLHI") was incorporated under the laws of the
state of California on September 28, 1992. WLHI was formed to engage in all
aspects of residential real estate development.
Principles of Consolidation
The consolidated financial statements include the accounts of WLHI, and all
majority-owned subsidiaries and joint ventures. Investments in joint ventures in
which the Company has a 50% or less ownership interest are accounted for using
the equity method. The accounting policies of the joint ventures are
substantially the same as those of the Company. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
balance sheet dates, and revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company defines cash equivalents as all highly liquid investments with
a maturity of three months or less from the date of purchase.
Real Estate Projects
The Company's real estate projects consist of land, development in process,
substantially completed units and deposits on future projects, all at cost. All
direct land costs, offsite and onsite improvements, and carrying charges are
capitalized to real estate projects under active development; marketing costs
are generally expensed in the period incurred land, offsite costs and all other
common costs are allocated to land parcels benefited based upon relative fair
values before construction. Onsite construction costs and related carrying costs
(principally interest and property taxes) are allocated to individual homes
within a phase based upon the relative sales value of the homes.
The Company accounts for the real estate projects in accordance with
Financial Accounting Standards Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("Statement No. 121"). Statement No. 121 requires impairment losses be recorded
on assets to be held and used by the Company when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets (excluding interest) are less than the carrying amount of the assets.
Under Statement No. 121, when an asset to be held and used by the Company is
determined to be impaired, the related carrying value of the asset is adjusted
to its estimated fair value. Statement No. 121 also requires that long-lived
assets that are held for disposal be reported at the lower of the assets'
carrying amount or fair value less costs of disposal.
Fair value represents the amount at which an asset could be bought or sold
in a current transaction between willing parties; that is, other than a forced
or liquidation sale. The estimation process involved in determining if assets
have been impaired and in the
F-13
<PAGE> 106
WILLIAM LYON HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determination of fair value is inherently uncertain since it requires estimates
of current market yields as well as future events and conditions. Such future
events and conditions include economic and market conditions, as well as the
availability of suitable financing to fund development and construction
activities. The realization of the Company's real estate projects is dependent
upon future uncertain events and conditions and, accordingly, the actual timing
and amounts realized by the Company may be materially different from the
estimated fair values as described herein.
Management has evaluated the real estate projects and determined that no
indicators of impairment are present as of December 31, 1997 and 1998, and June
30, 1999.
Depreciation and Amortization
The Company depreciates computers and equipment (Note 3) over estimated
useful lives of five years using the double-declining balance method and
furniture over estimated useful lives of seven years using the double-declining
balance method.
Sales and Profit Recognition
A sale is recorded and profit recognized when a sale is consummated, the
buyer's initial and continuing investments are adequate, any receivables are not
subject to future subordination, and the usual risks and rewards of ownership
have been transferred to the buyer in accordance with the provisions of
Statement of Financial Accounting Standards No. 66 "Accounting for Sales of Real
Estate." When it is determined that the earnings process is not complete, profit
is deferred for recognition in future periods. As of December 31, 1997 and 1998
and June 30, 1999, there are no deferred profits.
Management Fees
The Company provides development services to various affiliated entities
and in return receives management fees. Management fees are recognized and
earned, as specified in the applicable agreements, as the related homes are
constructed and sold. Management fees earned from consolidated subsidiaries and
joint ventures are eliminated in consolidation.
Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information ("Statement No. 131"). Statement No. 131
superseded FASB Statement No. 14, Financial Reporting for Segments of a Business
Enterprise. Statement No. 131 establishes new standards for segment reporting
which are based on the way management organizes segments within the Company for
making operating decisions and assessing performance. The adoption of Statement
No. 131 did not affect the results of operations or financial position of the
Company.
The Company designs, constructs and sells a wide range of homes designed to
meet the specific needs of each of its markets. For internal reporting purposes,
the Company is organized into two geographic home building regions. Because each
of the Company's geographic home building regions has similar economic
characteristics, housing products and class of prospective buyers, the
geographic home building regions have been aggregated into a single home
building segment.
The Company evaluates performance and allocates resources primarily on
income before income taxes of individual home building projects. All revenues
are from external customers
F-14
<PAGE> 107
WILLIAM LYON HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and no revenues are generated from transactions with other segments. There were
no customers that contributed 10% or more of the Company's total revenues during
the periods presented.
Reclassifications
Certain amounts contained in the consolidated financial statements for the
years ended December 31, 1996 and 1997 have been reclassified to conform to the
December 31, 1998 presentation.
NOTE 2 -- REAL ESTATE PROJECTS
Real estate projects consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land held for development........ $15,861,000 $46,273,000 $ 50,657,000
Development in process........... 6,562,000 17,840,000 52,905,000
Substantially completed units,
including models............... 3,236,000 10,306,000 7,671,000
Deposits on future projects...... 1,299,000 4,966,000 3,143,000
----------- ----------- ------------
$26,958,000 $79,385,000 $114,376,000
=========== =========== ============
</TABLE>
NOTE 3 -- OTHER ASSETS
Other assets are stated at cost, net of accumulated depreciation, and
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computers............................ $ 201,000 $ 500,000 $ 457,000
Equipment............................ 29,000 40,000 40,000
Furniture............................ -- 44,000 46,000
---------- ---------- ----------
230,000 584,000 543,000
Accumulated depreciation............. (125,000) (196,000) (186,000)
---------- ---------- ----------
105,000 388,000 357,000
---------- ---------- ----------
Deposits............................. -- 52,000 52,000
Prepaid assets....................... 89,000 262,000 90,000
Accounts receivable.................. 462,000 806,000 1,159,000
Escrow proceeds...................... 942,000 234,000 89,000
---------- ---------- ----------
$1,598,000 $1,742,000 $1,747,000
========== ========== ==========
</TABLE>
F-15
<PAGE> 108
WILLIAM LYON HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued interest payable.......... $ 47,000 $ 409,000 $ 649,000
Warranty reserve.................. 511,000 1,084,000 505,000
Accounts payable and other accrued
expenses........................ 859,000 3,031,000 2,551,000
Accrued construction payables..... 1,493,000 6,965,000 10,011,000
----------- ----------- -----------
$ 2,910,000 $11,489,000 $13,716,000
=========== =========== ===========
</TABLE>
NOTE 5 -- NOTES PAYABLE
Notes payable secured by real estate projects consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Acquisition and development loans
payable, secured by real estate
projects, bearing interest at
rates ranging from prime plus
0.25% to 0.50%, with varying
maturities from April 30, 1999 to
October 1, 2002................... $ 667,000 $13,616,000 $30,892,000
Construction loans payable, secured
by real estate projects, bearing
interest at rates ranging from
prime plus 0.25% to 1.00%, with
varying maturities from January 3,
2000 to October 1, 2002........... 6,023,000 24,394,000 37,762,000
Junior notes payable secured by real
estate projects, bearing interest
at rates ranging from prime plus
1.00% to prime plus 1.75% and 19%,
with varying maturities from
November 30, 1999 to May 31,
2002.............................. 1,370,000 8,757,000 17,321,000
Land loan payable, secured by real
estate project, bearing interest
at prime, due March 26, 1999...... 10,026,000 6,560,000 --
----------- ----------- -----------
$18,086,000 $53,327,000 $85,974,000
=========== =========== ===========
</TABLE>
At December 31, 1997 and 1998, and June 30, 1999, the carrying value of the
real estate projects securing notes payable totaled $23,575,000, $73,457,000,
and $109,290,000, respectively.
Notes payable, unsecured, includes a line of credit bearing interest at
prime plus 1.00% due June 7, 2000.
During the years ended December 31, 1996, 1997 and 1998, and the six months
ended June 30, 1998 and 1999, the Company incurred $1,748,000, $1,056,000,
$3,076,000, $1,015,000 and $3,647,000, respectively, of interest cost, all of
which was capitalized to the real estate
F-16
<PAGE> 109
WILLIAM LYON HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
projects. The prime rate averaged 8.27%, 8.44%, 8.35%, 8.50% and 7.75% during
the years ended December 31, 1996, 1997 and 1998, and the six months ended June
30, 1998 and 1999, respectively, and was 8.50%, 7.75% and 7.75% at December 31,
1997 and 1998, and June 30, 1999, respectively. The notes payable secured by
real estate projects are generally repaid as the individual units are closed
based on a predetermined formula and are extended or refinanced when necessary.
At December 31, 1997 and 1998, and June 30, 1999, the loan balances approximated
fair value.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
The Company's commitments and contingencies include the usual obligations
incurred by real estate developers and asset managers in the normal course of
business. In the opinion of management, these matters will not have a material
effect on the Company's financial position or results of operations. As of
December 31, 1997 and 1998, and June 30, 1999, WLHI has guaranteed approximately
$16,044,000, $63,597,000 and $91,066,000 of indebtedness.
In some jurisdictions in which the Company develops and constructs real
estate, assessment and Community Facilities District bonds are issued by
government entities to finance major infrastructure improvements. As a land
owner benefited by these improvements, the Company is responsible for the
assessments on its land. When properties are sold, the assessments are either
prepaid or the buyers assume the responsibility for the related assessments.
Pursuant to an option agreement dated October 30, 1997 with Acacia Credit
Fund 5, a limited liability company, WLHI has committed to purchase 159 lots at
$39,000 per lot by November 30, 1999. As of December 31, 1998 and June 30, 1999,
76 lots and 141 lots, respectively, have been purchased under this agreement.
NOTE 7 -- INCOME TAXES
The Company has elected to be taxed as an S corporation for federal and
state income tax purposes. As an S corporation, the Company is not taxed
directly other than a 1.5% state franchise tax; the stockholders are taxed on
their pro rata share of the Company's taxable income. The provision for state
franchise tax for the years ended December 31, 1996, 1997 and 1998, and the six
months ended June 30, 1998 and 1999, is reflected in the consolidated statements
of income.
Under the provisions of the Internal Revenue Code, a partnership is not
subject to income taxes. Accordingly, income taxes on any income realized are
the responsibility of the respective partners.
NOTE 8 -- RELATED PARTY TRANSACTIONS
The Company purchased real estate projects for a total purchase price of
$520,000 and $500,000 from The William Lyon Company ("TWLC") during the years
ended December 31, 1996 and 1998, respectively. TWLC is owned approximately 93%
by the majority stockholder of WLHI.
The Company purchased a real estate project for a total purchase price of
$3,710,000 from The Presley Companies during the year ended December 31, 1998.
The majority stockholder of the Company is a major shareholder of The Presley
Companies.
F-17
<PAGE> 110
WILLIAM LYON HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended December 31, 1996, 1997 and 1998, and the six months
ended June 30, 1998 and 1999, WLHI earned management fees of $3,437,000,
$2,758,000, $1,061,000, $759,000 and $209,000, respectively, for managing and
selling real estate owned by various affiliated unconsolidated entities. In
addition, for the year ended December 31, 1998 and the six months ended June 30,
1998 and 1999, WLHI earned fees of $160,000, $85,000 and $77,000, respectively,
for other services performed for affiliates.
For the years ended December 31, 1996, 1997 and 1998, and the six months
ended June 30, 1998 and 1999, the Company incurred onsite personnel costs of
$2,090,000, $1,674,000, $2,842,000, $1,372,000, and $1,812,000, respectively,
paid to WLHI.
For the years ended December 31, 1996, 1997 and 1998, and the six months
ended June 30, 1998 and 1999, the Company incurred $244,000, $336,000, $469,000,
$228,000, and $291,000, respectively, to The William Lyon Property Management
Company ("TWLPMC") related to rent on its corporate office. TWLPMC is 57% owned
by the majority stockholder of WLHI.
Amount due from affiliates is primarily for direct labor costs provided by
WLHI to individual partnerships which generally are repaid monthly from cash
flows of the affiliates.
NOTE 9 -- 401(K) SAVINGS PLAN
The Company is a participant in a 401(k) defined contribution plan (the
"Plan") which is sponsored by an affiliate. The Plan benefits all employees who
meet certain eligibility requirements. Employees generally become eligible to
participate on the first entry date (January 1 or July 1) following the date of
hire. Eligible employees may contribute a percentage of their compensation to
the Plan, a portion of which may be matched by the Company at its sole
discretion. For the years ended December 31, 1996, 1997 and 1998, and the six
months ended June 30, 1998 and 1999, the Company matched employee contributions
at 2%, resulting in an expense of $69,000, $57,000, $83,000, $36,000, and
$46,000, respectively.
NOTE 10 -- INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
The Company accounts for investments in joint ventures in which it has a
50% or less ownership interest using the equity method. These joint ventures
were formed for the purpose of acquiring land, and developing and selling
single-family residences.
The provisions of the partnership agreements for the unconsolidated
partnerships include various formulas for allocations of profits and losses and
distribution of cash. Profits are generally allocated first, to the partners to
recover previous net loss allocations; second, to the partners to the extent of
any preferred return; the balance, to the partners in accordance with their
percentage interests, as defined. Losses are generally allocated first, to the
partners in the same amounts and proportions as any net income previously
allocated; second, to the partners in accordance with their percentage interests
until the Company's capital account is reduced to zero; third, to the outside
partner until its capital account is reduced to zero; the balance is allocated
to the Company.
Distributions are generally allocated first, for payment of the outside
partner's preferred return; second, for payment of the outside partner's capital
contributions until its capital balance equals the balance of the Company's
capital contributions plus its unpaid preferred return; the balance to the
partners in accordance with their percentage interests. Preferred returns are
generally calculated at rates ranging from 9.75% to 10.50%.
F-18
<PAGE> 111
WILLIAM LYON HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain unconsolidated partnerships have land purchase agreements whereby
the land seller is entitled to share in profits as specified in the land
purchase agreements. As units are sold, these costs are expensed.
Condensed financial information regarding the Company's unconsolidated joint
ventures is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------- JUNE 30,
1997 1998 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ 4,291,000 $ 391,000 $ 103,000
Real estate projects........................ 31,853,000 22,611,000 32,257,000
Other assets................................ 3,767,000 30,000 --
----------- ----------- ------------
$39,911,000 $23,032,000 $ 32,360,000
=========== =========== ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued liabilities.... $ 4,759,000 $ 1,834,000 $ 2,492,000
Notes payable............................... 20,160,000 12,095,000 15,554,000
----------- ----------- ------------
$24,919,000 $13,929,000 $ 18,046,000
----------- ----------- ------------
Partners' equity
WLHI...................................... 3,975,000 1,432,000 3,788,000
Other partners............................ 11,016,000 7,671,000 10,526,000
----------- ----------- ------------
14,991,000 9,103,000 14,314,000
----------- ----------- ------------
$39,910,000 $23,032,000 $ 32,360,000
=========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ------------ ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............. $64,902,000 $103,556,000 $54,154,000 $43,532,000 $6,960,000
=========== ============ =========== =========== ==========
Net income:
WLHI............... $ 1,275,000 $ 4,183,000 $ 3,649,000 $ 3,261,000 $ (7,000)
Other partners..... 4,552,000 7,656,000 4,404,000 3,558,000 204,000
----------- ------------ ----------- ----------- ----------
$ 5,827,000 $ 11,839,000 $ 8,053,000 $ 6,819,000 $ 197,000
=========== ============ =========== =========== ==========
</TABLE>
NOTE 11 -- IMPACT OF YEAR 2000 (UNAUDITED)
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or normal business
activities.
The Company believes that it will not be required to modify or replace
significant portions of its software and that the year 2000 issue will not pose
significant operational problems for its computer systems. Ultimately, the
potential impact of the year 2000 issue will depend not only on the corrective
measures the Company undertakes, but also on the way in which the year
F-19
<PAGE> 112
WILLIAM LYON HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 issue is addressed by businesses and other entities whose financial
condition or operational capability is important to the Company such as its
bankers, lenders and suppliers. The Company is communicating with these parties
to ensure they are aware of the year 2000 issue, to learn how they are
addressing it and to evaluate any likely impact on the Company.
F-20
<PAGE> 113
APPENDIX A
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
THE PRESLEY COMPANIES
A DELAWARE CORPORATION
WITH AND INTO
PRESLEY MERGER SUB, INC.
A DELAWARE CORPORATION
The Presley Companies, a corporation organized and existing under the laws
of the State of Delaware, does hereby certify that:
FIRST: The Presley Companies was incorporated on August 7, 1991, pursuant
to the General Corporation Law of the State of Delaware (the "DGCL"), the
provisions of which permit the merger of a parent corporation organized and
existing under the laws of said State with and into a subsidiary corporation
organized and existing under the laws of said State.
SECOND: The Presley Companies owns one hundred percent (100%) of the
outstanding shares of the common stock, $.01 par value per share, of Presley
Merger Sub, Inc., a corporation incorporated on July 15, 1999, pursuant to the
DGCL, and having no class of stock issued and outstanding other than said common
stock.
THIRD: The Board of Directors of The Presley Companies pursuant to a
unanimous written consent dated July 15, 1999 in lieu of a meeting, determined
to merge The Presley Companies with and into Presley Merger Sub, Inc., and did
adopt the following resolutions:
WHEREAS, The Presley Companies (the "Corporation") is the legal and
beneficial owner of one hundred percent (100%) of the outstanding shares of
common stock, $.01 par value per share ("New Presley Common Stock"), of Presley
Merger Sub, Inc., a Delaware corporation ("New Presley");
WHEREAS, the New Presley Common Stock is the only issued and outstanding
class of stock of New Presley;
WHEREAS, this Corporation desires to merge itself with and into New Presley
pursuant to the provisions of Section 253 of the General Corporation Law of the
State of Delaware (the "DGCL"); and
WHEREAS, the Board of Directors of this Corporation deems it advisable and
in the best interests of this Corporation to merge with and into New Presley,
with New Presley as the surviving corporation.
NOW, THEREFORE, BE IT RESOLVED, that effective upon the approval of the
stockholders and the filing of an appropriate Certificate of Ownership and
Merger (the "Certificate of Ownership") embodying these resolutions with the
Secretary of State of Delaware, this Corporation shall merge itself with and
into New Presley, with New Presley being the surviving corporation, which will
assume all of the obligations of this Corporation;
RESOLVED FURTHER, that this Corporation be merged with and into New Presley
and that the merger be, and it hereby is, approved and authorized;
A-1
<PAGE> 114
RESOLVED FURTHER, that the terms and conditions of the merger are as
follows:
ARTICLE 1:
THE MERGER
1.1. The Merger; Effect of Merger. At the Effective Time (as defined in
Section 1.2 below), this Corporation shall be merged with and into New Presley
pursuant to Section 253 of the DGCL and the separate existence of this
Corporation shall cease. New Presley, as the surviving corporation, shall
succeed, insofar as permitted by law, to all rights, assets, liabilities and
obligations of this Corporation in accordance with the DGCL.
1.2. Effective Time. The Effective Time shall be the time at which a duly
executed copy of the Certificate of Ownership with respect to the merger is
filed in the office of the Secretary of State of Delaware in accordance with the
provisions of the DGCL.
1.3. New Presley Certificate of Incorporation. The certificate of
incorporation of New Presley, as in effect immediately prior to the Effective
Time, shall be and remain the certificate of incorporation of New Presley, as
the surviving corporation, following the Effective Time until it shall be
amended as provided by law, except that at the Effective Time, the name of New
Presley shall be changed to The Presley Companies.
1.4. Bylaws. The bylaws of New Presley, as in effect immediately prior to
the Effective Time, shall be and remain the bylaws of New Presley, as the
surviving corporation, following the Effective Time until the same shall be
altered, amended or repealed.
1.5. New Presley's Directors and Officers. The directors and officers,
respectively, of New Presley immediately prior to the Effective Time shall
continue as the directors and officers, respectively, of New Presley following
the Effective Time, to hold office until their successors have been duly elected
and qualified in accordance with the certificate of incorporation and bylaws of
New Presley as the surviving corporation.
ARTICLE 2:
CONVERSION OF SHARES
2.1. New Presley Common Stock. At the Effective Time, automatically by
virtue of the merger and without any further action by any of the parties hereto
or any other person, each five (5) shares of this Corporation's Common Stock
issued and outstanding or held in the treasury of this Corporation immediately
prior to the Effective Time shall be converted into the right to receive one (1)
share of New Presley Common Stock upon compliance with the procedures specified
in Article 3 below; provided, however, no fractional interests shall be issued
by New Presley, and this Corporation shall arrange for the disposition of such
fractional interests by those stockholders otherwise entitled thereto, with cash
paid in lieu of fractional interests by an agent to be appointed by this
Corporation. No shares of this Corporation's Common Stock shall be issued or
outstanding after the Effective Time.
2.2. New Presley Common Stock. At the Effective Time, automatically by
virtue of the merger and without any further action by any of the parties hereto
or any other person, each share of New Presley Common Stock issued and
outstanding and held by this Corporation immediately prior to the Effective Time
shall be cancelled and cease to be issued or outstanding without any payment
being made in respect thereto.
2.3. Stock Option Plans. At the Effective Time, New Presley shall assume
and continue this Corporation's 1991 Stock Option Plan (the "Stock Option
Plan"), be substituted as the "Company" under the terms and provisions of the
Stock Option Plan and assume all rights and obligations of this Corporation
under the Stock Option Plan as theretofore in effect and all
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stock options outstanding thereunder (the "Outstanding Options"). The Stock
Option Plan and the Outstanding Options shall, pursuant to their terms,
thereafter apply to shares of New Presley Common Stock in the same manner as
they theretofore applied to shares of this Corporation's Common Stock, subject
to adjustment for the conversion of the shares of the Corporation's Common Stock
in the merger. Prior to the Effective Time, this Corporation shall take such
action with respect to the Stock Option Plan as is appropriate to facilitate
performance of the foregoing provisions of this Section 2.3.
ARTICLE 3:
EXCHANGE OF STOCK CERTIFICATES
3.1. Appointment of Exchange Agent. At or prior to the Effective Time, New
Presley shall appoint a bank or trust company selected by New Presley as
exchange agent ("Exchange Agent") for the purpose of facilitating the exchange
of certificates representing shares of this Corporation's Common Stock ("Old
Certificates") for certificates representing shares of New Presley Common Stock
("New Presley Certificates") and to act as agent to arrange for the disposition
of fractional interests by those entitled thereto, and distribute such cash in
lieu of fractional interests.
3.2. Exchange of Certificates. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of Old Certificates
a form letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Old Certificates shall pass, only
upon delivery of the Old Certificates to the Exchange Agent) and instructions
for use in effecting the surrender of the Old Certificates in exchange for New
Presley Certificates. Upon proper surrender of an Old Certificate for exchange
and cancellation to the Exchange Agent, together with such properly completed
letter of transmittal, duly executed, the holder of such Old Certificate shall
be entitled to receive in exchange therefor a New Presley Certificate
representing one (1) share of New Presley Common Stock for every five (5) shares
represented by the surrendered Old Certificate, with cash paid in lieu of
fractional interests by the Exchange Agent upon the disposition of those
fractional interests.
3.3. Restriction on Payment of Dividends and Distributions. No dividends or
other distributions declared after the Effective Time with respect to New
Presley Common Stock shall be paid to the holder of any unsurrendered Old
Certificate until the holder thereof shall surrender such Old Certificate in
accordance with Section 3.2. After the surrender of an Old Certificate in
accordance with Section 3.2, the record holder thereof shall be entitled to
receive any such dividends or other distributions, without any interest thereon,
which theretofore had become payable with respect to shares of New Presley
Common Stock represented by such Old Certificate. Notwithstanding the foregoing,
to the fullest extent permitted by law, none of New Presley, this Corporation,
the Exchange Agent or any other person shall be liable to any former holder of
shares of this Corporation's Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
3.4. Issuance of New Presley Certificate in a Different Name. If any New
Presley Certificate is to be issued in a name other than that in which the Old
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Old Certificate so surrendered shall
be properly endorsed (or accompanied by an appropriate instrument of transfer)
and otherwise in proper form for transfer, and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of a New Presley Certificate in any name
other than that of the registered holder of the Old Certificate surrendered, or
required for any other reason, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
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3.5. No Transfers of this Corporation's Common Stock after the Effective
Time. After the Effective Time, there shall be no transfers on the stock
transfer books of this Corporation of the shares of this Corporation's Common
Stock which were issued and outstanding immediately prior to the Effective Time.
If, after the Effective Time, Old Certificates representing such shares are
presented for transfer, no transfer shall be effected on the stock transfer
books of New Presley with respect to such shares and no New Presley Certificate
shall be issued representing the shares New Presley Common Stock exchangeable
for such shares of this Corporation's Common Stock unless and until such Old
Certificate is delivered to the Exchange Agent together with properly completed
and duly executed copies of all documents required by Section 3.2 (or such other
documents as are satisfactory to New Presley and the Exchange Agent in their
sole discretion).
3.6. Lost Old Certificates. In the event any Old Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Old Certificate to be lost, stolen or destroyed and, if
required by New Presley, the posting by such person of a bond in such amount as
New Presley may determine is reasonably necessary as indemnity against any claim
that may be made against it with respect to such Old Certificate, the Exchange
Agent will issue, in exchange for such lost, stolen, or destroyed Old
Certificate, a New Presley Certificate representing the shares of New Presley
Common Stock deliverable in respect of such Old Certificate.
ARTICLE 4:
CONDITIONS TO MERGER
4.1. Conditions to Merger. The consummation of the merger is subject to the
satisfaction, or (to the extent permitted by law) waiver by this Corporation, of
the following conditions prior to the Effective Time:
4.1.1. Consents. Any consents, approvals or authorizations that this
Corporation deems necessary or appropriate to be obtained in connection with the
consummation of the merger shall have been obtained;
4.1.2. Stockholder Approval. The Certificate of Ownership shall have
been adopted by the holders of this Corporation's Common Stock in accordance
with the DGCL;
4.1.3. Tax Opinion. This Corporation shall have received, in form and
substance satisfactory to it, an opinion from its counsel with respect to
certain federal income tax effects of the merger;
4.1.4. Closing of Purchase Agreement. The closing of the purchase and
sale of certain assets of William Lyon Homes, Inc. ("WLHI") to this Corporation
shall have occurred in accordance with that certain Purchase Agreement and
Escrow Instructions, by and among WLHI, this Corporation and Presley Homes, a
California Corporation; and
4.1.5. Closing of Purchase of this Corporation's Common Stock. WLHI
shall have purchased shares of this Corporation's Common Stock pursuant to a
tender offer on a Tender Offer Statement on Schedule 14D-1 and the Series B
Stock Purchase Agreement, between WLHI and certain holders of the Corporation's
Series B Common Stock.
ARTICLE 5:
AMENDMENT, DEFERRAL AND TERMINATION
5.1. Amendment. Subject to Section 251(d) of the DGCL as incorporated by
reference in Section 253 of the DGCL, the Board of Directors, may amend, modify
or supplement the
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terms and conditions of the merger prior to the filing of Certificate of
Ownership with the Secretary of State of Delaware.
5.2. Deferral. Consummation of the merger may be deferred by the Board of
Directors of this Corporation or any authorized officer of this Corporation for
a reasonable period of time following the adoption of the Certificate of
Ownership if said Board of Directors or authorized officer determines that such
deferral would be advisable and in the best interests of this Corporation and
its stockholders.
5.3. Termination. The merger may be abandoned at any time prior to the
filing of the Certificate of Ownership with the Secretary of State of Delaware,
whether before or after adoption of the Certificate of Ownership by the
stockholders of this Corporation, by action of the Board of Directors of this
Corporation, if said Board of Directors determines that the consummation of the
merger would not, for any reason, be advisable and in the best interests of this
Corporation and its stockholders.
RESOLVED FURTHER, that this resolution to merge be submitted to the
stockholders of this Corporation at a special meeting to be called and held
after 20 days' or more notice of the purpose thereof; and
RESOLVED FURTHER, that the Chief Executive Officer, President or any Vice
President of this Corporation be and each hereby is authorized to make and
execute the Certificate of Ownership setting forth a copy of these resolutions
providing for the merger of this Corporation into New Presley and the date of
adoption hereof, and to cause the same to be filed with the Secretary of State
and to do all acts and things, whatsoever, whether within or without the State
of Delaware, which may be in any way necessary or appropriate to effect said
merger.
FOURTH: That this merger has been approved by the holders of at least a
majority of the outstanding shares of stock of this Corporation at a meeting
duly called and held after 20 days' notice of the purpose of the meeting mailed
to each such stockholder at the stockholder's address as it appears on the
records of the Corporation.
FIFTH: That upon the effective date of the merger, Article I of the
Certificate of Incorporation of Presley Merger Sub, Inc. shall be amended to
read: "The name of this corporation is The Presley Companies."
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Wade H. Cable, its authorized officer, this 15th day of July, 1999.
THE PRESLEY COMPANIES
a Delaware corporation
By: /s/ WADE H. CABLE
-----------------------------------
Name: Wade H. Cable
Title: Chief Executive Officer
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APPENDIX B
CERTIFICATE OF INCORPORATION
OF
PRESLEY MERGER SUB, INC.
ARTICLE I.
The name of this corporation is Presley Merger Sub, Inc.
ARTICLE II.
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, in the City of Dover, County of Kent 19901. The
name of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III.
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law ("DGCL").
ARTICLE IV.
(A) The total number of shares of all classes of capital stock which this
corporation shall have the authority to issue is thirty five million
(35,000,000) shares, of which thirty million (30,000,000) shares shall be of the
par value of $.01 per share and designated "Common Stock" and five million
(5,000,000) shares shall be of the par value of $.01 per share and designated
"Preferred Stock".
(B) The Board of Directors is expressly authorized at any time, and from
time to time, to provide for the issuance of shares of Preferred Stock in one or
more series, with such number of shares, such voting powers, full or limited, or
without voting powers, and with such designation, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
and as are not stated and expressed in this Certificate of Incorporation, or any
amendment thereto.
ARTICLE V.
The following provisions are inserted for the management of the business
and the conduct of the affairs of the corporation, and for further definition,
limitation and regulation of the powers of the corporation and of its directors
and stockholders:
(A) The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by the DGCL or by this Certificate of
Incorporation or the Bylaws of the corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the corporation.
(B) The Board of Directors may adopt, amend or repeal the Bylaws of this
corporation.
(C) Election of directors need not be by written ballot.
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ARTICLE VI.
The officers of the corporation shall be chosen in such a manner, shall
hold their offices for such terms and shall carry out such duties as are
determined solely by the Board of Directors, subject to the right of the Board
of Directors to remove any officer or officers at any time with or without
cause.
ARTICLE VII.
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL or (iv) for any transaction from which such director derived an improper
personal benefit. No amendment to or repeal of this Article VII shall apply to
or have any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the DGCL is amended hereafter to
further eliminate or limit the personal liability of directors, the liability of
a director of this corporation shall be limited or eliminated to the fullest
extent permitted by the DGCL, as amended.
ARTICLE VIII.
(A) TRANSFER AND OWNERSHIP RESTRICTIONS. In order to preserve the net
operating loss carryforwards (including any "net unrealized built-in loss," as
defined under applicable law), capital loss carryforwards, general business
credit carryforwards, alternative minimum tax credit carryforwards and other tax
benefits (collectively, the "Tax Benefits") to which the corporation or any
member of the corporation's "affiliated group" as that term is used in Section
1504 of the Internal Revenue Code of 1986, as amended from time to time, or any
successor statute (collectively, the "Code"), is or becomes entitled prior to
the Expiration Date (as hereinafter defined) pursuant to the Code and the
Treasury Regulations promulgated thereunder, as amended from time to time
("Treasury Regulations") or any applicable state statute, the following
restrictions shall apply until the earlier of (x) the day after the third (3rd)
anniversary of the effective time of the merger of The Presley Companies with
and into Presley Merger Sub, Inc. (the "Merger"), (y) the repeal of Section 382
of the Code if the Board of Directors determines that the restrictions in this
Article VIII are no longer necessary for the preservation of the Tax Benefits,
and (z) the beginning of a taxable year of the corporation to which the Board of
Directors determines that no Tax Benefits may be carried forward, unless the
Board of Directors shall fix an earlier or later date in accordance with Section
(E) of this Article VIII. (The date on which the restrictions of this Article
VIII expire hereunder is sometimes referred to herein as the "Expiration Date.")
(1) Definitions. For purposes of this Article VIII:
(a) "Option" shall have the meaning set forth in Treasury
Regulation Section 1.382-4;
(b) a "Person" shall mean any individual, corporation, estate,
trust, association, company, partnership, joint venture, or similar organization
(including the corporation), or any other entity described in Treasury
Regulation Section 1.382-3(a)(1)(i);
(c) a "Prohibited Ownership Percentage" shall mean any Stock
ownership that would cause a Person or Public Group to be a "5-percent
shareholder" of the corporation
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within the meaning of Treasury Regulation Section 1.382-2T(g)(1)(i) or (ii); for
this purpose, whether a Person or Public Group would be a "5-percent
shareholder" shall be determined (i) without giving effect to the following
provisions: Treasury Regulation Sections 1.382-2T(g)(2), 1.382-2T(g)(3),
1.382-2T(h)(2)(iii) and 1.382-2T(h)(6)(iii), (ii) by treating every Person or
Public Group which owns Stock, whether directly or by attribution, as directly
owning such Stock notwithstanding any further attribution of such Stock to other
Persons and notwithstanding Treasury Regulation Section 1.382-2T(h)(2)(i)(A),
(iii) by substituting the term "Person" in place of "individual" in Treasury
Regulation Section 1.382-2T(g)(1), (iv) by taking into account ownership of
Stock at any time during the "testing period" as defined in Treasury Regulation
Section 1.382-2T(d)(1), and (v) by treating each day during the testing period
as if it were a "testing date" as defined in Treasury Regulation Section
1.382-2T(a)(4)(i); in addition, for the purpose of determining whether any
Person or Public Group has a Prohibited Ownership Percentage as of any date, the
definition of Stock set forth in part (e) of this subparagraph (A)(1) shall be
applied in lieu of the definition in Treasury Regulation Section
1.382-2T(f)(18), except that any Option shall be treated as Stock only to the
extent treating it as Stock would cause an increase in ownership of Stock by
such Person and such Option would be deemed exercised pursuant to Treasury
Regulations effect for time to time (disregarding whether treating such Option
as exercised would cause an ownership change);
(d) a "Public Group" shall have the meaning contained in Treasury
Regulation Section 1.382-2T(f)(13), excluding any "direct public group" with
respect to the corporation, as that term is used in Treasury Regulation Section
1.382-2T(j)(2)(ii);
(e) "Stock" refers to all classes of stock of the corporation, all
Options to acquire stock of the corporation and all other interests that would
be treated as stock in the corporation pursuant to Treasury Regulation Section
1.382-2T(f)(18)(iii), other than (i) stock described in Section 1504(a)(4) of
the Code and (ii) stock that would be described in such Section 1504(a)(4) but
is not so described solely because it is entitled to vote as a result of
dividend arrearages;
(f) "Transfer" shall mean any conveyance, by any means, of legal or
beneficial ownership (direct or indirect) of shares of Stock, whether such means
are direct or indirect, voluntary or involuntary, including, without limitation,
the transfer of any ownership interest in any entity that owns (directly or
indirectly) shares of Stock (and any reference in this Article VIII to a
Transfer of Stock shall include any Transfer of any interest in any such entity
and references to the Persons to whom Stock is Transferred shall include Persons
to whom any interest in any such entity shall have been Transferred); and
(g) "Transferee" means any Person to whom Stock is Transferred.
(2) Prohibited Transfers. From and after the effective time of the
Merger, no Person shall Transfer any Stock to any other Person to the extent
that such Transfer, if effected: (a) would cause the Transferee or any Person or
Public Group to have a Prohibited Ownership Percentage; (b) would increase the
Stock ownership percentage (determined in accordance with Section 382 of the
Code and the Treasury Regulations thereunder) of any Transferee or any Person or
Public Group having a Prohibited Ownership Percentage; or (c) would create,
under Treasury Regulation Section 1.382-2T(j)(3)(i), a new "public group" as
that term is used in Treasury Regulation Section 1.382-2T(f)(13).
(3) Board of Directors Consent to Certain Transfers. The Board of
Directors may permit any Transfer of Stock that would otherwise be prohibited
pursuant to subparagraph (A)(2) of this Article VIII if information relating to
a specific proposed transaction is presented to the Board of Directors and the
Board of Directors determines that, based on the facts in existence at the time
of such determination, such transaction will not delay, prevent or otherwise
jeopardize the corporation's full utilization of the Tax Benefits. The Board of
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Directors may impose any conditions that it deems reasonable and appropriate in
connection with such a Transfer, including without limitation, restrictions on
the ability of any Transferee to Transfer Stock acquired through such Transfer;
provided, however, that any such restrictions shall be consented to by such
Transferee and the certificates representing such Stock shall include an
appropriate legend.
(4) Waiver of Restrictions. Notwithstanding anything herein to the
contrary, the Board of Directors may waive any of the restrictions contained in
subparagraph (A)(2) of this Article VIII in any instance in which the Board of
Directors determines that a waiver would be in the best interests of the
corporation, notwithstanding the effect of such waiver on the Tax Benefits.
(B) PURPORTED TRANSFER IN VIOLATION OF TRANSFER RESTRICTION. Unless the
approval or waiver of the Board of Directors is obtained as provided in
subparagraphs (A)(3) or (A)(4) of this Article VIII, any purported Transfer of
Stock in excess of the shares that could be Transferred to the Transferee
without restriction under subparagraph (A)(2) of this Article VIII shall be null
and void and shall not be effective to Transfer record, legal, beneficial or any
other ownership of such excess shares (the "Prohibited Shares") to the purported
acquiror of any form of such ownership (the "Purported Acquiror"), who shall not
be entitled to any rights as a stockholder of the corporation with respect to
the Prohibited Shares (including, without limitation, the right to vote or to
receive dividends with respect thereto). Any purported record, beneficial, legal
or other owner of Prohibited Shares shall be deemed to be a "Purported Acquiror"
of such Prohibited Shares. If there is more than one Purported Acquiror with
respect to certain Prohibited Shares (for example, if the Purported Acquiror of
record ownership of such Prohibited Shares is not the Purported Acquiror of
beneficial ownership of such Prohibited Shares), then references to "Purported
Acquiror" shall include any or all of such Purported Acquirors, as appropriate.
Subparagraphs (B)(1) and (B)(2) below shall apply only in the case of violations
of the restrictions contained in parts (a) and (b) of subparagraph (A)(2) of
this Article VIII.
(1) Transfer of Prohibited Shares and Prohibited Distributions to
Agent. Upon demand by the corporation, the Purported Acquiror shall transfer or
cause the transfer of any certificate or other evidence of purported ownership
of the Prohibited Shares within the Purported Acquiror's possession or control,
along with any dividends or other distributions paid by the corporation with
respect to the Prohibited Shares that were received by the Purported Acquiror
(the "Prohibited Distributions"), to an agent designated by the corporation (the
"Agent"). The Agent shall sell in an arms-length transaction (through the New
York Stock Exchange, if possible, but in any event consistent with applicable
law) any Prohibited Shares transferred to the Agent by the Purported Acquiror.
The proceeds of such sale shall be referred to as "Sales Proceeds." If the
Purported Acquiror has sold the Prohibited Shares to an unrelated party in an
arms-length transaction after purportedly acquiring them, the Purported Acquiror
shall be deemed to have sold the Prohibited Shares for the Agent, and in lieu of
transferring the Prohibited Shares and Prohibited Distributions to the Agent
shall transfer to the Agent the Prohibited Distributions and the proceeds of
such sale (the "Resale Proceeds"), except to the extent that the Agent grants
written permission to the Purported Acquiror to retain a portion of the Resale
Proceeds not exceeding the amount that would have been payable by the Agent to
the Purported Acquiror pursuant to subparagraph (B)(2) below if the Prohibited
Shares had been sold by the Agent rather than by the Purported Acquiror. Any
purported Transfer of the Prohibited Shares by the Purported Acquiror other than
a transfer which (a) is described in the preceding sentences of this
subparagraph (B)(1) and (b) does not itself violate the provisions of this
Article VIII shall be null and void and shall not be effective to transfer any
ownership of the Prohibited Shares.
(2) Allocation of Sale Proceeds, Resale Proceeds and Prohibited
Distributions. The Sale Proceeds or the Resale Proceeds, if applicable, shall be
allocated to the Purported
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Acquiror up to the following amount: (a) where applicable, the purported
purchase price paid or value of consideration surrendered by the Purported
Acquiror for the Prohibited Shares, or (b) where the purported Transfer of the
Prohibited Shares to the Purported Acquiror was by gift, inheritance, or any
similar purported Transfer, the fair market value of the Prohibited Shares at
the time of such purported Transfer. Any Resale Proceeds or Sales Proceeds in
excess of the Agent's expenses incurred in performing its duties hereunder and
the amount allocable to the Purported Acquiror pursuant to the preceding
sentence, together with any Prohibited Distributions (such excess amount and
Prohibited Distributions are collectively the "Subject Amounts"), shall be paid
over to an entity designated by the corporation that is described in Section
501(c)(3) of the Code. In no event shall any such Prohibited Shares or Subject
Amounts inure to the benefit of the corporation or the Agent, but such amounts
may be used to cover expenses incurred by the Agent in performing its duties
hereunder.
(3) Prompt Enforcement Against Purported Acquiror. Within thirty (30)
business days of learning of the purported Transfer of Prohibited Shares to a
Purported Acquiror or a Transfer of Stock which would cause a Person or Public
Group to become a Prohibited Party (as hereinafter defined), the corporation
through its Secretary shall demand that the Purported Acquiror or the Prohibited
Party Group (as hereinafter defined) surrender to the Agent the certificates
representing the Prohibited Shares, or any Resale Proceeds, and any Prohibited
Distributions, and if such surrender is not made by the Purported Acquiror or
Prohibited Party Group within thirty (30) business days from the date of such
demand, the corporation shall institute legal proceedings to compel such
transfer; provided, however, that nothing in this subparagraph (B)(3) shall
preclude the corporation in its discretion from immediately bringing legal
proceedings without a prior demand, and provided further that failure of the
corporation to act within the time periods set out in this subparagraph (B)(3)
shall not constitute a waiver of any right of the corporation to compel any
transfer required by, or take any action permitted by, this Article VIII. Upon a
determination by the Board of Directors that there has been or is threatened a
purported Transfer of Prohibited Shares to a Purported Acquiror or a Transfer of
Stock which would cause a Person or Public Group to become a Prohibited Party or
any other violation of Section (A)of this Article VIII, the Board of Directors
may authorize such additional action as it deems advisable to give effect to the
provisions of this Article VIII, including, without limitation, refusing to give
effect on the books of the corporation to any such purported Transfer or
instituting proceedings to enjoin any such purported Transfer.
(4) Other Remedies. In the event that the Board of Directors determines
that a Person proposes to take any action in violation of subparagraph (A)(2) of
this Article VIII, or in the event that the Board of Directors determines after
the fact that an action has been taken in violation of subparagraph (A)(2) of
this Article VIII, the Board of Directors, subject to subparagraph (B)(5) of
this Article VIII, may take such action as it deems advisable to prevent or to
refuse to give effect to any purported Transfer or other action which would
result, or has resulted, in such violation, including, but not limited to,
refusing to give effect to such purported Transfer or other action on the books
of the corporation or instituting proceedings to enjoin such purported Transfer
or other action. If any Person shall knowingly violate, or knowingly cause any
other Person under the control of such Person ("Controlled Person") to violate,
subparagraph (A)(2) of this Article VIII, then that Person and any Controlled
Person shall be jointly and severally liable for, and shall pay to the
corporation, such amount as well, after taking account of all taxes imposed with
respect to the receipt or accrual of such amount and all costs incurred by the
corporation as a result of such violation, put the corporation in the same
financial position as it would have been in had such violation not occurred.
(5) No Restriction on Settlement of Exchange Transactions. Nothing
contained in this Article VIII shall preclude the settlement of any transaction
involving Stock entered into through the facilities of the New York Stock
Exchange, or any other national securities
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exchange. The application of the provisions and remedies described in this
Section (B) of this Article VIII shall be deemed not to so preclude any such
settlement.
(6) Modification of Remedies For Certain Indirect Transfers. In the
event of any Transfer of Stock or other event which does not involve a transfer
of "securities" of the corporation within the meaning of the DGCL, as amended
("Securities"), but which would cause a Person or Public Group (the "Prohibited
Party") to violate a restriction provided for in part (a) or (b) of subparagraph
(A)(2) of this Article VIII, the application of subparagraphs (B)(1) and (B)(2)
shall be modified as described in this subparagraph (B)(6). In such case, the
Prohibited Party and/or any Person or Public Group whose ownership of the
corporation's Securities is attributed to the Prohibited Party pursuant to
Section 382 of the Code and the Treasury Regulations thereunder (collectively,
the "Prohibited Party Group") shall not be required to dispose of any interest
which is not a Security, but shall be deemed to have disposed of, and shall be
required to dispose of, sufficient Securities (which Securities shall be
disposed of in the inverse order in which they were acquired by members of the
Prohibited Party Group), to cause the Prohibited Party, following such
disposition, not to be in violation of part (a) or (b) of subparagraph (A)(2) of
this Article VIII. Such disposition shall be deemed to occur simultaneously with
the Transfer giving rise to the application of this provision, and such number
of Securities which are deemed to be disposed of shall be considered Prohibited
Shares and shall be disposed of through the Agent as provided in subparagraphs
(B)(1) and (B)(2) of this Article VIII, except that the maximum aggregate amount
payable to the Prohibited Party Group in connection with such sale shall be the
fair market value of the Prohibited Shares at the time of the Prohibited
Transfer.
(C) OBLIGATION TO PROVIDE INFORMATION. The corporation may require as a
condition to the registration of the Transfer of any Stock that the proposed
Transferee furnish to the corporation all information reasonably requested by
the corporation with respect to all the direct or indirect beneficial or legal
ownership of Stock or Options to acquire Stock by the proposed Transferee and by
Persons controlling, or controlled by or under common control with the proposed
Transferee.
(D) LEGENDS. All certificates issued by the corporation evidencing
ownership of shares of Stock of this corporation that are subject to the
restrictions on transfer and ownership contained in this Article VIII shall bear
a conspicuous legend referencing the restrictions set forth in this Article
VIII.
(E) FURTHER ACTIONS. Subject to subparagraph (B)(5) of this Article VIII,
nothing contained in this Article VIII shall limit the authority of the Board of
Directors to take such other action to the extent permitted by law as it deems
necessary or advisable to protect the corporation in preserving the Tax
Benefits. Without limiting the generality of the foregoing, in the event of a
change in law (including applicable regulations) making one or more of the
following actions necessary or desirable or in the event that the Board of
Directors believes one or more of such actions is in the best interest of the
corporation, the Board of Directors may (1) accelerate or extend the Expiration
Date, (2) modify the definitions of any terms set forth in this Article VIII or
(3) conform any provisions of Section (A) of this Article VIII to the extent
necessary to make such provisions consistent with the Code and Treasury
Regulations following any changes therein; provided that the Board of Directors
shall determine in writing that such acceleration, extension, change or
modification is reasonably necessary or desirable to preserve the Tax Benefits
or that the continuation of these restrictions is no longer reasonably necessary
for the preservation of the Tax Benefits, as the case may be, which
determination may be based upon an opinion of legal counsel to the corporation
and which determination shall be filed with the Secretary of the corporation and
mailed by the Secretary to the stockholders of this corporation within ten (10)
days after the date of any such determination. In addition, the Board of
Directors may, to the extent permitted by law, from time to time establish,
modify, amend or rescind Bylaws, regulations and procedures of the corporation
not
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inconsistent with the express provisions of this Article VIII for purposes of
determining whether any acquisition of Stock would jeopardize the corporation's
ability to preserve and use the Tax Benefits, and for the orderly application,
administration and implementation of the provisions of this Article VIII. Such
procedures and regulations shall be kept on file with the Secretary of the
corporation and with its transfer agent and shall be made available for
inspection by the public and, upon request, shall be mailed to any holder of
Stock. The Board of Directors of the corporation shall have the exclusive power
and authority to administer this Article VIII and to exercise all rights and
powers specifically granted to the Board of Directors or the corporation, or as
may be necessary or advisable in the administration of this Article VIII,
including without limitation, the right and power to (1) interpret the
provisions of this Article VIII, and (2) make all calculations and
determinations deemed necessary or advisable for the administration of this
Article VIII. All such actions, calculations, interpretations and determinations
which are done or made by the Board of Directors in good faith shall be final,
conclusive and binding on the corporation, the Agent, and all other parties;
provided, however, the Board of Directors may delegate all or any portion of its
duties and powers under this Article VIII to a committee of the Board of
Directors as it deems necessary or advisable.
(F) BENEFITS OF THIS ARTICLE VIII. Nothing in this Article VIII shall be
construed to give to any Person other than the corporation or the Agent any
legal or equitable right, remedy or claim under this Article VIII. This Article
VIII shall be for the sole and exclusive benefit of the corporation and the
Agent.
(G) SEVERABILITY. If any provision of this Article VIII or the application
of any such provision to any Person or under any circumstance shall be held
invalid, illegal, or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision of this Article VIII.
ARTICLE IX.
(A) RIGHT TO INDEMNIFICATION. Each person who was or is made a party to or
is threatened to be made a party to or is involuntarily involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she is or was a director or
officer of the corporation, or is or was serving (during his or her tenure as a
director and/or an officer) at the request of the corporation as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, whether the basis of such Proceeding is an
alleged action or inaction in an official capacity as a director or officer or
in any other capacity while serving as a director or officer, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the DGCL (or other applicable law), as the same exists or may
hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection with such Proceeding. Such director or officer shall have the
right to be paid by the corporation for expenses incurred in defending any such
Proceeding in advance of its final disposition; provided, however, that, if the
DGCL (or other applicable law) requires, the payment of such expenses in advance
of the final disposition of any such Proceeding shall be made only upon receipt
by the corporation of an undertaking by or on behalf of such director or officer
to repay all amounts so advanced if it should be determined ultimately that he
or she is not entitled to be indemnified under this Article IX or otherwise.
(B) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph A of this
Article IX is not paid in full by the corporation within sixty (60) days after a
written claim has been received by the corporation, the claimant may at any time
thereafter bring suit against the
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corporation to recover the unpaid amount of the claim, together with interest
thereon, and, if successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim, including reasonable
attorneys' fees incurred in connection therewith. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL (or other applicable law) for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation. Neither the failure of the corporation (or
of its full Board of Directors, its directors who are not parties to the
Proceeding with respect to which indemnification is claimed, its stockholders,
or independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the DGCL (or other applicable law), nor an actual determination by
any such person or persons that such claimant has not met such applicable
standard of conduct, shall be a defense to such action or create a presumption
that the claimant has not met the applicable standard of conduct.
(C) NON-EXCLUSIVITY OF RIGHTS. The rights conferred by this Article IX
shall not be exclusive of any other right which any director, officer,
representative, employee or other agent may have or hereafter acquire under the
DGCL or any other statute, or any provision contained in the corporation's
Certificate of Incorporation or Bylaws, or any agreement, or pursuant to a vote
of stockholders or disinterested directors, or otherwise.
(D) INSURANCE AND TRUST FUND. In furtherance and not in limitation of the
powers conferred by statute:
(1) the corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of law; and
(2) the corporation may create a trust fund, grant a security interest
and/or use other means (including, without limitation, letters of credit, surety
bonds and/or other similar arrangements), as well as enter into contracts
providing indemnification to the fullest extent permitted by law and including
as part thereof provisions with respect to any or all of the foregoing, to
ensure the payment of such amount as may become necessary to effect
indemnification as provided therein, or elsewhere.
(E) INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, including the right to be paid by
the corporation the expenses incurred in defending any Proceeding in advance of
its final disposition, to any employee or agent of the corporation to the
fullest extent of the provisions of this Article IX or otherwise with respect to
the indemnification and advancement of expenses of directors and officers of the
corporation.
(F) SURVIVAL OF RIGHTS. The rights set forth in this Article IX are
contract rights and survive any change to this Article IX. Any repeal or
modification of this Article IX shall not change the rights of an officer or
director to indemnification with respect to any action or omission occurring
prior to such repeal or modification.
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ARTICLE X.
The corporation reserves the right to repeal, alter, amend, or rescind any
provisions contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Delaware, and all rights
conferred on stockholders herein are granted subject to this reservation.
ARTICLE XI.
The incorporator is Stevie Pyon, whose mailing address is Irell & Manella
LLP, 333 South Hope Street, Suite 3300, Los Angeles, California 90071.
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware do make, file and record
this Certificate of Incorporation, and, accordingly, have hereto set my hand
this 15th day of July, 1999.
/s/ STEVIE PYON
--------------------------------------
Stevie Pyon, Incorporator
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APPENDIX C
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PRESLEY MERGER SUB, INC.
BYLAWS
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<PAGE> 128
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I................................................... C-1
SECTION 1.1 The Registered Office and Principal Executive
Office................................................. C-1
SECTION 1.2 Other Offices................................. C-1
ARTICLE II.................................................. C-1
SECTION 2.1 Annual Meetings............................... C-1
SECTION 2.2 Special Meetings.............................. C-1
SECTION 2.3 Place of Meeting.............................. C-1
SECTION 2.4 Notice of Annual Meetings..................... C-1
SECTION 2.5 Notice of Special Meeting..................... C-1
SECTION 2.6 Voting Lists.................................. C-1
SECTION 2.7 Persons Entitled to Vote...................... C-2
SECTION 2.8 Record Date................................... C-2
SECTION 2.9 Quorum and Adjournments....................... C-2
SECTION 2.10 Order of Business............................ C-2
SECTION 2.11 Proxies and Voting........................... C-2
SECTION 2.12 Inspectors................................... C-3
SECTION 2.13 Advance Notice of Stockholder Proposals...... C-3
SECTION 2.14 Action by Written Consent.................... C-4
ARTICLE III................................................. C-4
SECTION 3.1 General Powers................................ C-4
SECTION 3.2 Number and Term of Office..................... C-4
SECTION 3.3 Election of Directors......................... C-4
SECTION 3.4 Resignations.................................. C-4
SECTION 3.5 Vacancies, etc. .............................. C-4
ARTICLE IV.................................................. C-4
SECTION 4.1 Place of Meetings............................. C-4
SECTION 4.2 Regular Meetings.............................. C-4
SECTION 4.3 Special Meetings.............................. C-5
SECTION 4.4 Quorum........................................ C-5
SECTION 4.5 Meeting Participation by Conference
Telephone.............................................. C-5
SECTION 4.6 Informal Action............................... C-5
SECTION 4.7 Compensation.................................. C-5
ARTICLE V................................................... C-5
ARTICLE VI.................................................. C-6
SECTION 6.1 Number and Qualifications..................... C-6
SECTION 6.2 Election and Term of Office................... C-6
SECTION 6.3 Other Officers and Agents..................... C-6
SECTION 6.4 Removal....................................... C-6
SECTION 6.5 Resignations.................................. C-6
SECTION 6.6 Chairman of the Board......................... C-6
SECTION 6.7 President..................................... C-6
SECTION 6.8 Vice President................................ C-7
SECTION 6.9 Chief Financial Officer....................... C-7
SECTION 6.10 Treasurer.................................... C-7
SECTION 6.11 Assistant Treasurer.......................... C-7
SECTION 6.12 Secretary.................................... C-7
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 6.13 Assistant Secretary.......................... C-8
SECTION 6.14 Salaries..................................... C-8
ARTICLE VII................................................. C-8
SECTION 7.1 Certificate of Shares......................... C-8
SECTION 7.2 Transfer of Stock............................. C-8
SECTION 7.3 Lost, Stolen, Destroyed or Mutilated
Certificates........................................... C-8
SECTION 7.4 Registered Stockholders....................... C-8
SECTION 7.5 Regulations................................... C-9
SECTION 7.6 Voting Securities Owned by the Corporation.... C-9
ARTICLE VIII................................................ C-9
SECTION 8.1 Notices....................................... C-9
SECTION 8.2 Waiver of Notice.............................. C-9
ARTICLE IX.................................................. C-9
SECTION 9.1 Dividends..................................... C-9
SECTION 9.2 Disbursements................................. C-9
SECTION 9.3 Corporation Seal.............................. C-10
ARTICLE X................................................... C-10
SECTION 10.1 Directors' Liability......................... C-10
SECTION 10.2 Right to Indemnification..................... C-10
SECTION 10.3 Right of Claimant to Bring Suit.............. C-10
SECTION 10.4 Non-Exclusivity of Rights.................... C-11
SECTION 10.5 Insurance and Trust Fund..................... C-11
SECTION 10.6 Indemnification of Employees and Agents of
the Corporation.............................. C-11
SECTION 10.7 Survival of Rights........................... C-11
SECTION 10.8 Amendment.................................... C-11
ARTICLE XI.................................................. C-12
</TABLE>
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PRESLEY MERGER SUB, INC.
BYLAWS
ARTICLE I
OFFICES
SECTION 1.1 The Registered Office and Principal Executive Office. The
registered office of the Corporation in the State of Delaware shall be in the
City of Dover, County of Kent, and the registered agent of the Corporation in
said State shall be CorpAmerica, Inc. The principal executive office of the
Corporation shall be located at 19 Corporate Plaza, Newport Beach, California,
or at such other place within or without the State of California as may be fixed
by the Board of Directors.
SECTION 1.2 Other Offices. The Corporation may also maintain an office or
offices at such other place or places as the Board of Directors may from time to
time select.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Annual Meetings. The annual meeting of stockholders of the
Corporation shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. At the annual meeting directors
shall be elected and any other business may be transacted as may be properly
brought before the meeting.
SECTION 2.2 Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairman of the Board or the President and shall be called by the Secretary
at the request in writing of a majority of the Board of Directors. Such request
shall state the purpose or purposes of the proposed meeting. Stockholders of the
Corporation shall not have the right to request or call a special meeting of the
stockholders.
SECTION 2.3 Place of Meeting. All meetings of stockholders shall be held at
such places, within or without the State of Delaware, as may from time to time
be designated in the respective notices or waivers or notice thereof.
SECTION 2.4 Notice of Annual Meetings. The Secretary or Assistant Secretary
shall give written or printed notice of the annual meeting stating the place,
date and hour of the meeting to each stockholder entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting.
SECTION 2.5 Notice of Special Meeting. Upon receipt of request for a
special meeting of stockholders in writing from a person or persons entitled to
call any such meeting, the officer receiving such notice forthwith shall cause
written notice to be given to the stockholders entitled to vote at such meeting,
that a meeting will be held at the time requested by the person or persons
requesting a meeting, which date shall be not less than thirty-five (35) nor
more than sixty (60) days after the receipt by such officer of the request.
Business conducted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
SECTION 2.6 Voting Lists. The officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
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meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified at the place where the meeting is to be held.
The list shall also be produced and maintained at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder.
SECTION 2.7 Persons Entitled to Vote. Except as otherwise provided by law,
and except when a record date has been fixed, only persons in whose names shares
entitled to vote stand on the stock records of the Corporation at the close of
business on the business day next preceding the day on which notice is given,
shall be entitled to notice of a stockholders' meeting, or to vote at such
meeting.
SECTION 2.8 Record Date. The Board of Directors may fix a time in the
future as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any meeting of stockholders or entitled to receive
any dividend or distribution, or to any change, conversion, or exchange of
shares. The record date so fixed shall be not more than sixty (60) days nor less
than ten (10) days prior to the date of the meeting or event for the purposes
for which it is fixed. When a record date is so fixed, only stockholders of
record on that date are entitled to notice of and to vote at the meeting or to
receive the dividend, distribution, or allotment of rights, or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after the record date.
SECTION 2.9 Quorum and Adjournments. The holders of a majority of the
shares issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for all purposes, unless or except to the extent that the presence
of a larger number may be required by law or the Certificate of Incorporation of
the Corporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the chairman of the meeting or the holders of a
majority of shares of stock who are present in person or represented by proxy,
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented, except as indicated in the next paragraph. Except as otherwise
provided by statute or in the Certificate of Incorporation of this Corporation,
the affirmative vote of a majority of the shares represented at a meeting at
which a quorum is present, shall be the act of the stockholders.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 2.10 Order of Business. The order of business at each meeting of
the stockholders shall be determined by the Chairman of the Board as the
chairman of the meeting.
SECTION 2.11 Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law or the Certificate of
Incorporation.
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All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
SECTION 2.12 Inspectors. In advance of any meeting of the stockholders, the
chairman of such meeting shall appoint at least one inspector of elections to
act at the meeting and make a written report thereof. Each inspector so
appointed shall first subscribe an oath on affirmation faithfully to execute the
duties of an inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
SECTION 2.13 Advance Notice of Stockholder Proposals.
(a) At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who complies with the notice procedures set forth in this Section
2.13(a). For business to be properly brought before any meeting of the
stockholders by a stockholder, the stockholder must have given notice thereof in
writing to the Secretary of the Corporation not less than ninety (90) days in
advance of such meeting or, if later, the seventh day following the first public
announcement of the date of such meeting. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. In addition, the
stockholder making such proposal shall promptly provide any other information
reasonably requested by the Corporation. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any meeting of the
stockholders except in accordance with the procedures set forth in this Section
2.13. The Chairman of any such meeting shall direct that any business not
properly brought before the meeting shall not be considered.
(b) Nominations for the election of directors may be made by the Board
of Directors or by any stockholder entitled to vote in the election of
directors. However, a stockholder may nominate a person for election as a
director at a meeting only if written notice of such stockholder's intent to
make such nomination has been given to the Secretary of the Corporation not
later than ninety (90) days in advance of such meeting or, if later, the seventh
day following the first public announcement of the date of such meeting. Each
such notice shall set forth: (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated;
(ii) a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting and nominate the person or persons specified in the
notice; (iii) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (iv) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the United States Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (v) the consent of each nominee to serve as a director
of the Corporation if so
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elected. In addition, the stockholder making such nomination shall promptly
provide any other information reasonably requested by the Corporation. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 2.13(b). The
Chairman of any meeting of stockholders shall direct that any nomination not
made in accordance with these procedures be disregarded.
SECTION 2.14 Action by Written Consent. Unless otherwise provided in the
Certificate of Incorporation, any action which is required to be or may be taken
at any annual or special meeting of stockholders of the Corporation may be taken
without a meeting, without prior notice to stockholders and without a vote if
consents in writing, setting forth the action so taken, shall have been signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or to take such action at a meeting
at which all shares entitled to vote thereon were present and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 General Powers. The property, business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
of the Corporation.
SECTION 3.2 Number and Term of Office. The Board of Directors shall consist
of one (1) or more members. The exact number of directors shall be fixed and may
be changed from time to time by resolution duly adopted by the Board of
Directors or the stockholders, except as otherwise provided by law or the
Certificate of Incorporation. The directors shall be elected for a term expiring
at the next annual meeting or thereafter when their successors are elected and
qualified.
SECTION 3.3 Election of Directors. At each meeting of the stockholders for
the purpose of election of directors at which a quorum is present, the persons,
up to the number of directors to be elected thereat, receiving the greatest
number of votes shall be the directors.
SECTION 3.4 Resignations. Any director may resign at any time by giving
written notice of his resignation to the Chairman of the Board or the Secretary.
Any such resignation shall take effect at the time specified therein, or if the
time when it shall become effective shall not be specified therein, then it
shall take effect immediately upon its receipt by such Chairman of the Board or
Secretary; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.5 Vacancies, etc. Vacancies and newly-created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director and the directors so chosen shall hold office until
the next election of directors, and until their successors shall be elected and
qualified. If there are no directors in office, then an election of directors
may be held in the manner provided by statute.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4.1 Place of Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the States
of Delaware and California.
SECTION 4.2 Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw, immediately after, and at
the same place, as the annual meeting of stockholders at which time the Board
shall elect its officers. The Board of
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Directors may provide, by resolution, the time and place, within or without the
States of Delaware and California for the holding of additional regular meetings
without other notice than such resolution.
SECTION 4.3 Special Meetings. Special meetings of the Board may be called
by the Chairman of the Board, the President, or a majority of directors then in
office upon forty-eight (48) hours' written notice by mail before the date of
the meeting or twenty-four (24) hours' notice delivered personally or by
telephone, telegram, or telecopy to each director, or on such shorter notice as
the person or persons calling such meeting may deem necessary or appropriate in
the circumstances. Meetings may be held at any time without notice if all the
directors are present or if all those not present waive such notice in
accordance with Section 8.2 of these Bylaws.
SECTION 4.4 Quorum. At all meetings of the Board, a majority of the total
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 4.5 Meeting Participation by Conference Telephone. Any director may
participate in a meeting of the Board or of any committee thereof by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and, participation in
a meeting by such means shall constitute presence in person at such meeting.
SECTION 4.6 Informal Action. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all members of the Board or of any such committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
SECTION 4.7 Compensation. The Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as a director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings if approved by a resolution adopted by a majority
of the members of the Board of Directors.
ARTICLE V
COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to consist of one or
more of the directors of the Corporation. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of any such committee. In the
absence or disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such members constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in
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the place of any such absent or disqualified member. Any committee, to the
extent allowed by law and provided in the bylaw or resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
ARTICLE VI
OFFICERS
SECTION 6.1 Number and Qualifications. The officers of the Corporation
shall be chosen by the Board of Directors and shall be a Chairman of the Board,
a President, a Secretary, and a Chief Financial Officer or a Treasurer or both.
The Board of Directors may also choose a Vice Chairman, one or more Senior Vice
Presidents, and one or more Assistant Secretaries and Assistant Treasurers, each
of whom shall hold office for such term and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board. Any
number of offices may be held by the same person unless the Certificate of
Incorporation or these Bylaws otherwise provide.
SECTION 6.2 Election and Term of Office. The principal officers of the
Corporation shall be chosen annually by the Board. Each principal officer shall
hold office until his successor shall have been duly chosen and shall qualify or
until his earlier death or his earlier resignation or removal in the manner
hereinafter provided.
SECTION 6.3 Other Officers and Agents. The Board of Directors may appoint
such other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
SECTION 6.4 Removal. Any officer of the Corporation may be removed, either
with or without cause, at any time, by resolution adopted by a majority of the
whole Board or by any committee of officers upon whom such power of removal may
be conferred by the Board.
SECTION 6.5 Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the Secretary. Any such resignation shall take effect at the time
specified therein, or if the time when it shall become effective shall not be
specified therein, then it shall take effect immediately upon its receipt by the
Board or the Chairman of the Board or Secretary; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 6.6 Chairman of the Board. The Chairman of the Board shall, if
present, preside at all meetings of the stockholders and of the Board of
Directors. He may sign bonds, mortgages, certificates for shares and all other
contracts and documents whether or not under the seal of the Corporation except
in cases where the signing and execution thereof shall be expressly delegated by
law, by the Board of Directors or by these Bylaws to some other officer or agent
of the Corporation. He shall have general powers of supervision and shall be the
final arbiter of all differences between officers of the Corporation and his
decision as to any matter affecting the Corporation shall be final and binding
between the officers of the Corporation subject only to actions of the Board of
Directors. He may also delegate such of his duties to the President or such
other officers as the Chairman of the Board from time to time deems appropriate.
SECTION 6.7 President. The President shall be the Chief Executive Officer
of the Corporation and shall in general supervise and control all of the
business and affairs of the
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Corporation. He shall attend all meetings of the stockholders and of the Board
of Directors and shall see that orders and resolutions of the Board of Directors
are carried into effect. The President shall have and exercise such further
powers and duties as may be specifically delegated to or vested in the President
from time to time by these Bylaws, the Chairman of the Board or the Board of
Directors. In the absence of the Chairman of the Board or in the event of his
inability or refusal to act, or if the Board has not designated a Chairman, the
President shall perform the duties of the Chairman of the Board, and when so
acting, shall have all of the powers and be subject to all of the restrictions
upon the Chairman of the Board. The President shall, at all times, have
concurrent power with the Chairman of the Board to sign bonds, mortgages,
certificates for shares and other contracts and documents whether or not under
the seal of the Corporation except in cases where the signing and execution
thereof shall be expressly delegated by law, by the Board of Directors, or by
these Bylaws to some other officer or agent of the Corporation.
SECTION 6.8 Vice President. In the absence of the President or in the event
of his inability or refusal to act, the Vice President (or in the event there be
more than one vice president, the vice presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The vice presidents shall perform such other duties and have such
other powers as the Board of Directors, the Chairman of the Board, or the
President may from time to time prescribe.
SECTION 6.9 Chief Financial Officer. The Chief Financial Officer shall have
general supervision, direction and control of the financial affairs of the
Corporation and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws. In the absence of a named Treasurer, the
Chief Financial Officer shall also have the powers and duties of the Treasurer
as hereinafter set forth and shall be authorized and empowered to sign as
Treasurer in any case where such officer's signature is required.
SECTION 6.10 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the Corporation.
SECTION 6.11 Assistant Treasurer. The Assistant Treasurer shall, in the
absence of the Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties as the Chairman of the Board or the Board of Directors may
from time to time prescribe or perform such duties of the Treasurer as the
Treasurer of this Corporation may delegate from time to time.
SECTION 6.12 Secretary. The Secretary (or Assistant Secretary if
appropriately delegated) shall attend all meetings of the Board of Directors and
all meetings of the stockholders and record all the proceedings of the meetings
of the Corporation and of the Board of Directors in a book for that purpose and
shall perform like duties for the standing committee when required. He shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or the Chief Executive Officer.
He shall have custody of the corporate seal of the Corporation, and he, or an
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his
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signature or such Assistant Secretary. The Chairman of the Board or the Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature.
SECTION 6.13 Assistant Secretary. The Assistant Secretary, shall, in the
absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties as the Chairman of the Board or the Board of Directors, or the
Secretary may from time to time prescribe.
SECTION 6.14 Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
ARTICLE VII
STOCK
SECTION 7.1 Certificate of Shares. Every owner of shares in this
Corporation shall be entitled to have a certificate in such form, not
inconsistent with the Certificate of Incorporation or any law, as shall be
prescribed by the Board of Directors, certifying the number of shares, and class
or series, owned by him in the Corporation. Every certificate for shares shall
be signed by the Chairman of the Board or the President and the Secretary or an
Assistant Secretary. Subject to the restrictions provided by law, signatures may
be facsimile and shall be effective irrespective of whether any person whose
signature appears on the certificates shall have ceased to be such officer
before the certificate is delivered by the Corporation. Such certificate issued
shall bear all statements or legends required by law to be affixed thereto.
SECTION 7.2 Transfer of Stock. Stock of the Corporation shall be
transferable in the manner prescribed by law, the Certificate of Incorporation
and in these Bylaws. Transfers of stock shall be made on the books of the
Corporation only by the person named in the certificate or by such person's
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
SECTION 7.3 Lost, Stolen, Destroyed or Mutilated Certificates. The holder
of any shares of the Corporation shall immediately notify the Corporation of any
loss, theft, destruction or mutilation of the certificates therefor. The Board
of Directors shall direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, or upon the surrender of any
mutilated certificate, upon the making of an affidavit of that fact by the
person claiming the same, if the Corporation shall not theretofore have received
notice that the certificate alleged to have been lost, destroyed or stolen has
been acquired by a bona fide purchaser thereof. The Board of Directors may, in
its discretion, require the owner of the lost, stolen, or destroyed certificate
or his legal representatives to give the Corporation a bond in such sum, limited
or unlimited, in such form and with such surety or sureties as the Board of
Directors shall, in its uncontrolled discretion, determine, to indemnify the
Corporation against any claim that may be made against it on account of alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificates.
SECTION 7.4 Registered Stockholders. Except as otherwise provided by law,
the Corporation shall be entitled to recognize as the exclusive owner of shares
of the Corporation for all purposes as regards the Corporation, the person in
whose name the shares stand registered on its books as the owner and such person
exclusively shall be entitled to receive dividends and to vote as such owner. To
the extent permissible under law, the Corporation shall be entitled to hold
liable for calls and assessments a person registered on its books as the owner
of the shares, and shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any person, whether or not
it shall have express or other notice thereof.
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SECTION 7.5 Regulations. The Board of Directors shall have power and
authority to make all such rules and regulations not inconsistent with law or
with the Certificate of Incorporation as may be deemed expedient concerning the
issue, transfer and registration of certificates for shares of the capital stock
of the Corporation, and may appoint transfer agents, transfer clerks and
registrars thereof.
SECTION 7.6 Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chairman of the Board, the President, any Vice
President or the Secretary and any such officer may, in the name of and on
behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, form time to time confer like powers upon any
other person or persons.
ARTICLE VIII
NOTICES
SECTION 8.1 Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable and such notice shall be
deemed to be given at the time of receipt thereof if given personally at the
time of transmission thereof if given by telegram, telex or cable.
SECTION 8.2 Waiver of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these Bylaws to be given to any director, member
or a committee or stockholder, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to notice.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
or by any Committee of the Board of Directors having such authority at any
meeting thereof, and may be paid in cash, in property, in shares of the capital
stock or in any combination thereof. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
SECTION 9.2 Disbursements. All notes, checks, drafts and orders for the
payment of money issued by the Corporation shall be signed in the name of the
Corporation by such officers or such other persons as the Board of Directors may
from time to time designate.
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SECTION 9.3 Corporation Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE X
DIRECTORS' LIABILITY AND INDEMNIFICATION
SECTION 10.1 Directors' Liability. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such a director as a director.
Notwithstanding the foregoing sentence, a director shall be liable to the extent
provided by applicable law (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which such director derived an
improper personal benefit. No amendment to or repeal of this Article shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal. If the Delaware General Corporation
Law is amended hereafter to further eliminate or limit the personal liability of
directors, the liability of a director of this corporation shall be limited or
eliminated to the fullest extent permitted by the Delaware General Corporation
Law, as amended.
SECTION 10.2 Right to Indemnification. Each person who was or is made a
party to or is threatened to be made a party to or is involuntarily involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation, or is or was serving (during his or her
tenure as a director and/or an officer) at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, whether the basis of such Proceeding
is an alleged action or inaction in an official capacity as a director or
officer or in any other capacity while serving as a director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law (or other applicable law), as
the same exists or may hereafter be amended, against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection with such Proceeding. Such director or
officer shall have the right to be paid by the Corporation for expenses incurred
in defending any such Proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law (or other applicable law)
requires, the payment of such expenses in advance of the final disposition of
any such Proceeding shall be made only upon receipt by the Corporation of an
undertaking by or on behalf of such director or officer to repay all amounts so
advanced if it should be determined ultimately that he or she is not entitled to
be indemnified under this Article or otherwise.
SECTION 10.3 Right of Claimant to Bring Suit. If a claim under Section
10.2 of this Article is not paid in full by the Corporation within sixty (60)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim, together with interest thereon, and, if successful
in whole or in part, the claimant shall also be entitled to be paid the expense
of prosecuting such claim, including reasonable attorneys' fees incurred in
connection therewith. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the
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claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law (or other applicable law) for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (or of its full Board of Directors, its directors who are not
parties to the Proceeding with respect to which indemnification is claimed, its
stockholders, or independent legal counsel) to have made a determination prior
to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law (or other applicable
law), nor an actual determination by any such person or persons that such
claimant has not met such applicable standard of conduct, shall be a defense to
such action or create a presumption that the claimant has not met the applicable
standard of conduct.
SECTION 10.4 Non-Exclusivity of Rights. The rights conferred by this
Article shall not be exclusive of any other right which any director, officer,
representative, employee or other agent may have or hereafter acquire under the
Delaware General Corporation Law or any other statute, or any provision
contained in the Corporation's Certificate of Incorporation or Bylaws, or any
agreement, or pursuant to a vote of stockholders or disinterested directors, or
otherwise.
SECTION 10.5 Insurance and Trust Fund. In furtherance and not in
limitation of the powers conferred by statute:
(1) the Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of law; and
(2) the Corporation may create a trust fund, grant a security interest
and/or use other means (including, without limitation, letters of credit, surety
bonds and/or other similar arrangements), as well as enter into contracts
providing indemnification to the fullest extent permitted by law and including
as part thereof provisions with respect to any or all of the foregoing, to
ensure the payment of such amount as may become necessary to effect
indemnification as provided therein, or elsewhere.
SECTION 10.6 Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, including the right to
be paid by the Corporation the expenses incurred in defending any Proceeding in
advance of its final disposition, to any employee or agent of the Corporation to
the fullest extent of the provisions of this Article X or otherwise with respect
to the indemnification and advancement of expenses of directors and officers of
the Corporation.
SECTION 10.7 Survival of Rights. The rights set forth in this Article X
are contract rights and survive any change to this Article X. Any repeal or
modification of this Article X shall not change the rights of an officer or
director to indemnification with respect to any action or omission occurring
prior to such repeal or modification.
SECTION 10.8 Amendment. This Article X is also contained in Articles VII
and IX of the Corporation's Certificate of Incorporation, and accordingly, may
be altered, amended or repealed only to the extent and at the time the
comparable Certificate Article is altered, amended or repealed. Any repeal or
modification of this Article X shall not change the rights of an officer or
director to indemnification with respect to any action or omission occurring
prior to such repeal or modification.
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ARTICLE XI
AMENDMENTS
Except as otherwise specifically stated within an Article to be altered,
amended or repealed, these Bylaws may be altered, amended or repealed and new
Bylaws may be adopted at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting.
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APPENDIX D
[WARBURG DILLON READ LOGO]
September 16, 1999
Special Committee of the Board of Directors
The Presley Companies
19 Corporate Plaza
Newport Beach, California 92660
Dear Members of the Special Committee:
We understand that The Presley Companies, a Delaware corporation
("Presley"), is considering a transaction whereby (i) Presley Homes, a
California corporation and a wholly-owned subsidiary of Presley (the "Buyer"),
will purchase (the "Acquisition") substantially all of the real estate assets
and certain other assets relating thereto (the "Acquired Assets") of William
Lyon Homes, Inc., a California corporation (the "Seller"), and of certain
partnerships (the "Partnerships") as identified in the Acquisition Agreement (as
defined below) for consideration (the "Asset Purchase Consideration") of (a)
$48.0 million (subject to adjustment as provided in the Acquisition Agreement)
in cash and (b) the assumption by the Buyer of substantially all of the
liabilities of the Seller and the Partnerships relating to the Acquired Assets
(the "Assumed Liabilities"), (ii) William Lyon and William H. Lyon (together,
the "Lyons") will make a cash tender offer (the "Series A Offer") to acquire up
to 10,678,792 shares (subject to adjustment as provided in the Acquisition
Agreement) of Series A Common Stock of Presley for a cash purchase price of
$0.655 per share, (iii) Seller will purchase an aggregate of 9,434,813 shares
(subject to adjustment as provided in the Acquisition Agreement) of Series B
Common Stock of Presley for a cash purchase price of $0.655 per share pursuant
to those certain Stock Purchase and Sale Agreements dated as of July 6, 1999
(collectively, the "Selling Series B Purchase Agreements") with each of GS
Credit Partners, L.P., ING (U.S.) Capital, L.L.C. and The Chase Manhattan Bank,
as Trustee for First Plaza Group Trust (collectively, the "Selling Series B
Stockholders"), and (iv) Presley will merge with and into one of its
wholly-owned subsidiaries (the "Surviving Corporation"), in accordance with the
terms set forth in the Acquisition Agreement (the "Merger"), which Merger will
result in the implementation of certain transfer restrictions to reduce the risk
of an ownership change for purposes of preserving Presley's tax net operating
losses. The transactions set forth in clauses (i) through (iv) above are
collectively referred to herein as the "Transactions." The terms and conditions
of the Acquisition, the Series A Offer and the Merger are more fully set forth
in the Purchase Agreement and Escrow Instructions (the "Acquisition Agreement")
proposed to be entered into by and among the Seller, the Lyons, the Buyer and
Presley.
After consummation of the Transactions, the holders of the Series A Common
Stock will receive one share of Surviving Corporation Common Stock for each five
shares of Series A Common Stock and, to the extent any such holder of Series A
Common Stock (other than the Lyons and the Selling Series B Stockholders (the
"Contractually Non-Tendering Holders")) tenders shares of Series A Common Stock
in the Series A Offer, cash for such shares, subject to the pro ration
provisions of the Series A Offer (the shares of Surviving Corporation Common
Stock and/or cash that may be received by each such holder of Series A Common
Stock (other than the Contractually Non-Tendering Holders) after giving effect
to the
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Transactions is referred to herein as the "Transaction Consideration"). You have
informed us that the Seller is an entity controlled by William Lyon, the
Chairman of the Board of Presley.
You have requested our opinion as to the fairness, from a financial point
of view, of the Transaction Consideration to be received by the holders of
Series A Common Stock (other than the Contractually Non-Tendering Holders) after
giving effect to the Transactions.
For purposes of our opinion as expressed herein, we have assumed, with your
consent, that (i) the Asset Purchase Consideration is fair to Presley and Buyer
from a financial point of view, (ii) the consummation of the Transactions will
not restrict or adversely affect the utilization by Presley of its tax net
operating losses and (iii) after giving effect to the Transactions, the Common
Stock of the Surviving Corporation will remain eligible for listing on the New
York Stock Exchange.
Warburg Dillon Read LLC ("WDR") has acted as financial advisor to the
Special Committee of the Board of Directors of Presley in connection with the
Transactions and will receive a fee upon the consummation thereof. In the
ordinary course of business, WDR, its successors and affiliates may trade
securities of Presley for their own accounts and for the accounts of their
customers and, accordingly, may at any time hold a long or short position in
such securities. In connection with our engagement as financial advisor, at your
direction, we contacted a number of third parties regarding their interest in
making proposals for potential business combinations involving Presley, and held
discussions with certain of these parties prior to the date hereof.
Our opinion does not address Presley's underlying business decision to
effect the Transactions or constitute a recommendation to any stockholder of
Presley as to how such stockholder should vote with respect to the Merger or as
to whether any stockholder should tender shares of Series A Common Stock in the
Series A Offer. With your consent, we have not been asked to, nor do we, offer
any opinion as to the material terms of the Selling Series B Purchase Agreements
or, except as provided herein, the Acquisition Agreement or the form of any of
the Transactions. In rendering this opinion, we have assumed, with your consent,
that the final executed form of the Acquisition Agreement will not differ in any
material respect from the draft that we have examined, that each party to the
Selling Series B Purchase Agreements and the Acquisition Agreement complies in
all material respects with its respective obligations thereunder, that the
transactions contemplated by the Selling Series B Purchase Agreements and the
Acquisition Agreement will be consummated in accordance with the respective
terms thereof, with no modification or waiver of any material term or condition
thereunder (including the conditions to the Series A Offer) and that
consummation of the Transactions in the manner contemplated by the Selling
Series B Purchase Agreements and the Acquisition Agreement complies with all
applicable laws. In rendering this opinion, we are not rendering any opinion as
to the trading price of the common stock of Surviving Corporation following the
Transactions.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to Presley, (ii) reviewed certain internal financial information and
other data provided to us by Presley and Seller that is not publicly available
relating to the business and financial prospects of Presley and the Acquired
Assets and Partnerships, including estimates and financial projections prepared
by the management of Presley and the Seller, (iii) conducted discussions with
members of the senior management of Presley and the Seller, (iv) reviewed
publicly available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those of
Presley (the "Comparables"), (v) considered certain pro forma effects of the
Transactions on Presley's financial statements, (vi) reviewed the historical
market prices and trading volumes of the Series A Common Stock and the common
stocks of the Comparables, (vii) reviewed the Selling Series B Purchase
Agreements and drafts of the
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Acquisition Agreement and other ancillary documents, (viii) considered the
results of solicitations of interest from and discussions with third parties
regarding potential business combinations involving Presley and (ix) conducted
such other financial studies, analyses and investigations, and considered such
other information as we deemed necessary or appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the foregoing information
reviewed by us for the purpose of this opinion and have, with your consent,
relied on such information being complete and accurate in all material respects.
In addition, with your consent, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of
Presley, the Acquired Assets or the Partnerships. With respect to the financial
projections referred to above, we have assumed, with your consent, that they
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the managements of Presley and the Seller, as
applicable, as to the future financial performance of Presley and the Acquired
Assets and Partnerships. Further, our opinion is based on economic, monetary,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Transaction Consideration to be received by the holders of
Series A Common Stock (other than the Contractually Non-Tendering Holders),
after giving effect to the Transactions, is fair to the holders of Series A
Common Stock (other than the Contractually Non-Tendering Holders) from a
financial point of view.
Very truly yours,
Warburg Dillon Read LLC
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APPENDIX E
HOULIHAN LETTERHEAD
September 16, 1999
To the Special Committee of the Board of Directors of
The Presley Companies
19 Corporate Plaza
Newport Beach, CA 92660
Dear Special Committee Members:
We understand that The Presley Companies, a Delaware Corporation (the
"Company"), and Presley Homes, a California Corporation ("Buyer") and a wholly
owned subsidiary of the Company, are considering entering into a purchase
agreement and escrow instructions (substantially in the form of the draft dated
September 7, 1999 and hereinafter referred to as the "Purchase Agreement") with
William Lyon Homes, Inc. ("Lyon"), which would provide for the acquisition by
the Company of substantially all of the assets of Lyon for a cash purchase price
of $48 million, as adjusted pursuant to the Purchase Agreement, and the
assumption of substantially all of the liabilities of Lyon (the "Consideration",
and collectively, the "Transaction"). It is our understanding that the Company
has formed a Special Committee comprised of independent directors of the
Company's Board of Directors (the "Committee") to consider certain matters
relating to the Transaction.
The Committee has requested our opinion (the "Opinion") as to the matters
set forth below. The Opinion does not address the Company's underlying business
decision to effect the Transaction. We have not been requested to, and did not,
solicit third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction or
advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries, as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports on Form 10-K for the fiscal
years ended December 31, 1998 and quarterly reports on Form 10-Q for the
quarter ended June 30, 1999;
2. reviewed the Indenture Agreement governing the Company's 12.5%
Senior Notes;
3. reviewed the Preliminary Proxy Statement Schedule 14A Information
(Amendment No. 1);
4. met with the Company's and Lyon's senior management to discuss the
Transaction, the operations, financial condition, future prospects and
performance of the Company and Lyon;
5. reviewed the Letter of Intent, dated May 3, 1999, between the
Company and Lyon, as amended on July 15, 1999;
6. reviewed the Purchase Agreement between the Company and Lyon;
7. reviewed the specific project status and business plans for Lyon's
assets with the management of Lyon;
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<PAGE> 146
The Special Committee Members of
The Presley Companies
September 16, 1999
Page 2
8. reviewed Lyon's audited financial statements for the two years
ended December 31, 1998 and December 31, 1997, respectively;
9. reviewed Lyon's forecasted business plan for the three years ended
December 31, 2001;
10. reviewed the February 17, 1999 Property Information Binders
prepared by management of Lyon, which includes property descriptions and
historical and projected sales pricing and absorption figures for each of
Lyon's projects;
11. reviewed the Lyon materials summarizing current operations,
organizational structure, the management team and historical overview;
12. reviewed representative market data and economic analysis for the
Orange County markets as provided by Lyon and other third party market
research organizations;
13. reviewed the individual cash flow projections for each of the Lyon
assets and the resulting net present value calculations prepared by the
Company;
14. reviewed the appraisal reports of Lyon's real estate assets
prepared by a nationally-recognized real estate appraisal firm;
15. reviewed publicly available information on companies we deemed
comparable to Lyon; and
16. conducted such other studies analyses, studies and investigations
as we deemed appropriate under the circumstances for rendering the opinion
expressed herein.
Except as expressly set forth above, we were not provided and did not review any
documentation, preliminary or otherwise, regarding the valuation of the
individual assets of Lyon.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, Buyer and Lyon, and that there has been no
material change in the assets, financial condition, business or prospects of the
Company, Buyer or Lyon since the date of the most recent financial statements
made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company, Buyer or Lyon and do not
assume any responsibility with respect to it. We have not made any physical
inspection or independent appraisal of any of the properties or assets of the
Company, Buyer or Lyon. Our opinion is necessarily based on business, economic,
market and other conditions as they exist and can be evaluated by us at the date
of this letter.
It is understood that this Opinion is for the information of the Committee
in connection with its evaluation of the Transaction and does not constitute a
recommendation to the Company, Buyer or any holder of shares of common stock of
the Company as to whether to enter into the Purchase Agreement or to take other
action in connection with the Transaction. This Opinion is delivered to you
subject to the conditions, scope of engagement, limitations and understandings
set forth in this Opinion and our engagement letter dated January 21, 1999 (the
"Engagement Letter") with the Committee, and subject to the understanding that
the obligations of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
("Houlihan Lokey")
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The Special Committee Members of
The Presley Companies
September 16, 1999
Page 3
in the transaction are solely corporate obligations, and no officer, director,
employee, agent, shareholder or controlling person of Houlihan Lokey shall be
subjected to any personal liability whatsoever to any person, nor will any such
claim be asserted by or on behalf of you or your affiliates unless permitted by
the Engagement Letter. It is also understood that a copy of this Opinion will be
delivered, by the Company, to the Indenture Trustee in accordance with the
requirements of the Trust Indenture, dated as of June 29, 1994, with respect to
the Company's 12.5% Senior Notes. This letter speaks only as of its date and we
are under no obligation and do not undertake any obligation to update the
Opinion at any time after the date hereof.
The Company, Buyer and Lyon, like other companies and any business entities
analyzed by Houlihan Lokey or which are otherwise involved in any manner in
connection with this Opinion, could be materially affected by complications that
may occur, or may be anticipated to occur, in computer-related applications as a
result of the year change from 1999 to 2000 (the "Y2K Issue"). In accordance
with long-standing practice and procedure, Houlihan Lokey's services are not
designed to detect the likelihood and extent of the effect of the Y2K Issue,
directly or indirectly, on the financial condition and/or operations of a
business. Further, Houlihan Lokey has no responsibility with regard to the
Company's, Buyer's or Lyon's efforts to make its systems, or any other systems
(including its vendors and service providers), Year 2000 compliant on a timely
basis. Accordingly, Houlihan Lokey shall not be responsible for any effect of
the Y2K Issue on the matters set forth in this Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the Consideration to be paid by the Company and Buyer in connection with the
Transaction is fair to the Company and Buyer from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
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<PAGE> 148
PROXY
THE PRESLEY COMPANIES
Special Meeting - Friday, November 5, 1999
The undersigned appoints Nancy M. Harlan and Linda L. Foster, and each of
them, proxies, with power of substitution, to vote all shares which the
undersigned is entitled to vote at the Special Meeting of Stockholders of The
Presley Companies called to be held at the Company's office, 19 Corporate
Plaza, Newport Beach, California, on Friday, November 5, 1999, at 6:30a.m.
local time, and at any adjournments or postponements thereof.
The Board of Directors Recommends Voting FOR Item 1
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT TO US.
PLEASE SIGN AND DATE YOUR PROXY
ON THE REVERSE SIDE OF THIS CARD.
<PAGE> 149
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE PRESLEY
COMPANIES
Please mark
your votes as [X]
indicated in
this example.
PLEASE SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES BELOW.
IF NO DESIGNATION IS MADE, YOUR PROXY WILL BE VOTED FOR ITEM 1.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ITEM 1.
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
ITEM 1. CERTIFICATE OF OWNERSHIP AND MERGER [ ] [ ] [ ] By executing this proxy, the undersigned hereby
authorizes the proxy holders to vote upon such other
business as may properly come before the meeting or
at any adjournments or postponements thereof, as to
which the undersigned hereby confers discretionary
authority upon said proxies.
</TABLE>
I PLAN TO ATTEND THE MEETING [ ]
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE U.S.A.
<TABLE>
<S> <C> <C>
Signature ____________________________ Signature __________________________ Dated: _______________, 1999
</TABLE>
IMPORTANT: Please sign exactly as name or names appear hereon. If signed as
executor, trustee or other fiduciary, give your full title as such.
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
THE
PRESLEY
COMPANIES
EVEN IF YOU PLAN TO JOIN US AT THE MEETING,
PLEASE
SIGN, DATE, AND RETURN YOUR PROXY
IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
THANK YOU
