PACIFIC GREYSTONE CORP /DE/, S-1/A, 1996-05-21

PACIFIC GREYSTONE CORP /DE/
S-1/A, 1996-05-21
GENERAL BLDG CONTRACTORS - RESIDENTIAL BLDGS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1996

REGISTRATION NO. 333-1388

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------

PACIFIC GREYSTONE CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE 1521 95-4337490
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)

6767 FOREST LAWN DRIVE
SUITE 300
LOS ANGELES, CALIFORNIA 90068
(213) 436-6300
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)

ROBERT W. GARCIN, ESQ.
PACIFIC GREYSTONE CORPORATION
6767 FOREST LAWN DRIVE, SUITE 300
LOS ANGELES, CALIFORNIA 90068
(213) 436-6300

(Name and address, including zip code, and telephone number, including area
code, of agent for service)
----------------

COPIES TO:

RICHARD A. BOEHMER, ESQ. KENNETH M. DORAN, ESQ.
O'MELVENY & MYERS GIBSON, DUNN & CRUTCHER LLP
400 SOUTH HOPE STREET 333 SOUTH GRAND AVENUE, SUITE 4900
LOS ANGELES, CALIFORNIA 90071-2899 LOS ANGELES, CALIFORNIA 90071-3197
(213) 669-6000 (213) 229-7000

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION FEE(1)(3)
REGISTERED(1) OFFERING PRICE(1)(2)
<S> <C> <C>
Common Stock, $.01 par value............ $90,800,000 $31,311
</TABLE>

(1) Calculated pursuant to Rule 457(o).

(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).

(3) $29,742 previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.

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<PAGE>
PACIFIC GREYSTONE CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1

<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page.................................... Facing Page; Cross Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Principal and Selling Stockholders
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to be Registered........... Description of Capital Stock
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information with Respect to the Registrant........... Outside and Inside Front Cover Pages of Prospectus;
Prospectus Summary; Risk Factors; Company Formation
and Organization; Use of Proceeds; Dividends;
Capitalization; Dilution; Selected Consolidated
Financial and Operating Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Certain
Transactions; Principal and Selling Stockholders;
Description of Capital Stock; Shares Eligible for
Future Sale; Legal Matters; Experts; Index to
Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>

<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION, DATED MAY 21, 1996

PROSPECTUS

5,000,000 SHARES

[LOGO]

PACIFIC GREYSTONE CORPORATION

COMMON STOCK
---------

Of the 5,000,000 shares of Common Stock (the "Common Stock") offered hereby,
4,562,900 shares are being sold by Pacific Greystone Corporation (the "Company"
or "Pacific Greystone") and 437,100 shares are being sold by stockholders of the
Company (the "Selling Stockholders"), in each case through the Underwriters
named herein (the "Offering"). See "Principal and Selling Stockholders." The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Stockholders.

Prior to this Offering, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $14.00 and $16.00. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price.

The Common Stock of the Company has been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange under the symbol
"GRY."

SEE "RISK FACTORS" ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses of the Offering payable by the Company estimated
at $525,000.

(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 675,000 additional shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively.

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

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by the
Underwriters and subject to certain conditions. It is expected that certificates
for the shares of Common Stock will be available for delivery on or about June
, 1996 at the offices of Smith Barney Inc., 333 West 34th Street, New York,
New York, 10001.

--------------
SMITH BARNEY INC.

MORGAN STANLEY & CO.

INCORPORATED
<PAGE>

ROBERTSON, STEPHENS & COMPANY

, 1996

<PAGE>

<TABLE>
<S> <C>
[PHOTO OF HOUSE]

CROWN POINTE
ALAMEDA, CALIFORNIA
[PHOTO OF HOUSE]

[PHOTO OF HOUSE]
TASSAJARA
DANVILLE, CALIFORNIA

[PHOTO OF HOUSE]

REUNION
CHANDLER, ARIZONA

THE COLLECTION
SIMI VALLEY, CALIFORNIA
</TABLE>

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION (INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO)
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS, OTHER THAN THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS, ASSUMES (I) A 1.4282
FOR 1.00 STOCK SPLIT OF THE COMMON STOCK TO BE EFFECTIVE IMMEDIATELY PRIOR TO
THE OFFERING AND (II) THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED. INVESTORS SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS."

THE COMPANY

Pacific Greystone is a leading regional builder of high quality, single
family homes primarily targeted to first time and move-up homebuyers in infill
and emerging markets located throughout Northern and Southern California. The
Company's operations are geographically diverse within California, with 53
residential projects in 12 counties. In December 1995, the Company further
expanded its operations through the acquisition of four residential projects in
Las Vegas, Nevada and three residential projects in Phoenix, Arizona. Since
commencing its homebuilding operations in 1992, revenues have grown rapidly from
$26.2 million to $293.9 million in 1995, with pretax income increasing from a
loss of $5.7 million to a profit of $17.5 million over the same period. The
number of homes closed during that period increased from 135 in 1992 to 1,374 in
1995. In the first quarter of 1996, revenues increased by 83% to $63.5 million
as compared to $34.7 million for the same quarter of 1995, with pretax income
increasing to $3.2 million in the first quarter of 1996 from $0.5 million in the
first quarter of 1995.

California is the third largest housing market (measured by permits issued)
in the United States and the Company believes it is well-positioned to benefit
from the recovery in the California housing market. In 1994, employment growth
in California showed a positive trend for the first time in three years and
during the twelve months ended March 1996, nonfarm employment growth was 2.4%,
significantly outpacing the 1.5% gain nationwide. As a result, the unemployment
rate in California has declined from 10.1% in January 1994 to 7.7% in March
1996, although it is still above the national average. Since May 1989, the
percentage of California households able to afford a median-priced single family
home has increased from 15% to 41% in March 1996. Single family building permits
issued in California totaled 162,600 at the last cyclical peak in 1989 and
declined to 68,673 in 1995, a decline of 57.7%. In the first three months of
1996, 15,541 single family permits were issued in California, a 15.0% increase
above the 13,510 permits issued during the first three months of 1995.

Pacific Greystone was founded in late 1991 by senior management and Warburg,
Pincus Investors, L.P. ("Warburg") with the objective of becoming a major
homebuilder with diverse geographic operations. The Company's initial efforts
were focused in both Northern and Southern California due to management's belief
that attractive opportunities were available in those regions as a result of the
distressed conditions in the California homebuilding industry at that time. In
September 1992, Pacific Greystone acquired the California homebuilding
operations of A-M Homes (the "AM Operations") which had been active in
homebuilding in California since 1979. Since inception, the Company has
continued to expand its presence in Northern and Southern California through
start-up operations in new markets, and entered the Las Vegas and Phoenix
markets through acquisitions in December 1995.

BUSINESS STRATEGY

Pacific Greystone believes its rapid growth and success since its inception
in 1991 is attributable, in part, to the following elements of its business
strategy:

3
<PAGE>
overall strategy to enter new geographic markets, the Company continually
evaluates acquisition opportunities which combine attractive residential
projects and management with local market expertise.

MARKET SEGMENT DIVERSITY THROUGH INFILL AND EMERGING MARKET
STRATEGY. Pacific Greystone focuses on two distinct market segments.

- Infill markets generally include sites zoned for non-residential use
within previously developed communities that will typically yield 50 to
100 residential lots. The Company has a particular expertise in
identifying and redeveloping non-residential sites suitable for single
family homes. Management views its infill expertise as an important
competitive advantage over larger tract builders due to its belief that
the housing market in infill areas is less volatile than in emerging
markets. The supply of buildable lots in an infill market is often
constrained, therefore competition is typically limited to resale housing.

- Emerging markets tend to include raw land and improved residential lots in
areas of active new home construction. As compared to infill markets,
emerging markets provide greater growth potential during periods of strong
housing demand since they typically have fewer entitlement issues and
generate more buildable lots than an infill market.

GEOGRAPHIC DIVERSITY WITHIN CALIFORNIA. Northern California and
Southern California are distinct markets with unique economic and
demographic trends. In 1995 and the first three months of 1996, the number
of homes closed by Pacific Greystone were divided almost equally between
Northern and Southern California. By having diverse operations within
California, management believes that it minimizes the risks associated with
any one particular locality, yet the Company is able to participate in two
large markets with significant demand for housing.

CONSERVATIVE LAND POLICIES. The Company maintains a conservative land
acquisition policy designed to optimize profitability and return on capital
while minimizing the risks associated with investments in land. Pacific
Greystone generally limits the number of lots acquired to less than 150 in
any one project. By limiting the size of its investment in any one project,
management believes it is better able to adjust to changing buyer needs and
reduce the risks associated with changing market conditions. The Company
only purchases lots after entitlements are received. The Company's inventory
strategy is to own a two to four year supply of residential lots. Pacific
Greystone's owned residential lot inventory has been obtained since its
formation in 1991, with approximately 84% acquired since January 1994. As of
March 31, 1996, the Company owned and controlled 7,001 residential lots.

EXPERIENCED MANAGEMENT WITH DECENTRALIZED OPERATING STRUCTURE. Pacific
Greystone balances its local operating structure with centralized
corporate-level management. The Company's local managers, who have
significant experience in both the homebuilding industry and their
respective markets, are responsible for operating decisions regarding
project identification, house design, construction and marketing. Decisions
related to overall Company strategy, project acquisition, financing and
disbursements are centralized at the corporate level. The Company's senior
operating and financial management is very experienced with the 12 most
senior managers averaging 21 years of experience in the homebuilding
industry.

The Company was incorporated in Delaware in September 1991. The principal
executive offices of the Company are located at 6767 Forest Lawn Drive, Suite
300, Los Angeles, California 90068, and its telephone number is (213) 436-6300.

4
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock being offered by:

The Company............................................... 4,562,900 Shares

The Selling Stockholders.................................. 437,100 Shares

Common Stock to be outstanding immediately after the
Offering (1)............................................... 14,350,703 Shares

Use of proceeds............................................. The redemption of outstanding
Series A Preferred and
general corporate purposes

Proposed NYSE symbol........................................ GRY
</TABLE>

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

(1) Includes 1,472,981 shares of Common Stock to be issued as payment of a
portion of the accrued dividends on the Series A Cumulative Senior Preferred
Stock of the Company (the "Series A Preferred") as described under
"Dividends" (assuming an initial offering price to the public in the
Offering, less underwriting discounts and commissions, of $13.95 per share),
and 2,485,754 shares of Common Stock to be issued upon conversion of the
Series C Cumulative Convertible Preferred Stock of the Company (the "Series
C Preferred") and a portion of the accrued dividends thereon into Common
Stock upon the consummation of the Offering, as described under "Dividends"
(assuming an initial offering price to the public in the Offering of $15.00
per share). Excludes 14,282 shares of Common Stock subject to outstanding
stock options, 574,000 shares subject to options to be granted upon
consummation of the Offering and 326,718 additional shares of Common Stock
reserved for issuance under the Company's Amended and Restated 1995 Eligible
Directors' Stock Option Plan, 1996 Employee Stock Option and Award Plan and
1996 Employee Stock Purchase Plan. See "Management-- Directors'
Compensation" and "--Executive Compensation."

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
OCTOBER 10, THREE MONTHS
1991 ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------------------------ --------------------
1991(1) 1992(2) 1993 1994 1995 1995 1996
--------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................... $ -- $ 26,209 $ 172,830 $ 260,185 $ 293,921 $ 34,733 $ 63,535
Cost of sales.............. -- (25,816) (144,395) (215,437) (247,827) (29,269) (51,840)
------ --------- --------- --------- --------- --------- ---------
Gross margin............... -- 393 28,435 44,748 46,094 5,464 11,695
Equity in pretax income
(loss) of unconsolidated
joint ventures............ -- 608 1,096 2,581 1,742 659 (148)
Selling, general and
administrative expenses... (938) (7,133) (19,521) (29,059) (31,468) (5,970) (8,502)
Interest and other, net.... 92 435 32 388 1,162 371 159
------ --------- --------- --------- --------- --------- ---------
Pretax income (loss)....... (846) (5,697) 10,042 18,658 17,530 524 3,204
Provision for income
taxes..................... -- -- (3,966) -- (2,512) -- (1,307)
------ --------- --------- --------- --------- --------- ---------
Net income (loss).......... $ (846) $ (5,697) $ 6,076 $ 18,658 $ 15,018 $ 524 $ 1,897
------ --------- --------- --------- --------- --------- ---------
------ --------- --------- --------- --------- --------- ---------
Gross margin as a percent
of revenues............... -- 1.5% 16.5% 17.2% 15.7% 15.7% 18.4%
Selling, general and
administrative expenses as
a percent of revenues..... -- 27.2% 11.3% 11.2% 10.7% 17.2% 13.4%

PRO FORMA DATA:(3)
Pro forma earnings per
share..................... $ 0.72 $ 0.02 $ 0.13
--------- --------- ---------
--------- --------- ---------
Pro forma weighted average
number of shares
outstanding (in
thousands)................ 14,343 14,351 14,351
--------- --------- ---------
--------- --------- ---------

OPERATING DATA:(4)
Homes closed (units)....... -- 135 717 1,331 1,374 227 306
Average price of homes
closed.................... -- $ 317 $ 264 $ 261 $ 235 $ 238 $ 209
Number of projects owned
(at period end)........... -- 27 30 43 46 41 53
Net new orders
(units)(5)................ -- 67 807 1,331 1,497 311 492
Backlog (units)(at period
end)(6)................... -- 112 202 202 325 286 511
Sales value of backlog (at
period end)(6)............ -- $ 33,811 $ 53,677 $ 50,388 $ 60,219 $ 67,611 $ 101,011
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------
PRO FORMA AS
ACTUAL ADJUSTED(7)
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Housing inventories.................................................................... $ 246,780 $ 246,780
Total assets........................................................................... 296,064 304,444
Total liabilities...................................................................... 168,272 158,272
Total shareholders' equity............................................................. 127,792 146,172
</TABLE>

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

(1) See "Company Formation and Organization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Does not include
the results of operations of the AM Operations acquired in 1992.

(2) Includes the results of operations of the AM Operations only from October 1,
1992.

(FOOTNOTES CONTINUE ON NEXT PAGE)

6
<PAGE>

(3) Pro forma data were calculated as if the Offering was consummated on January
1, 1995 at an assumed initial offering price to the public in the Offering
of $15.00 per share and giving effect to (a) the redemption of the Series A
Preferred with approximately $44.7 million of the net proceeds of the
Offering, (b) the declaration and payment of the accrued dividends on the
Series A Preferred as described under "Dividends," (c) the conversion of all
the outstanding shares of the Series C Preferred and a portion of the
accrued dividends thereon into Common Stock as described under "Dividends,"
and (d) the adjustment to the weighted average number of shares of Common
Stock outstanding to reflect a 1.4282 for 1.00 stock split. Since the number
of shares issuable as payment for the accrued dividends on the Series A
Preferred and upon conversion of the Series C Preferred and accrued
dividends thereon is dependent upon the initial offering price to the public
in the Offering, an increase or decrease of the initial offering price from
$15.00 per share will affect the pro forma weighted average number of shares
outstanding and could affect pro forma earnings per share. The pro forma
earnings available to holders of Common Stock for purposes of this
calculation is historical pretax income less an assumed provision for income
tax at an effective rate of 40.8% for each period.

(4) Includes consolidated and unconsolidated projects. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 4 to Consolidated Financial Statements.

(5) Net new orders are net of cancellations received during the applicable
period.

(6) At December 31, 1995 and March 31, 1996, included 78 and 77 homes,
respectively, with a sales value of $7.8 million and $7.5 million,
respectively, in Las Vegas, and 67 and 92 homes with a sales value of $6.3
million and $9.1 million, respectively, in Phoenix. Backlog is the number of
units subject to pending sales contracts, some of which are subject to
contingencies. No assurance can be given that such backlog will result in
closings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Backlog."

(7) Adjusted to reflect (i) the payment of accrued dividends on the Series A
Preferred and the conversion of the Series C Preferred and accrued dividends
thereon into Common Stock, each as described under "Dividends," and (ii) the
sale of the shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."

7
<PAGE>
RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SPECIFIC FACTORS SET
FORTH BELOW AS WELL AS THE OTHER INFORMATION INCLUDED ELSEWHERE IN THIS
PROSPECTUS BEFORE DECIDING TO PURCHASE THE SHARES OF COMMON STOCK OFFERED
HEREBY. EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL
AS THOSE DISCUSSED ELSEWHERE HEREIN.

REAL ESTATE, ECONOMIC AND CERTAIN OTHER CONDITIONS

The residential homebuilding industry is cyclical and is highly sensitive to
changes in general economic conditions, such as levels of employment, consumer
confidence and income, availability of financing for acquisition, construction
and permanent mortgages, interest rate levels and demand for housing. Sales of
new houses are also affected by the condition of the resale market for used
homes, including foreclosed homes.

The risks associated with holding an inventory of lots are substantial for
homebuilders due to the high carrying costs of lots. The market value of housing
inventories can change significantly over the life of a project, reflecting
dynamic market conditions. This may result in losses when trying to exit a
poorly performing project or market. Also, cash flow management is crucial due
to high leverage and the seasonal cycle of home sales. The need to stage raw
materials such as land and finished lots ahead of the start of home construction
requires homebuilders to commit working capital for longer periods than is true
for manufacturing companies. The Company attempts to reduce these risks through
(i) constraining project size and (ii) acquiring lots and land through the use
of options and joint ventures where possible, thereby enabling the Company to
control lots with a smaller capital investment. However, there can be no
assurance that such efforts will be successful. At March 31, 1996, the Company
had 106 completed and unsold homes, excluding 97 model homes.

The residential homebuilding industry has, from time to time, experienced
fluctuating lumber prices and supply, as well as serious shortages of labor and
other materials, including insulation, drywall, carpenters and cement. Delays in
construction of homes due to these factors or to inclement weather conditions
could have an adverse effect upon the Company's operations.

DEPENDENCE ON CALIFORNIA ECONOMY AND HOUSING MARKET

The Company presently conducts most of its business in California. Economic
growth in California has slowed considerably in the 1990s compared to the late
1980s. The average sale price of homes in most of the areas in California in
which the Company does business has decreased over the past three years and
there can be no assurance that home sale prices will not decline in the future.
A continued prolonged economic downturn in California would have a material
adverse effect on the Company.

Periodically, the State of California has experienced drought conditions,
resulting in water conservation measures and, in some cases, rationing by local
municipalities in which the Company does business. Restrictions by governmental
agencies on future construction activity could have an adverse effect upon the
Company's operations.

The climate and geology of the markets in which the Company operates present
risks of natural disasters. To the extent that earthquakes, droughts, floods,
wildfires or other natural disasters or similar events occur, the homebuilding
industry in general, and the Company's business in particular, may be adversely
affected.

INTEREST RATES; MORTGAGE FINANCING

Virtually all purchasers of the Company's homes finance their acquisitions
through third-party lenders providing mortgage financing. In general, housing
demand is adversely affected by increases in interest rates, housing costs and
unemployment and by decreases in the availability of mortgage financing. In
addition, various proposals for a flat rate federal income tax have been
discussed, some of which would remove or

8
<PAGE>

limit the deduction for home mortgage interest. If effective mortgage interest
rates increase and the ability or willingness of prospective buyers to finance
home purchases is adversely affected, the Company's operating results may be
negatively affected. The Company's homebuilding activities also are dependent
upon the availability and cost of mortgage financing for buyers of homes owned
by potential customers, permitting those customers to sell their existing homes
and purchase homes from the Company. Any limitations or restrictions on the
availability of such financing could adversely affect the Company's sales.

COMPETITION

The homebuilding industry is highly competitive and fragmented. Homebuilders
compete not only for homebuyers, but also for desirable properties, financing,
raw materials and skilled labor. The Company competes with other local, regional
and national homebuilders, often within larger subdivisions designed, planned
and developed by the other homebuilders. Some of the Company's competitors have
longer operating histories and greater financial, marketing and sales resources
than the Company.

EXPANSION INTO NEW MARKETS

The Company's operations to date have generally been limited to the Northern
and Southern California markets. To the extent the Company expands into new
markets, it will need to employ personnel with knowledge of the new markets as
it has done in Las Vegas and Phoenix. There can be no assurances that the
Company will be able to employ the necessary personnel or that the Company's
operations will be successful in any new markets. When evaluating acquisitions
in new markets, an important factor to the Company is whether managers with
local knowledge can be employed.

REGULATORY AND ENVIRONMENTAL MATTERS

The Company and its competitors are subject to various local and state
statutes, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters which impose restrictive zoning and density
requirements limiting the number of homes that may be built within the
boundaries of a particular area. The Company may also be subject to periodic
delays in its homebuilding projects due to building moratoria. In addition,
certain new development projects, particularly in Southern California, are
subject to various assessments for schools, parks, streets and highways and
other public improvements, the costs of which can be substantial. By raising the
cost of the Company's homes to its customers, an increase in such assessments
could have a negative impact on the Company's sales.

The Company and its competitors are also subject to a variety of local,
state and federal 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 the Company to incur substantial compliance and
other costs, and may prohibit or severely restrict homebuilding activity in
environmentally sensitive regions or areas.

In recent years, several cities and counties in which the Company has
projects have approved the inclusion of "slow growth" initiatives and other
ballot measures which could impact the affordability and availability of homes
and land within those localities. Although many of these initiatives have been
defeated, the Company believes that if similar initiatives are introduced and
approved, future residential construction by the Company within certain cities
or counties could be negatively impacted.

VARIABILITY OF RESULTS

The Company historically has experienced, and in the future expects to
continue to experience, variability in sales and revenues on a quarterly basis.
Factors expected to contribute to this variability include, among others (i) the
timing of home closings; (ii) the Company's ability to continue to acquire land
and options thereon on acceptable terms; (iii) the timing of receipt of
regulatory approvals for the construction of homes; (iv) the condition of the
real estate market and general economic conditions in California, especially in
the Company's local markets; (v) the cyclical nature of the homebuilding
industry; (vi) the prevailing interest rates and the availability of mortgage
financing; (vii) pricing policies of the Company's competitors; (viii) the
timing of the opening of new residential projects; (ix) weather; and (x) the
cost and

9
<PAGE>
availability of materials and labor. The Company's historical financial
performance is not necessarily a meaningful indicator of future results and, in
particular, the Company expects its financial results to vary from project to
project and from quarter to quarter.

ACCESS TO FINANCING

The homebuilding industry is capital intensive and requires expenditures for
land purchases, land development and housing construction. Accordingly, the
Company incurs substantial indebtedness to finance its homebuilding activities.
At March 31, 1996, total consolidated indebtedness was $147.4 million. Although
the Company believes that internally generated funds, cash on hand, the
Company's revolving credit facility and the net proceeds from the Offering will
be sufficient to fund the Company's anticipated operations for at least the next
18 months, there can be no assurance that the amounts available from such
sources will be sufficient. The Company may be required to seek additional
capital in the form of equity or debt financing from a variety of potential
sources, including additional bank financing and securities offerings. The
amount and types of indebtedness which the Company may incur is limited by the
terms of the indentures under which the senior unsecured notes of a subsidiary
of the Company were issued and by the terms of the Company's existing revolving
credit agreement. If the Company is not successful in obtaining sufficient
capital to fund its planned expansion and other expenditures, new projects may
be constrained. Any such delay or abandonment could result in a reduction in
sales and may adversely affect the Company's future results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Notes 5 and 6 to Consolidated
Financial Statements.

CONCENTRATION OF OWNERSHIP

Immediately after consummation of this Offering, Warburg will own
approximately 54.4% (53.5% if the Underwriters' over-allotment option is
exercised in full) of the Company's outstanding Common Stock. Accordingly,
Warburg may elect the entire Board of Directors of the Company and control its
management, operations and affairs. See "Principal and Selling Stockholders."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE.

There has been no public market for the Common Stock prior to this Offering,
and there can be no assurance that an active trading market will develop or be
sustained after this Offering. The initial public offering price will be
determined through negotiations among the Company and the representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The negotiated
public offering price may not be indicative of the market price for the Common
Stock following this Offering. In recent years, the stock market in general and
the stock prices of new public companies in particular have experienced extreme
price fluctuations, sometimes without regard to the operating performance of
particular companies. Factors such as quarterly variations in actual or
anticipated operating results, changes in or failure to meet earnings estimates
by analysts, market conditions in the industry, regulatory actions and general
economic conditions may have a significant effect on the market price of the
Common Stock. Following periods of volatility in the market price of a
corporation's securities, securities class action litigation has often resulted.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse impact on the Company's business, financial condition and results of
operations.

DILUTION

The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
the Offering will therefore incur immediate, substantial dilution. See
"Dilution."

EFFECT ON MARKET PRICE OF COMMON STOCK OF SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
14,350,703 shares of Common Stock (assuming the payment of the accrued dividends
on the Series A Preferred and the conversion of the Series C Preferred and a
portion of the accrued dividends thereon as set forth under "Dividends"). On the
date of this Prospectus, only shares offered hereby will be immediately eligible
for sale in the public market. Subject to volume limitations on sales pursuant
to Rule 144 under the Securities Act, and taking into account

10
<PAGE>

the effect of lock-up agreements binding the Company's stockholders, 9,350,703
additional shares of Common Stock will be eligible for sale beginning 180 days
after the date of this Prospectus, unless earlier released by Smith Barney Inc.,
and will have certain registration rights. The Securities and Exchange
Commission has recently proposed to reduce the Rule 144 holding periods. If
enacted, such modifications will have a material effect on the timing of when
shares of Common Stock become eligible for resale. Sales of substantial amounts
of such shares in the public market or the prospect of such sales could
adversely affect the market price of the Common Stock. See "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriting."

DEPENDENCE ON KEY PERSONNEL

The success of the Company depends to a significant degree on the efforts of
the Company's senior management, especially its Chief Executive Officer, Chief
Financial Officer and other officers. The Company's operations may be adversely
affected if one or more members of senior management cease to be active in the
Company. The Company has employment agreements only with its Chief Executive
Officer and Chief Financial Officer. The Company has designed its compensation
structure and employee benefit programs to encourage long-term employment of all
executive officers. See "Management."

BLANK CHECK PREFERRED STOCK

The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of Preferred Stock that
may be issued in the future. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change of control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The Company has no present plans to issue
any new shares of Preferred Stock. See "Description of Capital Stock--Preferred
Stock."

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

Effective upon the closing of this Offering, the Board of Directors of the
Company will be divided into three classes. Generally, each director (other than
those directors elected to fill vacancies on the Board of Directors) will serve
until the date of the third annual meeting following the annual meeting at which
the director is elected and until his or her successor is elected and qualified.
Amendments to the Company's Certificate of Incorporation will be approved,
effective upon the closing of the Offering, which, among other things, will
require that stockholders give advance notice to the Company's Secretary of any
nominations of directors made or other business to be brought by stockholders at
any stockholders' meeting. The Certificate of Incorporation also will require
the approval of 75% of the Company's voting stock to amend certain provisions of
the Certificate. The staggered Board provision and other charter provisions may
discourage certain types of transactions involving an actual or potential change
in control of the Company, including transactions in which the stockholders
might otherwise receive a premium for their shares over then current market
prices, and may limit the ability of the stockholders to approve transactions
that they may deem to be in their best interests. See "Management--Directors and
Executive Officers--Terms of Office of Directors and Officers" and "Description
of Capital Stock--Certain Charter Provisions."

COMPANY FORMATION AND ORGANIZATION

Pacific Greystone was formed in late 1991 by Warburg and senior management
of the Company with the objective of becoming a major homebuilder with diverse
geographic operations. The Company initially focused on Northern and Southern
California due to management's belief that attractive opportunities were
available in those regions as a result of the distressed conditions in the
California homebuilding industry at that time. Warburg invested $85 million in
the Company through the purchase of a combination of Common Stock and preferred
stock.

On September 30, 1992, Pacific Greystone completed the purchase of the AM
Operations. This purchase offered Pacific Greystone an opportunity to (i) obtain
quickly a critical mass of inventory by acquiring a significant number of
entitled lots in most of the major housing markets of California, (ii) establish
two operating divisions in new markets and (iii) acquire experienced divisional
management in

11
<PAGE>

the new markets. Between September 1992 and March 1996, the Company developed 27
start-up residential projects in its existing markets and expanded into the
counties of Los Angeles, Sacramento, San Diego, San Joaquin, San Mateo and
Ventura, California with the development of 17 additional residential projects.
In December 1995, the Company further expanded into the Las Vegas, Nevada and
Phoenix, Arizona markets through the acquisition of seven residential projects
from another homebuilder and employed substantially all local management.
Management believes that this acquisition expanded its operations into two of
the Southwest's fast growing markets.

All of the operations of the Company are conducted through the Company's
wholly owned subsidiary, Greystone Homes, Inc. ("Greystone"), with the exception
of the Company's mortgage brokerage service business which is conducted by a
separate subsidiary of the Company.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,562,900 shares of
Common Stock offered hereby are estimated to be $63.1 million ($66.4 million if
the Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company intends to use approximately $44.7 million of the net proceeds from the
Offering to redeem the Series A Preferred. See "Dividends." The remainder of the
net proceeds of the Offering will be used to reduce temporarily amounts then
outstanding under the Company's revolving credit facility (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources") and for general corporate
purposes, including capital expenditures and working capital. A portion of the
net proceeds may be used to acquire lots and land through the acquisition of
other companies or divisions of other companies. From time to time, the Company
evaluates such potential acquisitions; however, the Company has no present
understandings, commitments or agreements with respect to any material
acquisitions. Pending use of the net proceeds for the above purposes, the
Company intends to invest such funds in short-term and medium-term,
interest-bearing, investment-grade obligations. The Company will not receive any
of the proceeds from the sale of shares of Common Stock by the Selling
Stockholders.

DIVIDENDS

In connection with the consummation of the Offering, the Company will
declare a dividend on the Series A Preferred equal to the accrued dividends
thereon to the date of the closing of the Offering. The Company and the holders
of the Series A Preferred have agreed that the accrued dividends on the Series A
Preferred through March 31, 1996, once declared, will be paid by the issuance of
Common Stock valued at a per share price equal to the initial per share offering
price to the public in the Offering less underwriting discounts and commissions.
Dividends on the Series A Preferred from April 1, 1996 to the closing of the
Offering will be paid in cash. At March 31, 1996, accrued dividends on the
Series A Preferred were approximately $20.5 million. The principal amount of the
Series A Preferred will be redeemed at the closing of the Offering at its
liquidation preference of $10.00 per share. See "Use of Proceeds." In addition,
the Company will declare a dividend on the Series C Preferred equal to the
accrued dividends thereon to the date of the closing of the Offering. At March
31, 1996, accrued dividends on the Series C Preferred were approximately $9.8
million. At the closing of the Offering, all outstanding shares of Series C
Preferred (based upon a liquidation preference of $10.00 per share) plus accrued
dividends thereon through March 31, 1996 will be converted into Common Stock at
a price equal to 80% of the initial per share offering price to the public in
the Offering. Dividends on the Series C Preferred from April 1, 1996 to the
closing of the Offering will be paid in cash. The Company has never declared a
dividend and, except as noted above, will not declare a dividend on its capital
stock prior to the consummation of the Offering.

The Company anticipates that all future earnings will be retained to finance
the continuing development of its business and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The payment of any
future cash dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, future cash earnings,
capital requirements, the general financial condition of the Company and general
business conditions. Payment of dividends by Greystone to Pacific Greystone is
limited by certain financing arrangements of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

12
<PAGE>
CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of March 31, 1996, and as adjusted to reflect (i) the redemption of the Series A
Preferred with a portion of the net proceeds of the Offering, (ii) the
declaration of accrued dividends on the Series A Preferred and the payment of
those dividends as described under "Dividends" (assuming an initial offering
price to the public, less underwriting discounts and commissions, in the
Offering of $13.95 per share), (iii) the conversion of all the outstanding
shares of the Series C Preferred and a portion of the accrued dividends thereon
into Common Stock as described under "Dividends" (assuming a conversion price of
$12.00 per share which is based upon an assumed initial offering price to the
public in the Offering of $15.00 per share), (iv) the change in the number of
authorized shares of Common Stock and Preferred Stock to be effective upon
consummation of the Offering and (v) the sale by the Company of the shares of
Common Stock offered hereby and the application of the estimated net proceeds
therefrom.

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
PRO FORMA
AS
ACTUAL ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt............................................................................ $ 147,401 $ 137,401
---------- -----------
Shareholders' equity:
Preferred Stock, 7,100,000 shares authorized Actual, 5,000,000 shares authorized As
Adjusted;
Series A Cumulative Senior Preferred Stock, 5,100,000 shares authorized, 4,474,706
shares outstanding Actual, none authorized or outstanding As Adjusted................ 44,747 --
Series C Cumulative Convertible Preferred Stock, 2,000,000 shares authorized,
2,000,000 shares outstanding Actual, none authorized or outstanding As Adjusted...... 20,000 --
Common Stock, 5,000,000 shares authorized Actual, 20,000,000 shares authorized As
Adjusted; 4,081,413 shares outstanding Actual, 14,350,703 shares outstanding As
Adjusted(1)............................................................................ 41 144
Additional paid-in capital.............................................................. 27,898 141,299
Retained earnings....................................................................... 35,106 4,729
---------- -----------
Total shareholders' equity.............................................................. 127,792 146,172
---------- -----------
Total capitalization.................................................................. $ 275,193 $ 283,573
---------- -----------
---------- -----------
</TABLE>

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

(1) Excludes 14,282 shares issuable upon the exercise of outstanding stock
options at a weighted average exercise price of $1.83 per share, 574,000
shares subject to options to be granted upon consummation of the Offering
and 326,718 additional shares reserved for issuance under the Company's
Amended and Restated 1995 Eligible Directors' Stock Option Plan, 1996
Employee Stock Option and Award Plan and 1996 Employee Stock Purchase Plan.
See "Management--Directors' Compensation" and
"--Executive Compensation."

13
<PAGE>
DILUTION

The net tangible book value (total tangible assets less total liabilities)
of the Company at March 31, 1996 was approximately $83.1 million, or $8.49 per
share of Common Stock, after giving effect to the declaration and payment of
accrued dividends on the Series A Preferred as described under "Dividends"
(assuming an initial offering price to the public, less underwriting discounts
and commissions, in the Offering of $13.95 per share) and the conversion of the
Series C Preferred and a portion of the accrued dividends thereon as described
under "Dividends" (assuming an initial offering price to the public in the
Offering of $15.00 per share). After giving effect to the sale by the Company of
the 4,562,900 shares of Common Stock offered hereby (resulting in estimated net
proceeds of $63.1 million based upon an assumed initial offering price to the
public in the Offering of $15.00 per share), the Company's pro forma net
tangible book value at March 31, 1996 would have been $146.2 million, or $10.19
per share. This represents an immediate increase in net tangible book value of
$1.70 per share to existing stockholders and an immediate dilution in net
tangible book value of $4.81 per share to new investors purchasing shares in the
Offering. The following table illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 15.00
Net tangible book value per share before the Offering.................... $ 8.49
Increase per share attributable to new investors......................... 1.70
---------
Pro forma net tangible book value per share after the Offering............... 10.19
---------
Dilution per share to new investors.......................................... $ 4.81
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis, as of March 31, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by (i) existing
stockholders and (ii) new investors (before deducting underwriting discounts and
commissions and estimated expenses payable by the Company):

<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. 9,787,803 68.2% $ 78,316,000 53.4% $ 8.00
New investors..................................... 4,562,900 31.8 68,443,500 46.6 $ 15.00
------------ ----- -------------- -----
Total........................................... 14,350,703 100.0% $ 146,759,500 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>

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

(1) Sales by the Selling Stockholders in the Offering will cause the number of
shares of Common Stock held by existing stockholders to be reduced to
9,350,703, or 65.2% of the total number of shares to be outstanding after
the Offering (8,913,445 shares, or 61.1%, if the Underwriters'
over-allotment is exercised in full), and will increase the number of shares
of Common Stock held by new investors to 5,000,000, or 34.8% of the total
number of shares to be outstanding after the Offering (5,675,000 shares, or
38.9%, if the Underwriters' option is exercised in full). See "Principal and
Selling Stockholders."

The foregoing computations assume no exercise of outstanding stock options.
There are options outstanding to purchase 14,282 shares of Common Stock at a
weighted average exercise price of $1.83 per share. To the extent these options
are exercised, there will be further dilution to new investors. 574,000 shares
will be subject to options to be granted upon consummation of the Offering at
the initial offering price to the public in the Offering and 326,718 additional
shares are reserved for issuance under the Company's Amended and Restated 1995
Eligible Directors' Stock Option Plan, 1996 Employee Stock Option and Award Plan
and 1996 Employee Stock Purchase Plan. See "Management--Directors' Compensation"
and "Executive Compensation."

14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The following tables include consolidated financial data of the Company as
of December 31, 1991, 1992, 1993, 1994 and 1995 and for the period October 10,
1991 (the date of inception of the Company) to December 31, 1991, and for the
years ended December 31, 1992, 1993, 1994 and 1995 which are derived from the
Company's Consolidated Financial Statements which have been audited by Ernst &
Young LLP, independent auditors. The consolidated financial data of the Company
as of and for the three months ended March 31, 1995 and 1996 are derived from
unaudited consolidated financial statements of the Company, which, in the
opinion of the Company's management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the unaudited periods. These tables should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Results of operations for the three months ended March
31, 1996 are not necessarily indicative of the results of operations for the
full fiscal year.

PRO FORMA DATA:(3)
Pro forma earnings per share.... $ 0.72 $ 0.02 $ 0.13
--------- --------- ---------
--------- --------- ---------
Pro forma weighted average
number of shares outstanding
(in thousands)................. 14,343 14,351 14,351
--------- --------- ---------
--------- --------- ---------

AT DECEMBER 31, AT MARCH 31,
--------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Housing inventories............. $ 22,488 $ 142,794 $ 136,178 $ 207,900 $ 215,043 $ 218,266 $ 246,780
Total assets.................... 28,121 204,896 191,994 275,179 289,970 284,108 296,064
Long-term debt.................. 15,984 102,710 81,487 139,899 137,337 156,224 147,401
Total liabilities............... 16,686 119,193 100,085 164,340 164,075 172,745 168,272
Total shareholders' equity...... 11,434 85,702 91,909 110,839 125,895 111,363 127,792
</TABLE>

(FOOTNOTES APPEAR ON NEXT PAGE)

15
<PAGE>

<TABLE>
<CAPTION>
OCTOBER 10,
1991
(INCEPTION) THREE MONTHS ENDED
TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------------------------- --------------------
1991 1992(2) 1993 1994 1995 1995 1996
------------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
UNITS:
Homes closed:
Consolidated......................... -- 83 604 1,012 1,220 157 303
Unconsolidated(4).................... -- 52 113 319 154 70 3
------------- ----------- --------- --------- --------- --------- ---------
Total.............................. -- 135 717 1,331 1,374 227 306
------------- ----------- --------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- --------- ---------
Net new orders:(5)
Consolidated......................... -- 57 696 996 1,393 256 491
Unconsolidated(4).................... -- 10 111 335 104 55 1
------------- ----------- --------- --------- --------- --------- ---------
Total.............................. -- 67 807 1,331 1,497 311 492
------------- ----------- --------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- --------- ---------
Backlog (at period end):(6)
Consolidated......................... -- 73 165 149 322 248 510
Unconsolidated(4).................... -- 39 37 53 3 38 1
------------- ----------- --------- --------- --------- --------- ---------
Total.............................. -- 112 202 202 325 286 511
------------- ----------- --------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- --------- ---------
DOLLARS:
Average price of homes closed:
Consolidated......................... -- $ 311 $ 258 $ 252 $ 231 $ 217 $ 209
Unconsolidated(4).................... -- $ 327 $ 296 $ 288 $ 265 $ 286 $ 216
Sales value of backlog (at period
end):(6)..............................
Consolidated......................... -- $ 21,157 $ 43,681 $ 34,563 $ 59,550 $ 56,800 $ 100,847
Unconsolidated(4).................... -- 12,654 9,996 15,825 669 10,811 164
------------- ----------- --------- --------- --------- --------- ---------
Total.............................. -- $ 33,811 $ 53,677 $ 50,388 $ 60,219 $ 67,611 $ 101,011
------------- ----------- --------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- --------- ---------
</TABLE>

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

(2) Includes the results of operations of the AM Operations only from October 1,
1992.

(4) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 4 to Consolidated Financial Statements.

(5) Net new orders are net of cancellations received during the applicable
period.

(6) At December 31, 1995 and March 31, 1996, included 78 and 77 homes,
respectively, with a sales value of $7.8 million and $7.5 million,
respectively, in Las Vegas and 67 and 92 homes with a sales value of $6.3
million and $9.1 million, respectively, in Phoenix. Backlog is the number of
units subject to pending sales contracts, some of which are subject to
contingencies. No assurance can be given that such backlog will result in
closings.

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company was formed in late 1991 by Warburg and senior management of the
Company with the objective of becoming a major homebuilder with diverse
geographic operations. The Company's initial efforts were focused in Northern
and Southern California due to management's belief that attractive opportunities
were available in those regions as a result of recessionary economic conditions
prevailing in California at that time. From inception in October 1991, the
Company has grown rapidly through start-up operations and the acquisition of the
AM Operations in September 1992. For the year ended December 31, 1994, the
Company closed 1,331 homes and reported revenues and pretax income of $260.2
million and $18.7 million, respectively.

In early 1995, as a result of the soft housing market, particularly in
Southern California, and the impact of construction and processing delays from
the unusually heavy rains in the first quarter of 1995, the Company implemented
a strategy designed to strengthen its financial position and to maintain
liquidity. This strategy was executed primarily by slowing the timing of new lot
purchases and restructuring existing lot acquisition arrangements. As a result,
the Company's housing inventory increased only 3.4% from $207.9 million at
December 31, 1994 to $215.0 million at December 31, 1995 and the Company had no
debt outstanding under its unsecured revolving line of credit at December 31,
1995. The soft housing market, coupled with management's conservative view
toward new home construction, resulted in a small increase in the number of
homes closed from 1,331 homes in 1994 to 1,374 homes in 1995. For the year ended
December 31, 1995, total revenues increased 13.0% from $260.2 million to $293.9
million, while pretax income decreased 6.4% from $18.7 million to $17.5 million.
This decrease in pretax income was due in part to higher sales incentives,
particularly in Southern California, and the increased costs associated with
construction and processing delays.

Entering 1996, management's outlook for California's housing markets turned
more positive and, as a result, the Company intends to increase the number of
active selling projects in California. During the first quarter of 1996, the
Company raised its housing inventory level through the acquisition of four
residential projects in California. Additionally, the Company expanded its
presence in the Phoenix and Las Vegas housing markets through the purchase of
five residential projects. As a result, the Company's housing inventory
increased 15% to $246.8 million at March 31, 1996 from $215.0 million at
December 31, 1995. At March 31, 1996, the Company had 53 owned projects and 27
active selling projects.

In the first quarter of 1996, revenues increased by 83% to $63.5 million as
compared to $34.7 million for the same quarter in 1995. The total number of
homes closed for the first three months of 1996 increased to 306 from 227 in the
first three months of 1995. Pretax income for the first quarter of 1996 was $3.2
million compared to $0.5 million for the comparable prior year quarter. The
gross margin percent for the first quarter of 1996 was 18.4% compared to 15.7%
in the year-earlier period. The Company believes that the gross margin percent
for the first quarter of 1996 is not sustainable throughout 1996, as the Company
is scheduled to deliver a more balanced product mix for the remainder of 1996,
although the Company currently believes that the gross margin percent for 1996
will exceed the gross margin percent for 1995. Total net new orders increased by
58% during the three months ended March 31, 1996 over the comparable quarter in
the prior year, while the Company's backlog of homes under contract at March 31,
1996 was 511 units, a 79% increase compared to March 31, 1995.

The recent adoption of Statement of Financial Accounting Standard ("SFAS")
No. 121 has caused several publicly traded homebuilders to write-off significant
portions of the carrying value of their land inventories. From inception, the
Company has implemented conservative land acquisition policies designed to
reduce the risks associated with changing market conditions. Such policies
generally include limiting the number of lots acquired to less than 150 in any
one project and purchasing lots after entitlements are received. Additionally,
the Company's owned lot inventory, all of which is intended for single family
residential development, has been obtained in arm's length transactions since
its formation in 1991, with approximately 84% acquired since January 1994. Prior
to the adoption of SFAS No. 121, the Company

17
<PAGE>

reviewed its housing inventory, on a periodic basis, and recorded net realizable
value adjustments to specific projects as considered necessary. As a result, the
Company's implementation of SFAS No. 121 effective January 1, 1996 had no impact
on the Company's consolidated financial position and results of operations.

See also "Risk Factors--Real Estate, Economic and Certain Other Conditions,"
"--Dependence on California Economy and Housing Markets," "--Interest Rates;
Mortgage Financing," " Competition,"
"--Expansion into New Markets, "--Regulatory and Environmental Matters,"
"--Variability of Results," "--Access to Financing," and " Dependence on Key
Personnel."

The following table sets forth, for the periods indicated, certain income
statement data as a percentage of total revenues.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... (83.5) (82.8) (84.3) (84.3) (81.6)
--------- --------- --------- --------- ---------
Gross margin................................................ 16.5 17.2 15.7 15.7 18.4
Equity in pretax income (loss) of unconsolidated joint
ventures................................................... 0.6 1.0 0.6 1.9 (0.2)
Selling, general and administrative expenses................ (11.3) (11.2) (10.7) (17.2) (13.4)
Interest and other, net..................................... -- 0.2 0.4 1.1 0.2
--------- --------- --------- --------- ---------
Pretax income............................................... 5.8 7.2 6.0 1.5 5.0
Provision for income tax.................................... (2.3) -- (0.9) -- (2.0)
--------- --------- --------- --------- ---------
Net income.................................................. 3.5% 7.2% 5.1% 1.5% 3.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995

Total revenues for the three months ended March 31,1996 increased to $63.5
million from $34.7 million for the three months ended March 31, 1995, an
increase of 83%, while homes closed increased to 303 from 157, an increase of
93%. Housing revenues and homes closed increased in both the Company's Northern
and Southern California regions. The Company's expansion into the Phoenix and
Las Vegas housing markets contributed a combined 81 homes and resulted in total
revenues of $7.7 million in its first full quarter of operations. The overall
average sales price on homes closed decreased to $209,000 for the three months
ended March 31, 1996 from $217,000 for the three months ended March 31, 1995,
largely reflecting lower-priced homes in the Company's Phoenix and Las Vegas
operations. There were no land sales in the first quarter of 1996 and 1995,
respectively.

The gross margin increased to $11.7 million or 18.4% of housing revenues in
the first quarter of 1996 from $5.5 million or 15.7% in the year-earlier
quarter. The improvement in the gross margin percent was largely impacted by
changes in the product mix which produced an increased share of homes closed
from higher margin projects in California. In the first quarter of 1996, the
gross margin percent in California was 18.6% as compared to 15.7% in the prior
year's period while the combined gross margin percent for Phoenix and Las Vegas
was 17.0% in the first quarter of 1996. Historically, those markets generate a
lower gross margin than California.

Joint ventures reported combined housing revenues of $0.7 million on three
homes closed during the first quarter of 1996 compared to $20.0 million on 70
homes closed for the same period in 1995. The Company's interest in income of
individual unconsolidated joint ventures ranges from 25% to 50%, however its
share of income may vary from period to period depending on the preferred
returns earned and recognized. In the first quarter of 1996, the Company had a
$0.1 million equity loss on its unconsolidated joint ventures compared to a $0.7
million pretax profit in the prior year's period. This decrease can largely be
attributed to the lower number of joint venture closings. Although the Company
expects existing joint ventures to close their final units in the second quarter
of 1996, the Company will consider entering into joint venture arrangements in
the future in areas of land scarcity or to diversify risk with capital intensive
projects.

Selling, general and administrative expenses as a percentage of revenues
decreased to 13.4% for the first quarter of 1996 from 17.2% for the same period
in 1995. Selling expenses as a percentage of revenues

18
<PAGE>

for the three months ended March 31, 1996 and 1995 were 6.4% and 7.4%,
respectively. The selling percentage in the first quarter of 1996 declined from
the previous quarter due primarily to the increased revenue. General and
administrative expenses as a percentage of revenues for the three months ended
March 31, 1996 and 1995 were 7.0% and 9.8%, respectively. The reduction in
general and administrative expenses as a percentage of revenues is largely
attributable to the increased revenues in 1996. In addition, the Company
incurred general and administrative expenses in the prior period to manage the
70 joint venture closings which were not included in revenues.

In the first three months of 1996, interest and other, net decreased to $0.2
million from $0.4 million in the comparable period of 1995. Included in interest
and other, net is interest incurred, less amounts capitalized to housing
inventories; interest income; and minority interest in pretax income of a
consolidated joint venture. For the three months ended March 31, 1996 and 1995,
the Company incurred interest of $3.9 million and $4.0 million and capitalized
interest to housing inventories of $3.8 million and $3.9 million, respectively.

The Company's effective tax rate was 40.8% and 0% for the quarters ended
March 31, 1996 and 1995, respectively. In the first quarter of 1995, the
deferred tax asset valuation allowance was reduced by $0.2 million reducing the
effective tax rate to zero. See "Fiscal 1995 Compared to Fiscal 1994" below.

FISCAL 1995 COMPARED TO FISCAL 1994

Record revenues of $293.9 million were achieved for 1995 representing a 13%
increase over the preceding year. This was accomplished despite difficult market
conditions experienced in Southern California and construction delays as a
result of the unusually heavy rainfall experienced during the first quarter of
1995. Housing revenues for 1995 increased to $284.4 million on 1,220 homes
closed compared to $258.1 million on 1,012 homes closed in 1994. Housing
revenues for 1995 increased due principally to a 21% increase in the number of
homes closed partially offset by an 8% decline in the average sales price of
homes closed from $252,000 in 1994 to $231,000 in 1995. The decline in the
average sales price was largely a result of changes in the product mix and
geographic location of homes closed. In the fourth quarter of 1995, housing
revenues increased to $119.3 million which represented a quarterly record for
the Company and were 48% above 1994's fourth quarter housing revenues. The
record housing revenues in the fourth quarter of 1995 resulted primarily from a
47% increase in the number of homes closed to 487 from 332 in 1994 and a slight
increase in the average sales price to $243,000 from $240,000. Revenues from
land sales were $9.5 million for 1995 compared to $2.1 million in 1994. The
results of operations include the Phoenix and Las Vegas operations beginning in
December 1995, which were not significant to the 1995 consolidated operating
results.

The gross margin, excluding land sales, was $45.1 million or 15.9% of
housing revenues for 1995 compared to $44.6 million or 17.3% of housing revenues
in 1994. The decline in the gross margin percent reflected higher sales
incentives, particularly in Southern California, and the impact of construction
and processing delays from the first quarter 1995 rains. Nevertheless, the gross
margin percent increased to 16.7% in the fourth quarter of 1995 and marked the
second consecutive quarter for 1995 in which the Company has gradually improved
its gross margin percent. This improvement was due largely to the increased
number of homes closed from new, higher margin projects that were delayed
primarily as a result of the first quarter 1995 rains. In fiscal year 1995, the
gross margin in the Northern California region exceeded the Southern California
region as a result of stronger economic conditions and this trend is expected to
continue into early 1996. The gross margin on land sales was $1.0 million for
1995 compared to $0.1 million in 1994. Gross margin is net of reductions in
housing inventory to net realizable value of $1.9 million in 1995 and $2.0
million in 1994.

Joint ventures reported combined housing revenues of $40.8 million on 154
homes closed for 1995, compared to $92.6 million on 319 homes closed in 1994.
Equity in pretax income of unconsolidated joint ventures was $1.7 million for
1995 compared to $2.6 million in 1994. This decrease can be largely attributable
to a lower number of joint venture closings and a $0.8 million loss recognized
principally on a joint venture

19
<PAGE>
land sale to an outside party. Partially offsetting this decrease was a $0.9
million increase from the completion of a joint venture project, however, this
increase is a non-recurring event and is not indicative of future profits upon
the completion of joint venture projects. The Company's management expects joint
venture closings to continue to decline significantly in 1996.

Selling, general and administrative expenses as a percentage of revenues
decreased to 10.7% for 1995 from 11.2% in 1994. Selling expenses as a percentage
of revenues for 1995 and 1994 were 5.7% and 4.8%, respectively. The increase in
selling expense as a percent of revenues is principally attributable to
increased sales commissions and advertising costs required to stimulate housing
sales. General and administrative expenses as a percentage of revenues for 1995
and 1994 were 5.0% and 6.4%, respectively. General and administrative expenses
as a percent of revenues decreased primarily due to a decrease in incentive
compensation expense which is based on operating results.

Interest and other, net increased to $1.1 million for 1995 compared to $0.4
million in 1994. For the years ended December 31, 1995 and 1994, the Company
incurred interest of $15.9 million and $14.7 million and capitalized $15.8
million and $14.2 million, respectively.

At December 31, 1995, the Company had a net deferred tax asset of $15.5
million after a valuation allowance of $1.5 million determined in accordance
with SFAS No. 109. The Company recorded a provision for income taxes of $2.5
million in 1995 which consisted of a $7.0 million tax provision offset by a $4.5
million reduction in the deferred tax asset valuation allowance. The Company
reduced its valuation allowance as a result of the increased visibility of
anticipated future income.

The net deferred tax asset at December 31, 1995 included net operating loss
carryforwards ("NOLs") for federal and California tax purposes of $21.3 million
and $9.6 million, respectively (expiring in the years 2006 through 2010 for
federal and 1997 through 1999 for California tax purposes). No assurance can be
given that all of the NOLs can be utilized in the future. SFAS No. 109 requires
that all available evidence, both positive and negative, be considered in
evaluating whether the deferred tax asset is fully realizable. In order to fully
realize the $15.5 million deferred tax asset, which is net of a $1.5 million
valuation allowance applicable to capital loss carryforwards, the Company must
generate a minimum amount of future pretax income of approximately $38.0
million. In evaluating the Company's ability to generate sufficient cumulative
pretax income in the future to fully realize the benefit of the net deferred tax
asset recorded at December 31, 1995, the Company's management reviewed project
forecasts for 1996 and 1997. The capital to complete the projects in the
forecasts is expected to be available and a significant number of the projects
necessary to generate such earnings are owned or controlled by the Company.
Because of the Company's earnings history, the Company's management believes
that the forecasts are no longer required to be discounted to the extent
previously considered necessary. Based upon this analysis, the Company's
management believes the valuation allowance at December 31, 1995 is adequate and
that it is more likely than not that the Company will generate sufficient pretax
income in the future to fully realize the benefit of the net deferred tax asset
recorded at December 31, 1995. As a result of the reduction in the valuation
allowance for the year ended December 31, 1995, the Company's effective tax rate
was reduced to 14.3%. The Company's effective tax rate was 0% in 1994 due to the
reduction in the deferred tax asset valuation allowance. See Note 7 to
Consolidated Financial Statements.

FISCAL 1994 COMPARED TO FISCAL 1993

Total revenues for the year ended December 31, 1994 were $260.2 million
compared to $172.8 million in 1993. Housing revenues increased 64.3% to $258.1
million from $157.1 million in 1993 as a result of a 67.5% increase in homes
closed from 604 in 1993 to 1,012 in 1994. The increase in housing revenues was
partially offset by a decrease in the average sales price of homes closed to
$252,000 in 1994 from $258,000 in 1993, as the Company continued to focus its
efforts in the first time and move-up market segments. Revenues from land sales
were $2.1 million in 1994 and $15.7 million in 1993, including revenues of $9.6
million on a sale to a related joint venture.

Gross margin, excluding land sales, as a percent of housing revenues
remained relatively constant in 1994 and 1993 at 17.3% and 17.7%, respectively.
Total gross margin was $44.7 million or 17.2% of revenues

20
<PAGE>
in 1994 compared to $28.4 million or 16.5% of revenues in 1993. The lower gross
margin as a percent of revenues in 1993 is attributable to the $9.6 million land
sale to a related joint venture at approximately a break-even margin. Gross
margin is net of reductions in housing inventory to net realizable value of $2.0
million in 1994 and $0.9 million in 1993.

For the years ended December 31, 1994 and 1993, joint ventures reported
combined revenues of $92.6 million on 319 homes closed and $33.4 million on 113
homes closed, respectively. In 1993, activity at two unconsolidated joint
ventures, which were purchased as part of the AM Operations, slowed
significantly and increased marketing costs and sales incentives reduced their
contribution to equity in pretax income of unconsolidated joint ventures. The
Company recorded equity in pretax income of unconsolidated joint ventures of
$2.6 million in 1994 compared to $1.1 million in 1993.

Selling, general and administrative expenses were $29.1 million, or 11.2% of
revenues, in 1994, and $19.5 million, or 11.3% of revenues, in 1993. As a result
of the increase in the number of homes closed, selling expenses increased to
$12.4 million in 1994 from $7.0 million in 1993. As a percent of housing
revenues, to which selling expenses are directly associated, selling expenses
increased from 4.5% in 1993 to 4.8% in 1994.

General and administrative expenses were $16.7 million, or 6.4% of revenues,
in 1994 and $12.5 million, or 7.2% of revenues, in 1993. The increase in general
and administrative expenses is attributable to the Company's growth in new and
existing markets in California. The Company employed full-time employees of 277
and 194 at December 31, 1994 and 1993, respectively. As a percent of revenues,
general and administrative expense decreased due to increased housing revenues
associated with the increased volume of homes closed.

For the years ended December 31, 1994 and 1993, the Company incurred
interest of $14.7 million and $7.2 million and capitalized $14.2 million and
$6.8 million, respectively. The increase in interest incurred in 1994 is due to
the issuance by the Company of $125 million aggregate principal amount of
10 3/4% Notes due 2004 (the "Notes"). See "Liquidity and Capital Resources"
below.

As a result of increased cash balances, also related to the issuance of the
Notes, interest income increased to $2.0 million in 1994 from $0.5 million in
1993. For the year ended December 31, 1994, interest and other, net, included
minority interest in pretax income of a consolidated joint venture of $0.8
million related to a single joint venture that commenced operations in December
1993.

At December 31, 1994, the Company had a net deferred tax asset of $18.0
million after a valuation allowance of $6.0 million determined in accordance
with SFAS No. 109. For the year ended December 31, 1994, the valuation allowance
was reduced by $7.5 million due to the increased expectation of realization of
the deferred tax asset primarily attributable to anticipated future income. As a
result of the reduction in the valuation allowance, the Company's effective tax
rate was reduced to 0% for the year ended December 31, 1994, compared to a 40%
effective tax rate for the year ended December 31, 1993.

LIQUIDITY AND CAPITAL RESOURCES

As a result of the soft housing market, particularly in Southern California,
and the impact of construction and processing delays from the unusually heavy
rains in the first quarter of 1995, the Company implemented a strategy to
strengthen its financial position and to maintain liquidity. This strategy was
implemented early in 1995 and was executed by slowing the timing of new lot
purchases and restructuring existing lot acquisition arrangements. At December
31, 1995, the Company's debt to equity ratio was 1.09 to 1.00, with no
outstanding borrowings under its unsecured revolving credit facility (the
"Facility"). The Company's cash balance at year-end increased to $41.3 million.
The strong financial position that has been established should enable the
Company to react quickly to a changing homebuilding market.

At March 31, 1996, the Company's debt to equity ratio increased slightly to
1.15 to 1.00 from 1.09 to 1.00 at the beginning of 1996. The increase was
largely a result of the increased level of borrowings associated with the nine
new projects acquired in the first quarter of 1996. The Company improved its
inventory turnover ratio for the 12 months ended March 31, 1996 to 1.20 from
1.09 for the 12 months ended March 31, 1995 by closely monitoring its housing
inventory level.

21
<PAGE>
The Company's principal cash requirements are for the acquisition,
development, construction and marketing of its residential projects.
Historically, these activities have been financed through the issuance of the
Company's common and preferred stock, purchase money notes provided by sellers
of residential projects, use of the Facility, issuance of the Notes in 1994 and
cash from operations.

The Company used net cash in operating activities of $30.0 million for the
first quarter of 1996 and $40.6 million for the full year 1994 and generated net
cash of $12.4 million for the full year 1995. In the first quarter of 1996 and
the full year 1994, cash was used primarily to fund the increase in housing
inventories associated with the Company's growth and expansion. In the full year
1995, the Company's use of cash decreased when compared to first quarter of 1996
and the full year 1994 as a result of the soft housing market and the impact of
construction and processing delays from the unusually heavy rains experienced in
the first quarter of 1995. The Company slowed the timing of new lot purchases
and implemented a strategy designed to strengthen its financial position and
maintain liquidity. The Company's sources of operating cash in fiscal 1995 were
primarily earnings from operations.

For fiscal years ended 1994 and 1995 and for the first quarter of 1996, net
cash provided by investing activities was $4.2 million, $4.5 million and $0.4
million, respectively. Cash was generated primarily from cash distributions
received from the Company's investments in unconsolidated joint ventures.

Net cash flow received from financing activities was $8.6 million and $45.4
million in the first quarter of 1996 and the full year 1994, respectively, while
financing activities in the full year 1995 used net cash flows of $11.7 million.
In the first quarter of 1996, cash was provided primarily from the Company's
Facility. In fiscal 1994, sources of financing activities were primarily the
issuance of the Notes of which the net proceeds were used to repay certain
existing indebtedness and general corporate purposes. In fiscal 1995, the
Company's strategy was to maintain liquidity; therefore, cash was used
principally to reduce the Facility's outstanding borrowings to zero and to repay
existing indebtedness. As the Company continues to expand in its existing
markets and evaluates opportunities to enter new markets, it may be required to
seek additional capital in the form of equity or debt financing. See "Risk
Factors -- Access to Financing."

At March 31, 1996, a total of $50 million was available for future use under
the provisions of the Facility. The Notes and the Facility, as well as other
construction and development loans, contain certain restrictive covenants
including limitations on additional indebtedness, minimum liquidity and net
worth requirements and limitations on the amount of debt to equity. The
indentures with respect to the Notes limit the ability of Greystone to pay cash
dividends or make loans and advances to the Company. At March 31, 1996, under
the terms of the indentures, Greystone could pay cash dividends or make loans or
advances to the Company in an amount of $32.5 million. The Notes are fully and
unconditionally guaranteed by the Company.

On April 10, 1996 the Company increased its Facility commitment to $100
million from $60 million. The amended Facility also provides for lower borrowing
and administrative costs. Participants in the amended Facility include: Bank of
America NT&SA; Guaranty Federal Bank, F.S.B.; and Bank of Boston. The amended
Facility extends the maturity date to July 31, 1999 and includes a provision for
a 12-month amortization of outstanding principal starting July 31, 1998.

In the normal conduct of the Company's business, it guarantees on an
unsecured basis obligations of certain unconsolidated joint ventures of which it
is the general partner. Generally these obligations are pro rata with the other
partners and the underlying obligations are secured by the assets of the joint
venture. At March 31, 1996, the Company had no liability for such obligations.
The indentures with respect to the Notes and the Facility impose restrictions on
the amount of such guarantees and obligations.

The Company has utilized, and will continue to utilize, options as a method
of controlling and subsequently acquiring land. By controlling land, through
options on the future discretionary purchase of land, the Company attempts to
minimize its cash outlays and reduce its risk from changing market conditions.
While the Company attempts to prudently manage its acquisition and development
of residential lots, the development of such projects can have a negative impact
on liquidity due to the timing of acquisition and development activities. The
Company believes that cash on hand, cash generated from operations and funds

22
<PAGE>
available under the Facility will be sufficient to meet the Company's working
capital and capital expenditure requirements for at least the next 18 months.
Currently, the Company does not have any material commitments for capital
expenditures.

BACKLOG

Backlog is the number of units subject to pending sales contracts. Homes are
typically sold during construction using sales contracts which are usually
accompanied by cash deposits. Before entering into sales contracts, the Company
generally prequalifies its customers. If the sale of an existing home is a
condition to a customer's purchase of a new home, the Company generally requires
that a listing agreement exist with respect to the customer's existing home
before the Company will count the sales contract as a new order. Purchasers are
permitted to cancel sales contracts if they are unable to sell their existing
homes or fail to qualify for financing and under certain other circumstances.
The Company experienced a cancellation rate of 21% in the first quarter of 1996,
21% in 1995 and 24% in 1994. Although cancellations can delay the sales of the
Company's homes, they have not had a material impact on sales, operations or
liquidity because the Company closely monitors the progress of prospective
buyers in obtaining financing and monitors and adjusts its start plans to better
match the level of demand for its homes. The Company does not recognize revenue
on homes covered by pending sales contracts until the sales are closed and the
risk of ownership has been transferred to the buyer.

At December 31, 1995, the Company had a backlog of 325 homes with an
aggregate sales value of $60.2 million, representing an increase of 61% and 19%,
respectively, since December 31, 1994. The increase in backlog in fiscal year
1995 resulted from the inclusion of sales of 67 homes and 78 homes in the
Phoenix and Las Vegas housing markets, respectively. The Company's backlog,
including units from unconsolidated joint ventures, as of December 31, 1994
consisted of 202 units with an aggregate sales value of approximately $50.4
million compared to 202 units with an aggregate sales value of $53.7 million a
year earlier.

Backlog at March 31, 1996 consisted of 511 units with an aggregate sales
value of $101.0 million, representing 79% and 49% increases, respectively, over
comparable figures at March 31, 1995. The Company's California operations
provided strong growth in backlog levels with the sales value increasing to
$84.5 million on 342 units at March 31, 1996 from $67.6 million on 286 units at
March 31, 1995. This growth reflected a 24% increase in net new orders for the
first three months of 1996 compared to the first three months of 1995. The
Company's Phoenix and Las Vegas operations contributed a combined 169 sales in
backlog with an aggregate sales value of $16.5 million in its first full quarter
of operations.

SELECTED UNAUDITED QUARTERLY OPERATING DATA

The homebuilding industry is seasonal. Generally, new orders are higher in
the spring and summer with closings, and therefore revenues, being higher in the
fall. The following table presents selected quarterly operating data of the
Company for each of the nine quarters in the period ended March 31, 1996. In the
opinion of management, all necessary adjustments (consisting of normal recurring
adjustments) have been included to present fairly the unaudited selected
quarterly operating data. This data is not necessarily indicative of the results
of operations of the Company for any future period.

23
<PAGE>

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1994 1994 1995 1995 1995 1995
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 46,186 $ 59,696 $ 73,869 $ 80,434 $ 34,733 $ 62,283 $ 77,595 $ 119,310
Cost of sales........... (38,932) (49,786) (59,919) (66,800) (29,269) (54,087) (65,060) (99,411)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin............ 7,254 9,910 13,950 13,634 5,464 8,196 12,535 19,899
Equity in pretax income
(loss) of
unconsolidated joint
ventures............... 174 556 1,194 657 659 1,349 (189) (77)
Selling, general and
administrative
expenses............... (5,801) (6,551) (7,644) (9,063) (5,970) (7,164) (8,438) (9,896)
Interest and other,
net.................... 243 235 (152) 62 371 334 292 165
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Pretax income........... 1,870 4,150 7,348 5,290 524 2,715 4,200 10,091
Income tax benefit
(provision)............ (767) (1,340) 2,107 -- -- 3,204 (1,680) (4,036)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. $ 1,103 $ 2,810 $ 9,455 $ 5,290 $ 524 $ 5,919 $ 2,520 $ 6,055
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin as a
percent of revenues.... 15.7% 16.6% 18.9% 17.0% 15.7% 13.2% 16.2% 16.7%
Selling, general and
administrative expenses
as a percent of
revenues............... 12.6% 11.0% 10.3% 11.3% 17.2% 11.5% 10.9% 8.3%
OPERATING DATA:(1)
Homes closed (units).... 211 295 400 425 227 323 322 502
Average price of homes
closed................. $ 256 $ 265 $ 269 $ 251 $ 238 $ 220 $ 234 $ 243
Net new orders
(units)................ 351 437 309 234 311 380 383 423
Backlog (at period end)
(units)................ 342 484 393 202 286 343 404 325
Sales value of backlog
(at period end)........ $ 91,425 $ 130,322 $ 100,849 $ 50,388 $ 67,611 $ 84,997 $ 105,918 $ 60,219

MARCH 31,
1996
----------

<S> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 63,535
Cost of sales........... (51,840)
----------
Gross margin............ 11,695
Equity in pretax income
(loss) of
unconsolidated joint
ventures............... (148)
Selling, general and
administrative
expenses............... (8,502)
Interest and other,
net.................... 159
----------
Pretax income........... 3,204
Income tax benefit
(provision)............ (1,307)
----------
Net income.............. $ 1,897
----------
----------
Gross margin as a
percent of revenues.... 18.4%
Selling, general and
administrative expenses
as a percent of
revenues............... 13.4%
OPERATING DATA:(1)
Homes closed (units).... 306
Average price of homes
closed................. $ 209
Net new orders
(units)................ 492
Backlog (at period end)
(units)................ 511
Sales value of backlog
(at period end)........ $ 101,011
</TABLE>

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

(1) Includes consolidated and unconsolidated projects.

The Company historically has experienced, and in the future expects to
continue to experience, variability in sales and revenues on a quarterly basis.
Factors expected to contribute to this variability include, among others (i) the
timing of home closings; (ii) the Company's ability to continue to acquire land
and options thereon on acceptable terms; (iii) the timing of receipt of
regulatory approvals for the construction of homes; (iv) the condition of the
real estate market and general economic conditions in California, especially in
the Company's markets; (v) the cyclical nature of the homebuilding industry;
(vi) the prevailing interest rates and the availability of mortgage financing;
(vii) pricing policies of the Company's competitors; (viii) the timing of the
opening of new residential projects; (ix) weather; and (x) the cost and
availability of materials and labor. The Company's historical financial
performance is not necessarily a meaningful indicator of future results and, in
particular, the Company expects its financial results to vary from project to
project and from quarter to quarter.

INTEREST RATES AND INFLATION

The residential homebuilding industry is affected by changes in general
economic factors, particularly by the impact of inflation and its effect on
interest rates. Inflation can adversely affect the rates on funds borrowed by
the Company and the affordability of permanent mortgage financing available to
prospective customers.

Increased construction costs, rising interest rates, as well as increased
material costs, may reduce gross margins in the short-term, however, the Company
attempts to recover the increased costs through increased sales prices without
reducing sales volume. Inflation has not had a significant adverse effect on the
Company's results of operations presented herein. However, there can be no
assurance that inflation will not have a material adverse impact on the
Company's future results of operations.

24
<PAGE>
BUSINESS

The Company is a leading regional builder of high quality, single family
homes primarily targeted to first time and move-up homebuyers in infill and
emerging markets located throughout Northern and Southern California as well as
Las Vegas, Nevada and Phoenix, Arizona. The Company also provides mortgage
brokerage services to its customers.

BUSINESS STRATEGY

The Company's primary business objective is to become one of the leading
regional single family homebuilders while managing the risks inherent in the
homebuilding industry. To achieve this objective, the Company has adopted the
following business strategies:

EXPANSION THROUGH ACQUISITIONS AND START-UP OPERATIONS. The Company has
successfully expanded its operations through selective acquisitions and by
commencing start-up projects in new and existing markets. Within its existing
markets, management believes there are opportunities to increase the number of
residential projects with its current management and information systems. As
part of its overall strategy to enter new geographic markets, the Company
continually evaluates acquisition opportunities which combine attractive
residential projects and management with local market expertise.

MARKET SEGMENT DIVERSITY THROUGH INFILL AND EMERGING MARKET
STRATEGY. Pacific Greystone focuses on two distinct market segments.

GEOGRAPHIC DIVERSITY WITHIN CALIFORNIA. Northern California and Southern
California are distinct markets with unique economic and demographic trends. In
1995 and the first three months of 1996, the number of homes closed by Pacific
Greystone were divided almost equally between Northern and Southern California.
By having diverse operations within California, management believes that it
minimizes the risks associated with any one particular locality, yet the Company
is able to participate in two large markets with significant demand for housing.

CONSERVATIVE LAND POLICIES. The Company maintains a conservative land
acquisition policy designed to optimize profitability and return on capital
while minimizing the risks associated with investments in land. Pacific
Greystone generally limits the number of lots acquired to less than 150 in any
one project. By not having a significant investment in any one project,
management believes it is better able to adjust to changing buyer needs and
reduce the risks associated with changing market conditions. The Company only
purchases lots after entitlements are received. The Company's inventory strategy
is to own a two to four year supply of residential lots. Pacific Greystone's
owned residential lot inventory has been obtained since its formation in 1991,
with approximately 84% acquired since January 1994. As of March 31, 1996, the
Company owned and controlled 7,001 residential lots.

25
<PAGE>
related to overall Company strategy, project acquisition, financing and
disbursements are centralized at the corporate level. The Company's senior
operating and financial management is very experienced with the 12 most senior
managers averaging 21 years of experience in the homebuilding industry.

THE CALIFORNIA ECONOMY AND HOUSING MARKETS

California is the most populous state and the third largest housing market
(measured by permits issued in 1995) in the United States. According to the U.S.
Census Bureau, the population of California increased from 23.7 million in 1980
to an estimated 31.4 million in 1994, an annual compound growth rate of 2.0%
compared to a nationwide compound annual growth rate of 1.0% over this same
period.

HOUSING TRENDS

Single family building permits issued in California totaled 162,600 at the
last cyclical peak in 1989 and declined to 68,673 in 1995, a decline of 57.7%.
In the first three months of 1996, 15,541 permits were issued, a 15.0% increase
from the 13,510 permits issued during the first three months of 1995. The steep
decline in single family building permits during California's recession led to a
parallel decline in single family housing starts. As illustrated in the
following chart, annual single family housing starts in California during the
December 1990 to September 1995 period declined to one of the lowest levels
since 1969.

CALIFORNIA SINGLE FAMILY vs. U.S. SINGLE FAMILY HOUSING STARTS

(1969-1995)

A line graph plotting the California single family starts, in thousands, on
the left axis and the U.S. single family starts, in millions, on the right axis
for the years 1969 through 1995. The indicated source is DRI/ McGraw Hill.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CALIFORNIA SINGLE FAMILY VS. U.S. SINGLE FAMILY HOUSING
STARTS
<S> <C> <C>
(1969-1995)
California
Single U.S. Single
Family Starts Family Starts
Mar-69 87.50 0.84
Jun-69 89.09 0.81
Sep-69 74.76 0.82
Dec-69 83.80 0.72
Mar-70 65.36 0.73
Jun-70 63.17 0.81
Sep-70 70.71 0.87
Dec-70 85.77 1.11
Mar-71 114.65 1.08
Jun-71 118.29 1.16
Sep-71 114.98 1.16
Dec-71 122.32 1.30
Mar-72 147.75 1.32
Jun-72 111.89 1.27
Sep-72 131.34 1.40
Dec-72 131.23 1.26
Mar-73 104.22 1.24
Jun-73 116.42 1.11
Sep-73 105.43 1.02
Dec-73 84.40 0.82
Mar-74 81.20 0.97
Jun-74 82.53 0.98
Sep-74 75.63 0.86
Dec-74 64.33 0.76
Mar-75 65.91 0.77
Jun-75 80.21 0.87
Sep-75 89.98 0.96
Dec-75 108.02 1.03
Mar-76 131.48 1.11
Jun-76 119.94 1.13
Sep-76 131.57 1.23
Dec-76 175.94 1.31
Mar-77 218.15 1.49
Jun-77 164.66 1.39
Sep-77 163.34 1.48
Dec-77 169.69 1.53
Mar-78 154.31 1.43
Jun-78 138.94 1.43
Sep-78 145.38 1.39
Dec-78 141.04 1.46
Mar-79 131.95 1.32
Jun-79 131.75 1.32
Sep-79 134.98 1.19
Dec-79 119.87 1.02
Mar-80 97.17 0.63
Jun-80 63.13 0.77
Sep-80 98.45 1.02
Dec-80 101.88 0.94
Mar-81 77.37 0.85
Jun-81 68.84 0.70
Sep-81 55.22 0.64
Dec-81 41.58 0.56
Mar-82 43.49 0.61
Jun-82 37.56 0.61
Sep-82 51.25 0.69
Dec-82 65.24 0.86
Mar-83 76.98 1.00
Jun-83 102.91 1.12
Sep-83 112.73 1.06
Dec-83 118.74 1.02
Mar-84 124.78 1.05
Jun-84 116.76 1.09
Sep-84 107.52 1.04
Dec-84 108.45 1.10
Mar-85 113.42 1.13
Jun-85 113.06 1.03
Sep-85 124.63 1.02
Dec-85 119.51 1.12
Mar-86 117.62 1.18
Jun-86 144.29 1.22
Sep-86 144.37 1.14
Dec-86 157.98 1.23
Mar-87 161.01 1.21
Jun-87 145.62 1.09
Sep-87 138.77 1.23
Dec-87 127.21 1.03
Mar-88 152.76 1.18
Jun-88 148.20 1.11
Sep-88 167.32 1.04
Dec-88 181.43 1.13
Mar-89 160.67 0.98
Jun-89 168.40 0.97
Sep-89 162.78 0.97
Dec-89 164.75 0.91
Mar-90 155.07 0.97
Jun-90 117.04 0.89
Sep-90 103.70 0.86
Dec-90 77.90 0.75
Mar-91 69.50 0.75
Jun-91 83.89 0.87
Sep-91 81.68 0.87
Dec-91 75.88 0.95
Mar-92 84.07 1.04
Jun-92 81.19 1.00
Sep-92 79.15 1.02
Dec-92 80.49 1.08
Mar-93 71.92 0.94
Jun-93 75.83 1.07
Sep-93 73.07 1.15
Dec-93 81.25 1.38
Mar-94 85.32 1.26
Jun-94 75.83 1.17
Sep-94 84.76 1.24
Dec-94 81.09 1.25
Mar-95 66.47 0.99
Jun-95 64.20 1.03
Sep-95 80.39 1.14
Source: DRI/McGraw Hill
</TABLE>

Since peaking in early 1991, median single family home sales prices have
fallen dramatically. The price of a median single family home declined to
$176,150 in March 1996. As home sales prices and mortgage rates declined, the
percentage of California households able to afford a median-priced single family
home has increased from a low of 15% in May of 1989 to 41% in March 1996.

26
<PAGE>

CALIFORNIA AFFORDABILITY INDEX BASED ON MEDIAN HOME PRICE

A line graph plotting the median home price in dollars on the left axis and
the affordability index as a percentage on the right axis for the years 1989 to
March 1996. The indicated source is California Association of Realtors.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CALIFORNIA AFFORDABILITY INDEX BASED ON MEDIAN HOME
PRICE
<S> <C> <C>
Affordability Index
(%) Median Home Price ($)
1/89 19 182,859
2/89 17 190,197
3/89 16 194,697
4/89 15 201,034
5/89 14 201,021
6/89 14 199,441
7/89 14 201,653
8/89 16 199,385
9/89 16 198,743
10/89 17 193,734
11/89 17 193,581
12/89 19 188,477
1/90 22 194,952
2/90 21 196,273
3/90 22 194,856
4/90 22 196,111
5/90 22 195,281
6/90 22 194,410
7/90 23 193,088
8/90 23 192,180
9/90 24 189,979
10/90 25 187,630
11/90 24 192,020
12/90 25 190,375
1/91 25 192,054
2/91 24 194,805
3/91 23 202,686
4/91 23 207,718
5/91 22 211,001
6/91 24 206,722
7/91 24 206,069
8/91 25 200,340
9/91 26 197,801
10/91 27 196,021
11/91 29 194,192
12/91 29 199,452
1/92 31 196,410
2/92 30 198,220
3/92 29 200,500
4/92 29 198,700
5/92 29 203,420
6/92 30 199,460
7/92 32 199,150
8/92 34 194,670
9/92 34 195,840
10/92 35 194,000
11/92 35 189,670
12/92 35 193,330
1/93 36 191,670
2/93 38 187,440
3/93 37 189,130
4/93 38 192,600
5/93 39 188,850
6/93 39 188,650
7/93 39 190,540
8/93 40 189,010
9/93 41 186,740
10/93 43 185,920
11/93 43 184,700
12/93 42 184,980
1/94 42 183,046
2/94 43 183,010
3/94 41 185,472
4/94 40 187,620
5/94 39 185,950
6/94 37 189,234
7/94 37 188,051
8/94 37 185,788
9/94 37 185,158
10/94 38 181,862
11/94 38 180,907
12/94 38 179,057
1/95 38 177,200
2/95 39 172,327
3/95 38 175,000
4/95 37 176,816
5/95 38 176,179
6/95 39 180,876
7/95 38 180,381
8/95 37 182,619
9/95 37 180,529
10/95 39 176,040
11/95 39 176,200
12/95 40 175,370
1/96 41 174,480
2/96 42 170,420
3/96 41 171,151
Source: California Association of Realtors
</TABLE>

EMPLOYMENT TRENDS

The rate of nonfarm employment growth in California turned negative in
December 1990 and showed a negative trend through 1993. In 1994, nonfarm
employment growth turned positive for the first time in over three years. Since
1991, Northern California only experienced one year of negative employment
growth, 1992. In contrast, Southern California's rate of nonfarm employment
growth was negative for the years 1991 through 1993 and only mildly positive in
1994. Over the twelve months ended March 1996, the California Employment
Development Department estimated that California nonfarm employment increased by
2.4%, or 296,000 jobs, significantly outpacing the 1.5% gain nationwide. During
that period, all of California's metropolitan statistical areas posted job
gains. Additionally, the California Department of Finance recently projected a
2.5% increase in nonfarm employment in 1996 and a 2.3% increase in 1997.

27
<PAGE>

YEAR-0VER-YEAR NONFARM EMPLOYMENT GROWTH (1920-1995)

A line graph plotting the unit change on the left axis and the percentage of
change of the nonfarm equipment growth for the years 1970 through 1995. The
indicated source is DRI/McGraw Hill.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
YEAR-OVER-YEAR NONFARM EMPLOYMENT GROWTH (1970-1995)
<S> <C> <C>
Unit Change Percentage of Change
Mar-70 189 2.77%
Jun-70 61 0.89%
Sep-70 (52) -0.75%
Dec-70 (136) -1.94%
Mar-71 (149) -2.13%
Jun-71 (97) -1.39%
Sep-71 9 0.13%
Dec-71 116 1.69%
Mar-72 261 3.81%
Jun-72 296 4.30%
Sep-72 318 4.58%
Dec-72 295 4.22%
Mar-73 369 5.17%
Jun-73 419 5.84%
Sep-73 438 6.05%
Dec-73 420 5.76%
Mar-74 271 3.61%
Jun-74 252 3.32%
Sep-74 183 2.38%
Dec-74 147 1.91%
Mar-75 (6) -0.08%
Jun-75 (66) -0.84%
Sep-75 (6) -0.08%
Dec-75 128 1.63%
Mar-76 277 3.57%
Jun-76 328 4.22%
Sep-76 344 4.37%
Dec-76 280 3.51%
Mar-77 346 4.31%
Jun-77 413 5.10%
Sep-77 448 5.46%
Dec-77 574 6.95%
Mar-78 621 7.41%
Jun-78 656 7.70%
Sep-78 587 6.78%
Dec-78 531 6.00%
Mar-79 518 5.76%
Jun-79 421 4.59%
Sep-79 482 5.21%
Dec-79 444 4.74%
Mar-80 343 3.61%
Jun-80 233 2.43%
Sep-80 74 0.76%
Dec-80 89 0.91%
Mar-81 87 0.88%
Jun-81 178 1.81%
Sep-81 213 2.18%
Dec-81 67 0.67%
Mar-82 (53) -0.53%
Jun-82 (179) -1.79%
Sep-82 (245) -2.44%
Dec-82 (223) -2.23%
Mar-83 (118) -1.19%
Jun-83 41 0.42%
Sep-83 183 1.88%
Dec-83 319 3.27%
Mar-84 436 4.46%
Jun-84 464 4.70%
Sep-84 517 5.20%
Dec-84 473 4.69%
Mar-85 433 4.24%
Jun-85 397 3.84%
Sep-85 349 3.33%
Dec-85 340 3.23%
Mar-86 315 2.95%
Jun-86 301 2.80%
Sep-86 300 2.77%
Dec-86 346 3.18%
Mar-87 364 3.32%
Jun-87 338 3.51%
Sep-87 379 3.41%
Dec-87 416 3.71%
Mar-88 451 3.98%
Jun-88 454 3.98%
Sep-88 439 3.82%
Dec-88 410 3.52%
Mar-89 396 3.36%
Jun-89 340 2.86%
Sep-89 287 2.41%
Dec-89 285 2.37%
Mar-90 277 2.28%
Jun-90 301 2.47%
Sep-90 302 2.47%
Dec-90 168 1.36%
Mar-91 (28) -0.22%
Jun-91 (134) -1.07%
Sep-91 (182) -1.45%
Dec-91 (219) -1.75%
Mar-92 (231) -1.86%
Jun-92 (184) -1.49%
Sep-92 (208) -1.69%
Dec-92 (198) -1.61%
Mar-93 (132) -1.08%
Jun-93 (163) -1.34%
Sep-93 (89) -0.73%
Dec-93 (51) -0.42%
Mar-94 17 0.14%
Jun-94 95 0.79%
Sep-94 156 1.30%
Dec-94 195 1.62%
Mar-95 199 1.65%
Jun-95 261 2.15%
Sep-95 262 2.15%
Dec-95 293 2.40%
Source: DRI/McGraw Hill
</TABLE>

The California unemployment rate increased from 4.8% in June 1990 to 10.1%
in January 1994, compared to the national unemployment rate which increased more
modestly from 5.3% to 6.7% during the same period. Since reaching 10.1%,
California's unemployment rate has declined markedly to 7.7% as of March 1996
while the national rate has declined to 5.6%.

MARKETS AND PRODUCTS

The Company's homebuilding operations are presently conducted in four
regions: Northern California, Southern California, Las Vegas, Nevada and
Phoenix, Arizona. Within each region, the Company operates through separate
divisions managed by Division Presidents. Each Division President is responsible
for the Company's operations within a prescribed geographic area including
project identification, product design, construction, marketing and customer
service. The boundaries of these geographic areas change from time to time as
market conditions and internal conditions dictate. Division Presidents are
experienced in the "for sale" housing business and possess in-depth knowledge of
the geographic areas within which their divisions operate. The ability to
balance corporate control over significant decisions and policies with the need
to respond on a timely basis to local market opportunities is an important
factor in the Company's operations.

The Company's operations are focused on two distinct market segments, infill
and emerging. The Company's infill projects are generally located in developed
residential areas with ready access to jobs, shopping, schools and other
amenities. These projects typically have higher densities than emerging markets
and the Company's projects in infill markets generally contain a smaller number
of units and attract move-up buyers. The Company believes that over half of the
purchasers of homes in the Company's infill projects previously lived within a
five mile radius of the infill projects. Homes in infill markets typically
compete primarily against sales of existing homes in the market area.

28
<PAGE>
The Company's emerging projects tend to be located in areas of active new
construction but still within reasonable commuting distance of major employment
centers. These projects generally focus on first time and move-up buyers
desiring lower priced homes. In these locations, cost effectiveness is an
important competitive advantage and the price at which the Company can acquire
lots and construct homes is a key factor in achieving home sales. Typically,
these markets have lower densities and compete primarily against new homes
offered by other homebuilders.

Northern California operations are currently conducted in Alameda, Santa
Clara, Contra Costa, San Mateo, Sacramento and San Joaquin counties. Southern
California operations are concentrated in the counties of Los Angeles, Orange,
San Bernardino, Riverside, San Diego and Ventura. In December 1995, the Company
acquired seven residential projects in Las Vegas, Nevada and Phoenix, Arizona.

The following table sets forth information regarding the Company's projects
and backlog at March 31, 1996 (includes unconsolidated joint venture):

<TABLE>
<CAPTION>
SALES VALUE
OF BACKLOG
NUMBER OF ACTIVE (DOLLARS) (2)
NUMBER OF SELLING BACKLOG -------------
PROJECTS OWNED PROJECTS (1) (UNITS) (2)
--------------- ----------------- ------------- (IN
THOUSANDS)
<S> <C> <C> <C> <C>
Northern California.................... 20 10 143 $ 37,477
Southern California.................... 21 11 199 46,988
Nevada................................. 5 3 77 7,453
Arizona................................ 7 3 92 9,093
-- --
--- -------------
Total................................ 53 27 511 $ 101,011
-- --
-- --
--- -------------
--- -------------
</TABLE>

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

(1) Active selling projects are projects owned by the Company at which five or
more homes were for sale at March 31, 1996.

(2) Backlog is the number of units subject to pending sales contracts, some of
which are subject to contingencies. Therefore, no assurances can be given
that this backlog will result in actual sales. See "Sales and Marketing"
below.

Homes in each residential project are specifically designed to meet local
buyer preferences and geographic conditions and to be competitive within the
marketplace. Typically the Company offers three to four product types in each
project generally ranging in size from 1,000 to 3,000 square feet with various
configurations for each product type. Homes are arranged within the project to
ensure a varied street scene. In designing homes, the Company also takes into
account new homes being offered by other homebuilders and homes available in the
resale market.

LAND ACQUISITION AND DEVELOPMENT

The Company acquires land for its residential home projects with a view
toward the development of finished lots capable of supporting housing units. The
Company views land as a component of a home's cost structure, rather than for
its speculative value. Due to the cyclical character of the industry and the
critical role of effective risk-management in land development, the Company
seeks to limit building sites owned and controlled to a number adequate to
support approximately two to four years of new home sales. Also, because of the
illiquid nature of land holdings and the related financing requirements, the
Company has implemented policies and programs to attempt to manage these risks.
The Company requires the completion of due diligence prior to committing to
acquire land, acquires only residential entitled land to mitigate zoning risk
and typically limits land acquisition size to less than 150 units to minimize
investment levels in any one project. The Company also uses options and other
non-capital intensive structures to control land, and funds land acquisitions
whenever possible with non-recourse seller financing. "Entitled" land refers to
land subject to development agreements, tentative maps or recorded maps,
depending on the jurisdiction within which the land is located. Developers
generally have the right to obtain building permits with respect to entitled
land upon compliance with conditions that are usually within the developer's
control.

29
<PAGE>
Prior to committing to the acquisition of land, the Company conducts
extensive feasibility studies covering all pertinent aspects of the proposed
commitment. These studies include such technical aspects as title, zoning, soil
and seismic characteristics, marketing studies that review population and
employment trends, schools, transportation access, buyer profiles, sales
forecasts, projected profitability, cash requirements and assessment of
political risk and other factors. Prior to acquiring each land parcel, market
studies are completed to determine the needs of the targeted customers and to
determine whether the underlying land price enables the Company to meet those
needs at an affordable price. The Company purchases land only when it can
project the commencement of construction and sales within a reasonable time
period. The Company's policy is that land can be purchased or sold only with the
prior approval of the Company's Executive Management Committee. The Company
utilizes outside architects and consultants, under close supervision, to help
review its acquisitions and design its products.

The Company generally purchases lots or obtains an option to purchase lots
which, in either case, requires certain site improvements prior to construction.
The Company then undertakes, where required, development activities (through
contractual arrangements with local developers) that include site planning and
engineering, as well as constructing road, sewer, water, utilities, drainage and
recreational facilities and other amenities. When available in certain markets,
the Company also buys finished lots that are ready for construction.

The following table sets forth the number of lots owned and controlled by
the Company at March 31, 1996:

<TABLE>
<CAPTION>
LOTS
LOTS OWNED CONTROLLED (1) TOTAL
----------- --------------- ---------
<S> <C> <C> <C>
Northern California................................ 1,086 1,545 2,631
Southern California................................ 1,138 2,019 3,157
Nevada............................................. 389 127 516
Arizona............................................ 220 477 697
----- ----- ---------
Total............................................ 2,833 4,168 7,001
----- ----- ---------
----- ----- ---------
</TABLE>

- ------------
(1) Lots controlled include properties for which the Company has entered into
contractual relationships including non-binding letters of intent, binding
purchase agreements with customary conditions precedent, non-binding verbal
agreements, as well as option agreements and other arrangements. There can
be no assurance the Company will acquire all of these properties.

The Company views joint ventures as a means to both expand its market
opportunities and manage its risk profile. It enters into joint ventures with
land owners, intermediaries and other homebuilders in the ordinary course of its
business. The Company has an ongoing program to identify and cultivate a wide
source of potential joint venture partners. Typically, the Company acts as the
general partner and the day-to-day manager, while the other partner contributes
the land or additional equity to the partnership. The joint ventures generally
obtain development or construction financing from banks and other sources.
Guarantees of such financing, if required, are generally provided by the
partners on a negotiated basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and Note 4 to the Consolidated Financial Statements.

SALES AND MARKETING

The Company sells its homes through its own sales representatives, although
sales by independent real estate brokers are encouraged in some markets. The
Company's in-house sales force typically works from sales offices located in the
model homes at each subdivision. At March 31, 1996, the Company owned 97 model
homes which were not generally available for sale until the end of the project.
Sales representatives assist potential buyers by providing them with basic
floorplans, price information, development and construction timetables, tours of
model homes and the selection of options. Sales personnel are licensed by the
applicable real estate agencies in their respective markets, are provided
training by the Company and generally have had prior experience selling new
homes in the local market.

30
<PAGE>
The Company advertises in newspapers and magazines and on billboards. The
Company also utilizes home shows, video tapes, direct mailings, special
promotional events, illustrated brochures and model homes in a comprehensive
marketing program. Generally, two to four different model homes are built and
decorated at each subdivision to display design features. Model homes play a key
role in helping buyers understand the efficiencies and value provided by each
plan type. Company personnel, along with subcontracted marketing and design
consultants, carefully design exteriors and interiors of each home to coincide
with the lifestyles of targeted buyers. Various plan types and elevations are
utilized to provide a more varied street scene and sense of "customization" for
the buyers.

Homes are typically sold during construction using sales contracts which are
usually accompanied by cash deposits. Before entering into sales contracts, the
Company generally prequalifies its customers. If the sale of an existing home is
a condition to a customer's purchase of a new home, the Company generally
requires a listing agreement with respect to the customer's existing home before
the Company will count the sales contract as a new order. Purchasers are
permitted to cancel sales contracts if they are unable to sell their existing
homes or fail to qualify for financing and under certain other circumstances.
During 1993, 1994 and 1995 and the first three months of 1996, the Company
experienced a cancellation rate of approximately 32%, 24%, 21% and 21%,
respectively. Although cancellations can delay the sale of the Company's homes,
they have not had a material impact on sales, operations or liquidity because
the Company closely monitors the progress of prospective buyers in obtaining
financing and monitors and adjusts its start plans to better match the level of
demand for its homes.

CONSTRUCTION

The Company strives to match construction starts to its sales rates. The
Company generally will not start construction of a phase of homes until sales
have met predetermined targets. The Company controls its construction starts by
releasing homes for construction and for sale in phases. The size of these
phases depends on such factors as current sales and cancellation rates, the type
of buyer targeted for a particular residential project, the time of the year and
the Company's assessment of prevailing and anticipated economic conditions.
Normally, the Company does not release homes for sale until a significant
portion of the homes' construction cost has been established through firm
subcontractor bids.

The Company functions as a general contractor, subcontracting its
construction activities. The Company manages these activities with on-site
supervisory employees and informational and management control systems. The
services of independent architectural, design, engineering and other consulting
firms are engaged to assist in project planning. The Company does not have
long-term contractual commitments with its subcontractors, consultants or
suppliers of materials, who are generally selected on a competitive bid basis.
However, the Company has generally been able to obtain sufficient materials and
subcontractors during times of market shortages. Depending on the design, time
of year, local labor situation, governmental approvals, availability of
materials and supplies, and other factors, the Company generally completes a
home in four to six months.

By limiting the size of each construction phase and closely monitoring sales
activity, the Company attempts to limit the number of unsold units under
construction. However, unlike homebuyers in other parts of the country,
homebuyers in the Company's markets are not accustomed to long delays in the
delivery of homes. Accordingly, the Company and other homebuilders in the
Company's markets typically commence construction prior to obtaining sales
contracts for all homes within a given phase. Building homes of the same product
type in phases also allows the Company to utilize production techniques that
reduce its construction costs. The number of unsold homes fluctuates depending
upon the timing of completion of construction and absorption of home phases. At
March 31, 1996, the Company had 106 completed and unsold homes, excluding 97
model homes.

CUSTOMER SERVICE AND QUALITY MANAGEMENT

The Company believes it provides high quality homes by employing a quality
process which is intended to provide a positive atmosphere for each customer
throughout the pre-sale, sale, building, closing and post-

31
<PAGE>
closing periods. The participation of the sales representatives, on-site
construction supervisor and the post-closing customer service personnel, working
in a team effort, is intended to foster the Company's reputation for quality
service and ultimately lead to enhanced customer retention and referrals.

Homebuyers are provided with a warranty program which, in general, provides
for a limited one-year warranty on building materials and, in California, a
ten-year statutory warranty with respect to construction defects. The Company
establishes reserves for future warranty costs which are periodically reviewed
and adjusted as necessary.

In 1995, the Company initiated Total Quality Management ("TQM") as a process
to improve customer satisfaction and reduce costs in all aspects of the
Company's operations. TQM is a continual process in which all employees are
involved in improving productivity and product quality. Although the Company
believes its TQM process will increase long-term profitability, the Company
incurred approximately $175,000 of training and consultant costs in connection
with initiating this process in 1995.

MORTGAGE BROKERAGE OPERATIONS

The Company offers mortgage brokerage services exclusively to its customers
in most of its markets. The Company, acting as a broker, has agreements with
various lenders to receive a fee on loans made by the lenders to customers
introduced to the lenders by the Company. The Company does not originate, fund
or service the loans. No credit or interest rate risk is assumed by the Company
with respect to the loans.

INFORMATION SYSTEMS

From its inception, the Company has assigned a high priority to the
development and implementation of systems and procedures. It has implemented a
highly automated accounting and operational system using a proven software
package widely used by other publicly owned homebuilders. This system is
integrated and functions from a common data base to maintain the integrity of
the data. All of the Company's offices are electronically connected via
dedicated phone lines and a wide area network. This system facilitates the use
of common accounting, financial and operational databases.

The Company has invested significantly in the development and implementation
of its systems and procedures and has, by design, created capacity to manage
much larger volumes of activity than the Company is presently experiencing. In
addition to its accounting and operational systems, the Company utilizes
specialized software packages for specific applications that range from project
feasibility analysis to construction scheduling. The Company has also designed
its budgeting and planning system to accommodate anticipated expanded public
reporting requirements. The Company has organized its operating divisions with a
full complement of experienced financial personnel to manage divisional
accounting functions and support division personnel.

COMPETITION

The residential homebuilding industry is highly competitive, with
homebuilders competing for customers, desirable properties, financing, raw
materials and skilled labor. The Company competes on the basis of location,
design, quality and price with numerous other residential homebuilders, ranging
from regional and national firms to small local companies. In addition, the
Company competes with resales of existing residential housing by individuals,
financial institutions and others. Competition is particularly intense when the
Company enters a new market area. Many of the Company's competitors are larger
than the Company and have greater financial resources.

REGULATORY AND ENVIRONMENTAL MATTERS

The residential homebuilding industry is subject to various local, state and
other statutes, ordinances, rules and regulations concerning zoning, building
design, construction and similar matters, including local regulations which
impose restrictive zoning and density requirements in order to limit the number
of homes that can eventually be built within the boundaries of particular areas.
The Company may also be subject to periodic delays in its homebuilding projects
due to building moratoria. In addition, certain new development projects,
particularly in Southern California, are subject to various assessments for
schools, parks, streets

32
<PAGE>
and highways and other public improvements, the costs of which can be
substantial. By raising the cost of the Company's homes to its customers, an
increase in such assessments could have a negative impact on the Company's
sales.

The residential homebuilding industry is also subject to a variety of local,
state and federal statutes, ordinances, rules and regulations concerning the
protection of health and the environment. The environmental laws that apply to a
given homebuilding site depend on 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
the Company to incur substantial compliance and other costs, and can prohibit or
severely restrict homebuilding activity in certain environmentally sensitive
regions or areas. Additionally, the climate and geology of the markets in
California present risks of natural disasters that could adversely affect the
homebuilding industry in general, and the Company's business in particular.

See "Risk Factors--Dependence on California Economy and Housing Markets" and
"--Regulatory and Environmental Matters."

EMPLOYEES

At March 31, 1996, the Company had 321 employees. The Company considers its
relations with its employees to be good. The Company's construction operations
are conducted primarily through independent subcontractors, thereby limiting the
number of its employees. None of the Company's employees is represented by a
union.

PROPERTIES

In addition to real estate held for development and sale, which is either
owned or under option to be purchased by the Company, the Company leases office
space for its corporate headquarters, located in Los Angeles, California,
through 1997, with extensions at the Company's option for an additional six
years. In addition, the Company leases each of its other offices and those
leases have initial terms expiring from 1996 through 1998 and renewal options.
The Company believes that its office space is suitable and adequate for its
needs for the foreseeable future. See Note 9 to the Consolidated Financial
Statements.

LEGAL PROCEEDINGS

The Company is involved in routine litigation arising in the ordinary course
of its business. In the opinion of the Company's management, none of the pending
litigation will have a material adverse effect on the Company's consolidated
financial condition or results of operations.

33
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information concerning the directors and
executive officers of the Company. All these persons have served in their
capacities since the Company was formed in 1991, except as otherwise indicated.

<TABLE>
<CAPTION>
NUMBER OF YEARS
OF EXPERIENCE IN
HOME-BUILDING
NAME AGE (*) PRINCIPAL POSITIONS WITH THE COMPANY INDUSTRY
- -------------------------- ----------- ----------------------------------------------------------- ---------------------
<S> <C> <C> <C>
Jack R. Harter(1) 64 Chairman, President and Chief Executive Officer 40
Antonio B. Mon(1) 50 Vice Chairman and Chief Financial Officer 18
Robert W. Garcin(1) 67 Vice President, General Counsel and Secretary 33
Peter J. Kiesecker(1) 35 Vice President and Treasurer 13
Bruce E. Gross(1) 37 Vice President and Controller 16
Richard D. Baker 52 Division President, North Bay 19
Denis G. Cullumber 49 Division President, South Coast 24
Steven G. Delva 47 Division President, South Bay 21
Charles J. Dragicevich 46 Division President, Ventura 22
Timothy F. Kent 44 Division President, Las Vegas 19
David M. Kitnick 34 Division President, Phoenix 10
Todd J. Palmaer 37 Division President, Coastal Valley 15
Jack N. Grigsby 62 Division President, PGC Financial Services 38
Sidney Lapidus(2) 58 Director
Reuben S. Leibowitz(3) 48 Director
John D. Santoleri(2) 32 Director
David Kaplan(2)(3) 51 Director
</TABLE>

- ------------
(*) As of January 31, 1996.

(1) Member of the Executive Management Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

JACK R. HARTER, a co-founder of the Company, has been its Chairman,
President and Chief Executive Officer since the Company's inception in 1991. For
the 34 years prior to that, Mr. Harter held increasingly more responsible
positions at M.J. Brock and Sons, Inc., a major California homebuilder, where,
from 1985 through 1991, he was President. For the period 1986 through 1991, Mr.
Harter was also an officer of The Ryland Group, Inc.

ANTONIO B. MON, a co-founder of the Company, has been its Vice Chairman and
Chief Financial Officer since the Company's inception in 1991. Prior to that,
Mr. Mon was an officer of The Ryland Group, Inc. from 1986 to 1989 and from 1989
through 1991 was President of Ryland Ventures, Inc. During 1985, Mr. Mon was
Executive Vice President and Chief Financial Officer of M.J. Brock and Sons,
Inc. During the period 1978 through 1984, he held various positions at CIGNA
Corporation where, among other activities, he was responsible for CIGNA's
investment in M.J. Brock and Sons, Inc.

ROBERT W. GARCIN has been the Company's Vice President, General Counsel and
Secretary since 1991. From 1986 to 1991, Mr. Garcin was Vice President and
General Counsel of M.J. Brock and Sons, Inc. Prior

34
<PAGE>
to joining M.J. Brock and Sons, Inc., Mr. Garcin was outside legal counsel to
that company for over 20 years. Mr. Garcin is the former Mayor of the City of
Glendale, California, and, from 1984 to 1994, served as President of the
Burbank-Glendale-Pasadena Airport Authority where he currently serves as a
member of that Authority.

PETER J. KIESECKER has been the Company's Vice President and Treasurer since
1991. Mr. Kiesecker was Vice President of Ryland Ventures, Inc. and Director of
Financial Planning for The Ryland Group, Inc. from 1989 to 1991. From 1984 to
1989, Mr. Kiesecker was a Financial Analyst for M.J. Brock Corporation. Prior to
1984, Mr. Kiesecker was associated with Wilshire and Associates.

BRUCE E. GROSS has been the Company's Vice President and Controller since
1991. Mr. Gross was Corporate Controller for Shea Homes from 1990 to 1991. From
1984 to 1990, Mr. Gross was Vice President of Finance and Corporate Controller
for Calmark Development Corporation. Prior to 1984, Mr. Gross was associated
with Seidman and Seidman, Certified Public Accountants.

RICHARD D. BAKER has been President of the North Bay Division since 1991.
From 1983 to 1991, Mr. Baker worked as President and Vice President of Sales and
Marketing for the Northern California Division of Pulte Home Corporation. Prior
to that, Mr. Baker was Director of Marketing at Robertson Homes and General
Sales Manager at Broadmoor Homes. Mr. Baker is the Chairman of the Board of the
Northern California Building Industry Association.

DENIS G. CULLUMBER has been President of the South Coast Division since June
1995. He previously served as President of the Coastal Valley Division from 1991
to June 1995. From 1985 to 1991 he was a Senior Vice President for UDC Homes,
Inc., with responsibility for its Southern California operations from 1987. From
1980 to 1984, Mr. Cullumber was a Partner of Penstar, Inc., a homebuilding
company in Fresno, California.

STEVEN G. DELVA has been President of the South Bay Division since 1992.
From 1988 to 1992, he was Vice President of Forward Planning and Land
Acquisition for the Northern California division of the AM Operations. From 1977
to 1988, Mr. Delva was associated with the Writer Corporation, a Denver,
Colorado homebuilder. Mr. Delva currently serves as the South Bay Region
President of the Building Industry Association.

CHARLES J. DRAGICEVICH has been President of the Ventura Division since its
inception in 1995. Mr. Dragicevich joined the Company in 1993 where he served as
Senior Project Manager for the Coastal Valley Division. From 1988 to 1993, he
was a Division President for Griffin Homes with responsibility for its Los
Angeles and Ventura County Regions. Mr. Dragicevich is a board member and past
president of the Ventura County Building Industry Association.

TIMOTHY F. KENT has been President of the Las Vegas Division since December
1995. From February 1994 to December 1995, he was a Division President for the
Las Vegas Division of Inco Homes Corporation. From April 1993 to January 1994,
Mr. Kent was President of the Las Vegas Division of Beazer Homes. From September
1989 to April 1993, he was a President of Watt Nevada (which was acquired by
Beazer Homes).

DAVID M. KITNICK has been President of the Phoenix Division since December
1995. From November 1993 to December 1995, he was a Division President for the
Phoenix Division of Inco Homes Corporation. From 1986 to 1993, Mr. Kitnick held
several management positions at Ryland Homes, a subsidiary of The Ryland Group,
Inc. His most recent position there was as a manager of land resources for the
Phoenix Division.

TODD J. PALMAER has been President of the Coastal Valley Division since June
1995. Mr. Palmaer joined the Company in 1992 and he served first as Vice
President/Controller for the North Bay Division where he was also responsible
for land acquisitions. From 1985 to 1992, Mr. Palmaer served as Financial
Officer and Director of Joint Venture Operations for Pulte Homes.

JACK N. GRIGSBY has been Division President of PGC Financial Services since
its inception in 1993. From 1990 to 1993, he was a Director and Senior
Consultant to Prudential Real Estate Affiliates facilitating their

35
<PAGE>
establishment of nationwide mortgage loan origination capabilities. From 1983 to
1990, Mr. Grigsby was President and Chief Executive Officer of Coldwell Banker
Mortgage, a nationwide company that originated mortgage loans.

SIDNEY LAPIDUS is a Managing Director of E.M. Warburg, Pincus & Co., Inc.
("Warburg Pincus"), an affiliate of Warburg. Mr. Lapidus has been with Warburg
Pincus since 1967. Mr. Lapidus currently serves on the board of directors of
Renaissance Communications Corp. and Caribiner International, Inc., as well as a
number of private companies.

REUBEN S. LEIBOWITZ has been a Managing Director of Warburg Pincus since
1984. Prior to 1984, Mr. Leibowitz was a partner at Spicer and Oppenheim,
Certified Public Accountants. Mr. Leibowitz currently serves on the board of
directors of Chelsea GCA Realty, Inc. and Grubb & Ellis Company.

JOHN D. SANTOLERI has been a Managing Director of Warburg Pincus since
January 1996 and has been with Warburg Pincus since 1989. From 1985 to 1989, he
was associated with The Harlan Company. Mr. Santoleri currently serves on the
board of directors of Chelsea GCA Realty, Inc., Grubb & Ellis Company and
several private companies.

DAVID KAPLAN is a principal with the Autumn Hill Group, an investment
banking and advisory firm specializing in homebuilder services since January
1996. From 1991 to 1995, Mr. Kaplan was a principal with Victor Capital Group,
L.P. From 1976 to 1991, he was associated with The Harlan Company, Inc. Mr.
Kaplan currently serves on the board of directors of F.P.A., a New Jersey based
public homebuilder.

The Company will seek the appointment or election of at least one new member
of the Board of Directors of the Company who is not an officer or an employee of
the Company or any of its affiliates as soon as practicable.

TERM OF OFFICE OF DIRECTORS AND OFFICERS

Members of the Board of Directors currently hold office and serve until
their successors are elected and qualified. Certain directors are currently
nominated by various stockholder groups. Pursuant to the Shareholders' Agreement
(as defined below), Jack Harter and Antonio B. Mon are required to be elected
directors, Warburg can nominate three directors (currently Sidney Lapidus,
Reuben S. Leibowitz and John D. Santoleri), Jennings (as defined below) can
nominate one director (currently vacant) and Mr. Harter, Mr. Mon and Warburg may
jointly designate up to three other directors (currently only David Kaplan has
been designated). See "Description of Capital Stock--Shareholders' Agreement and
Registration Rights." Upon the consummation of this Offering, the Shareholders'
Agreement, as it relates to the election of directors, will be terminated. In
addition, upon consummation of the Offering, the Board of Directors will be
divided into three classes: Class I, Class II and Class III. Generally, each
director (other than those directors elected to fill vacancies on the Board)
will serve until the third annual meeting following the annual meeting at which
such director is elected and until his successor is elected and qualified.
Initially, the Class I directors will be Reuben S. Leibowitz and David Kaplan,
whose terms will expire at the annual meeting in 1997, the Class II directors
will be Sidney Lapidus and John D. Santoleri, whose terms will expire at the
annual meeting in 1998, and the Class III directors will be Jack R. Harter and
Antonio B. Mon, whose terms will expire at the annual meeting in 1999. Executive
officers are appointed by and serve at the discretion of the Board of Directors,
but subject to their employment agreements, if applicable. "See Employment
Contracts and Termination of Employment and Change-in-Control Arrangements"
below.

DIRECTORS COMPENSATION

The Company's outside board member is paid a $3,000 quarterly retainer plus
$850 for each meeting attended. All other directors serve without compensation.

Prior to the closing of the Offering, the Board of Directors and
stockholders of the Company will approve the Company's Amended and Restated 1995
Eligible Directors' Stock Option Plan to be effective upon consummation of the
Offering (the "Director Plan"). The purpose of the Director Plan is to promote
the success of the Company by providing an additional means through the grant of
stock options to attract, motivate and retain experienced and knowledgeable
Eligible Directors (as defined below). The Director

36
<PAGE>

Plan provides that upon becoming an Eligible Director, the director will receive
an option to purchase 5,000 shares of Common Stock and that annually thereafter
the Eligible Director will receive an option to purchase an additional 1,000
shares of Common Stock, in each case at an exercise price equal to the market
price of the Common Stock on the date of grant. The Board of Directors has
authorized 75,000 shares of Common Stock for issuance under the Director Plan.
Stock options granted under the Director Plan will expire five years after the
date of grant. If a person's service as a member of the Board of Directors
terminates, any unexercisable portion of the option shall terminate and the
option will terminate six months after the date of termination or the earlier
expiration of the option by its terms. Options generally vest over a three-year
period. Upon a Change in Control Event (as defined in the Director Plan), the
options will become fully exercisable. "Eligible Director" means a member of the
Board of Directors of the Company who as of the applicable date of grant is not
(i) an officer or employee of the Company or any subsidiary, or (ii) a person to
whom equity securities of the Company or an affiliate have been granted or
awarded within the prior year under or pursuant to any other plan of the Company
or an affiliate that provides for the grant or award of equity securities, or
(iii) an affiliate, associate or employee of either Warburg or Jennings Holdings
(USA). On August 3, 1995, stock options with respect to 14,282 shares were
granted to David Kaplan pursuant to the Director Plan. These stock options are
first exercisable on August 3, 1996 and expire August 2, 2000.

COMMITTEES OF THE BOARD OF DIRECTORS

The Bylaws of the Company provide that the Board of Directors may establish
committees from time to time. An Audit Committee and a Compensation Committee
have been established.

The Audit Committee reviews the Company's annual audit and meets with the
Company's independent auditors to review the Company's internal controls and
financial management practices. The Board's Audit Committee currently consists
of Sidney Lapidus, John D. Santoleri and David Kaplan. Upon the election or
appointment of a new director who is not an officer or employee of the Company
or any of its affiliates, that person will be appointed to the Audit Committee
and Mr. Lapidus, Mr. Santoleri or both will resign from the Audit Committee. The
Compensation Committee recommends compensation for certain of the Company's
personnel to the Board. The Compensation Committee currently consists of Reuben
S. Leibowitz and David Kaplan.

37
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth a summary of annual and long-term
compensation awarded to, earned by, or paid to the Chief Executive Officer of
the Company and each of the four most highly compensated executive officers of
the Company (other than the Chief Executive Officer) whose total annual salary
and bonus for the year ended December 31, 1995 was in excess of $100,000:

SUMMARY COMPENSATION TABLE (1)

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ---------------
OTHER ANNUAL RESTRICTED ALL OTHER
COMPENSATION STOCK AWARDS COMPEN-
NAME AND PRINCIPAL POSITION SALARY BONUS (2)(3)(4) (5) SATION (6)
- ----------------------------------- ---------- ------------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack R. Harter (7) 1995 $ 425,000 $ 482,000 $ 23,964 -- $ 77,064
Chairman, President and 1994 400,000 536,000 44,816 -- 52,310
Chief Executive Officer 1993 300,000 175,000(8) 11,714 -- 308,435
Antonio B. Mon (7) 1995 375,000 425,000 22,818 -- 77,076
Vice Chairman and 1994 350,000 469,000 27,314 -- 52,310
Chief Financial Officer 1993 250,000 150,000(8) 5,686 -- 139,382
Steven G. Delva 1995 184,198 109,058(9) 1,716 1,144 2,145
President, South Bay Division 1994 167,785 214,486(9) 5,674 8,510 2,310
1993 155,317 122,242(9) -- -- 1,179
Richard D. Baker 1995 186,996 97,022(9) 957 -- 2,032
President, North Bay Division 1994 175,192 120,579(9) 2,638 660 2,310
1993 170,192 10,000 -- -- 2,249
Denis G. Cullumber 1995 186,996 -- 1,669 -- 2,110
President, South Coast Division 1994 182,092 199,383(9) 2,844 698 2,310
1993 177,285 177,706(9) -- -- 2,056
</TABLE>

- ------------
(1) Amounts presented include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers.

(2) The amounts included in this column do not include the value of certain
perquisites which for each named individual do not exceed the lower of
$50,000 or 10% of their respective aggregate salary and bonus compensation
for either of the years reported.

(3) The amounts presented for certain officers include that portion of interest
earned on deferred compensation accounts above 120% of the applicable
federal rate. Mr. Harter and Mr. Mon also received payments to reimburse for
their taxes relating to certain employee benefits provided by the Company as
follows: Mr. Harter, $14,347 in 1995, $13,077 in 1994 and $11,714 in 1993;
and Mr. Mon $7,342 in 1995, $5,706 in 1994 and $5,686 in 1993.

(4) During 1994 and 1995, stock awards were issued to the named executives. The
dollar value of the vested portion of these awards was based on the number
of shares granted multiplied by the stock price. The stock price was
determined by an outside appraisal as of the grant date in 1994 and based
upon a recent stock transaction in 1995. For 1994, the number and dollar
value of shares are as follows: Mr. Harter - 20,974 shares ($31,428); Mr.
Mon - 13,743 shares ($20,593); Mr. Delva - 3,786 shares ($5,674); Mr. Baker
- 1,759 shares ($2,638); and Mr. Cullumber - 1,863 shares ($2,792). For
1995, Mr. Delva received 942 shares with a dollar value of $1,716.

(5) The number and dollar value of shares of restricted stock held on December
31, 1995 for Mr. Delva were 12,575 shares with a corresponding dollar value
of $91,396. During 1995, after giving effect to the non-restricted portion
of the stock award included in (4) above, Mr. Delva was issued 628 shares of
restricted stock vesting equally over two years. There is no dividend
component to any of these restricted shares. The dollar value per share of
restricted stock held on December 31, 1995 was based on a $7.27 book value
per share of common stock. Book value was used since no established market
existed

(FOOTNOTES CONTINUE ON NEXT PAGE)

38
<PAGE>
for the restricted stock. At December 31, 1995, the book value was
calculated by deducting the cumulative undeclared dividends on the Series A
Preferred before any assumed conversion on the Series C Preferred and the
cumulative undeclared dividends on Series C Preferred. Book value may not be
indicative of the market value of the Company's common stock that would be
achieved in an initial public offering.

(6) Includes contributions to a defined contribution plan on behalf of each
named officer. Additionally, in 1994 and 1995, the Company contributed
$50,000 and $75,000, respectively, to a non-qualified deferred compensation
plan in each of Mr. Harter's and Mr. Mon's name in accordance with their
employment contracts.

(7) In 1996, the Company terminated its existing employment agreements with
Messrs. Harter and Mon and entered into new employment agreements with them
which are applicable for 1996 and a specified number of years thereafter.
See "Employment Contracts and Termination of Employment and Change-
In-Control Arrangements" below.

(8) Under Mr. Harter's and Mr. Mon's employment agreements as in effect through
1993, Mr. Harter and Mr. Mon were entitled to receive guaranteed bonuses of
$350,000 and $300,000, respectively, relating to services performed in 1992
and 1993, payable on January 1, 1994 if they remained employed by the
Company on that date. The amounts included in the table constitute the
portion of the guaranteed bonuses attributable to 1993.

(9) A portion of the bonus included in the table is payable over three years and
is forfeited if the employee leaves the Company prior to the scheduled
payment date.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

Messrs. Harter and Mon have employment agreements with the Company,
effective January 1, 1996, which have terms of three years, subject to the right
of the employee to extend the term for one additional year, in each case unless
earlier terminated. The agreements provide for various benefits including a base
salary of $450,000 for 1996, $475,000 for 1997, $500,000 for 1998 and, if
applicable, $525,000 for 1999 for Mr. Harter and $400,000 for 1996, $425,000 for
1997, $450,000 for 1998 and, if applicable, $475,000 for 1999 for Mr. Mon.
Messrs. Harter and Mon will also each receive annual deferred compensation of
$75,000. The agreements provide that Messrs. Harter and Mon are entitled to
bonuses ranging from 50% to over 150% of their respective base salaries if
certain targeted levels of consolidated pretax income of the Company established
by the Compensation Committee are met. Messrs. Harter and Mon will also be
entitled to such other or additional bonuses as the Company's Board of Directors
deems appropriate. At the end of Mr. Mon's employment agreement, if the Company
and Mr. Mon do not enter into a new employment agreement, the Company will
employ Mr. Mon as a consultant for a three-year period at an annual compensation
of $150,000.

Under each employment agreement, in the event of a termination of the
employee's employment without cause, his Total Disability (as defined in the
agreements) or the employee resigns for "good reason" (as defined in the
agreements, which includes a resignation by the employee within nine months of,
among other events, a "change in control" (as defined below)), the employee is
entitled to receive, in addition to salary and bonuses accrued to the date of
termination, all amounts payable under the agreement as though such termination,
Total Disability or resignation for good reason had not occurred, in equal
monthly installments through December, 1999. A "change in control" occurs under
the agreements upon (i) approval by the stockholders of the Company of the
dissolution or liquidation of the Company; (ii) approval by the stockholders of
the Company of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities not a subsidiary of the Company, as a result
of which less than 50% of the outstanding voting securities of the surviving or
resulting entity immediately after the reorganization are, or will be, owned,
directly or indirectly, by stockholders of the Company immediately before such
reorganization (assuming for purposes of such determination that there is no
change in the record ownership of the Company's securities from the record date
for such approval until such reorganization and that such record owners hold no
securities of the other parties to such reorganization, but including in such
determination any securities of the other parties to such reorganization held by
affiliates of the Company); (iii) approval by the stockholders of the Company of
the sale, lease, conveyance or other disposition of all or substantially all of

39
<PAGE>
the Company's business and/or assets to a person or entity which is not a wholly
owned subsidiary of the Company; (iv) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), but excluding any person described in and satisfying the conditions of
Rule 13d-1(b)(1) thereunder), other than a person who is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of more than 20% of the
outstanding shares of Common Stock of the Company at the time of the execution
of the employment agreements (or an affiliate, successor, heir, descendent or
related party of or to any such person), becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 25% of the combined voting
power of the Company's then outstanding securities entitled to then vote
generally in the election of directors of the Company; or (v) a majority of the
Board of Directors of the Company not being comprised of Continuing Directors.
For purposes of this definition, "Continuing Directors" are persons who were (A)
members of the Board of Directors of the Company on the date of the employment
agreements or (B) nominated for election or elected to the Board of Directors of
the Company with the affirmative vote of at least a majority of the directors
who were Continuing Directors at the time of such nomination or election.

INCENTIVE COMPENSATION PLAN

The Company has established an incentive compensation plan for its corporate
and divisional management personnel (the "Incentive Compensation Plan"). This
plan generally provides for payments expressed as a percentage of a
participant's base compensation upon achievement of pre-agreed financial and
qualitative objectives. The bonus percentages are established annually by the
Compensation Committee of the Board of Directors. Bonuses can be tiered
depending upon individual, profit center and Company performance. Generally,
performance criteria are based on achievements of annual budgets, return on
equity and assets and, to a lesser degree, on subjective evaluations of
performance and individual relative contribution to the Company's goals and
objectives. A portion of any bonus over a specific amount will be paid out by
the Company over a three-year period and is subject to forfeiture if the
employee leaves the Company prior to the scheduled payment date.

STOCK OPTION PLAN

Prior to the closing of the Offering, the Company and its stockholders will
adopt the Company's 1996 Stock Option and Award Plan (the "Plan"). The Plan
provides a means to attract, motivate, retain and reward key employees of the
Company and its subsidiaries and promote the success of the Company. A maximum
of 790,000 shares of Common Stock (subject to certain anti-dilutive adjustments)
may be issued pursuant to grants and awards under the Plan. The maximum number
of shares that may be subject to all qualifying share-based awards, either
individually or in the aggregate, that during any calendar year are granted
under the Plan to any participant will not exceed 179,000 (subject to certain
anti-dilutive adjustments).

ADMINISTRATION AND ELIGIBILITY. The Plan will be administered by the
Compensation Committee, each member of which must be a Disinterested Director,
defined in the Plan as a member of the Board of Directors who was not, during
the year prior to appointment to the Compensation Committee or during the period
of service, granted or awarded equity securities pursuant to the Plan or any
other plan, except as permitted by Rule 16b-3 under the Securities Exchange Act
of 1934. The Plan empowers the Compensation Committee, among other things, to
interpret the Plan, to make all determinations deemed necessary or advisable for
the administration of the Plan and to award to officers and other key employees
of Company and its subsidiaries ("Eligible Employees"), as selected by the
Compensation Committee, options, including incentive stock options ("ISOs") as
defined in the Internal Revenue Code (the "Code"), stock appreciation rights
("SARs"), shares of restricted stock, performance shares and other awards valued
by reference to Common Stock, based on the performance of the participant, the
performance of the Company or its Common Stock and/or such other factors as the
Compensation Committee deems appropriate. The various types of awards under the
Plan are collectively referred to as "Awards." It is expected that after the
consummation of the Offering there will be approximately 50 officers and other
employees eligible to participate in the Plan.

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<PAGE>
TRANSFERABILITY. Generally speaking, Awards under the Plan are not
transferable other than by will or the laws of descent and distribution, are
exercisable only by the participant, and may be paid only to the participant or
the participant's beneficiary or representatives. However, the Compensation
Committee may establish conditions and procedures under which exercise by and
transfers and payments to certain third parties are permitted, to the extent
permitted by law.

OPTIONS. An option is the right to purchase shares of Common Stock at a
future date at a specified price. The option price is generally the closing
price for a share of Common Stock as reported on the New York Stock Exchange
("fair market value") on the date of grant, but may be a lesser amount if
authorized by the Compensation Committee. The Plan authorizes the Compensation
Committee to award options to purchase Common Stock at an exercise price which
may be less than 100% of the fair market value of such stock at the time the
option is granted, except in the case of ISOs.

An option may be granted as an incentive stock option, as defined in the
Code, or a nonqualified stock option. An ISO may not be granted to a person who,
at the time the ISO is granted, owns more than 10% of the total combined voting
power of all classes of stock of the Company and its subsidiaries unless the
option price is at least 110% of the fair market value of shares of Common Stock
subject to the option and such option by its terms is not exercisable after
expiration of five years from the date such option is granted. The aggregate
fair market value of shares of Common Stock (determined at the time the option
is granted) for which ISOs may be first exercisable by an option holder during
any calendar year under the Plan or any other plan of the Company or its
subsidiaries may not exceed $100,000. A nonqualified stock option is not subject
to any of these limitations.

The Plan permits optionees, with certain exceptions, to pay the exercise
price of options in cash, Common Stock (valued at its fair market value on the
date of exercise), a combination thereof or, if an option award so provides, by
delivering irrevocable instructions to a stockbroker to promptly deliver the
exercise price to the Company upon exercise (i.e., a so-called "cashless
exercise"). Cash received by the Company upon exercise will constitute general
funds of the Company and shares of Common Stock received by the Company upon
exercise will return to the status of authorized but unissued shares.

CONSIDERATION FOR AWARDS. Typically, the only consideration received by the
Company for the grant of an Award under the Plan will be the future services by
the optionee (as contemplated by the vesting schedule or required by agreement),
past services, or a combination thereof.

SARS. The Plan authorizes the Compensation Committee to grant SARs
independent of any other Award or concurrently (and in tandem) with the grant of
options. An SAR granted in tandem with an option is only exercisable when and to
the extent that the related option is exercisable. An SAR entitles the holder to
receive upon exercise the excess of the fair market value of a specified number
of shares of Common Stock at the time of exercise over the option price. This
amount may be paid in Common Stock (valued at its fair market value on the date
of exercise), cash or a combination thereof, as the Compensation Committee may
determine. The option granted concurrently with the SAR must be cancelled to the
extent that the appreciation right is exercised and the SAR must be cancelled to
the extent the option is exercised. SARs limited to certain periods of time
around a major event, such as a reorganization or change in control, may also be
granted under the Plan.

RESTRICTED STOCK. The Plan authorizes the Compensation Committee to grant
restricted stock to Eligible Employees on such conditions and with such
restricted periods as the Compensation Committee may designate. During the
restricted period, stock certificates evidencing the restricted shares will be
held by the Company or a third party designated by the Compensation Committee
and the restricted shares may not be sold, assigned, transferred, pledged or
otherwise encumbered.

PERFORMANCE SHARE AWARDS. The Compensation Committee may, in its
discretion, grant Performance Share Awards to Eligible Employees based upon such
factors, which includes but is not limited to the contribution, responsibility
and other compensation of the person, as the Compensation Committee deems
relevant in light of the specific type and terms of the Award. The amount of
cash or shares or other property that may be deliverable pursuant to these
Awards will be based upon the degree of attainment over a

41
<PAGE>
specified period of not more than ten years (a "performance cycle") as may be
established by the Compensation Committee of such measures of the performance of
the Company (or any part thereof) or the participant as may be established by
the Compensation Committee. The Compensation Committee may provide for full or
partial credit, prior to completion of a performance cycle or the attainment of
the performance achievement specified in the Award, in the event of the
participant's death, retirement, or disability, a Change in Control Event (as
defined in the Plan) or in such other circumstances as the Compensation
Committee may determine.

SPECIAL PERFORMANCE-BASED SHARE AWARDS. In addition to awards granted under
other provisions of the Plan, performance-based awards within the meaning of
Section 162(m) of the Code (in addition to Options and SARs granted at option
prices at above fair market value) and based on net earnings, cash flow, return
on equity or on assets, or other business criteria ("Other Performance-Based
Awards") relative to preestablished performance goals, may be granted under the
Plan. The specific performance goals relative to these business criteria must be
approved by the Compensation Committee in advance of applicable deadlines under
the Code and while the performance relating to the goals remains substantially
uncertain. The applicable performance measurement period may not be less than
one nor more than ten years. Performance goals may be adjusted to mitigate the
unbudgeted impact of material, unusual or nonrecurring gains and losses,
accounting changes or other extraordinary events not foreseen at the time the
goals were set.

The eligible class of persons for Other Performance-Based Awards is
executive officers of the Company. In no event may grants of this type of Award
in any fiscal year to any participant relate to more than 143,500 shares or $3.5
million if payable only in cash. Before any Other Performance-Based Award is
paid, the Committee must certify that the material terms of the Other
Performance-Based Award were satisfied. The Committee will have discretion to
determine the restrictions or other limitations of the individual Awards.

STOCK BONUSES. The Compensation Committee may grant a stock bonus to any
Eligible Employee to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the Compensation
Committee. The number of shares so awarded shall be determined by the
Compensation Committee and may be granted independently or in lieu of a cash
bonus.

OTHER AWARDS. The Plan provides that other awards, including units payable
in cash or shares and measured by the value of shares, the performance of the
participant or the performance of the Company, may be granted. Certain share
based awards payable only in cash are not now considered derivative securities
and will not reduce the number of shares available under the Plan. Some cash
only awards, however, such as SARs, will reduce the numbers of shares available
under the Plan. Subject to the provisions of the Plan, the Compensation
Committee has the sole and complete authority to determine the employees to whom
and the time or times at which such awards will be made, the number of shares
awarded and other conditions of the awards.

TERM AND EXERCISE PERIOD OF AWARDS. The Plan provides that awards may be
granted for such terms as the Compensation Committee may determine but not
greater than ten years after the date of the Award. The Plan does not impose any
minimum vesting period, post-termination exercise period or pricing requirement,
although in the ordinary course, customary restrictions will likely be imposed.
Options and SARs will generally be exercisable during the holder's employment by
the Company or by a related company and unearned restricted stock and other
Awards will generally be forfeited upon the termination of the holder's
employment prior to the end of the restricted or performance period. Generally
speaking, options which have become exercisable prior to termination of
employment will remain exercisable for three months thereafter (12 months in the
case of retirement, disability or death). Such periods, however, cannot exceed
the expiration dates of the Options. SARs have the same post-termination
provisions as the Options to which they relate. The Committee has the authority
to accelerate the exercisability of Options or (within the maximum ten-year
term) extend the exercisability periods.

TERMINATION, AMENDMENT AND ADJUSTMENT. The Plan may be terminated by the
Compensation Committee or by the Board of Directors at any time. In addition,
the Compensation Committee or the Board may amend the Plan from time to time,
without the authorization or approval of the Company's stockholders,

42
<PAGE>
unless that approval is required by law, agreement or the rules of any exchange
upon which the stock of the Company is listed. No Award may be granted under the
Plan after January 31, 2006, although Awards previously granted may thereafter
be amended consistent with the terms of the Plan.

Upon the occurrence of a Change in Control Event (as defined in the Plan),
in addition to acceleration of vesting, an appropriate adjustment to the number
and type of shares or other securities or property subject to an Award and the
price thereof may be made in order to prevent dilution or enlargement of rights
under Awards.

Individual awards may be amended by the Compensation Committee in any manner
consistent with the Plan, including amendments that effectively reprice options
without changes to other terms. Amendments that adversely affect the holder of
an Award, however, are subject to his or her consent.

The Plan is not exclusive and does not limit the authority of the Board of
Directors or the Compensation Committee to grant other awards, in stock or cash,
or to authorize other compensation, under any other plan or authority.

INITIAL GRANTS OF OPTIONS. The Company will grant certain options under the
Plan at the consummation of the Offering. The options will include options to
purchase 173,350 shares and 113,650 shares of Common Stock to be granted to Jack
R. Harter, Chairman, President and Chief Executive Officer, and Antonio B. Mon,
Vice Chairman and Chief Financial Officer, respectively. These options will have
a term of ten years, will vest in full six months after issuance and will remain
exercisable for the entire ten-year term, except in the case of termination for
cause, in which event the options will terminate immediately, or upon the
employee's resignation prior to June 30, 1996 for reasons other than "good
reason" (as defined), in which event one-half of the options will terminate one
year after such resignation. Options to purchase an aggregate of 287,000
additional shares are anticipated to be granted to other executive officers of
the Company, including Messrs. Delva, Baker and Cullumber. These options are
anticipated to have a term of ten years and to vest in equal annual installments
over three years. All these options will have an exercise price equal to the
initial price to the public in the Offering.

1996 EMPLOYEE STOCK PURCHASE PLAN

Prior to the closing of the Offering, the Company and its stockholders will
adopt the Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan"). A
total of 50,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan.

The Purchase Plan, which is intended to qualify under Section 423 of the
Code will be implemented by two six-month offering periods each year. The first
offering period is expected to commence approximately July 1, 1996. The Purchase
Plan will be administered by the Board of Directors or by a committee appointed
by the Board. Initially, the Purchase Plan will be administered by the
Compensation Committee. Employees (including officers and employee directors) of
the Company, or of any majority owned subsidiary designated by the Board, are
eligible to participate in the Purchase Plan if they are employed by the Company
or any such subsidiary for at least 20 hours per week and more than five months
per year. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's
compensation (including payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses, commissions and other cash
compensation), at a price equal to the lower of 95% of the fair market value of
the Company's Common Stock at the beginning of the offering period or at the
date of purchase. Employees may end their participation in the offering at any
time before 10 days prior to the end of the offering period, and participation
ends automatically on termination of employment with the Company.

The Purchase Plan provides that in the event of a merger of the Company with
or into another corporation or a sale of substantially all of the Company's
assets, each right to purchase stock under the Purchase Plan will be assumed or
an equivalent right substituted by the successor corporation unless the Board of
Directors shortens the offering period so that employees' rights to purchase
stock under the Purchase Plan are exercised prior to the merger or sale of
assets. The Board of Directors has the power to amend or terminate the Purchase
Plan as long as such action does not adversely affect any outstanding rights to
purchase stock thereunder. If not terminated earlier, the Purchase Plan will
have a term of ten years.

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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is comprised of Messrs. Leibowitz and Kaplan. The
compensation for Messrs. Harter and Mon was and will be set pursuant to their
employment agreements. See "Employment Contracts and Termination of Employment
and Change-In-Control Agreements" above. Prior to establishing the Compensation
Committee, the compensation levels and individual objectives for bonuses under
the Incentive Compensation Plan (see "Incentive Compensation Plan" above) for
the other executive officers of the Company were set by Mr. Harter.

CERTAIN TRANSACTIONS

Mr. Kaplan, a director of the Company, was a principal with Victor Capital
Group, L.P. in 1995. The Company engaged Victor Capital Group, L.P. to assist in
the development of the Company's long-term strategic plan. The Company made
payments totaling $160,000 for consulting services rendered in 1995. Concurrent
with the consummation of the Offering, the Company also proposes to declare
dividends on the Series A Preferred held by Mr. Harter, Mr. Mon and Warburg and
on the Series C Preferred held by Warburg. See "Dividends."

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock (assuming the redemption of
the Series A Preferred, the payment of accrued dividends on the Series A
Preferred and the conversion of the outstanding Series C Preferred and a portion
of the accrued dividends thereon as described under "Dividends") as of March 31,
1996, by (i) all those known by the Company to be beneficial owners of more than
5% of the Company's outstanding Common Stock, (ii) each director of the Company
and named executive officer of the Company and (iii) all directors and executive
officers of the Company as a group.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------- NUMBER OF ---------------------
NUMBER OF SHARES BEING NUMBER OF
NAME SHARES PERCENT OFFERED SHARES PERCENT
- ---------------------------------------------------- ---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Investors, L.P. (1)
466 Lexington Avenue
New York, New York 10017........................... 7,807,117 79.8% -- 7,807,117 54.4%
Home Capital Pty. Ltd. and Affiliates (2)
c/o Mr. Mark A. Korda
Arthur Andersen & Co.
The Tower, Melbourne Central
360 Elizabeth Street, Melbourne 3000
GPO Box 5151AA Melbourne 3001...................... 874,358 8.9% 437,100 437,258(3) 3.0%
Jack R. Harter and Antonio B. Mon, as Trustees under
Voting Trust Agreement (4)
c/o Pacific Greystone Corporation
6767 Forest Lawn Drive
Los Angeles, CA 90068.............................. 1,106,328 11.3% -- -- --
Jack R. Harter (5).................................. 363,677(6) 3.7% -- 363,677 2.5%
Antonio B. Mon (7).................................. 228,451(6) 2.3% -- 228,451 1.6%
Steven G. Delva..................................... 31,438(8) * -- 31,438 *
Richard D. Baker.................................... 36,009(8) * -- 36,009 *
Denis G. Cullumber.................................. 39,052(8) * -- 39,052 *
Sidney Lapidus (1).................................. -- -- -- -- --
</TABLE>

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

* Less than one percent

(TABLE CONTINUES ON NEXT PAGE)

44
<PAGE>

(1) The sole general partner of Warburg is Warburg, Pincus & Co., a New York
general partnership ("WP"). Lionel I. Pincus is the managing partner of WP
and may be deemed to control it. E.M. Warburg, Pincus & Company ("E.M.
Warburg"), a New York general partnership that has the same general partners
as WP, manages Warburg. WP has a 20% interest in the profits of Warburg and
through its wholly owned subsidiary, Warburg Pincus, owns 1.13% of the
limited partnership interests in Warburg. Sidney Lapidus, Reuben S.
Leibowitz and John D. Santoleri, directors of the Company, are Managing
Directors of Warburg Pincus and general partners of WP and E.M. Warburg. As
such, Messrs. Lapidus, Leibowitz and Santoleri may be deemed to have an
indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Exchange Act) in an indeterminate portion of the stock beneficially owned by
Warburg. Messrs. Lapidus, Leibowitz and Santoleri disclaim "beneficial
ownership" of the shares owned by Warburg within the meaning of Rule 13d-3
under the Exchange Act. Upon the consummation of the Offering, Warburg will
enter into an agreement with the Company pursuant to which Warburg will
agree that, so long as it owns more than 50% of the aggregate voting power
of the Company, Warburg will vote shares representing up to 50% of the
aggregate voting power of the Company on any matter in its discretion and
will vote any additional shares in the same proportion as the shares voted
by the other stockholders on that matter. That agreement will provide that
it may be terminated only with the approval of a majority of the directors
of the Company who are not officers, employees or partners of Warburg or the
Company and under certain other specified circumstances.

(2) Includes 439,122 shares of common stock beneficially owned by Home Capital
Pty. Ltd., 428,824 shares of common stock beneficially owned by Residential
Developments Pty., Ltd., and 6,412 shares of common stock beneficially owned
by Jennings Operations (USA) Inc., a wholly owned subsidiary of Home Capital
Pty. Ltd. (collectively, "Jennings"). Mark A. Korda of Arthur Andersen & Co.
has been appointed Receiver and Manager for Home Capital Pty. Ltd. and
Residential Developments Pty., Ltd. under the bankruptcy law of Australia.
In addition, Mr. Korda has been appointed as the sole director of Jennings
Operations (USA) Inc.

(3) These shares will be sold pursuant to the Underwriters' over-allotment
option if it is exercised for at least 437,258 shares.

(4) Includes shares subject to a Voting Trust Agreement, dated as of October 10,
1991, as amended (the "Voting Trust"), under which Jack R. Harter and
Antonio B. Mon act as Voting Trustees and share voting power. The Voting
Trust will be terminated upon consummation of the Offering.

(5) All of these shares are subject to the Voting Trust. Does not include
148,252 shares of common stock held by irrevocable trusts for the benefit of
his daughters, over which Mr. Harter has no dispositive power, however all
of these shares are subject to the Voting Trust. See footnote (4).

(6) Messrs. Harter and Mon may be deemed to be the beneficial owners of the
shares held by the Voting Trust.

(7) All of these shares are subject to the Voting Trust. Does not include
111,546 shares of common stock held by an irrevocable trust for the benefit
of his children, over which Mr. Mon has no dispositive power, however all of
these shares are subject to the Voting Trust. See footnote (4).

(8) All of these shares are subject to the Voting Trust. See footnote (4).

(9) See footnotes (1) through (7) above.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon the completion of the Offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock and 5,000,000 shares
of undesignated Preferred Stock after giving effect to the redemption of the
Series A Preferred and the payment of the accrued dividends thereon and the
conversion of the Series C Preferred and a portion of the accrued dividends
thereon into Common Stock, which will occur upon the consummation of the
Offering.

COMMON STOCK

As of March 31, 1996, there were 9,787,803 shares of Common Stock
outstanding (as adjusted to reflect the issuance of Common Stock in payment of a
portion of the accrued dividends on the Series A Preferred and the conversion of
the outstanding Series C Preferred and a portion of the accrued dividends
thereon into Common Stock as described under "Dividends"), held of record by six
stockholders, and stock options to purchase an aggregate of 14,282 shares of
Common Stock were also outstanding.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See
"Dividends." In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and satisfaction of preferential rights
of any outstanding Preferred Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights. The outstanding shares of Common
Stock are, and the shares of Common Stock to be issued upon completion of this
offering will be, fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors is authorized to issue the Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deterring or preventing a change in
control of the Company without further action of the stockholders. The issuance
of Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others.

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

Amendments to the Company's Certificate of Incorporation will be effective
upon the closing of the Offering, which, among other things, will establish a
classified board (see "Management--Terms of Office of Directors and Officers")
and will require that any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by a consent in writing. In
addition, the Certificate of Incorporation and Bylaws of the Company, as
amended, will require that stockholders give advance notice to the Company's
Secretary of any directorship nominations or other business to be brought by
stockholders at any stockholders' meeting. The Certificate of Incorporation also
will require the approval of 75% of the Company's voting stock to amend certain
provisions of the Certificate of Incorporation. These provisions may have the
effect of deterring hostile takeovers or delaying changes in control or
management of the Company. See "Management."

SHAREHOLDERS' AGREEMENT AND REGISTRATION RIGHTS

The Company and all of its stockholders have entered into a First Amended
and Restated Shareholders' Agreement and Irrevocable Proxy, dated as of
September 28, 1992, as amended (the "Shareholders' Agreement"). The
Shareholders' Agreement provides, among other things, for the manner of election
of directors, requirements for supermajority votes by the Board of Directors to
take certain actions, certain preemptive rights of stockholders and the
treatment of shares held by the management of the Company ("Management
Shareholders"). Upon the consummation of this Offering, all of these provisions
of the Shareholders' Agreement will terminate.

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<PAGE>

Subsequent to this Offering, the provisions of the Shareholders' Agreement
with respect to a right of first refusal under certain circumstances in favor of
the Company with respect to the Common Stock held by Jennings and certain
registration rights of the parties to the Shareholders' Agreement will continue.
After consummation of this Offering, the parties to the Shareholders' Agreement
will hold 9,350,703 shares of Common Stock (assuming the payment of the accrued
dividends on the Series A Preferred and the conversion of the Series C Preferred
and a portion of the accrued dividends thereon as described under "Dividends").
If the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of other securityholders
(including for the account of Warburg as discussed below), the parties to the
Shareholders' Agreement are entitled to include their shares of Common Stock in
the registration statement, subject to certain conditions and limitations. This
right to include shares of Common Stock will not apply to registration
statements of the Company relating to certain stock option, purchase or
incentive plans, any dividend reinvestment plan, or certain merger or exchange
transactions. In addition, Warburg has the right at any time subsequent to the
consummation of the Offering, to require the Company to register its shares of
Common Stock under the Securities Act. Warburg is entitled to three (3) such
requested registrations. The right of Warburg to sell securities immediately
after the Offering is subject to the lock-up agreement restricting sale for 180
days after the date of this Prospectus. See "Shares Eligible For Future Sale"
and "Underwriting."

TRANSFER AGENT OR REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Bank of Boston. Its
telephone number is (617) 575-2000.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 14,350,703 shares of
Common Stock outstanding (assuming no exercise of any outstanding options and
the payment of the accrued dividends on the Series A Preferred and the
conversion of the Series C Preferred and a portion of the accrued dividends
thereon as described under "Dividends"). The 5,000,000 shares sold in this
Offering (5,675,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction under the
Securities Act, except for shares held by an "affiliate" of the Company, as such
term is defined under Rule 144 of the Securities Act. The remaining 9,350,703
shares (the "Restricted Shares") were issued and sold by the Company in private
transactions and may be publicly sold only if registered under the Securities
Act or sold in accordance with an applicable exemption from registration, such
as Rule 144.

All of the shares of Common Stock held by existing stockholders are subject
to lock-up agreements (as described below) which restrict their sale prior to
180 days from the date of this Prospectus. A total of approximately 9,350,703
shares subject to these lock-up agreements will become eligible for sale
beginning 180 days from the date of this Prospectus, or earlier in the
discretion of Smith Barney Inc., upon expiration of these agreements, of which
8,913,445 shares may be sold in accordance with Rule 144 and 437,258 shares held
by Jennings may be sold without restriction in reliance on Rule 144(k). Jennings
has agreed with the Company that if all or any part of the 437,258 shares held
by it are not purchased pursuant to the Underwriters' over-allotment option (the
"Jennings Remaining Shares"), for a period of 180 days after the end of the
180-day lock-up period, Jennings will not offer, sell, contract to sell or
otherwise dispose of more than one-half of the Jennings Remaining Shares in any
90-day period.

In general, under Rule 144 as currently in effect, after this Offering (but
subject to the lock-up agreements described below), a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares as to which
two years have elapsed between the later of the date of acquisition of the
securities from the Company or from an affiliate of the Company, is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of 1% of the then-outstanding number of shares of Common Stock (143,507
shares immediately after this Offering) or the average weekly trading volume of
the Common Stock on The New York Stock Exchange during the four calendar weeks
preceding the sale. Sales under Rule 144 are subject to certain "manner of sale"
provisions and notice requirements and to the availability of current public
information about the Company. Rule 144(k) provides that a person who is not
deemed to have been an "affiliate" during the 90 days preceding a sale, and who
beneficially owns Restricted

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<PAGE>
Shares as to which three years have elapsed since the later of the date of
acquisition of the security from the Company or from an affiliate of the
Company, is entitled to sell the shares under Rule 144 without regard to the
limitations described above. The Securities and Exchange Commission has proposed
to reduce the Rule 144 holding periods. If enacted, these modifications will
have a material effect on the timing of when shares of the Common Stock become
eligible for resale.

Holders of 9,350,703 shares of Common Stock after the Offering will also be
entitled to certain registration rights with respect to shares of Common Stock.
See "Description of Capital Stock--Shareholders' Agreement and Registration
Rights."

The Company, and its executive officers, directors and stockholders have
agreed that, for a period of 180 days from the date of this Prospectus, they
will not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock of the
Company or any securities convertible into, or exercisable or exchangeable for,
any class of Common Stock of the Company, other than by the Company pursuant to
its existing employee benefit plans.

The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that sales of
shares by stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices.

48
<PAGE>
UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc.....................................................................................
Morgan Stanley & Co. Incorporated....................................................................
Robertson, Stephens & Company LLC....................................................................
----------
Total............................................................................................ 5,000,000
----------
----------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., Morgan Stanley & Co.
Incorporated and Robertson, Stephens & Company LLC are acting as
Representatives, propose to offer part of the shares directly to the public at
the public offering price set forth on the cover page of this Prospectus and
part of the shares to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the Offering, the public
offering price and such concessions may be changed by the Underwriters. The
Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm any shares to any accounts over which they
exercise discretionary authority.

The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to 675,000 additional shares of Common Stock at the price to the public set
forth on the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the offering of the shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table. If the option is exercised, shares will be
purchased first from the Selling Stockholders, up to an aggregate of 437,258
shares, and any remaining shares will be purchased from the Company.

Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in this Offering has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for growth
of the Company's revenues and earnings, the current state of the economy in the
United States and

49
<PAGE>
California and the current level of economic activity in the industry in which
the Company competes and in related or comparable industries, and currently
prevailing conditions in the securities markets, including current market
valuations of publicly traded companies which are comparable to the Company.

The Company and the Selling Stockholders, on the one hand, and the
Underwriters, on the other hand, have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by O'Melveny & Myers, Los Angeles, California. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Gibson,
Dunn & Crutcher LLP, Los Angeles, California.

EXPERTS

The consolidated financial statements of the Company at December 31, 1994
and 1995, and for each of the three years in the period ended December 31, 1995
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. Certain items are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits filed as a part hereof. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance, if
such contract or document is filed as an exhibit, reference is made to the copy
of such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference to such
exhibit. The Company is currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, except the proxy requirements,
and files reports and other information with the Commission. The Registration
Statement, including exhibits thereto, as well as the reports and other
information filed by the Company with the Commission, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, NY
10048, and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission.

The Company will issue to its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited financial statements and a report of its
independent auditors with respect to the examination of such financial
statements.

50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----
Report of Independent Auditors............................................ F-2
Consolidated Statements of Income for the years ended December 31, 1993,
1994 and 1995............................................................ F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995.............. F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Statements of Income for the three months ended
March 31, 1995 and 1996 (unaudited)...................................... F-16
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996
(unaudited).............................................................. F-17
Consolidated Statements of Cash Flows for the three months ended
March 31, 1995 and 1996 (unaudited)...................................... F-18
Notes to Unaudited Consolidated Financial Statements...................... F-19

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Pacific Greystone Corporation

We have audited the accompanying consolidated balance sheets of Pacific
Greystone Corporation as of December 31, 1994 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pacific
Greystone Corporation at December 31, 1994 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Los Angeles, California
January 24, 1996

F-2
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues.................................................... $ 172,830 $ 260,185 $ 293,921
Cost of sales............................................... (144,395) (215,437) (247,827)
--------- --------- ---------
Gross margin................................................ 28,435 44,748 46,094
Equity in pretax income of unconsolidated joint ventures.... 1,096 2,581 1,742
Selling, general and administrative expenses................ (19,521) (29,059) (31,468)
Interest and other, net..................................... 32 388 1,162
--------- --------- ---------
Pretax income............................................... 10,042 18,658 17,530
Provision for income taxes.................................. (3,966) -- (2,512)
--------- --------- ---------
Net income.................................................. $ 6,076 $ 18,658 $ 15,018
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes.

F-3
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Cash and cash equivalents................................... $ 36,026 $ 41,254
Escrow proceeds receivable.................................. 799 8,040
Housing inventories......................................... 207,900 215,043
Deferred tax asset.......................................... 18,010 15,498
Other assets................................................ 12,444 10,135
-------- --------
Total assets............................................ $275,179 $289,970
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities.................... $ 24,441 $ 26,738
Notes payable............................................. 14,899 12,337
Senior unsecured notes payable............................ 125,000 125,000
-------- --------
Total liabilities....................................... 164,340 164,075

Shareholders' equity:
Series A cumulative senior preferred stock................ 44,747 44,747
Series C cumulative convertible preferred stock........... 20,000 20,000
Common stock, $.01 par value; 5,000,000 shares authorized,
4,081,413 shares issued and outstanding in 1994 and
1995..................................................... 41 41
Additional paid-in capital................................ 27,860 27,898
Retained earnings......................................... 18,191 33,209
-------- --------
Total shareholders' equity.............................. 110,839 125,895
-------- --------
Total liabilities and shareholders' equity............ $275,179 $289,970
-------- --------
-------- --------
</TABLE>

See accompanying notes.

F-4
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CUMULATIVE CUMULATIVE CUMULATIVE RETAINED
SENIOR CONVERTIBLE CONVERTIBLE ADDITIONAL EARNINGS
PREFERRED PREFERRED PREFERRED COMMON PAID-IN DEFERRED (ACCUMULATED
STOCK STOCK STOCK STOCK CAPITAL COMPENSATION DEFICIT) TOTAL
---------- ---------- ---------- ------ ---------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992... $44,747 $ 25,592 $20,000 $15 $ 2,198 $(308) $(6,543) $ 85,701
Amortization of deferred
compensation and retirement of
common stock.................. -- -- -- -- (31) 163 -- 132
Net income for 1993............ -- -- -- -- -- -- 6,076 6,076
---------- ---------- ---------- ------ ---------- ----- ------------ --------
Balance at December 31, 1993... 44,747 25,592 20,000 15 2,167 (145) (467) 91,909
Conversion of Series B
cumulative convertible
preferred stock............... -- (25,592) -- 25 25,567 -- -- --
Issuance of additional common
stock......................... -- -- -- 1 126 -- -- 127
Amortization of deferred
compensation.................. -- -- -- -- -- 145 -- 145
Net income for 1994............ -- -- -- -- -- -- 18,658 18,658
---------- ---------- ---------- ------ ---------- ----- ------------ --------
Balance at December 31, 1994... 44,747 -- 20,000 41 27,860 -- 18,191 110,839
Repurchase and issuance of
common stock.................. -- -- -- -- 38 -- -- 38
Net income for 1995............ -- -- -- -- -- -- 15,018 15,018
---------- ---------- ---------- ------ ---------- ----- ------------ --------
Balance at December 31, 1995... $44,747 $ -- $20,000 $41 $27,898 $-- $33,209 $125,895
---------- ---------- ---------- ------ ---------- ----- ------------ --------
---------- ---------- ---------- ------ ---------- ----- ------------ --------
</TABLE>

See accompanying notes.

F-5
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 6,076 $ 18,658 $ 15,018

Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 641 978 764
Reduction of deferred tax asset valuation allowance....... -- (7,496) (4,500)
Deferred portion of provision for income taxes............ 3,966 7,496 7,012
Equity in pretax income of unconsolidated joint
ventures................................................. (1,096) (2,581) (1,742)

Changes in operating assets and liabilities:
Escrow proceeds receivable................................ (1,520) 721 (7,241)
Housing inventories....................................... 8,364 (58,749) 1,996
Other assets.............................................. (491) (5,488) (1,185)
Accounts payable and other liabilities.................... 2,114 5,843 2,297
-------- -------- --------
Net cash provided by (used in) operating activities......... 18,054 (40,618) 12,419
INVESTING ACTIVITIES:
Distributions from (contributions to) unconsolidated joint
ventures................................................... (1,226) 4,219 4,510
-------- -------- --------
Net cash provided by (used in) investing activities......... (1,226) 4,219 4,510
FINANCING ACTIVITIES:
Proceeds from revolving credit facility..................... 50,610 5,573 36,000
Repayments of revolving credit facility..................... (72,277) (27,241) (39,000)
Proceeds from notes payable................................. 52,384 25,600 5,113
Repayments of notes payable................................. (61,134) (83,493) (13,814)
Proceeds from issuance of senior unsecured notes payable.... -- 125,000 --
-------- -------- --------
Net cash provided by (used in) financing activities......... (30,417) 45,439 (11,701)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (13,589) 9,040 5,228
Cash and cash equivalents at beginning of year.............. 40,575 26,986 36,026
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 26,986 $ 36,026 $ 41,254
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Housing inventories acquired through seller financing....... $ 9,194 $ 12,973 $ 9,139
-------- -------- --------
-------- -------- --------
</TABLE>

See accompanying notes.

F-6
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. FORMATION OF COMPANY
Pacific Greystone Corporation (the "Company") is a leading regional builder
of high quality, single family homes primarily targeted to first time and
move-up homebuyers in infill and emerging markets located throughout Northern
and Southern California as well as Las Vegas, Nevada and Phoenix, Arizona. The
Company also provides mortgage brokerage services to its customers.

The Company was founded on October 10, 1991 by senior management and
Warburg, Pincus Investors, L.P. On September 30, 1992, the Company acquired the
California homebuilding operations of A-M Homes (the "AM Operations"). Since
inception, the Company has expanded its presence in Northern and Southern
California through start-up operations in new markets. In December 1995, the
Company expanded into the Las Vegas, Nevada and Phoenix, Arizona markets through
the acquisition of seven residential projects from another homebuilder.

2. ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries and controlled joint venture. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in joint ventures which are not effectively controlled by the
Company are accounted for using the equity method. The accounting policies of
the joint ventures are substantially the same as those of the Company.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company estimates that
the market value of these investments approximates their book value.

HOUSING INVENTORIES

Housing inventories are stated at the lower of cost or estimated net
realizable value for each project. Estimated net realizable value is based upon
management's evaluation of the net sales proceeds anticipated in the normal
course of business, less estimated costs to complete or improve the property to
the condition used in determining the estimated selling price given current
economic conditions and those expected throughout the development and selling
period. Management's assessment of net realizable value incorporates a thorough
assessment of the Company's liquidity and capital resources. For the years ended
December 31, 1993, 1994 and 1995, cost of sales included approximately $865,000,
$2,000,000 and $1,900,000, respectively, for reductions in housing inventories
to net realizable value.

Housing revenues are recognized when homes are completed and ownership has
transferred to the customer. Cost of sales is comprised of direct and allocated
costs including estimated future costs for warranty. Land, land improvements and
other common costs are generally allocated to units within a project.
Development costs include interest and other carrying costs incurred until
development is substantially complete.

INCOME TAXES

The Company accounts for income taxes using Statement of Financial
Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes." Among other
things, SFAS No. 109 requires the liability method and that current and deferred
tax balances be determined based on tax rates and laws enacted as of the balance
sheet date rather than the historical tax rates. See Note 7.

F-7
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

Historical per share data in accordance with Accounting Principles Board
Opinion No. 15, "Earnings Per Share," is excluded from the Company's financial
statements since such per share data is not indicative of the continuing capital
structure of the Company. See Note 12.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" which requires impairment losses to be recorded on long-lived
assets held and used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. The Company's adoption of SFAS No. 121, which
is required in 1996, is not expected to have a material impact on the Company's
consolidated financial statements.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to current year
presentation.

3. HOUSING INVENTORIES
As of December 31, 1994 and 1995, the finished homes and completed model
portion of housing inventories was approximately $35,932,000 and $52,519,000,
respectively. An analysis of interest incurred is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
--------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest incurred............................................................... $ 7,225 $ 14,716 $ 15,895
Less: interest capitalized...................................................... (6,788) (14,170) (15,761)
--------- ---------- ----------
Net interest expense............................................................ $ 437 $ 546 $ 134
--------- ---------- ----------
--------- ---------- ----------
Interest paid................................................................... $ 7,590 $ 10,383 $ 16,006
--------- ---------- ----------
--------- ---------- ----------
Amortization of capitalized interest included in cost of sales.................. $ 4,424 $ 9,140 $ 14,926
--------- ---------- ----------
--------- ---------- ----------
</TABLE>

F-8
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Summarized combined financial information of the Company's investments in
unconsolidated joint ventures accounted for using the equity method is as
follows:

SUMMARY COMBINED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.................................................................... $ 8,391 $ 4,001
Housing inventories.......................................................................... 25,546 119
Other assets................................................................................. 647 338
--------- ---------
Total assets............................................................................... $ 34,584 $ 4,458
--------- ---------
--------- ---------

LIABILITIES AND EQUITY
Liabilities.................................................................................. $ 24,960 $ 1,920
Equity:
The Company................................................................................ 3,048 280
Others..................................................................................... 6,576 2,258
--------- ---------
Total liabilities and equity............................................................. $ 34,584 $ 4,458
--------- ---------
--------- ---------
</TABLE>

SUMMARY COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues...................................................................... $ 33,435 $ 92,629 $ 43,689
Cost of sales................................................................. (31,058) (85,316) (38,915)
---------- ---------- ----------
Gross margin.................................................................. 2,377 7,313 4,774
Selling, general and administrative expenses.................................. (1,786) (3,571) (1,595)
Interest and other, net....................................................... 38 145 78
---------- ---------- ----------
Pretax income................................................................. $ 629 $ 3,887 $ 3,257
---------- ---------- ----------
---------- ---------- ----------
The Company's share of pretax income.......................................... $ 1,096 $ 2,581 $ 1,742
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The Company's interest in earnings of its joint venture investments ranges
from 25% to 50%. The joint venture agreements generally provide that the first
cash distributions from operations are to be distributed to repay capital
contributions, loans or advances and thereafter all cash is to be distributed in
accordance with the earnings and loss sharing ratios.

The Company receives a fee for management services it renders to its joint
ventures. The fees are intended to compensate the Company for its efforts on
behalf of the joint ventures and are included in the Company's revenues. The
amount of management fees recognized for the years ended December 31, 1993, 1994
and 1995 is approximately $1,421,000, $2,139,000 and $1,005,000, respectively.

The Company guarantees, on an unsecured basis, certain debt of its joint
ventures which is secured by land and improvements. At December 31, 1994 and
1995, approximately $7,370,000 and $325,000, respectively, was guaranteed by the
Company.

F-9
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. NOTES PAYABLE
Notes payable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Unsecured revolving credit facility......................................................... $ 3,000 $ --
Notes secured by trust deeds; interest payable at 8% to 10%................................. 7,767 10,287
Assessment bond liabilities; interest payable at 6.0% to 7.9%............................... 4,132 2,050
--------- ---------
$ 14,899 $ 12,337
--------- ---------
--------- ---------
</TABLE>

Terms under the unsecured revolving credit facility (the "Facility") dated
June 28, 1994 provide for a total commitment not to exceed $60,000,000. The
Facility matures June 30, 1997 and includes a provision for a 12-month
amortization of outstanding principal starting June 30, 1996. Interest is
payable monthly at a bank reference rate plus 1%. A quarterly commitment fee of
.125% on the unused portion is payable quarterly in arrears. The Facility
provides for various covenants and restrictions, including minimum liquidity and
net worth requirements and limitations on the amount of debt to equity. The
Company is able to draw against the Facility based on housing inventory
borrowing base levels. The Company is not required to pay down the line from
each home closing. The Company had $57,000,000 and $60,000,000 available under
the Facility for future use at December 31, 1994 and 1995, respectively.

On July 24, 1995, the Company amended the Facility to allow the Company to
select an interest rate based on the level of outstanding borrowings at either a
bank reference rate plus 0.5% to 1% or the London Interbank Offered Rate plus 2%
to 2.5%; substantially all other provisions in the Facility remain unchanged.

Housing inventories having a carrying value of $17,493,000 and $25,478,000
at December 31, 1994 and 1995, respectively, are pledged to collateralize
secured loans. The Company estimates that the market value of its notes payable
approximates their stated book value.

Principal payments on the above notes are due as follows: 1996, $3,415,000;
1997, $8,292,000; 1998 to 2000, $30,000 each year; and $540,000 thereafter. The
Company's weighted average interest rate on short-term borrowings was 9.6% and
8.0% as of December 31, 1994 and 1995, respectively.

6. SENIOR UNSECURED NOTES PAYABLE
On March 10, 1994, the Company, through its wholly owned subsidiary,
Greystone Homes, Inc. ("Greystone"), sold in a private placement $125,000,000
aggregate principal amount of 10 3/4% Senior Notes (the "Notes"). The Notes were
subsequently registered with the Securities and Exchange Commission.

The Notes are due March 1, 2004 with interest payable semi-annually. The
Company may, at its option, redeem the Notes, in whole or in part, at any time
on or after March 1, 1999, initially at 105.375% of the principal amount
thereof, declining to 100% of the principal amount thereof on or after March 1,
2001. The Notes are general unsecured senior obligations of Greystone, ranking
pari passu in right of payment with all existing and future unsecured
indebtedness that is not, by its terms, expressly subordinated in right of
payment to the Notes. The Notes contain certain restrictive covenants including
limitations on additional indebtedness. The indentures with respect to the Notes
limit the ability of Greystone to pay cash dividends or make loans and advances
to the Company. Under the terms of the indentures, Greystone could pay cash
dividends or make loans or advances to the Company in an amount of $23,600,000
and $31,500,000 at December 31, 1994 and 1995, respectively. The Notes are fully
and unconditionally guaranteed by the Company.

F-10
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES
Included in the table below is the provision for income taxes:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax expense:
Federal......................................................................... $ (3,360) $ (6,360) $ (6,005)
State........................................................................... (606) (1,136) (1,007)
Reduction in valuation allowance.................................................. -- 7,496 4,500
--------- --------- ---------
Provision for income taxes........................................................ $ (3,966) $ -- $ (2,512)
--------- --------- ---------
--------- --------- ---------
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The purchase of the AM
Operations was structured to retain the original tax basis of the assets
acquired which was approximately $79,000,000 greater than their fair market
value. The significant components of the Company's deferred tax asset are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Remaining difference between assigned value and tax basis of AM Operations' assets,
primarily housing inventories.............................................................. $ 11,106 $ 4,022
Net operating loss and capital loss carryforwards, tax effected............................. 7,320 8,911
Book accruals not deductible for tax purposes............................................... 3,120 2,315
Other temporary differences, primarily housing inventories.................................. 2,464 1,750
--------- ---------
Deferred tax asset.......................................................................... 24,010 16,998
Valuation allowance......................................................................... (6,000) (1,500)
--------- ---------
Net deferred tax asset...................................................................... $ 18,010 $ 15,498
--------- ---------
--------- ---------
</TABLE>

At December 31, 1995, the Company had, for federal and California tax
purposes, net operating loss carryforwards ("NOLs") totaling $21,319,000 and
$9,606,000, respectively (expiring in the years 2006 through 2010 for federal
and 1997 through 1999 for California). The Company intends to utilize the
estimated tax benefit of the NOLs by offsetting future federal and California
taxable income. At December 31, 1994 and 1995, the Company had no significant
deferred tax liabilities.

SFAS No. 109 requires the reduction of the deferred tax asset by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that a portion or all of the deferred tax asset will not be realized. For
the years ended December 31, 1994 and 1995, the Company reduced its valuation
allowance by $7,496,000 and $4,500,000, respectively, due to the increased
visibility of anticipated future income. At December 31, 1995, the Company has
established a $1,500,000 valuation allowance for capital loss carryforwards
which currently are not expected to be utilized. Based on the weight of
available evidence, in the opinion of the Company's management, the Company will
more likely than not generate sufficient taxable income to fully utilize the net
deferred tax asset.

F-11
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations
computed at the applicable statutory tax rates to income tax expense is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rate........................................................ $ (3,414) $ (6,530) $ (6,135)
State income taxes, net of federal tax benefit.................................... (623) (1,138) (1,007)
Reduction in valuation allowance.................................................. -- 7,496 4,500
Other............................................................................. 71 172 130
--------- --------- ---------
Total income tax expense.......................................................... $ (3,966) $ -- $ (2,512)
--------- --------- ---------
--------- --------- ---------
</TABLE>

8. PREFERRED STOCK

In conjunction with the issuance of the Notes, the holders of the Series B
cumulative convertible preferred stock ("Series B Preferred") converted the
2,559,260 shares of Series B Preferred then outstanding into common shares on a
share-for-share basis. There were no dividends declared or paid on the Series B
Preferred.

Effective March 1, 1994, the dividend rate on the Series A cumulative senior
preferred stock ("Series A Preferred") was increased from 10% to 11%. The Series
A Preferred has a $.01 par value with 5,100,000 shares authorized and 4,474,706
shares issued and outstanding at December 31, 1993, 1994 and 1995. Dividends are
compounded annually and are payable when declared by the Board of Directors. At
December 31, 1993, 1994 and 1995, there were cumulative undeclared dividends on
the outstanding shares of approximately $6,907,000, $12,503,000 and $18,801,000,
respectively. The Series A Preferred may be redeemed in whole or in part at any
time at the option of the Company at $10.00 per share plus accrued and
undeclared dividends.

Also effective March 1, 1994, the sinking fund requirement on the Series C
cumulative convertible preferred stock ("Series C Preferred") was removed and
the holders of the Series C Preferred were granted the option to convert the
Series C Preferred, plus all accrued but unpaid dividends thereon, into common
stock upon an initial public offering at a price equal to 80% of the price to
the public in the initial public offering. The Series C Preferred has a $.01 par
value with 2,000,000 shares authorized, issued and outstanding at December 31,
1993, 1994 and 1995. The Series C Preferred earns dividends at 12% of original
issuance price per annum from the date of issuance, September 29, 1992.
Dividends are compounded annually and are payable when declared by the Board of
Directors. At December 31, 1993, 1994 and 1995, there were cumulative undeclared
dividends on the outstanding shares of approximately $3,087,000, $5,857,000 and
$8,960,000, respectively. The Series C Preferred may be redeemed in whole or in
part at any time at the option of the Company at $10.00 per share plus accrued
and undeclared dividends.

Dividends on the Series A Preferred and Series C Preferred are cumulative
and must be paid in the event of liquidation and before any distribution to
holders of common stock.

9. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements to lease certain office facilities
under operating leases which expire at various dates through 1998. Future
minimum payments under the noncancelable leases having an initial or remaining
term in excess of one year are as follows: 1996, $1,172,000; 1997, $967,000;
1998, $106,000; and 1999, $25,000. Total rent expense for the years ended
December 31, 1993, 1994, and 1995, was $957,000, $969,000 and $877,000,
respectively.

F-12
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1994 and 1995, the Company has outstanding performance bonds
with an estimated potential obligation of $19,260,000 and $20,117,000,
respectively, to the Company related principally to its obligations for site
improvements at various projects. The Company does not believe that any such
bonds are likely to be drawn upon.

David Kaplan, a director of the Company, was a principal with Victor Capital
Group, L.P. in 1995. The Company engaged Victor Capital Group, L.P. to assist in
the development of the Company's long-term strategic plan. The Company made
payments totaling $160,000 for consulting services rendered in 1995.

Commitments and contingencies include the usual obligations of housing
producers for the completion of contracts and those incurred in the ordinary
course of business. The Company is also involved in routine litigation arising
in the ordinary course of its business. In the opinion of the Company's
management, none of the pending litigation will have a material adverse effect
on the Company's consolidated financial condition or results of operations.

10. SUPPLEMENTAL INFORMATION ON GREYSTONE HOMES, INC.
Summarized consolidated financial information for Greystone is presented
below. In accordance with the Company's management agreement, corporate general
and administrative expenses are allocated based upon the gross revenues of the
companies. Such allocation of corporate general and administrative expenses is
included in Greystone's selling, general and administrative expenses presented
below.

GREYSTONE HOMES, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................................. $ 26,579 $ 31,973
Escrow proceeds receivable................................................................ 799 8,040
Housing inventories....................................................................... 207,900 215,043
Deferred tax asset........................................................................ 18,010 15,498
Other assets.............................................................................. 12,123 9,668
---------- ----------
Total assets.......................................................................... $ 265,411 $ 280,222
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and other liabilities.................................................. $ 18,252 $ 21,200
Intercompany payable to the Company..................................................... 2,298 2,314
Notes payable........................................................................... 14,899 12,337
Senior unsecured notes payable.......................................................... 125,000 125,000
---------- ----------
Total liabilities..................................................................... 160,449 160,851

Shareholder's equity...................................................................... 104,962 119,371
---------- ----------
Total liabilities and shareholder's equity............................................ $ 265,411 $ 280,222
---------- ----------
---------- ----------
</TABLE>

F-13
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SUPPLEMENTAL INFORMATION ON GREYSTONE HOMES, INC. (CONTINUED)

GREYSTONE HOMES, INC.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................................................... $ 172,830 $ 259,786 $ 292,538
Cost of sales.............................................................. (144,395) (215,437) (248,026)
----------- ----------- -----------
Gross margin............................................................... 28,435 44,349 44,512
Equity in pretax income of unconsolidated joint ventures................... 1,096 2,581 1,742
Selling, general and administrative expenses............................... (19,365) (28,329) (30,135)
Interest and other, net.................................................... (218) 150 802
----------- ----------- -----------
Pretax income.............................................................. 9,948 18,751 16,921
Provision for income taxes................................................. (3,966) -- (2,512)
----------- ----------- -----------
Net income................................................................. $ 5,982 $ 18,751 $ 14,409
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

Effective February 1, 1994, the Company transferred the stock of HLDC
Acquisition Corporation, a wholly owned subsidiary, to Greystone. In conjunction
with the transfer of stock, the Company contributed the intercompany receivable
due from Greystone and certain assets and liabilities to Greystone.

Greystone is a wholly owned subsidiary of the Company and is the obligor on
the Notes. The Notes are fully and unconditionally guaranteed by the Company,
except for certain subsidiaries of the Company which are considered
inconsequential individually and in the aggregate to the Company on a
consolidated basis. Separate financial statements and other related disclosures
for Greystone are not presented, as the Company's management does not consider
the information material to investors.

In September 1995, all the subsidiaries of Greystone were merged into
Greystone's operations. Accordingly, the requirements of Rule 1-02 (aa) of
Regulation S-X for certain information and summarized combined financial
statements no longer apply.

11. SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data for the years ended December 31, 1994 and
1995 is summarized as follows:

<TABLE>
<CAPTION>
1994 FIRST SECOND THIRD FOURTH
- --------------------------------------------------------------------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................................................. $ 46,186 $ 59,696 $ 73,869 $ 80,434
Gross margin......................................................... 7,254 9,910 13,950 13,634
Pretax income........................................................ 1,870 4,150 7,348 5,290
Net income........................................................... 1,103 2,810 9,455 5,290
</TABLE>

<TABLE>
<CAPTION>
1995
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues............................................................. $ 34,733 $ 62,283 $ 77,595 $ 119,310
Gross margin......................................................... 5,464 8,196 12,535 19,899
Pretax income........................................................ 524 2,715 4,200 10,091
Net income........................................................... 524 5,919 2,520 6,055
</TABLE>

F-14
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. SUBSEQUENT EVENTS

The Company intends to file in February 1996 a registration statement on
Form S-1 with the Securities and Exchange Commission for the issuance of common
stock (the "Offering"). In connection with the Offering, the Company is expected
to: (a) redeem the Series A Preferred with the net proceeds of the Offering; (b)
declare and pay a portion of the accrued dividends on the Series A Preferred
through the issuance of common stock; (c) convert all the outstanding shares of
the Series C Preferred and a portion of the accrued dividends into common stock
and (d) adjust the weighted average number of common shares outstanding for a
stock split.

F-15
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS - UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
Revenues.................................................................................. $ 34,733 $ 63,535
Cost of sales............................................................................. (29,269) (51,840)
---------- ----------
Gross margin.............................................................................. 5,464 11,695
Equity in pretax income (loss) of unconsolidated joint ventures........................... 659 (148)
Selling, general and administrative expenses.............................................. (5,970) (8,502)
Interest and other, net................................................................... 371 159
---------- ----------
Pretax income............................................................................. 524 3,204
Provision for income taxes................................................................ -- (1,307)
---------- ----------
Net income................................................................................ $ 524 $ 1,897
---------- ----------
---------- ----------
</TABLE>

See accompanying notes.

F-16
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------ MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents............................................................. $ 41,254 $ 20,309
Escrow proceeds receivable............................................................ 8,040 5,238
Housing inventories................................................................... 215,043 246,780
Deferred tax asset.................................................................... 15,498 14,416
Other assets.......................................................................... 10,135 9,321
------------ -----------
Total assets...................................................................... $ 289,970 $ 296,064
------------ -----------
------------ -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities.............................................. $ 26,738 $ 20,871
Notes payable....................................................................... 12,337 22,401
Senior unsecured notes payable...................................................... 125,000 125,000
------------ -----------
Total liabilities................................................................. 164,075 168,272
Shareholders' equity:
Series A cumulative senior preferred stock.......................................... 44,747 44,747
Series C cumulative convertible preferred stock..................................... 20,000 20,000
Common stock, $.01 par value; 5,000,000 shares authorized, 4,081,413 shares issued
and outstanding in 1995 and 1996................................................... 41 41
Additional paid-in capital.......................................................... 27,898 27,898
Retained earnings................................................................... 33,209 35,106
------------ -----------
Total shareholders' equity........................................................ 125,895 127,792
------------ -----------
Total liabilities and shareholders' equity...................................... $ 289,970 $ 296,064
------------ -----------
------------ -----------
</TABLE>

See accompanying notes.

F-17
<PAGE>
PACIFIC GREYSTONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS -- UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................................ $ 524 $ 1,897

Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization........................................................... 170 208
Reduction of deferred tax asset valuation allowance..................................... (210) --
Deferred portion of provision for income taxes.......................................... 210 1,082
Equity in pretax loss (income) of unconsolidated joint ventures......................... (659) 148

Changes in operating assets and liabilities:
Escrow proceeds receivable............................................................ (1,550) 2,802
Housing inventories................................................................... (10,366) (30,286)
Other assets.......................................................................... (334) 17
Accounts payable and accrued liabilities.............................................. (7,920) (5,867)
---------- ----------
Net cash used in operating activities..................................................... (20,135) (29,999)

INVESTING ACTIVITIES:
Distributions from unconsolidated joint ventures.......................................... 1,376 441
---------- ----------
Net cash provided by investing activities................................................. 1,376 441

FINANCING ACTIVITIES:
Proceeds from revolving credit facility................................................... 16,000 10,000
Proceeds from notes payable............................................................... 1,254 --
Repayments of notes payable............................................................... (929) (1,387)
---------- ----------
Net cash provided by financing activities................................................. 16,325 8,613
---------- ----------
Net decrease in cash and cash equivalents................................................. (2,434) (20,945)
Cash and cash equivalents at beginning of period.......................................... 36,026 41,254
---------- ----------
Cash and cash equivalents at end of period................................................ $ 33,592 $ 20,309
---------- ----------
---------- ----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................................................. $ 7,348 $ 7,303
---------- ----------
---------- ----------
Income taxes paid......................................................................... $ -- $ 75
---------- ----------
---------- ----------

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Housing inventories acquired through seller financing..................................... $ -- $ 1,451
---------- ----------
---------- ----------
</TABLE>

See accompanying notes.

F-18
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain information
and footnote disclosures required by generally accepted accounting principles
for complete financial statements have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.

In the opinion of the Company's management, the accompanying consolidated
financial statements contain all adjustments, which include normal recurring
adjustments, necessary to present fairly the Company's consolidated financial
position as of March 31, 1996 and the results of its consolidated operations for
the three months ended March 31, 1995 and 1996 and its consolidated cash flows
for the three months ended March 31, 1995 and 1996. Certain reclassifications
have been made to the 1995 financial information to conform to the current
period presentation. The consolidated results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.

2. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" effective January 1, 1996. In
accordance with this pronouncement, the Company records impairment losses on
long-lived assets held and used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than their related carrying amounts. The adoption of SFAS No.
121 had no impact on the Company's consolidated financial position and results
of operations.

3. PER SHARE DATA

On February 15, 1996, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission for the issuance of common stock
(the "Offering"). In connection with the Offering, the Company is expected to:
(a) redeem the Series A Cumulative Senior Preferred ("Series A Preferred") using
proceeds from the Offering; (b) declare and pay a portion of the accrued
dividends on the Series A Preferred through the issuance of common stock; (c)
convert all the outstanding shares of the Series C Cumulative Convertible
Preferred ("Series C Preferred") and a portion of accrued dividends into common
stock and (d) adjust the weighted average number of common shares outstanding
for a stock split. Accordingly, historical per share data in accordance with
Accounting Principles Board Opinion No. 15, "Earnings Per Share," is excluded
from the Company's financial statements since such per share data is not
indicative of the continuing capital structure of the Company.

4. HOUSING INVENTORIES

As of December 31, 1995 and March 31, 1996, the finished homes and completed
model portion of housing inventories was $52,519,000 and $63,045,000,
respectively.

5. UNSECURED REVOLVING CREDIT FACILITY

On April 10, 1996, the unsecured revolving credit facility (the "Facility")
was amended, increasing the total commitment to $100,000,000. This amendment
extends the maturity date to July 31, 1999 and includes a provision for a
12-month amortization of outstanding principal starting July 31, 1998. The
Facility provides for interest on borrowings at either the bank reference rate
or the London Interbank Offered Rate plus an applicable spread based on the
Company's senior long-term debt rating.

F-19
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SUPPLEMENTAL INFORMATION ON GREYSTONE HOMES, INC.
Summarized consolidated financial information for Greystone Homes, Inc.
("Greystone") is presented below. In accordance with the Company's management
agreement, corporate general and administrative expenses are allocated based
upon the gross revenues of the companies. Such allocation of corporate general
and administrative expenses is included in Greystone's selling, general and
administrative expenses presented below.

GREYSTONE HOMES, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 31,973 $ 12,729
Escrow proceeds receivable............................................................. 8,040 5,238
Housing inventories.................................................................... 215,043 246,780
Deferred tax asset..................................................................... 15,498 14,416
Other assets........................................................................... 9,668 8,865
------------ ----------
Total assets....................................................................... $ 280,222 $ 288,028
------------ ----------
------------ ----------

LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and other liabilities............................................... $ 21,200 $ 16,593
Intercompany payable to the Company.................................................. 2,314 2,755
Notes payable........................................................................ 12,337 22,401
Senior unsecured notes payable....................................................... 125,000 125,000
------------ ----------
Total liabilities.................................................................. 160,851 166,749

Shareholder's equity................................................................... 119,371 121,279
------------ ----------
Total liabilities and shareholder's equity......................................... $ 280,222 $ 288,028
------------ ----------
------------ ----------
</TABLE>

F-20
<PAGE>
PACIFIC GREYSTONE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SUPPLEMENTAL INFORMATION ON GREYSTONE HOMES, INC. (CONTINUED)

GREYSTONE HOMES, INC.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues.................................................................................. $ 34,596 $ 63,220
Cost of sales............................................................................. (29,269) (51,840)
---------- ----------
Gross margin.............................................................................. 5,327 11,380
Equity in pretax income (loss) of unconsolidated joint ventures........................... 659 (148)
Selling, general and administrative expenses.............................................. (5,726) (8,164)
Interest and other, net................................................................... 272 147
---------- ----------
Pretax income............................................................................. 532 3,215
Provision for income taxes................................................................ -- (1,307)
---------- ----------
Net income................................................................................ $ 532 $ 1,908
---------- ----------
---------- ----------
</TABLE>

Greystone is a wholly owned subsidiary of the Company and is the obligor on
the Senior Unsecured Notes Payable (the "Notes"). The Notes are fully and
unconditionally guaranteed by the Company, except for certain subsidiaries of
the Company which are considered inconsequential individually and in the
aggregate to the Company on a consolidated basis. Separate financial statements
and other related disclosures for Greystone are not presented, as the Company's
management does not consider the information material to investors.

F-21
<PAGE>

MAP OF CALIFORNIA, NEVADA AND ARIZONA

<TABLE>
<S> <C> <C>
- - NORTHERN CALIFORNIA - SOUTHERN CALIFORNIA - ARIZONA

SAN MATEO LOS ANGELES PHOENIX
CONTRA COSTA ORANGE - ARIZONA
ALAMEDA SAN BERNARDINO-RIVERSIDE LAS VEGAS
SANTA CLARA SAN DIEGO
SACRAMENTO VENTURA
SAN JOAQUIN
</TABLE>

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Company Formation and Organization............. 11
Use of Proceeds................................ 12
Dividends...................................... 12
Capitalization................................. 13
Dilution....................................... 14
Selected Consolidated Financial and Operating
Data......................................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 25
Management..................................... 34
Certain Transactions........................... 44
Principal and Selling Stockholders............. 44
Description of Capital Stock................... 46
Shares Eligible for Future Sale................ 47
Underwriting................................... 49
Legal Matters.................................. 50
Experts........................................ 50
Additional Information......................... 50
Index to Consolidated Financial Statements..... F-1
</TABLE>

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

UNTIL , 1996 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

5,000,000 SHARES

[LOGO]

PACIFIC GREYSTONE CORPORATION

COMMON STOCK

---------

PROSPECTUS

, 1996

---------

SMITH BARNEY INC.
MORGAN STANLEY & CO.
INCORPORATED

ROBERTSON, STEPHENS & COMPANY

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD fee.

<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee................................................. $ 31,311
NASD fee............................................................. 9,580
NYSE fee............................................................. 124,814
Printing and engraving expenses...................................... 100,000
Legal fees and expenses.............................................. 125,000
Accounting fees and expenses......................................... 75,000
Blue Sky qualification fees and expenses............................. 35,000
Transfer Agent and Registrar fees.................................... 5,000
Miscellaneous fees and expenses...................................... 19,295
---------
Total............................................................ $ 525,000
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Certificate of Incorporation of the Company contains a provision
eliminating the personal liability of the directors to the Company or its
stockholders to the fullest extent set forth in Section 102(b)(7) of the
Delaware General Corporation Law. The Bylaws of the Company provide for
indemnification of directors, officers, employees and agents of the Company
consistent with the provisions of Section 145 of the Delaware General
Corporation Law. Reference is also made to Section 9 of the Underwriting
Agreement, contained in Exhibit 1 hereto, indemnifying officers and directors of
the Company against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (BEFORE STOCK SPLIT)

In March 1994, an aggregate of 2,559,260 shares of Common Stock were issued
upon the conversion of shares of Series B Preferred Stock of the Company. These
shares were issued in a private placement pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").

In March 1994, a wholly owned subsidiary of the Company sold $125 million
aggregate principal amount of 10 3/4% Notes due 2004 guaranteed by the Company.
These securities were initially sold to Morgan Stanley & Co. Incorporated in a
private placement pursuant to Section 4(2) of the Securities Act. Resales of
such securities were limited to "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) and certain institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act).

In April 1994, the Company issued an aggregate of 57,693 shares of Common
Stock to executive employees of the Company in consideration of $.01 per share
and services rendered to the Company. These shares were issued in a private
placement pursuant to Section 4(2) of the Securities Act.

In August and November 1995, an aggregate of 23,936 shares of Common Stock
were issued to executive employees of the Company in consideration of $.01 per
share and services rendered to the Company. These shares were issued in a
private placement pursuant to Section 4(2) of the Securities Act.

S-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement
*3.1 Certificate of Incorporation, as amended, of the Company
*3.2 Bylaws of the Company
3.3 Form of Restated Certificate of Incorporation of the Company to be effective upon consummation of
the Offering
+3.4 Form of amendments to the Bylaws of the Company to be effective upon consummation of the Offering
4.1 Specimen of Common Stock Certificate
**4.2 Indenture, dated as of March 1, 1994, among Greystone Homes, Inc., Pacific Greystone Corporation,
HLDC Acquisition Corp., Stonegrey Corporation, PGC Holdings, Inc., A-M Homes, a California Limited
Partnership and U.S. Trust Company of California, N.A., as Trustee, relating to the 10 3/4% Senior
Notes due March 1, 2004 of Greystone Homes, Inc.
4.3 The Registrant agrees to furnish to the Securities and Exchange Commission upon request copies of
all instruments defining the rights of holders of long-term debt of the Registrant and its
consolidated subsidiaries
5 Opinion of O'Melveny & Myers regarding the legality of the Common Stock to be issued
*9.1 Voting Trust Agreement, dated as of October 10, 1991, as amended September 29, 1992
***9.2 Amendment to the Voting Trust Agreement, dated November 3, 1995
9.3 Form of Termination of Voting Trust Agreement.
*10.1 First Amended and Restated Shareholders' Agreement and Irrevocable Proxy, dated as of September 28,
1992, by and among the Company and certain shareholders
*10.2 Office Space Lease, dated December 12, 1988, between Downey Savings and Loan Association and A-M
Homes, a California Limited Partnership, with respect to the property located at 3501 Jamboree Road,
Newport Beach
*10.3 Office Lease, dated December 21, 1992, between Toluca Plaza Company and the Company, with respect to
the Company's corporate executive offices located at 6767 Forest Lawn Drive, Los Angeles, California
***10.4 Employment Agreement, dated as of January 1, 1996, between the Company and Jack R. Harter
***10.5 Employment Agreement, dated as of January 1, 1996, between the Company and Antonio B. Mon
**10.6 Revolving Credit Agreement, dated as of June 28, 1994, between Bank of America National Trust and
Savings Association, as lender, and Greystone Homes, Inc. and A-M Homes, a California Limited
Partnership, as borrower
****10.7 Modification Agreement dated July 24, 1995 to the Revolving Credit Agreement between Bank of America
National Trust and Savings Association, as lender, and Greystone Homes, Inc. and A-M Homes, a
California Limited Partnership, as borrower.
****10.8 Amendment No. 1 to the First Amended and Restated Shareholders' Agreement and Irrevocable Proxy
****10.9 1995 Eligible Directors' Stock Option Plan
10.10 Form of Agreement between Pacific Greystone Corporation and Warburg, Pincus Investors, L.P., to be
effective upon consummation of the Offering.
</TABLE>

S-2
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
10.11 Form of Amended and Restated 1995 Eligible Directors' Stock Option Plan to be effective upon
consummation of the Offering
<C> <S>
10.12 Form of 1996 Employee Stock Option and Award Plan
10.13 Form of 1996 Employee Stock Purchase Plan
*****10.14 Second Modification Agreement, dated April 4, 1996, to the Revolving Credit Agreement between Bank
of America National Trust and Savings Association, as lender, and Greystone Homes, Inc., as
borrower.
*****10.15 Co-Lending Agreement, dated April 4, 1996, to the Revolving Credit Agreement between Bank of America
National Trust and Savings Association, as the agent for certain lenders, and Greystone Homes, Inc.,
as borrower.
***21 List of Subsidiaries
23.1 Consent of Independent Auditors
23.2 Consent of O'Melveny & Myers (included in Exhibit 5)
+24 Power of Attorney
</TABLE>

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

+ Previously filed.

* Filed as an exhibit to the Company's Registration Statement No. 33-76628
on Form S-4 and incorporated herein by reference.
** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1994 and incorporated herein by reference.
*** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference.
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1995 and incorporated herein by reference.

***** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1996 and incorporated herein by reference.

(b) Financial Statement Schedules

All schedules for which provision is made in the applicable accounting
regulations of the Commission are provided in the Notes to the Consolidated
Financial Statements included elsewhere in this Registration Statement or are
not required under the applicable instructions or are inapplicable and therefore
have been omitted.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described in
Item 14 or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

S-3
<PAGE>
The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.

S-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California on this 20th day of May, 1996.

PACIFIC GREYSTONE CORPORATION

By: JACK R. HARTER

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

Jack R. Harter

CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------

JACK R. HARTER
------------------------------------------- Chairman, President and Chief Executive May 20, 1996
Jack R. Harter Officer (Principal Executive Officer)

* ANTONIO B. MON
------------------------------------------- Vice Chairman and Chief Financial May 20, 1996
Antonio B. Mon Officer (Principal Financial Officer)

* BRUCE E. GROSS
------------------------------------------- Vice President and Controller (Principal May 20, 1996
Bruce E. Gross Accounting Officer)

* SIDNEY LAPIDUS
------------------------------------------- Director May 20, 1996
Sidney Lapidus

* REUBEN S. LEIBOWITZ
------------------------------------------- Director May 20, 1996
Reuben S. Leibowitz

* JOHN D. SANTOLERI
------------------------------------------- Director May 20, 1996
John D. Santoleri

* DAVID KAPLAN
------------------------------------------- Director May 20, 1996
David Kaplan

* JACK R. HARTER
-------------------------------------------
Jack R. Harter
ATTORNEY-IN-FACT
</TABLE>

S-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGES
- ------------ -------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
1 Form of Underwriting Agreement........................................................
*3.1 Certificate of Incorporation, as amended, of the Company
*3.2 Bylaws of the Company
3.3 Form of Restated Certificate of Incorporation of the Company to be effective upon
consummation of the Offering..........................................................
+3.4 Form of amendments to the Bylaws of the Company to be effective upon consummation of
the Offering
4.1 Specimen of Common Stock Certificate..................................................
**4.2 Indenture, dated as of March 1, 1994, among Greystone Homes, Inc., Pacific Greystone
Corporation, HLDC Acquisition Corp., Stonegrey Corporation, PGC Holdings, Inc., A-M
Homes, a California Limited Partnership and U.S. Trust Company of California, N.A., as
Trustee, relating to the 10 3/4% Senior Notes due March 1, 2004 of Greystone Homes,
Inc.
4.3 The Registrant agrees to furnish to the Securities and Exchange Commission upon
request copies of all instruments defining the rights of holders of long-term debt of
the Registrant and its consolidated subsidiaries......................................
5 Opinion of O'Melveny & Myers regarding the legality of the Common Stock to be
issued................................................................................
*9.1 Voting Trust Agreement, dated as of October 10, 1991, as amended September 29, 1992
***9.2 Amendment to the Voting Trust Agreement, dated November 3, 1995
9.3 Form of Termination of Voting Trust Agreement
*10.1 First Amended and Restated Shareholders' Agreement and Irrevocable Proxy, dated as of
September 28, 1992, by and among the Company and certain shareholders
*10.2 Office Space Lease, dated December 12, 1988, between Downey Savings and Loan
Association and A-M Homes, a California Limited Partnership, with respect to the
property located at 3501 Jamboree Road, Newport Beach
*10.3 Office Lease, dated December 21, 1992, between Toluca Plaza Company and the Company,
with respect to the Company's corporate executive offices located at 6767 Forest Lawn
Drive, Los Angeles, California
***10.4 Employment Agreement, dated as of January 1, 1996, between the Company and Jack R.
Harter
***10.5 Employment Agreement, dated as of January 1, 1996, between the Company and Antonio B.
Mon
**10.6 Revolving Credit Agreement, dated as of June 28, 1994, between Bank of America
National Trust and Savings Association, as lender, and Greystone Homes, Inc. and A-M
Homes, a California Limited Partnership, as borrower
****10.7 Modification Agreement dated July 24, 1995 to the Revolving Credit Agreement between
Bank of America National Trust and Savings Association, as lender, and Greystone
Homes, Inc. and A-M Homes, a California Limited Partnership, as borrower.
****10.8 Amendment No. 1 to the First Amended and Restated Shareholders' Agreement and
Irrevocable Proxy
****10.9 1995 Eligible Directors' Stock Option Plan
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGES
- ------------ -------------------------------------------------------------------------------------- -------------------
10.10 Form of Agreement between Pacific Greystone Corporation and Warburg, Pincus Investors,
L.P., to be effective upon consummation of the Offering.
<C> <S> <C>
10.11 Form of Amended and Restated 1995 Eligible Directors' Stock Option Plan to be
effective upon consummation of the Offering...........................................
10.12 Form of 1996 Employee Stock Option and Award Plan.....................................
10.13 Form of 1996 Employee Stock Purchase Plan.............................................
*****10.14 Second Modification Agreement, dated April 4, 1996, to the Revolving Credit Agreement
between Bank of America National Trust and Savings Association, as lender, and
Greystone Homes, Inc., as borrower.
*****10.15 Co-Lending Agreement, dated April 4, 1996, to the Revolving Credit Agreement between
Bank of America National Trust and Savings Association, as the agent for certain
lenders, and Greystone Homes, Inc., as borrower.
***21 List of Subsidiaries
23.1 Consent of Independent Auditors.......................................................
23.2 Consent of O'Melveny & Myers (included in Exhibit 5)..................................
+24 Power of Attorney
</TABLE>

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

+ Previously filed.

* Filed as an exhibit to the Company's Registration Statement No. 33-76628
on Form S-4 and incorporated herein by reference.

** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1994 and incorporated herein by reference.

*** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference.

**** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1995 and incorporated herein by reference.

***** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1996 and incorporated herein by reference.

<PAGE>

5,000,000 Shares

PACIFIC GREYSTONE CORPORATION

Common Stock

UNDERWRITING AGREEMENT

June __, 1996

SMITH BARNEY INC.
MORGAN STANLEY & CO. INCORPORATED
ROBERTSON, STEPHENS & COMPANY LLC

As Representatives of the Several Underwriters

c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013

Gentlemen:

Pacific Greystone Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell an aggregate of 4,562,900 shares of its common stock,
$0.01 par value per share, to the several Underwriters named in Schedule II
hereto (the "Underwriters") and the persons named in Part A of Schedule I hereto
(the "Selling Stockholders") propose to sell to the several Underwriters an
aggregate of 437,100 shares of Common Stock of the Company. The Company and the
Selling Stockholders are hereinafter sometimes referred to as the "Sellers."
The Company's common stock, $0.01 par value, is hereinafter referred to as the
"Common Stock" and the 4,562,900 shares of Common Stock to be issued and sold to
the Underwriters by the Company and the 437,100 shares of Common Stock to be
sold to the Underwriters by the Selling Stockholders are hereinafter referred to
as the "Firm Shares." The Company and the Selling Stockholders listed in Part B
of Schedule I hereto also propose to sell to the Underwriters, upon the terms
and conditions set forth in Section 2 hereof, up to an additional 675,000 shares
(the "Additional Shares") of Common Stock. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares."

Prior to the consummation of the sale of the Shares as contemplated by this
Agreement, the Company intends to provide notice of the redemption of and
payment of accrued dividends on the Company's Series A Cumulative Senior
Preferred Stock (the "Series A Preferred"). The redemption of the Series A
Preferred and the payment of accrued dividends thereon shall occur
simultaneously with the closing of the offering contemplated by this Agreement.
An aggregate of 4,474,706 shares of the Series A Preferred Stock are outstanding
as of the date of this

<PAGE>

Agreement, 4,405,606 shares of which are owned by Warburg Pincus Investors, L.P.
("Warburg Pincus"). Simultaneous with the redemption of the Series A Preferred
Stock and the payment of accrued dividends thereon, the Company also intends to
effect the conversion of all of the outstanding shares of the Company's Series C
Senior Preferred Stock (the "Series C Preferred") and the payment of all accrued
dividends thereon. The redemption of the Series A Preferred, the conversion of
the Series C Preferred and the other transactions contemplated in connection
therewith are described in full in the Prospectus (as defined below) in the
section entitled "Dividends" and are herein referred to collectively as the
"Preferred Stock Transactions."

The Company and the Selling Stockholders wish to confirm their respective
agreements with you (the "Representatives") and the other several Underwriters
on whose behalf you are acting, in connection with the several purchases of the
Shares by the Underwriters.

1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits), as
amended at the time it becomes effective, or, if the registration statement
became effective prior to the execution of this Agreement, as supplemented or
amended prior to the execution of this Agreement. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before the
offering of the Shares may commence, the term "Registration Statement" as used
in this Agreement means the registration statement as amended by said
post-effective amendment. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus.

2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $_____ per Share (the "purchase price per share"), the number of Firm
Shares which bears the same proportion to the aggregate number of Firm Shares to
be issued and sold by the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or

<PAGE>

such number of Firm Shares increased as set forth in Section 12 hereof) bears to
the aggregate number of Firm Shares to be sold by the Company and the Selling
Stockholders.

Subject to such adjustments as you may determine in order to avoid
fractional shares, each Selling Stockholder agrees, subject to all the terms and
conditions set forth herein, to sell to each Underwriter and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, each Underwriter, severally and not jointly, agrees to purchase
from each Selling Stockholder at the purchase price per share that number of
Firm Shares which bears the same proportion to the number of Firm Shares set
forth opposite the name of such Selling Stockholder in Schedule I hereto as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto (or such number of Firm Shares increased as set forth in
Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by
the Company and the Selling Stockholders.

The Company and the Selling Stockholders listed in Part B of Schedule I
hereto also agree, subject to all the terms and conditions set forth herein, to
sell to the Underwriters, and, upon the basis of the representations, warranties
and agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company and the Selling Stockholders listed
in Part B of Schedule I hereto, at the purchase price per share, pursuant to an
option (the "over-allotment option") which may be exercised at any time and from
time to time prior to 9:00 P.M., New York City time, on the 30th day after the
date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading), up to an aggregate of 237,742 Additional Shares from the
Company and up to an aggregate of 437,258 shares from the Selling Stockholders
listed in Part B of Schedule I hereto (the maximum number of Additional Shares
which each of them agrees to sell upon the exercise by the Underwriters of the
over-allotment option is set forth opposite their respective names in Part B of
Schedule I). Additional Shares may be purchased only for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. The number of Additional Shares which the Underwriters elect to
purchase upon any exercise of the over-allotment option shall be provided first
by each Selling Stockholder who has agreed to sell Additional Shares in
proportion to the respective maximum numbers of Additional Shares which the
Company and each such Selling Stockholder has agreed to sell and then by the
Company. Upon any exercise of the over-allotment option, each Underwriter,
severally and not jointly, agrees to purchase first from each Selling
Stockholder who has agreed to sell Additional Shares (subject to such
adjustments as you may determine in order to avoid fractional shares) the number
of Additional Shares which bears the same proportion to the number of Additional
Shares to be sold by each Selling Stockholder who has agreed to sell Additional
Shares as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares increased as set
forth in Section 12 hereof) bears to the aggregate number of Firm Shares to be
sold by the Selling Stockholders and then from the Company the number of
Additional Shares which bears the same proportion to the number of
Additional Shares to be sold by the Company as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such number
of Firm Shares

<PAGE>

increased as set forth in Section 12 hereof) bears to the aggregate number of
Firm Shares to be sold by the Company.

Certificates in transferable form for the Shares (including any Additional
Shares) which each of the Selling Stockholders agrees to sell pursuant to this
Agreement have been placed in custody with Bank of Boston (the "Custodian") for
delivery under this Agreement pursuant to a Custody Agreement and Power of
Attorney (the "Custody Agreement") executed by each of the Selling Stockholders
appointing Jack R. Harter and Antonio B. Mon as agents and attorneys-in-fact
(the "Attorneys-in-Fact"). Each Selling Stockholder agrees that (i) the Shares
represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the Underwriters, the Company and each
other Selling Stockholder, (ii) the arrangements made by the Selling
Stockholders for such custody are, except as specifically provided in the
Custody Agreement, irrevocable and (iii) the obligations of the Selling
Stockholders hereunder and under the Custody Agreement shall not be terminated
by any act of such Selling Stockholder or by operation of law, or the occurrence
of any other event. If any Selling Stockholder shall be incapacitated or if any
other event shall occur before the delivery of the Shares hereunder,
certificates for the Shares of such Selling Stockholder shall be delivered to
the Underwriters by the Attorneys-in-Fact in accordance with the terms and
conditions of this Agreement and the Custody Agreement as if such incapacity or
other event had not occurred, regardless of whether or not the Attorneys-in-Fact
or any Underwriter shall have received notice of such incapacity or other event.
Each Attorney-in-Fact is authorized, on behalf of each of the Selling
Stockholders, to execute this Agreement and any other documents necessary or
desirable in connection with the sale of the Shares to be sold hereunder by such
Selling Stockholder, to make delivery of the certificates for such Shares, to
receive the proceeds of the sale of such Shares, to give receipts for such
proceeds, to pay therefrom any expenses to be borne by such Selling Stockholder
in connection with the sale and public offering of such Shares, to distribute
the balance thereof to such Selling Stockholder, and to take such other action
as may be necessary or desirable in connection with the transactions
contemplated by this Agreement. Each Attorney-in-Fact agrees to perform his
duties under the Custody Agreement.

3. TERMS OF PUBLIC OFFERING. The Sellers have been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.

4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on June __, 1996 (the "Closing Date"). The place of closing for
the Firm Shares and the Closing Date may be varied by agreement among you, the
Company and the Attorneys-in-Fact.

Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the aforementioned office of
Smith Barney Inc. at such time on such date (the "Option Closing Date"), which
may be the same as the Closing Date but shall in no

<PAGE>

event be earlier than the Closing Date nor earlier than three nor later than ten
business days after the giving of the notice hereinafter referred to, as shall
be specified in a written notice from you on behalf of the Underwriters to the
Company and the Attorneys-in-Fact of the Underwriters' determination to purchase
a number, specified in such notice, of Additional Shares. The place of closing
for any Additional Shares and the Option Closing Date for such Shares may be
varied by agreement among you, the Company and the Attorneys-in-Fact.

Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor by certified or official bank check or checks payable in New York
Clearing House (next-day) funds to the order of the Company and the Attorneys-
in-Fact.

5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:

(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
Company will endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you promptly
and, if requested by you, will confirm such advice in writing, when the
Registration Statement or such post-effective amendment has become effective.

(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading, or of the necessity to amend or supplement the Prospectus (as then
amended or supplemented) to comply with the Act or any other law. If at any
time the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement,

<PAGE>

the Company will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible time.

(c) The Company will furnish to you, without charge, four signed
copies of the registration statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits
thereto, and will also furnish to you, without charge, such number of conformed
copies of the registration statement as originally filed and of each amendment
thereto, but without exhibits, as you may request.

(d) The Company will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall reasonably object
after being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a Prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), without delivering a copy of such information, documents or reports to
you, as Representatives of the Underwriters, prior to or concurrently with such
filing.

(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.

(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Act or any other law, the Company will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you, as Representatives of
the several Underwriters, agree that the Prospectus should be amended or
supplemented, the

<PAGE>

Company, if requested by you, will promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or supplement.

(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not now so
subject.

(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.

(i) During the period of five years hereafter, the Company will
furnish to you as soon as available, a copy of each report of the Company mailed
to stockholders or filed with the Commission.

(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company or the Selling Stockholders to comply with the terms or
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
the Representatives for all out-of-pocket expenses (including reasonable fees
and expenses of counsel for the Underwriters) incurred by you in connection
herewith.

(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.

(l) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.

(m) Except as provided in this Agreement, the Company will not sell,
contract to sell or otherwise dispose of any Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or grant any
options or warrants to purchase Common Stock (other than pursuant to the
Company's existing Amended and Restated 1995 Eligible Directors' Stock Option
Plan, 1996 Stock Option and Award Plan and 1996 Employee Stock Purchase Plan),
for a period of 180 days after the date of the Prospectus, without the prior
written consent of Smith Barney Inc.

<PAGE>

(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers, directors and stockholders.

(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.

(p) The Company will use its best efforts to have the Common Stock
listed, subject to notice of issuance, on the New York Stock Exchange
concurrently with the effectiveness of the Registration Statement.

6. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each of the Selling
Stockholders agrees with the several Underwriters as follows:

(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the registration statement or any post-effective amendment thereto to
become effective at the earliest possible time.

(b) Such Selling Stockholder will pay all Federal, state, foreign and
other taxes, if any on the transfer or sale of the Shares being sold by the
Selling Stockholder to the Underwriters.

(c) Such Selling Stockholder will do or perform all things required
to be done or performed by the Selling Stockholder prior to the Closing Date or
any Option Closing Date, as the case may be, to satisfy all conditions precedent
to the delivery of the Shares pursuant to this Agreement.

(d) Such Selling Stockholder has executed or will execute a "lock-up"
letter as provided in Section 5(n) above and will not sell, contract to sell or
otherwise dispose of any Common Stock, except for the sale of Shares to the
Underwriters pursuant to this Agreement, prior to the expiration of 180 days
after the date of the Prospectus, without the prior written consent of Smith
Barney Inc.

(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, such Selling Stockholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.

(f) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 5(f) hereof, of any change in information relating to
such Selling Stockholder or any new information relating to any matter stated in
the Prospectus or any amendment or supplement thereto which comes to the
attention of such Selling Stockholder that suggests that any statement made in
the Registration Statement or the Prospectus (as then amended or supplemented,
if amended or supplemented) is or may be untrue in any material respect or that
the Registration Statement or

<PAGE>

Prospectus (as then amended or supplemented, if amended or supplemented) omits
or may omit to state a material fact or a fact necessary to be stated therein in
order to make the statements therein not misleading in any material respect, or
of the necessity to amend or supplement the Prospectus (as then amended or
supplemented, if amended or supplemented) in order to comply with the Act or any
other law.

7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Underwriter that:

(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the provisions of the Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.

(b) The Registration Statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 424(b) under the
Act, complied or will comply in all material respects with the provisions of the
Act and did not or will not at any such times contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that this representation and
warranty does not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you expressly for use therein.

(c) As of the date of this Agreement, the capitalization of the
Company is as set forth under the column entitled "Actual" in the section of the
Prospectus entitled "Capitalization" and, as of the time of the sale of the
Shares and the consummation of the transactions contemplated in connection
therewith, the capitalization of the Company shall be as set forth under the
column entitled "Pro Forma As Adjusted" in the section of the Prospectus
entitled "Capitalization"; all the outstanding shares of Common Stock of the
Company have been duly authorized and validly issued, are fully paid and
non-assessable and, at the time of the sale of the Shares and the consummation
of the transactions contemplated in connection therewith, will be free of any
preemptive or similar rights; the Shares to be issued and sold by the Company
have been duly authorized and, when issued and delivered to the Underwriters
against payment therefor in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable and free of any preemptive or similar
rights; the shares of Common Stock to be issued by the Company in connection
with the Preferred Stock Transactions have been duly authorized and, when
delivered to the recipients thereof against therefor, will be validly issued,
fully paid and non-assessable and free of any preemptive or similar rights, and
the issuance of such shares will not create in any person the right to obtain or
subscribe for any capital stock of the Company, whether by virtue of anti-
dilution rights (including any such rights under the First Amended and Restated
Shareholders' Agreement and Irrevocable Proxy dated as of September 28, 1992 by
and among the Company and the other persons named therein, as amended by that
certain Amendment No. 1 thereto dated

<PAGE>

as of May 11, 1995 (as amended, the "Shareholders' Agreement")) or otherwise;
and the capital stock of the Company conforms to the description thereof in the
Registration Statement and the Prospectus.

(d) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, properties, prospects, net worth or
results of operations of the Company and the Subsidiaries (as hereinafter
defined), taken as a whole.

(e) All the Company's significant subsidiaries within the meaning of
Rule 1-02 of Regulation S-X (collectively, the "Subsidiaries") are listed in an
exhibit to the Registration Statement. Each Subsidiary is a corporation duly
organized, validly existing and in good standing in the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus, and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, properties, prospects, net worth or results of operations of
such Subsidiary; all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company directly, or indirectly through one
of the other Subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance.

(f) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that are required to be described
in the Registration Statement or the Prospectus but are not described as
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act.

(g) Neither the Company nor any of the Subsidiaries is in violation
of its certificate or articles of incorporation or by-laws, or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, or in default in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or any of their respective
properties

<PAGE>

may be bound, except where such violation or default would not reasonably be
expected to have a material adverse effect, individually or in the aggregate, on
the condition (financial or other), business, net worth or results of operations
of the Company and the Subsidiaries, taken as a whole.

(h) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the Preferred Stock Transactions or the transactions contemplated
hereby (A) requires any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
for the registration of the Shares under the Act and the Exchange Act and
compliance with the securities or Blue Sky laws of various jurisdictions, all of
which have been or will be effected in accordance with this Agreement) or
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate or articles of incorporation or bylaws, or
other organizational documents, of the Company or any of the Subsidiaries or
(B) conflicts or will conflict with or constitutes or will constitute a breach
of, or a default or Repayment Event (as defined below) under, any agreement
(including the Shareholders' Agreement), indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of them
or any of their respective properties may be bound, or violates or will violate
any statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or any of their respective
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject. As used herein, a "Repayment
Event" means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any of its Subsidiaries.

(i) The accountants, Ernst & Young LLP, who have certified the
financial statements included in the Registration Statement and the Prospectus
(or any amendment or supplement thereto) are independent public accountants as
required by the Act.

(j) The financial statements, together with related schedules and
notes, included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and the Subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial data
included in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company and the
Subsidiaries.

<PAGE>

(k) The execution and delivery of, and the performance by the Company
of its obligations under, this Agreement have been duly and validly authorized
by the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles and except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws.

(l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve a
prospective material adverse change, in the condition (financial or other),
business, net worth or results of operations of the Company and the Subsidiaries
taken as a whole.

(m) Each of the Company and the Subsidiaries has good and marketable
title to all property (real and personal) owned by it, free and clear of all
liens, claims, security interests or other encumbrances, except such as are
described in the Registration Statement and the Prospectus or in a document
filed as an exhibit to the Registration Statement or such as do not interfere
with the use made or proposed to be made of such property by the Company and the
Subsidiaries, and all the property described in the Prospectus as being held
under lease by each of the Company and the Subsidiaries is held by it under
valid, subsisting and enforceable leases.

(n) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the Act.

(o) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and to
conduct its business in the manner described in the Prospectus (subject to such
qualifications as may be set forth in the Prospectus), except only to the extent
the absence thereof would not reasonably be expected to have a material adverse
effect on the condition (financial or other), business, properties, prospects,
net worth or results of operations of the Company and the Subsidiaries taken as
a whole; the Company and each of the Subsidiaries has fulfilled and performed
all its material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of the rights
of the holder of any such permit, subject in each case to such qualification as
may be set forth in the Prospectus; and,

<PAGE>

except as described in the Prospectus, none of such permits contains any
restriction that is materially burdensome to the Company or any of the
Subsidiaries.

(p) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(q) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has made
any payment of funds of the Company or any Subsidiary or received or retained
any funds in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the Prospectus.

(r) The Company and each of the Subsidiaries have filed all tax
returns required to be filed or obtained valid extensions on a timely basis,
which returns are complete and correct, and neither the Company nor any
Subsidiary is in default in the payment of any taxes which were payable pursuant
to said returns or any assessments with respect thereto.

(s) No holder of any security of the Company (including, without
limitation, Home Capital Pty. Ltd., Residential Developments Pty., Ltd. and
Jennings Operations (USA) Inc. (collectively, "Jennings")) has any right (which
has not been waived) to require registration of shares of Common Stock or any
other security of the Company because of the filing of the Registration
Statement or consummation of the transactions contemplated by this Agreement.

(t) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of them or necessary
for the conduct of their respective businesses, and the Company is not aware of
any claim to the contrary or any challenge by any other person to the rights of
the Company and the Subsidiaries with respect to the foregoing.

(u) The Company is not now, and after sale of the Shares to be sold
by it hereunder and application of the net proceeds from such sale as described
in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for an "investment company" as such terms are defined under the
Investment Company Act of 1940, as amended.

(v) The Company has filed in a timely manner each document or report
required to be filed by it pursuant to the Exchange Act and the rules and
regulations thereunder; each such document or report at the time it was filed
conformed to the requirements of the Exchange Act and the rules and regulations
thereunder; and none or such documents or reports

<PAGE>

contained an untrue statement of any material fact or omitted to state any
material fact required to be stated therein, in the light of the circumstances
under which they were made, or necessary to make the statements therein not
misleading.

(w) The Company has complied with all provisions of Florida Statutes,
Section 517.075, relating to issuers doing business with Cuba.

(x) There is no claim pending or threatened or, to the best knowledge
of the Company, contemplated under any Environmental Law (as defined below)
against the Company or any Subsidiary which, if adversely determined, might be
reasonably likely to have a material adverse effect on the condition (financial
or other), business, properties, prospects, net worth or results of operations
of the Company and its Subsidiaries taken as a whole; there are no past or
present actions or conditions, including without limitation the release of any
hazardous substance or waste regulated under any Environmental Law, that are
likely to form the basis of any such claim under existing law against the
Company or any of its Subsidiaries which, if adversely determined, might be
reasonably likely to have a material adverse effect on the condition (financial
or other), business, properties, prospects, net worth or results of operations
of the Company and its Subsidiaries taken as a whole; there are no costs or
liabilities associated with Environmental Laws (including, without limitation,
any capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties) that might be reasonably likely, singly or in the
aggregate, to have a material adverse effect on the condition (financial or
other), business, properties, prospects, net worth or results of operations of
the Company and the Subsidiaries taken as a whole. The term "Environmental Law"
means any federal, state, local or foreign law, rule or regulation now in effect
governing pollution or protection of the environment or governing the use or
release of any material or substance presently known to be toxic or hazardous
including, without limitation, any radioactive substance, methane, volatile
hydrocarbon or industrial solvents.

(y) The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged or propose
to engage; neither the Company nor any Subsidiary has been refused any insurance
coverage sought or applied for; and neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or other)
business, properties, prospects, net worth or results of operations of the
Company and the Subsidiaries taken as a whole.

(z) Neither the Company nor any Subsidiary is involved in any labor
dispute nor, to the knowledge of the Company, is any such dispute threatened,
which dispute would have a material adverse effect on the condition (financial
or other) business, properties, prospects, net worth or results of operations of
the Company and the Subsidiaries taken as a whole.
(A)The Shares have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.

(A) The Shares have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance.

<PAGE>

(B) None of the Company nor any of its Subsidiaries or any of their
respective directors, officers or controlling persons, has taken or will take,
directly or indirectly, any action resulting in a violation of Rule 10b-6 under
the 1934 Act, or designed to cause or result in, or that has constituted or that
is reasonably likely to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.

(C) Neither the Company nor any of its Subsidiaries has incurred any
liability for finder's or broker's fees or agent's commissions (other than those
payable to the Underwriters) in connection with the execution and delivery of
this Agreement, the offer and sale of the Shares or the transactions
contemplated thereby.

(D) Neither the Company nor any of its Subsidiaries is required to
register as a "broker" or a "dealer" in accordance with the provisions of the
1934 Act or the rules and regulations promulgated thereunder.

8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder represents and warrants to each Underwriter that:

(a) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, valid and marketable title to the Shares to be
sold by such Selling Stockholder, free and clear of any lien, mortgage, pledge,
charge, equity, claim, security interest or other encumbrance, including,
without limitation, any restriction on transfer.

(b) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, full legal right, power and authorization, and
any approval required by law, to sell, assign transfer and deliver such Shares
in the manner provided in this Agreement, and upon delivery of and payment for
such Shares hereunder, the several Underwriters will acquire good and marketable
title to such Shares free and clear of any lien, claim, mortgage, pledge,
charge, equity, security interest or other encumbrance of any kind.

(c) This Agreement and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of such Selling Stockholder
and are the valid and binding agreements of such Selling Stockholder enforceable
against such Selling Stockholder in accordance with their terms except that
(i) the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, (ii) the remedy of specific
performance and other forms of equitable relief may be subject to certain
equitable defenses and to the discretion of the court before which the
proceeding may be brought and (iii) rights to indemnity and contribution
hereunder or thereunder may be limited by federal or state securities laws or
the public policy underlying such laws.

(d) Neither the execution and delivery of this Agreement or the
Custody Agreement by or on behalf of such Selling Stockholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of such Selling Stockholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official

<PAGE>

(except such as may be required under the Act or such as may be required under
state securities or Blue Sky laws governing the purchase and distribution of the
Shares) or conflicts or will conflict with or constitutes or will constitute a
breach of, or default under, or violates or will violate, any agreement,
indenture or other instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder is or may be bound or to which any of such
Selling Stockholder's property or assets is subject, or any statute, law, rule,
regulation, ruling, judgment, injunction, order or decree applicable to such
Selling Stockholder or to any property or assets of such Selling Stockholder.

(e) The information pertaining to such Selling Stockholder provided
to the Company for inclusion under the caption "Principal and Selling
Stockholders" in the Prospectus, insofar as they relate to such Selling
Stockholder, does not and will not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.

(f) Such Selling Stockholder does not have any knowledge or any
reason to believe that the Registration Statement or the Prospectus (or any
amendment or supplement thereto) contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.

(g) The representations and warranties of such Selling Stockholder in
the Custody Agreement are, and on the Closing Date and any Option Closing Date
will be, true and correct. Certificates for all of the Shares to be sold by the
Selling Stockholders pursuant to this Agreement, in suitable form for transfer
by delivery or accompanied by duly executed instruments of transfer or
assignment in blank with signatures guaranteed, have been placed in custody with
the Custodian with irrevocable unconditional instructions to deliver such Shares
to the Underwriters pursuant to this Agreement.

(h) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares, except for the
lock-up arrangements described in the Prospectus.

(i) Such Selling Stockholder will not, in connection with the
Preferred Stock Transactions, assert (A) any preemptive or similar rights in
favor of any of the Selling Stockholders or (B) the right to obtain or subscribe
for any capital stock of the Company whether by virtue of anti-dilution rights
(including rights under the Shareholders' Agreement) or otherwise that it may
have.

9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each of you and each other Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20(a) the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Prepricing Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any

<PAGE>

omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the Company
has delivered the Prospectus to the several Underwriters in requisite quantity
on a timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.

(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties against
whom indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the indemnifying parties have agreed in
writing to pay such fees and expenses, (ii) the indemnifying parties have failed
to assume the defense and employ counsel, or (iii) the named parties to any such
action, suit or proceeding (including any impleaded parties) include both such
Underwriter or such controlling person and the indemnifying parties and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and any indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The indemnifying parties shall not be liable
for any settlement of any such action, suit or proceeding effected without their
written consent,

<PAGE>

but if settled with such written consent, or if there be a final judgment for
the plaintiff in any such action, suit or proceeding, the indemnifying parties
agree to indemnify and hold harmless any Underwriter, to the extent provided in
the preceding paragraph, and any such controlling person from and against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment.

(c) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, the Company, its directors, its
officers who sign the Registration Statement, and any person who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each Underwriter, but only with respect to the information furnished in writing
by or on behalf of such Selling Stockholder expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against any Underwriter, any such controlling person of any Underwriter,
the Company, any of its directors, any such officer, or any such controlling
person of the Company, based on the Registration Statement, the Prospectus or
any Prepricing Prospectus or any amendment or supplement thereto, and in respect
of which indemnity may be sought against any Selling Stockholder pursuant to
this paragraph (c), such Selling Stockholder shall have the rights and duties
given to the Company by paragraph (b) above (except that if the Company shall
have assumed the defense thereof such Selling Stockholder shall not be required
to do so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such Selling
Stockholder's expense), and each Underwriter, each such controlling person of
any Underwriter, the Company, its directors, any such officer, and any such
controlling person of the Company shall have the rights and duties given to the
Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability which any Selling Stockholder may otherwise have.

(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Stockholders, its directors, its
officers who sign the Registration Statement and any person who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company and
the Selling Stockholders to each Underwriter, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action, suit or proceeding shall be brought against the
Company, any of its directors, any such officer, any Selling Stockholder or any
such controlling person based on the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at such Underwriter's expense),
and the Company, its directors, any such officer, the Selling Stockholder and
any such controlling person shall have the

<PAGE>

rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which any
Underwriter may otherwise have.

(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand from the offering of the Shares and the consummation of the
transactions contemplated thereby, or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus; provided
that, in the event that the Underwriters shall have purchased any Additional
Shares hereunder, any determination of the relative benefits received by the
Company, the Selling Stockholders or the Underwriters from the offering of the
Shares shall include the net proceeds (before deducting expenses) received by
the Company and the Selling Stockholders, and the underwriting discounts and
commissions received by the Underwriters, from the sale of such Additional
Shares, in each case computed on the basis of the respective amounts set forth
in the notes to the table on the cover page of the Prospectus. The relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.

(f) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in paragraph (e) above. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities and expenses referred to
in paragraph (e) above shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating any claim or defending any
such action, suit or proceeding. Notwithstanding the provisions of this
Section 9, no Underwriter shall be required to contribute any amount in excess
of the amount by which the

<PAGE>

total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. Notwithstanding the provisions of this Section 9, each
Selling Stockholder shall not be required to contribute any amount in excess of
the aggregate proceeds received by such Selling Stockholder from the sale of its
Shares pursuant to this Agreement (net of underwriting discounts and commissions
and after deducting expenses). No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule II hereto (or such numbers of Firm Shares
increased as set forth in Section 12 hereof) and not joint.

(g) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.

(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any person controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder and (iii) any termination of this Agreement. A successor to
any Underwriter or any person controlling any Underwriter, or to the Company,
its directors or officers, or any person controlling the Company, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 9.

10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:

(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the registration
statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for

<PAGE>

additional information (to be included in the registration statement or the
prospectus or otherwise) shall have been complied with to your satisfaction.

(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, prospects, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially, adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company or any officer or director of the Company or any Selling
Stockholder which makes any statement made in the Prospectus untrue or which, in
the opinion of the Company and its counsel or the Underwriters and their
counsel, requires the making of any addition to or change in the Prospectus in
order to state a material fact required by the Act or any other law to be stated
therein or necessary in order to make the statements therein not misleading, if
amending or supplementing the Prospectus to reflect such event or development
would, in your opinion, as Representatives of the several Underwriters,
materially adversely affect the market for the Shares.

(c) You shall have received on the Closing Date, an opinion of
O'Melveny & Myers, counsel for the Company, dated the Closing Date and addressed
to you, as Representatives of the several Underwriters, to the effect that:

(i) Each of the Company and Greystone Homes, Inc.
("Greystone") has been a corporation duly incorporated, and is validly existing
and in good standing under the laws of its respective jurisdiction of
organization with the corporate power to own its properties and conduct its
business as described in the Registration Statement and the Prospectus (and any
amendment or supplement thereto);

(ii) Each of the Company and Greystone is duly registered as a
foreign corporation and qualified to conduct its business in the State of
California and is in good standing under the laws of that state;

(iii) All the outstanding shares of capital stock of Greystone
has been duly authorized by all necessary corporate action on the part of
Greystone, and are validly issued, fully paid and non-assessable, and are owned
of record by the Company directly, free and clear of any perfected lien and, to
the best of such counsel's knowledge, free and clear of any security interest,
claim, unperfected lien, encumbrance or pre-emptive right, and, to the best of
such counsel's knowledge, there are no rights, warrants or options to acquire or
instruments convertible into, or exchangeable for, any shares of capital stock
or other equity interest in each of the Company and Greystone, except as may be
described in the Prospectus;

(iv) The authorized and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus;

(v) All the shares of capital stock of the Company outstanding
prior to the issuance of the Shares to be issued and sold by the Company
hereunder, have been duly

<PAGE>

authorized by all necessary corporate action on the part of the Company and are
validly issued, fully paid and non-assessable;

(vi) The Shares to be issued and sold to the Underwriters by
the Company hereunder have been duly authorized by all necessary corporate
action on the part of the Company and, when issued and delivered to the
Underwriters against payment therefor in accordance with the terms hereof, will
be validly issued, fully paid and non-assessable, free of statutory and, to such
counsel's knowledge, contractual preemptive rights;

(vii) The shares of Common Stock of the Company to be issued in
connection with the consummation of the Preferred Stock Transactions have been
duly authorized by all necessary corporate action on the part of the Company
and, when issued and delivered to the recipients thereof against payment
therefor, will be validly issued, fully paid and non-assessable, free of
statutory and, to such counsel's knowledge, contractual preemptive rights, and,
to the best knowledge of such counsel, the issuance of such shares will not
create in any person the right to obtain or subscribe for any capital stock of
the Company pursuant to the Company's certificate of incorporation, bylaws or
Section 2(e) of the Shareholders' Agreement;

(viii) The form of certificates for the Shares conforms to the
requirements of the Delaware General Corporation Law;

(ix) The Registration Statement and all post-effective
amendments, if any, have been declared effective under the Act and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued or threatened by the Commission; and any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);

(x) The Company has the corporate power to enter into this
Agreement and to issue, sell and deliver the Shares to be sold by it to the
Underwriters as provided herein, and this Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company;

(xi) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, nor consummation by the
Company of the transactions contemplated thereby do not and will not constitute
a breach of, or result in a default under, the certificate or articles of
incorporation or bylaws of the Company or Greystone or any agreement (including
the Shareholders' Agreement), indenture, lease, instrument, order injunction or
judgment identified to such counsel in an Officers' Certificate (a copy of which
will be delivered to you) as agreements, indentures, leases, instruments,
orders, injunctions or judgments binding on the Company or Greystone or their
respective properties and material to the Company and the Subsidiaries, taken as
a whole, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries, nor will any such action result in any violation of any federal,
California or New York statute or regulation or provision of the Delaware
General Corporation Law that such counsel has, in the exercise of customary
professional diligence, recognized as applicable to the Company, Greystone or
transactions of the type contemplated by this Agreement, except that such
counsel need express

<PAGE>

no opinion regarding any federal securities laws or state securities laws or
Section 7 of this Agreement;

(xii) No consent, approval, authorization or other order of, or
registration or filing with, any California, New York, Delaware or Federal
court, regulatory body, administrative agency or other governmental body,
agency, or official is required on the part of the Company for the issuance and
sale of the Shares to the Underwriters as contemplated by this Agreement, except
such as have been obtained under the Act or the Exchange Act and such as may be
required under applicable Blue Sky or state securities laws;

(xiii) The Registration Statement, on the date it was filed, and
any amendments thereto on the date such amendments were filed, appeared on their
face to comply in all material respects with the requirements as to form for
registration statements on Form S-1 under the Act and related rules and
regulations in effect at the date of filing, except that such counsel need
express no opinion concerning the financial statements and other financial
information contained therein;

(xiv) To such counsel's knowledge, there is no contract or other
document of a character required to be filed as an exhibit to the Registration
Statement which is not filed as required; and

(xv) The statements in the Prospectus under the caption
"Description of Capital Stock," insofar as they summarize provisions of the
Certificate of Incorporation or Bylaws of the Company or the Shareholders'
Agreement fairly present the information required by Form S-1; and

(xvi) Except as described in the Prospectus, to such counsel's
knowledge, there is no holder of any security of the Company (including
Jennings) or any other person who has the right, contractual or otherwise which
has not been waived or is otherwise inapplicable, to cause the Company to sell
or otherwise issue to such holders the Shares or the right to have any Common
Stock or other securities of the Company included in the Registration Statement.

Such counsel shall also state that in connection with such counsel's
participation in the preparation of the Registration Statement and the
Prospectus, such counsel has not independently verified the accuracy,
completeness or fairness of the statements contained therein, and the
limitations inherent in the examinations made by such counsel and the knowledge
available to such counsel are such that such counsel is unable to assume, and
does not assume, any responsibility for such accuracy, completeness or fairness
(except as otherwise specifically stated in paragraph (xv) above). However,
such counsel shall state that on the basis of such counsel's review and
participation in conferences in connection with the preparation of the
Registration Statement and the Prospectus, such counsel does not believe that
the Registration Statement as of its effective date contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
such counsel does not believe that the Prospectus on the date of the opinion,
contains any untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make

<PAGE>

the statements therein, in light of the circumstances under which they were
made, not misleading. However, such counsel need express no opinion or belief
as to the financial statements and other financial information contained in the
Registration Statement or the Prospectus.

In rendering their opinion as aforesaid, counsel may rely upon an opinion
or opinions, each dated the Closing Date, of other counsel retained by them or
the Company as to laws of any jurisdiction other than the United States or the
States of California or New York, provided that (1) each such local counsel is
acceptable to the Representatives, (2) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance satisfactory to them and their
counsel, and (3) counsel shall state in their opinion that they believe that
they and the Underwriters are justified in relying thereon.

(d) You shall have received on the Closing Date, an opinion of Dewey
Ballantine, solely with respect to Jennings Operations (USA) Inc., or from
Arthur Robinson & Hedderwicks, with respect to Home Capital Pty. Ltd. and
Residential Developments Pty. Ltd., dated the Closing Date and addressed to you,
as Representatives of the several Underwriters, to the effect that:

(i) This Agreement and the Custody Agreement have each been
duly executed and delivered by or on behalf of each of the Selling Stockholders
and are valid and binding agreements of each Selling Stockholder enforceable
against each Selling Stockholder in accordance with their terms, except that
(i) the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally, (ii) the remedy of specific
performance and other forms of equitable relief may be subject to certain
equitable defenses and to the discretion of the court before which the proceeds
may be brought and (iii) rights to indemnity and contribution hereunder or
thereunder may be limited by federal or state securities laws or the public
policy underlying such laws;

(ii) To the knowledge of such counsel, each Selling Stockholder
has full legal right, power and authorization, and any approval required by law,
to sell, assign, transfer and deliver good and marketable title to the Shares
which such Selling Stockholder has agreed to sell pursuant to this Agreement
upon delivery of the Shares pursuant to this Agreement and payment therefor as
contemplated herein and assuming that the several Underwriters are bona fide
purchasers within the meaning of the Uniform Commercial Code as in effect in the
State of New York (the "UCC"), the Underwriters will acquire good and marketable
title to the Shares free and clear of any adverse claim (within the meaning of
Section 8.302 of the UCC).

(iii) The execution and delivery of this Agreement and the
Custody Agreement by the Selling Stockholders and the consummation of the
transactions contemplated hereby and thereby will not conflict with, violate,
result in a breach of or constitute a default under the terms or provisions of
any agreement, indenture, mortgage or other instrument known to such counsel to
which any Selling Stockholder is a party or by which any of them or any of their
assets or property is bound, or any court order or decree or any law, rule, or

<PAGE>

regulation applicable to any Selling Stockholder or to any of the property or
assets of any Selling Stockholder;

(iv) No filing with, or consent, approval, authorization,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign, (other than the issuance of the order
of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or required to be
obtained by the Selling Stockholders for the performance by the Selling
Stockholders of their respective obligations under this Agreement or in the
Custody Agreement, or in connection with the offer, sale or delivery of the
Shares.

(v) To the knowledge of such counsel, the sale of the Shares
by the Selling Stockholders is not subject to preemptive or similar rights of
any securityholder of the Company except as have been waived.

(vi) The Attorneys-in-Fact have been duly authorized by the
Selling Stockholders to deliver the Shares on behalf of the Selling Stockholders
in accordance with the terms of this Agreement.

(e) You shall have received on the Closing Date, an opinion of Robert
W. Garcin, Esq., corporate counsel for the Company, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, to the effect
that:

(i) Each of the Company and Greystone is duly qualified as a
foreign corporation to do business in those jurisdictions in which the ownership
of properties, or the conduct of business, requires such qualification and in
which the failure, individually or in the aggregate, to be so qualified should
have material adverse effect on the condition (financial or other), business,
properties, prospects, net worth or results of operations of the Company and
Greystone taken as a whole;

(ii) The Company owns of record, directly or indirectly through
one of the other Subsidiaries, all the outstanding shares of capital stock of
each of the Subsidiaries free and clear of any lien, adverse claim, security
interest, preemptive right or other encumbrance;

(iii) Other than as described or contemplated in the Prospectus
(or any supplement thereto), there are no legal or governmental proceedings
pending or, to the knowledge of such counsel, threatened against the Company or
any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or
any of their property, is subject, which are required to be described in the
Registration Statement or Prospectus (or any amendment or supplement thereto);

(iv) There are no agreements, contracts, indentures, leases or
other instruments that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) or to be
filed as an exhibit to the Registration Statement that are not described or
filed as required, as the case may be;

<PAGE>

(v) neither the Company nor any of the Subsidiaries is in
violation of its respective certificate or articles of incorporation or bylaws,
or is in breach of or in default under (nor has any event occurred which with
notice, lapse of time or both would constitute a breach of or default under) any
license, indenture, lease, mortgage, deed of trust, bank loan or credit
agreement or any other agreement or instrument of which such counsel has
knowledge and to which Greystone, the Company or any of its Subsidiaries is a
party or by which Greystone, the Company or any of its Subsidiaries or their
respective properties are bound or affected or under any law, regulation or
rule, or any decree, judgment or order of which such counsel has knowledge and
applicable to Greystone, the Company or any of its Subsidiaries, except for such
matters as are not reasonably likely, individually or in the aggregate, to have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and its
Subsidiaries taken as a whole;

(vi) Except as described in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and
such counsel does not know of any commitment, plan or arrangement to issue, any
shares of capital stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company; and

(vii) Except as described in the Prospectus, to such counsel's
knowledge, there is no holder of any security of the Company (including
Jennings) or any other person who has the right, contractual or otherwise which
has not been waived or is otherwise inapplicable, to cause the Company to sell
or otherwise issue to such holders the Shares or the right to have any Common
Stock or other securities of the Company included in the Registration Statement.

(f) You shall have received on the Closing Date an opinion of Gibson,
Dunn & Crutcher LLP, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (vi), (ix), (x) and (xiii) and the
penultimate subparagraph of the foregoing paragraph (c) and such other related
matters as you may request.

(g) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Ernst & Young LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.

(h) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of

<PAGE>

operations of the Company and the Subsidiaries taken as a whole; (iv) the
Company and the Subsidiaries shall not have any liabilities or obligations,
direct or contingent (whether or not in the ordinary course of business), that
are material to the Company and the Subsidiaries, taken as a whole, other than
those reflected in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); and (v) all the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 10(g) and in
Section 10(h) hereof.

(i) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.

(j) All the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by or on behalf of the Selling Stockholders to the effect set forth
in this Section 10(i) and in Section 10(j) hereof.

(k) The Selling Stockholders shall not have failed at or prior to the
Closing Date to have performed or complied with any of their agreements herein
contained and required to be performed or complied with by them hereunder at or
prior to the Closing Date.

(l) The Shares shall have been listed or approved for listing upon
notice of issuance on the New York Stock Exchange.

(m) The Sellers shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have requested.

All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.

Any certificate or document signed by any officer of the Company or any
Attorney-in-Fact or any Selling Stockholder and delivered to you, as
Representatives of the Underwriters, or to counsel for the Underwriters, shall
be deemed a representation and warranty by the Company or the Selling
Stockholders to each Underwriter as to the statements made therein.

The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of any Option Closing Date
of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (i) shall be dated the Option
Closing Date in question and the opinions and letter called for by paragraphs
(c), (d), (e) and (f) shall be revised to reflect the sale of Additional Shares.

<PAGE>

11. EXPENSES. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by them of their
obligations hereunder: (i) the preparation, printing or reproduction, and filing
with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the original issuance and sale of the Shares; (iv) the
registration of the Shares under the Exchange Act and the listing of the Shares
on the New York Stock Exchange; (v) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of the several
states as provided in Section 5(g) hereof (including the reasonable fees,
expenses and disbursements of counsel for the Underwriters relating to the
preparation, and delivery of the preliminary and supplemental Blue Sky Memoranda
and such registration and qualification); (vi) the filing fees and the fees and
expenses of counsel for the Underwriters in connection with any filings required
to be made with the National Association of Securities Dealers, Inc.; (vii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Shares; and (viii) the fees and expenses of the Company's accountants and
the fees and expenses of counsel (including local and special counsel) for the
Company.

12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Company, by notifying you, or
by you, as Representatives of the several Underwriters, by notifying the Company
and the Selling Stockholders.

If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule II hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or
refuse to purchase Shares which it or they are obligated to purchase on the
Closing Date and the aggregate number of Shares with respect to which such
default occurs is more than one-tenth of the aggregate

<PAGE>

number of Shares which the Underwriters are obligated to purchase on the Closing
Date and arrangements satisfactory to you and the Company for the purchase of
such Shares by one or more non-defaulting Underwriters or other party or parties
approved by you and the Company are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and the Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule II hereto who, with
your approval and the approval of the Company, purchases Shares which a
defaulting Underwriter is obligated, but fails or refuses, to purchase.

Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.

13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company or any Selling Stockholder,
if prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be,
(i) trading in securities generally on the New York Stock Exchange, American
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in California or New York shall have been declared by either federal or state
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.

14. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth
in the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the first and third paragraphs under the
caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 9 hereof.

15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 12 and 13
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 6767 Forest Lawn Drive, Suite 300, Los Angeles, California 90068,
Attention: President; or (ii) if to the Selling Stockholders, at Arthur Andersen
& Co., S.C., at The Tower, Melbourne Central, 360 Elizabeth Street, Melbourne
3000, GPO Box 515AA Melbourne 3001, Australia, Attention: Mark Korda, with a
copy to Dewey

<PAGE>

Ballantine, 333 South Hope Street, Suite 3000, Los Angeles, California 90071,
Attention: Matthew I. Roslin, Esq. or (iii) if to you, as Representatives of
the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, Attention: Manager, Investment Banking Division.

This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers, and the other controlling
persons referred to in Section 9 hereof and their respective successors and
assigns, to the extent provided herein, and no other person shall acquire or
have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.

16. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.

This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.

<PAGE>

Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.

Very truly yours,

PACIFIC GREYSTONE CORPORATION

By:
-------------------------------------
Chairman of the Board

Each of the Selling Stockholders named
in Schedule I hereto

By:
-------------------------------------
Attorney-in-Fact

Confirmed as of the date first above
mentioned on behalf of themselves and
the other several Underwriters named
in Schedule II hereto.

SMITH BARNEY INC.
MORGAN STANLEY & CO. INCORPORATED
ROBERTSON, STEPHENS & COMPANY LLC

As Representatives of the Several Underwriters

By: SMITH BARNEY INC.

By:
---------------------------------

<PAGE>

SCHEDULE I

PACIFIC GREYSTONE CORPORATION

PART A - FIRM SHARES

Number of
Selling Stockholders Firm Shares
-------------------- -----------

-----------------------------------
Total .................................. 437,100
-----------------------------------
-----------------------------------

PART B - ADDITIONAL SHARES

Number of
Selling Stockholders Additional Shares
-------------------- -----------------

-----------------------------------
Total................................... 437,258
-----------------------------------
-----------------------------------

S1-1

<PAGE>

SCHEDULE II

PACIFIC GREYSTONE CORPORATION

Number of
Underwriter Firm Shares
----------- -----------

Smith Barney Inc.......................................

Morgan Stanley & Co.
Incorporated......................................

Robertson, Stephens
& Company LLC....................................

---------
Total............................................. 5,000,000
---------
---------

S2-2

<PAGE>
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PACIFIC GREYSTONE CORPORATION

PACIFIC GREYSTONE CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY THE FOLLOWING:

FIRST: The name of the Corporation is PACIFIC GREYSTONE
CORPORATION. The Corporation was originally incorporated under the name PACIFIC
CLASSIC CORPORATION, and the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
September 6, 1991.

SECOND: This Restated Certificate of Incorporation which restates
and further amends the provisions of the Certificate of Incorporation of the
Corporation was duly adopted pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware.

THIRD: By written consent of the Board of Directors of the
Corporation as of _______ __, 1996, resolutions were duly adopted setting forth
the following restatement of and further amendment to the Certificate of
Incorporation of

<PAGE>

the Corporation, declaring such restatement and amendments to be advisable and,
in accordance with Section 242 of the General Corporation Law of the State of
Delaware, that such restated and further amended Certificate of Incorporation be
considered by the stockholders of the Corporation.

FOURTH: Thereafter, by written consent of the holders of the issued
and outstanding shares of Common Stock and Preferred Stock of the Corporation,
such written consent obtained in accordance with Section 228 of the General
Corporation Law of the State of Delaware, the following restatement of and
further amendment to the Certificate of Incorporation of the Corporation was
consented to and authorized by holders of the necessary number of shares
required by statute and the Certificate of Incorporation of the Corporation.

FIFTH: The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:

"ARTICLE I
The name of the corporation is:

Pacific Greystone Corporation

ARTICLE II

The address of its registered office in the State of Delaware is
32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent.
The

<PAGE>

name of its registered agent at such address is The Prentice-Hall
Corporation System, 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 General Corporation Law of Delaware.

ARTICLE IV

The total number of shares of all classes of stock which the
corporation shall have authority to issue is Twenty Five Million
(25,000,000), consisting of Twenty Million (20,000,000) shares of Common
Stock, par value $.01 per share, and Five Million (5,000,000) shares of
Preferred Stock, par value $.01 per share. Upon amendment of this Article
IV as hereinabove set forth, each outstanding share of Common Stock is
converted into 1.4282 shares of Common Stock; provided, however, that no
fractional shares shall be issued to stockholders, but instead cash shall
be distributed to each stockholder who would otherwise be entitled to a
fractional share, and the amount of cash to be distributed shall be based
upon a value of $____ per share of Common Stock.

The Board of Directors is authorized, subject to limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware, to establish from time to time the number of
shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.

The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:

(a) the number of shares constituting that series and the
distinctive designation of that series;

(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;

(c) whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms
of such voting rights;

<PAGE>

(d) whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;

(e) whether the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the
date or date upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;

(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;

(g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment
of shares of that series; and

(h) any other relative rights, preferences and limitations
of that series.

ARTICLE V

No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance
with the bylaws, and no action shall be taken by the stockholders by
written consent.

ARTICLE VI

Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting
of the stockholders of the corporation shall be given in the manner
provided in the bylaws of the corporation.

ARTICLE VII

Election of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.

<PAGE>

ARTICLE VIII

The Board of Directors shall consist of such number of Directors
as shall be determined from time to time in the manner provided by the
bylaws, and in the absence of such determination, the number of directors
shall be seven (7).

The Board of Directors shall be and is divided into three
classes, Class I, Class II and Class III, which shall be as nearly equal in
number as possible. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director is elected; PROVIDED, HOWEVER, that each initial director of Class
I shall hold office until the annual meeting of stockholders in 1997; each
initial director of Class II shall hold office until the annual meeting of
stockholders in 1998; and each initial director in Class III shall hold
office until the annual meeting of stockholders in 1999.

In the event of any increase or decrease in the authorized number
of directors, (i) each director then serving as such shall nevertheless
continue as a director of the class of which he or she is a member until
the expiration of his or her current term, or his or her prior death,
retirement, resignation or removal, and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors
so as to maintain such classes as nearly equal as possible.

Notwithstanding any of the foregoing provisions of this Article
VIII, each director shall serve until his or her successor is elected and
qualified, or until his or her death, retirement, resignation or removal.
Should a vacancy occur or be created, whether arising through death,
resignation or removal of a director, or through an increase in the number
of directors of any class, such vacancy shall be filled by a majority vote
of the remaining directors of the class in which such vacancy occurs or by
the sole remaining director of that class if only one such director
remains, or by the majority vote of the members of the remaining classes if
no such director remains. A director so elected to fill a vacancy shall
serve for the remainder of the then present term of office of the class to
which he or she is elected.

Notwithstanding any of the provisions of this Certificate of
Incorporation, whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors of the
corporation by the provisions of this Certificate of Incorporation, or any
resolution or resolutions of the Board of Directors fixing the terms and
provisions of such class or series, vacancies and newly created
directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series
thereof then in office, or by the sole remaining director so elected.

<PAGE>

Any director may be removed by the holders of a majority of the
shares of the corporation then entitled to vote for the election of
directors but only for cause.

ARTICLE IX

No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (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 the law, (iii) under Section 174 of
the General Corporation Law of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.

ARTICLE X

(A) The corporation reserves the right to repeal, alter, amend
or rescind any provision contained in the Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, except as provided in
paragraph (B) of this Article X, and all rights conferred on stockholders
herein are granted subject to this reservation.

(B) Notwithstanding any other provision of the Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, the
Certificate of Incorporation or any designation of Preferred Stock, the
affirmative vote of the holders of at least 75% of the voting of the then-
outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal Article V, Article VI, Article
VIII or this Article X.

ARTICLE XI

In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the bylaws of the corporation."

<PAGE>

IN WITNESS WHEREOF, PACIFIC GREYSTONE CORPORATION has caused this
Restated Certificate of Incorporation to be signed by Jack R. Harter, its
President, and attested by Robert W. Garcin, its Secretary, this ___ day of
_______, 1996.

PACIFIC GREYSTONE CORPORATION

By: ______________________________
Jack R. Harter,
President

ATTEST:

_____________________
Robert W. Garcin
Secretary

<PAGE>
TEMPORARY CERTIFICATE-EXCHANGEABLE FOR DEFINITIVE CERTIFICATE
WHEN READY FOR DELIVERY

COMMON STOCK PACIFIC COMMON STOCK
GREYSTONE

THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS
IN BOSTON, MA OR IN NEW YORK, NY CUSIP 694351 10 7

PACIFIC GREYSTONE CORPORATION

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES THAT

IS THE RECORD HOLDER OF

FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01
PAR VALUE PER SHARE OF
PACIFIC GREYSTONE CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.

Dated: /s/ Robert W. Garcin [GREYSTONE /s/ Jack R. Harter
SECRETARY CORPORATE SEAL] CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR

BY
--------------------------------------
AUTHORIZED SIGNATURE

<PAGE>

The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests shall be made to the Corporations' Secretary at the
principal office of the Corporation.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common

UNIF GIFT MIN ACT -- ________________Custodian______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________________
(State)
UNIF TRF MIN ACT -- _____________Custodian (until age _____)
(Cust)
_______________under Uniform Transfers
(Minor)
to Minors Act_________________________
(State)

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, ___________________________________hereby sell, assign and
transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

_______________________________________

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

- --------------------------------------------------------------------------Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated______________________________________

X _________________________________

X _________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT
NOTICE MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed

By__________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE>

May
20th
1 9 9 6

(213) 669-6000

644,352-007
LA1-699508.V1

Pacific Greystone Corporation
6767 Forest Lawn Drive, Suite 300
Los Angeles, California 90068-1027

Re: Registration of Shares of Common Stock
of Pacific Greystone Corporation

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on
Form S-1 (File No. 333-1388), as amended (the "Registration Statement"), of
Pacific Greystone Corporation, a Delaware corporation (the "Company"), in
connection with the registration under the Securities Act of 1933, as amended,
of shares of Common Stock, $.01 par value per share, of the Company having an
aggregate offering price of up to $90,800,000 (the "Shares"). We are familiar
with the proceedings taken by the Company in connection with the authorization,
issuance and sale of the Shares.

Subject to the proposed additional proceedings being taken as now
contemplated by us as your counsel prior to the issuance of the Shares, we are
of the opinion that the Shares have been duly authorized by all necessary
corporate action on the part of the Company and, upon payment for and delivery
of the Shares as contemplated by the Registration Statement and the
countersigning of the certificates representing the Shares by a duly authorized
signatory of the registrar for the Company's Common Stock, the Shares will be
validly issued, fully paid and non-assessable.

We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.

Respectfully submitted,

O'MELVENY & MYERS

<PAGE>
TERMINATION OF

VOTING TRUST AGREEMENT

The undersigned constitute all the parties to a Voting Trust
Agreement, dated as of October 10, 1991, as amended by the Amendment to Voting
Trust Agreement, dated November 3, 1995 (as amended, the "Voting Trust
Agreement"), relating to certain securities of Pacific Greystone Corporation.
The undersigned hereby agree that the Voting Trust Agreement is hereby
terminated and the Stock (as defined in the Voting Trust Agreement) deposited
with the Trustees (as defined in the Voting Trust Agreement) shall be
distributed to the appropriate Stockholders (as defined in the Voting Trust
Agreement).

Dated: June __, 1996

TRUSTEES: STOCKHOLDERS:

_______________________ Harter 1991 Trust No. 1
Jack R. Harter, Trustee

By: __________________________

_______________________ Harter 1991 Trust No. 2
Antonio B. Mon, Trustee

By: __________________________

Irrevocable Mon Family Trust

By: __________________________

______________________________
Robert W. Garcin

______________________________
Peter J. Kiesecker

______________________________
Jack R. Harter

<PAGE>

______________________________
Antonio B. Mon

______________________________
Denis G. Cullumber

______________________________
Richard D. Baker

______________________________
Bruce E. Gross

______________________________
Steven G. Delva

______________________________
Todd Palmaer

______________________________
Chuck Dragicevich

y<PAGE>
AGREEMENT

This Agreement ("AGREEMENT") is entered into as of this ____ day of
May, 1996 by and between Warburg, Pincus Investors, L.P., a Delaware corporation
("WARBURG"), and Pacific Greystone Corporation, a Delaware Corporation (the
"COMPANY").

W I T N E S S E T H

WHEREAS, Warburg owns 6,853,366 shares of Common Stock, par value $.01
per share, of the Company, such stock representing in excess of 50% of the
voting power of the Company's voting stock;

WHEREAS, the parties hereto have been advised by the Company's
independent public accountants that pooling of interests accounting treatment is
generally unavailable for a transaction involving a company that within two
years prior to the transaction had a shareholder that controlled more than 50%
of the voting power of such company; and

WHEREAS, the parties have been further advised by the Company's
independent public accountants that upon execution of this Agreement, Warburg
will be deemed to have divested itself of voting power in excess of the 50%
limitation for the purposes of the pooling of interest accounting rules referred
to above;

NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each party, the parties hereto, intending to be legally bound,
agree as follows:

1. VOTING

At any time when a matter is brought to the vote of the Company's
shareholders and Warburg beneficially owns shares of the Company voting stock
representing more than 50% of th voting power of the Company's shares entitled
to vote on such matter (the "LIMIT"), then:

(a) Warburg may vote shares up to the Limit in its discretion; and

(b) Warburg shall vote shares beneficially owned by it in excess of
the Limit in the same proportion as the shares voted by holders other than
Warburg are voted on such matter.

<PAGE>

2. AMENDMENT OR TERMINATION

Except as set forth in paragraph 3 below, this Agreement may not be
amended or terminated without the concurrence of:

(a) a majority of the Directors of the Board of the Company that are
not officers, employees or partners of Warburg or the Company; or

(b) a majority of the votes of the shares of the Company voting stock
voting on the matter at a meeting duly called other than shares of Company
voting stock beneficially owned by Warburg.

3. ADDITIONAL RIGHT TO TERMINATION

This Agreement shall also be terminated by either Warburg or the
Company if it shall have received an opinion from a certified public accounting
firm contrary to the advice referred to in the third "Whereas" clause hereto and
such opinion is delivered to all the parties hereto.

4. COUNTERPARTS

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

5. NOTICES

All notices, requests, demands and other communications under this
Agreement shall be in writing, shall be given by one of the methods specified
below, and shall be deemed to have been duly given (i) on the date of service if
served personally on the party to whom notice is to be given, (ii) on the second
business day after delivery to an overnight courier service, provided receipt of
delivery has been confirmed, or (iii) upon receipt by the transmitting party of
confirmation or answer-back if delivery is by telex or telefax.

If to Warburg:

Warburg, Pincus Investors, L.P.
466 Lexington Avenue
New York, New York 10017
Attention: John Santoleri
Telephone: (212) 878-9382
Facsimile: (212) 878-9351

<PAGE>

If to the Company:

Pacific Greystone Corporation
6767 Forest Lawn Drive, Suite 300
Los Angeles, California 90068-1027
Attention: Jack R. Harter
Telephone: (213) 436-6300
Facsimile: (213) 876-3866

6. GOVERNING LAW

This Agreement shall be construed in accordance with, and governed by,
the laws of the State of Delaware.

IN WITNESS WHEREOF, the parties to this Agreement have duly executed
it as of the date set forth above.

WARBURG, PINCUS INVESTORS, L.P.

By:____________________________
Name:
Title:

PACIFIC GREYSTONE CORPORATION

By:____________________________
Name:
Title:

<PAGE>

FORM OF

AMENDED AND RESTATED

PACIFIC GREYSTONE CORPORATION

1995 ELIGIBLE DIRECTORS STOCK OPTION PLAN

<PAGE>

TABLE OF CONTENTS

PAGE NO.
--------

ARTICLE 1. THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 SHARES AVAILABLE FOR OPTIONS . . . . . . . . . . . . . . . . . . . 2

ARTICLE 2. THE OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 AUTOMATIC OPTION GRANTS. . . . . . . . . . . . . . . . . . . . . . 2
2.2 PAYMENT OF EXERCISE PRICE. . . . . . . . . . . . . . . . . . . . . 3
2.3 OPTION PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 EFFECT OF TERMINATION OF SERVICE . . . . . . . . . . . . . . . . . 3
2.5 LIMITATIONS ON EXERCISE AND VESTING OF OPTIONS . . . . . . . . . . 3

ARTICLE 3. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 RIGHTS OF PARTICIPANTS AND BENEFICIARIES . . . . . . . . . . . . . 4
3.2 ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 ACCELERATION UPON A CHANGE IN CONTROL EVENT. . . . . . . . . . . . 5
3.4 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 PLAN AMENDMENT, STOCKHOLDER APPROVAL AND SUSPENSION; CHANGES IN
OUTSTANDING OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 PRIVILEGES OF STOCK OWNERSHIP. . . . . . . . . . . . . . . . . . . 6
3.7 EFFECTIVE DATE OF PLAN . . . . . . . . . . . . . . . . . . . . . . 6
3.8 TERM OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9 LEGAL ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE 4. RESTRICTIONS ON TRANSFER AND VOTING; STATUS UNDER SHAREHOLDERS'
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 RESTRICTIONS ON TRANSFER.. . . . . . . . . . . . . . . . . . . . . 7

ARTICLE 5. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

<PAGE>

PACIFIC GREYSTONE CORPORATION
AMENDED AND RESTATED
1995 ELIGIBLE DIRECTORS STOCK OPTION PLAN

ARTICLE 1. THE PLAN

1.1 PURPOSE.

The purpose of this Plan is to promote the success of the Corporation
by providing an additional means through the grant of Options to attract,
motivate and retain experienced and knowledgeable Eligible Directors.
Capitalized terms are defined in Article 5.

1.2 ADMINISTRATION.

(a) AUTHORITY AND POWERS; INTERPRETATION. This Plan shall be, to the
maximum extent possible, self-effectuating. This Plan shall be interpreted and,
to the extent any determinations are required hereunder, shall be administered
by the Committee. Action of the Committee with respect to the administration of
this Plan shall be taken pursuant to a majority vote or by unanimous written
consent of its members. Subject to the express provisions of this Plan, the
Committee shall have the authority to construe and interpret this Plan and any
agreements defining the rights and obligations of the Corporation and
Participants under this Plan.

(b) BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, the Board or the Committee relating or pursuant to this Plan shall
be within the absolute discretion of that entity and shall be conclusive and
binding upon all persons. No member of the Board, the Committee nor any officer
of the Corporation shall be liable for any such action or inaction, except in
circumstances involving such person's bad faith.

(c) RELIANCE ON EXPERTS. In making any determination or in taking or
not taking any action under this Plan, the Board or the Committee may obtain and
may rely upon the advice of experts, including professional advisors to the
Corporation. No director, officer or agent of the Corporation shall be liable
for any such action or determination taken or made or omitted in good faith.

(d) DELEGATION. The Committee may delegate ministerial, non-
discretionary functions to individuals who are officers of the Corporation.

<PAGE>

1.3 SHARES AVAILABLE FOR OPTIONS.

Subject to the provisions of Section 3.2, the capital stock that may
be delivered under this Plan shall be shares of the Corporation's authorized but
unissued Common Stock and (if permitted under applicable state law) any shares
of its Common Stock held as treasury shares. The shares may be delivered for
any lawful consideration, but not for less than the minimum lawful consideration
under applicable state law.

(a) NUMBER OF SHARES. The maximum number of shares of Common Stock
that may be issued or delivered pursuant to Options granted to Eligible
Directors under this Plan shall not exceed 75,000 shares, subject to adjustments
contemplated by Section 3.2.

(b) CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. Shares
subject to outstanding Options shall be reserved for issuance. If any Option to
acquire shares of Common Stock under an Option shall expire or be cancelled or
terminated without having been exercised in full, the undelivered shares subject
thereto shall again be available for the purposes of this Plan; provided,
however, that if the Corporation withholds Common Stock pursuant to Section
3.10, the aggregate number of shares issuable with respect to the applicable
Option and under this Plan shall be reduced by the number of shares so withheld
and such shares shall not be available for additional Options under this Plan.

ARTICLE 2. THE OPTIONS

2.1 AUTOMATIC OPTION GRANTS. Subject to adjustments contemplated by
Section 3.2,

(a) OPTION DATE AND AMOUNT. There shall be granted to any person who
becomes an Eligible Director of the Corporation after the Board and stockholders
of the Corporation approve this Plan an Option (the Option Date of which shall
be the first day of the first month at least 10 days after the date such person
takes office) to purchase 5,000 shares of Common Stock.

(b) SUBSEQUENT OPTIONS. On the close of business on the date of the
annual shareholders meeting in each calendar year during the term of this Plan,
commencing in 1997, there shall be granted automatically (without any action by
the Board) an Option (the Option Date of which shall be the date of such annual
shareholders meeting) to purchase 1,000 shares of Common Stock, to each person
who is a continuing Eligible Director.

(c) MAXIMUM NUMBER OF SHARES. Any annual grant under Section 2.1(b)
that would otherwise exceed the maximum number of shares under Section 1.3(a)
shall be prorated within such limitation among the number of Eligible Directors
entitled thereto.

<PAGE>

(d) OPTION PRICE. The exercise price per share of the Common Stock
covered by each Option granted pursuant to Section 2.1 shall be the Fair Market
Value of the Common Stock on the Option Date.

(e) OPTION PERIOD AND EXERCISABILITY. Each Option shall become
exercisable in cumulative installments at the rate of one-third of the shares
underlying such Option on the first anniversary of the Option Date and an
additional one-third of such shares on each of the next two anniversaries
thereof.

(f) NON-QUALIFIED OPTIONS. Each Option granted under this Plan is
intended to be a non-qualified stock option (i.e., not an "incentive stock
option") under the Code and shall be so designated.

(g) OPTION AGREEMENTS. Each Option granted under this Plan shall be
evidenced by an Option Agreement substantially in the form attached hereto as
Exhibit A and shall be executed by the Participant and the Corporation.

2.2 PAYMENT OF EXERCISE PRICE.

The exercise price of any Option granted under this Plan shall be paid
in full at the time of each exercise in cash or by check or (if the Corporation
is a Public Company) in shares of Common Stock valued at their Fair Market Value
on the date of exercise of the Option, or partly in such shares and partly in
cash, PROVIDED THAT any such shares used in payment shall have been owned by the
Participant at least six months prior to the date of exercise.

2.3 OPTION PERIOD.

Each Option granted under this Plan and all rights or obligations
thereunder shall expire five (5) years after the Option Date and shall be
subject to earlier termination as provided herein.

2.4 EFFECT OF TERMINATION OF SERVICE.

If a Participant's services as a member of the Board terminate for any
reason, then any portion of an Option granted pursuant to this Plan which is not
then exercisable shall terminate and any portion of such Option which is then
exercisable may be exercised for six (6) months after the date of such
termination or until the expiration of the stated term, whichever first occurs,
and shall thereafter terminate.

2.5 LIMITATIONS ON EXERCISE AND VESTING OF OPTIONS.

(a) PROVISIONS FOR EXERCISE. To the extent an Option becomes
exercisable, it shall remain exercisable until the expiration or earlier
termination of the Option.

<PAGE>

(b) PROCEDURE. An exercisable Option may be exercised only by
delivery to the Secretary of the Corporation of written notice of such exercise
from the Participant, together with the required payment of the exercise price
and any documents required by the provisions of Sections 3.4 and 4.3.

(c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests
shall be disregarded, but may be accumulated. No fewer than 100 shares (subject
to adjustments under Section 3.2) may be purchased on exercise of any Option at
one time unless the number purchased is the total number at the time available
for purchase under the Option.

ARTICLE 3. OTHER PROVISIONS.

3.1 RIGHTS OF PARTICIPANTS AND BENEFICIARIES.

(a) NO SERVICE COMMITMENT. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Option) shall confer upon any
Participant any right to continue to serve as a director of the Corporation nor
shall interfere in any way with the right of the Corporation to change director
compensation or other benefits or to terminate the director's service as a
director, with or without cause, subject to applicable law (including any
applicable charter provisions). Nothing contained in this Plan or any document
related hereto, however, shall influence the construction or interpretation of
the Corporation's Certificate of Incorporation or Bylaws regarding service on
the Board or adversely affect any independent contractual right of any Eligible
Director without his or her consent thereto.

(b) PLAN NOT FUNDED. Options payable under this Plan shall be
payable in shares and (except as provided in Section 1.3 (b)) no special or
separate reserve, fund or deposit shall be made to assure payment of such
Options.

3.2 ADJUSTMENTS.

If there shall occur any extraordinary distribution in respect of the
Common Stock (whether in the form of Common Stock, other securities, or other
property), or any recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination, or exchange of
Common Stock or other securities of the Corporation, or a sale of substantially
all of the assets of the Corporation as an entirety, then the Committee shall,
in such manner and to such extent (if any) as may be appropriate and equitable,
(1) proportionately adjust any or all of (a) the number and type of shares of
Common Stock (or other securities) which thereafter may be made the subject of
Options (including the specific maxima and numbers of shares set forth elsewhere
in this Plan), (b) the

<PAGE>

number, amount and type of shares of Common Stock (or other securities or
property) subject to any or all outstanding Options and the vesting provisions
of the Options, (c) the grant, purchase, or exercise price of any or all
outstanding Options, (d) the securities, cash or other property deliverable upon
exercise of any outstanding Options, or (2) in the case of an extraordinary
distribution, merger, reorganization, consolidation, combination, sale of
assets, split up, exchange, or spin off, make provision for a substitution or
exchange of any or all outstanding Options or for a change in the securities,
cash or property deliverable upon exercise of outstanding Options, based upon
the distribution or consideration payable to holders of the Common Stock of the
Corporation upon or in respect of such event; PROVIDED, HOWEVER, that (i) such
adjustment and the Committee's actions in respect thereof are based on objective
criteria, (ii) such adjustment is consistent with adjustments to comparable
options (if any) held by persons other than directors of the Corporation under
any similar plan of the Corporation, and (iii) such adjustment of consideration
payable on exercise in the case of an event described in clause (2) that
involves a Change in Control Event is consistent with the terms of a
reorganization agreement (if any) approved by the shareholders of the
Corporation.

3.3 ACCELERATION UPON A CHANGE IN CONTROL EVENT.

Each Option granted under this Plan shall become immediately
exercisable in full immediately prior to adjustments contemplated by Section 3.2
upon the occurrence of a Change in Control Event; provided, however, that none
of the Options granted under this Plan shall be accelerated to a date less than
six months after the Option Date of such Option. To the extent that any Option
granted under this Plan is not exercised prior to (i) dissolution of the
Corporation or (ii) a merger or other corporate event that the Corporation does
not survive, and no provision is (or consistent with the provisions of Section
3.2 can be) made for the payment, assumption, conversion, substitution or
exchange of the Option, the Option shall terminate upon the occurrence of such
event. If a Change in Control Event under Section 5.1(c)(i), (ii) or (iii) has
occurred but the shareholder approved transaction is abandoned or terminated,
the acceleration with respect to the Options outstanding on the date of such
abandonment or termination shall be rescinded.

3.4 COMPLIANCE WITH LAWS.

This Plan, the granting and vesting of Options under this Plan and the
issuance and delivery of shares of Common Stock, and/or of other securities or
property pursuant to Section 3.2, under this Plan or under Options granted
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal tax and
securities laws) and to such approvals by any listing, regulatory or
governmental authority as may, in the

<PAGE>

opinion of counsel for the Corporation, be necessary or advisable in connection
therewith. Any securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if requested by
the Corporation, provide such assurances and representations to the Corporation,
as the Corporation may deem necessary or desirable to assure such compliance.

3.5 PLAN AMENDMENT, STOCKHOLDER APPROVAL AND SUSPENSION; CHANGES IN
OUTSTANDING OPTIONS.

(a) BOARD AUTHORIZATION. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole or in part. No
Options may be granted during any suspension of this Plan or after termination
of this Plan, but the Committee shall retain jurisdiction as to Options then
outstanding in accordance with the terms of this Plan.

(b) STOCKHOLDER APPROVAL. To the extent required by law or (if the
directors are then subject to Section 16) the provisions of Rule 16b-3 (whether
to assure disinterested administration of other plans or to assure the exempt
status of transactions under this Plan), any amendment to this Plan or any then
outstanding Option shall be subject to stockholder approval.

(c) LIMITATIONS ON AMENDMENTS TO PLAN AND OPTIONS. No amendment,
suspension or termination of this Plan or change of or affecting any outstanding
Option shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Option granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 3.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
3.5. If and for so long as the Corporation is a Public Company, the provisions
of this Plan shall not be amended more than once every six months (other than as
may be necessary to conform to any applicable changes in the Code or the rules
thereunder), unless such amendment would be consistent with the provisions of
Rule 16b-3(c)(2)(ii)(or any successor provision).

3.6 PRIVILEGES OF STOCK OWNERSHIP.

Except as otherwise expressly authorized by this Plan, a Participant
shall not be entitled to any privilege of stock ownership as to any Director
Shares prior to the satisfaction of all conditions to the valid exercise of the
Option.

3.7 EFFECTIVE DATE OF PLAN.

This Plan shall be effective as of the date of its approval by the
Board and the requisite majority of stockholders of the Corporation.

<PAGE>

3.8 TERM OF PLAN.

No Option shall be granted more than five (5) years after the
effective date of this Plan. Unless otherwise expressly provided in this Plan
or in an applicable Option Agreement, any Option theretofore granted may extend
beyond such date, and this Plan shall continue to apply thereto.

3.9 LEGAL ISSUES.

(a) CHOICE OF LAW. This Plan, the Options, all documents evidencing
Options and all other related documents shall be governed by, and construed in
accordance with the laws of the state of incorporation of the Corporation.

(b) SEVERABILITY. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.

(c) PLAN CONSTRUCTION. It is the intent of the Corporation that this
Plan and Options hereunder satisfy and be interpreted in a manner that in the
case of persons who are or may be subject to Section 16 of the Exchange Act
satisfies the applicable requirements of Rule 16b-3 so that such persons will be
entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16
of the Exchange Act, will not be subjected to avoidable liability thereunder,
and will be Disinterested for purposes of administration of other discretionary
plans of the Corporation or its affiliates. If any provision of this Plan or of
any Option would otherwise frustrate or conflict with the intent expressed
above, that provision to the extent possible shall be interpreted and deemed
amended so as to avoid such conflict, but to the extent of any remaining
irreconcilable conflict with such intent as to such persons in the
circumstances, such provision shall be disregarded.

(d) NON-EXCLUSIVITY OF PLAN. Nothing in this Plan shall limit or be
deemed to limit the authority of the Board to grant awards or authorize any
other compensation under any other plan or authority.

ARTICLE 4. RESTRICTIONS ON TRANSFER AND VOTING; STATUS UNDER SHAREHOLDERS'
AGREEMENT

4.1 RESTRICTIONS ON TRANSFER.

(a) NO TRANSFERABILITY OF OPTIONS. No Option shall be transferrable
by the Participant or, if the Participant has died, the Participant's
Beneficiary or, if the Participant has suffered a Total Disability, the
Participant's Personal Representative, if any, or shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge (other than to the Corporation), except by will or the laws of

<PAGE>

descent and distribution, or pursuant to a qualified domestic relations order as
defined under the Code. Any attempted transfer in violation of these provisions
shall be void and the Corporation shall disregard any attempt at transfer,
assignment or other alienation prohibited hereby. The designation of a
Beneficiary to receive a Director's benefits or rights under outstanding Options
in the event of such Director's death shall not constitute a transfer for these
purposes. Notwithstanding the foregoing, if and for so long as the Corporation
is a Public Company, the Committee may permit the transfer of an Option in a
particular case if to do so will not compromise the status of this Plan (or of
the subject Options (without the holder's consent) or of other Options) under
Rule 16b-3 or the disinterested administration of any of the Corporation's other
stock incentive plans that are subject to Section 16 of the Exchange Act.

ARTICLE 5. MISCELLANEOUS

5.1 DEFINITIONS.

(a) "BENEFICIARY" shall mean the person, persons, trust or trusts
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution to receive the benefits specified
in the Option Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or administrator if no other
Beneficiary is identified and able to act under the circumstances.

(b) "BOARD" shall mean the Board of Directors of the Corporation or,
with respect to administrative matters (as distinguished from Plan amendments,
suspension, or termination), any duly authorized Committee of members of the
Board designated to administer this Plan.

(c) "CHANGE IN CONTROL EVENT" shall mean the occurrence of any of the
following: (i) approval by the stockholders of the Corporation of the
dissolution or liquidation of the Corporation; (ii) approval by the stockholders
of the Corporation of an agreement to merge or consolidate, or otherwise
reorganize, with or into one or more entities that are not Subsidiaries, as a
result of which less than 50% of the outstanding voting securities of the
surviving or resulting entity immediately after the reorganization are, or will
be, owned, directly or indirectly, by stockholders of the Corporation
immediately before such reorganization (assuming for purposes of such
determination that there is no change in the record ownership of the
Corporation's securities from the record date for such approval until such
reorganization and that such record owners hold no securities of the other
parties to such reorganization, but including in such determination any
securities of the other parties to such reorganization held by affiliates of the

<PAGE>

Corporation); (iii) approval by the stockholders of the Corporation of the sale,
lease, conveyance or other disposition of all or substantially all of the
Corporation's business and/or assets to a person or entity which is not a
wholly-owned subsidiary of the Corporation; (iv) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any person
described in and satisfying the conditions of Rule 13d-1(b)(1) thereunder),
other than a person who is the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of more than 20% of the outstanding shares of Common Stock of
the Corporation at the time of the effectiveness of this Plan (or an affiliate,
successor, heir, descendent or related party of or to any such person), becomes
the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing more than 25% of
the combined voting power of the Corporation's then outstanding securities
entitled to then vote generally in the election of directors of the Corporation;
or (v) a majority of the Board of Directors of the Corporation not being
comprised of Continuing Directors. For purposes of this clause, "Continuing
Directors" are persons who were (A) members of the Board of Directors of the
Corporation at the time of adoption of this Plan or (B) nominated for election
or elected to the Board of Directors of the Corporation with the affirmative
vote of at least a majority of the directors who were Continuing Directors at
the time of such nomination or election.

(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

(e) "COMMISSION" shall mean the Securities and Exchange Commission.

(f) "COMMITTEE" shall mean the Board as a whole or a committee
appointed by the Board to administer this Plan, comprised of two or more
directors or such greater number of directors as may be required under
applicable law.

(g) "COMMON STOCK" shall mean the Common Stock of the Corporation and
such other securities or property as may become the subject of Options, or
become subject to Options, pursuant to an adjustment made under Section 3.2 of
this Plan.

(h) "CORPORATION" shall mean Pacific Greystone Corporation, a
Delaware corporation, and its successors.

(i) "DIRECTOR SHAREHOLDER" shall mean a member of the Board of
Directors who acquires shares upon exercise of an Option granted under this Plan
or, if the Director Shareholder has died, the Director Shareholder's Beneficiary
or, if the Director Shareholder has suffered a Total Disability, the Director
Shareholder's Personal Representative.

<PAGE>

(j) "DIRECTOR SHARES" shall mean the shares of Common Stock acquired
upon exercise of any Option under this Plan by a Participant (or, in the event
of the Participant's death or Total Disability, his Beneficiary or Personal
Representative, as applicable).

(k) "DISINTERESTED" shall mean disinterested for purposes of
satisfying the disinterested administration requirements of Rule 16b-3.

(l) "ELIGIBLE DIRECTOR" shall mean a member of the Board of Directors
of the Corporation who as of the applicable date of grant is NOT (1) an officer
or employee of the Corporation or any subsidiary; or (2) a person to whom equity
securities of the Corporation or an affiliate have been granted or awarded
within the prior year, under or pursuant to any other plan of the Corporation or
an affiliate (except this Plan or any other formula or ongoing securities
acquisition plan, the participation in which does NOT compromise the
disinterested administration of any other such plan under Rule 16b-3) that
provides for the grant or award of equity securities; or (3) an affiliate,
associate, officer or employee of Warburg, Pincus Investors, L.P.

(m) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

(n) "FAIR MARKET VALUE" on any specified date shall mean :

(i) if the Corporation is a Public Company: (A) if the
stock is listed or admitted to trade on a national securities
exchange, the closing price of the stock on the Composite Tape,
as published in the Western Edition of The Wall Street Journal,
of the principal national securities exchange on which the stock
is so listed or admitted to trade, on such date, or, if there is
no trading of the stock on such date, then the closing price of
the stock as quoted on such Composite Tape on the next preceding
date on which there was trading in such shares; (B) if the stock
is not listed or admitted to trade on a national securities
exchange, the last price for the stock on such date, as furnished
by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar
organization if the NASD is no longer reporting such information;
(C) if the stock is not listed or admitted to trade on a national
securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for
the stock on such date, as furnished by the NASD or a similar
organization; or

<PAGE>

(ii) if the Corporation is NOT a Public Company or the NASD
or a similar organization does not furnish the mean between the
bid and asked prices for the Common Stock on such date, the fair
value of the Common Stock as of the date of determination, on a
consolidated, fully diluted basis assuming the exercise of all
outstanding options and rights (whether or not vested), in good
faith by the members of the Board who are not eligible to
participate in this Plan or by the Committee, based on the most
recent available quarterly financial statements of the
Corporation and such other factors (including but not limited to
the liquidity of the Common Stock (and recent trading if any
therein), material developments subsequent to the end of the
period covered by such financial statements, and industry and
general economic developments) as the determining body may deem
relevant for such purposes.

(o) "OPTION" shall mean an option to purchase Common Stock authorized
and granted under this Plan.

(p) "OPTION AGREEMENT" shall mean an agreement substantially in the
form of Exhibit A, completed in the manner required by this Plan and executed on
behalf of the Corporation by an executive officer of the Corporation.

(q) "OPTION DATE" shall mean the applicable date set forth in Article
2.

(r) "PARTICIPANT" shall mean an Eligible Director who has been
granted an Option under the provisions of this Plan (including in respect of any
outstanding Options only, a person who is not eligible for additional Options).

(s) "PERSONAL REPRESENTATIVE" shall mean the person or persons who,
upon the disability or incompetence of a Participant, shall have acquired on
behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive benefits under this Plan and who shall have
become the legal representative of the Participant.

(t) "PLAN" shall mean this 1995 Eligible Directors Stock Option Plan,
as hereby amended.

(u) "PUBLIC COMPANY" shall mean a corporation, a class of the equity
securities of which is registered under Section 12 of the Exchange Act.

(v) "RULE 16b-3" shall mean Rule 16b-3 as promulgated by the
Commission pursuant to the Exchange Act, as amended from time to time.

<PAGE>

(w) "SHARE" shall have the meaning ascribed to such term in Section
4.1 hereof.

(x) "SUBSIDIARY" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.

(y) "TOTAL DISABILITY" shall mean a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code.

5.2 NOTICES.

Notices sent to the Corporation shall be sent to its principal
executive office (Attention: Corporate Secretary). Notices sent to an Optionee
or Participant shall be sent to his or her most recent address as set forth in
the Corporation's records.

<PAGE>

EXHIBIT A

PACIFIC GREYSTONE CORPORATION

ELIGIBLE DIRECTOR

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT dated as of the _____ day of _____________, ____,
between Pacific Greystone Corporation, a Delaware corporation (the
"Corporation"), and ________________ (the "Director"). Capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Amended and Restated 1995 Eligible Directors Stock Option Plan (the "Plan").

W I T N E S S E T H

WHEREAS, the Corporation has adopted and the shareholders of the
Corporation have approved the Plan.

WHEREAS, pursuant to Section 2.1 of the Plan, the Corporation has
granted an option (the "Option") to the Director upon the terms and conditions
evidenced hereby, as required by the Plan, which Option is not intended as and
shall not be deemed to be an incentive stock option within the meaning of
Section 422 of the Code.

NOW, THEREFORE, in consideration of the services rendered and to be
rendered by the Director, the Corporation and the Director agree to the terms
and conditions set forth herein, as required by the terms of the Plan.

1. OPTION GRANT. This Agreement evidences the grant to the
Director, as of ___________, ____ (the "Option Date"), of an Option to purchase
an aggregate of ___________ shares(1) of Common Stock, par value $.01 per share,
under Section 2.1 of the Plan, subject to the terms and conditions and to
adjustment as set forth herein or pursuant to the Plan and the limitations set
forth in the Plan.

2. EXERCISE PRICE. The Option entitles the Director to purchase
(subject to the terms of this Agreement and the Plan), all or any part of the
Option shares at a price per share of $________, which amount represents the
Fair Market Value of the shares on the Option Date.

- -------------------------
(1)If this is an initial award and an event requiring an adjustment under
Section 3.2 has occurred, insert adjusted number pursuant to Section 3.2 of the
Plan in lieu of ___________.

<PAGE>

3. OPTION EXERCISABILITY AND TERM. The Option shall first become
and remain exercisable as to one-third of the number of shares in Section 1 on
the first anniversary of the Option Date and as to an additional one-third of
the number of shares in Section 1 on each of the next two anniversaries thereof,
subject to adjustments under Section 3.2 of the Plan and to acceleration under
Section 3.3 of the Plan. The Option shall terminate on the day before the fifth
anniversary of the Option Date, unless earlier terminated in accordance with the
terms of Sections 2.4 and 3.2 of the Plan.

4. SERVICE AND EFFECT OF TERMINATION OF SERVICE. The Director
agrees to serve as a director in accordance with the provisions of the
Corporation's Certificate of Incorporation, bylaws and applicable law. If the
Director's services as a member of the Board shall terminate, this Option shall
terminate at the times and to the extent set forth in Section 2.4 of the Plan.

5. GENERAL TERMS. The Option and this Agreement are subject to, and
the Corporation and the Director agree to be bound by, all of the provisions of
the Plan. Such provisions are incorporated herein by this reference. The
Director acknowledges receiving a copy of the Plan and reading and understanding
its terms and provisions.

6. NONTRANSFERABILITY OF OPTION. This Option shall be non-
transferable (except in the limited circumstances set forth in Section 4.1(a) of
the Plan) and shall be exercisable only by the Director. The grant of the
Option is intended to constitute an exempt transaction under Rule 16b-3 which
does not adversely affect the disinterested administration of any of the
Corporation's other stock incentive plans subject to Section 16 of the Exchange
Act and any provisions required to effect that result shall be deemed
incorporated herein by this reference.

<PAGE>

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

PACIFIC GREYSTONE CORPORATION
(a Delaware corporation)

By ___________________________

Title _____________________

DIRECTOR

_____________________________
(Signature)

_____________________________
(Print Name)

_____________________________
(Address)

_____________________________
(City, State, Zip Code)

<PAGE>

________________________________________________________________

SPOUSAL CONSENT
________________________________________________________________

In consideration of the execution of the foregoing Stock Option
Agreement by Pacific Greystone Corporation, I, ____________________________, the
spouse of the Director therein named, do hereby agree to be bound by all of the
terms and provisions thereof and of the Plan.

DATED: ______________, 19__.

_________________________
Signature of Spouse

<PAGE>

CALIFORNIA-BASED OPTIONEE STATEMENT

REPRESENTATION RE OPTION AWARD

The undersigned recipient ("Optionee") of an Option under the Pacific Greystone
Corporation Amended and Restated 1995 Eligible Directors Stock Option Plan (the
"Plan"), evidenced by an Option Agreement dated as of __________, ____, hereby
represents, for purposes of California Corporations Code Section 25102(f) and
otherwise, that Optionee is acquiring the Option (and thus may be deemed to be
thereby acquiring the underlying shares) for Optionee's own account, for
investment and not with a view to or for sale of the Option or such shares in
connection with any distribution.

Optionee acknowledges and agrees that the Option is essentially non-transferable
under any circumstances as provided in Section 4.1 of the Plan and that unless
the issuance of the shares is registered under the Securities Act of 1933 prior
to exercise, the shares will be subject to substantial restrictions on transfer.

Executed as of the ____ day of ________________, ____.

______________________________
(Signature)

______________________________
(Print Name)

<PAGE>
FORM OF

PACIFIC GREYSTONE CORPORATION

1996 STOCK OPTION AND AWARD PLAN

<PAGE>

TABLE OF CONTENTS

PAGE

I.THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND
PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 SHARES AVAILABLE FOR AWARDS . . . . . . . . . . . . . . . . 3
1.5 GRANT OF AWARDS . . . . . . . . . . . . . . . . . . . . . . 4
1.6 AWARD PERIOD. . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS . . . . . . . 4
1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE . . . . . . . . . . 5
1.9 NO TRANSFERABILITY. . . . . . . . . . . . . . . . . . . . . 6

II. EMPLOYEE OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 GRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 OPTION PRICE. . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK
OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 LIMITS ON 10% HOLDERS . . . . . . . . . . . . . . . . . . . 8
2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF
RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS
GRANTED BY OTHER CORPORATIONS . . . . . . . . . . . . . . . 8

III. STOCK APPRECIATION RIGHTS. . . . . . . . . . . . . . . . . . . . . 9
3.1 GRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 EXERCISE OF SARS. . . . . . . . . . . . . . . . . . . . . . 9
3.3 PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 LIMITED SARS. . . . . . . . . . . . . . . . . . . . . . . . 10

IV. RESTRICTED STOCK AWARDS. . . . . . . . . . . . . . . . . . . . . . 10
4.1 GRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 RETURN TO THE CORPORATION . . . . . . . . . . . . . . . . . 11

V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES . . . . . . . . . . . . 11
5.1 GRANTS OF PERFORMANCE SHARE AWARDS. . . . . . . . . . . . . 11
5.2 GRANTS OF STOCK BONUSES . . . . . . . . . . . . . . . . . . 12
5.3 DEFERRED PAYMENTS . . . . . . . . . . . . . . . . . . . . . 12
5.4 SPECIAL PERFORMANCE-BASED SHARE AWARDS. . . . . . . . . . . 12

VI. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND
BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . 13

<PAGE>

6.2 ADJUSTMENTS; ACCELERATION . . . . . . . . . . . . . . . . . 14
6.3 TERMINATION OF SERVICE; TERMINATION OF SUBSIDIARY
STATUS; DISCRETIONARY PROVISIONS. . . . . . . . . . . . . . 15
6.4 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . 16
6.5 TAX WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . 17
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION. . . . . . . . . 17
6.7 PRIVILEGES OF STOCK OWNERSHIP . . . . . . . . . . . . . . . 18
6.8 EFFECTIVE DATE OF THIS PLAN . . . . . . . . . . . . . . . . 18
6.9 TERM OF THIS PLAN . . . . . . . . . . . . . . . . . . . . . 18
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY . . . . . . . . . . 18
6.11 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.12 NON-EXCLUSIVITY OF PLAN . . . . . . . . . . . . . . . . . . 20

VII. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 20

<PAGE>

PACIFIC GREYSTONE CORPORATION

1996 STOCK OPTION AND AWARD PLAN

I. THE PLAN.

1.1 PURPOSE.

The purpose of this Plan is to promote the success of the
Company and the interest of its stockholders by providing an additional means
through the grant of Awards to attract, motivate, retain and reward key
employees and other selected persons by providing them long-term incentives to
improve the financial performance of the Company. "Corporation" means Pacific
Greystone Corporation, a Delaware corporation, and its successors, and "Company"
means the Corporation and its Subsidiaries, collectively. These terms and other
capitalized terms are defined in Article VII.

1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.

(a) COMMITTEE. This Plan shall be administered by, and all Awards
to Eligible Employees shall be authorized by, the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.

(b) PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to
the express provisions of this Plan, the Committee shall have the authority:

(i) to determine the particular Eligible Employees who will
receive Awards;

(ii) to grant Awards to Eligible Employees, determine the
price at which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards
consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable or
shall vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion of such
Awards;

(iii) to approve the forms of Award Agreements (which need not
be identical either as to type of award or among Participants);

(iv) to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Employee
Participants

<PAGE>

under this Plan, further define the terms used in this Plan, and
prescribe, amend and rescind rules and regulations relating to the
administration of this Plan;

(v) to cancel, modify, or waive the Corporation's rights
with respect to, or modify, discontinue, suspend, or terminate any or
all outstanding Awards held by Eligible Employees, subject to any
required consent under Section 6.6;

(vi) to accelerate or extend the exercisability or extend the
term of any or all such outstanding Awards within the maximum ten-year
term of Awards under Section 1.6; and

(vii) to make all other determinations and take such other
action as contemplated by this Plan or as may be necessary or
advisable for the administration of this Plan and the effectuation of
its purposes.

(c) BINDING DETERMINATIONS. Any action taken by, or inaction of,
the Corporation, any Subsidiary, the Board or the Committee relating or pursuant
to this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.

(d) RELIANCE ON EXPERTS. In making any determination or in taking
or not taking any action under this Plan, the Committee or the Board, as the
case may be, may obtain and may rely upon the advice of experts, including
professional advisors to the Corporation. No director, officer or agent of the
Company shall be liable for any such action or determination taken or made or
omitted in good faith.

(e) DELEGATION. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of the
Company.

1.3 PARTICIPATION.

Awards may be granted by the Committee only to those persons
that the Committee determines to be Eligible Employees. An Eligible Employee
who has been granted an Award may, if otherwise eligible, be granted additional
Awards if the Committee shall so determine. Non-Employee Directors shall not be
eligible to receive any Awards.

<PAGE>

1.4 SHARES AVAILABLE FOR AWARDS.

Subject to the provisions of Section 6.2, the capital stock
that may be delivered under this Plan shall be shares of the Corporation's
authorized but unissued Common Stock. The shares may be delivered for any
lawful consideration.

(a) NUMBER OF SHARES. The maximum number of shares of Common Stock
that may be delivered pursuant to Awards granted to Eligible Employees under
this Plan shall not exceed 790,000 shares. The maximum number of shares subject
to those options and stock appreciation rights that during any calendar year are
granted to any individual shall be limited to 179,000 and the maximum number of
shares in the aggregate subject to all Awards that during any calendar year are
granted to any individual under this Plan shall be 179,000. Each of the three
foregoing numerical limits shall be subject to adjustment as contemplated by
this Section 1.4 and Section 6.2.

(b) CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. Shares
subject to outstanding Awards of derivative securities (as defined in Rule
16a-1(c) under the Exchange Act) shall be reserved for issuance. If any Option
or other right to acquire shares of Common Stock under or receive cash or shares
in respect of an Award shall expire or be cancelled or terminated without having
been exercised or paid in full, or any Common Stock subject to a Restricted
Stock Award or other Award shall not vest or be delivered, the unpurchased,
unvested or undelivered shares of Common Stock subject thereto shall again be
available for the purposes of this Plan, subject only to any applicable
limitations under Rule 16b-3 or Section 162(m) of the Code. If the Corporation
withholds shares of Common Stock pursuant to Section 6.5, the number of shares
that would have been deliverable with respect to an Award but that are withheld
pursuant to the provisions of Section 6.5 may in effect not be issued, but the
aggregate number of shares issuable with respect to the applicable Award and
under this Plan shall be reduced by the number of shares withheld and such
shares shall not be available for additional Awards under this Plan. Subject
only to the preceding sentence, Section 1.4(c) and Section 6.10(c), (1) Awards
payable solely in cash, and Awards that do not constitute equity securities as
defined in Rule 16a-1(d), shall not reduce the number of shares available for
Awards under this Plan, (2) any imputed charges to the maximum number of shares
deliverable under this Plan (through reserves or otherwise) shall be reversed in
the case of Awards actually paid in cash, and (3), to the extent any shares were
previously reserved in respect of Awards payable in cash or shares, the number
of shares not delivered shall again be available for purposes of this Plan.

(c) PROVISIONS FOR CERTAIN CASH AWARDS. The number of awards
payable solely in cash or actually paid in cash ("Cash Awards") shall be
determined by reference to the number of shares by which the value or price of
the Award is measured and shall not, together with the aggregate number of
shares theretofore delivered and subject to then outstanding Awards payable in
shares (or alternatively payable in cash or shares) under this Plan, exceed the
aggregate or individual limits of Section 1.4(a), subject to adjustments under
this Section 1.4 and Section 6.2. Cash Awards that are forfeited or

<PAGE>

for any reason are not paid in cash under this Plan may again, subject to
Section 6.10(c), be the subject of and available for subsequent Awards under the
Plan. If an Award satisfies the requirements for an exclusion from the
definition of derivative security under Rule 16a-1(c) that does not require that
the Award be made under a Rule 16b-3 plan and is not intended to constitute a
performance-based award for purposes of Section 162(m) of the Code, such Award
need not be counted against the limits under Section 1.4(a), (b) or (c).

1.5 GRANT OF AWARDS.

Subject to the express provisions of this Plan, the Committee
has the authority to determine those individuals who are Eligible Employees,
whether any of them will receive an Award and, if so, the type of Award, the
number of shares of Common Stock subject to each Award, the price (if any) to be
paid for the shares or the Award, the other terms of the Award, and, in the case
of Performance Share Awards, in addition to the matters addressed in Section
1.2(b), the specific objectives, goals and performance criteria (such as an
increase in sales, market value, earnings or book value over a base period, the
years of service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
Performance Share Award. Each Award shall be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the Participant.
The Award Agreement shall set forth the material terms and conditions of the
Award established by the Committee consistent with the specific provisions of
this Plan.

1.6 AWARD PERIOD.

Each Award and all executory rights or obligations under the
related Award Agreement shall expire on such date (if any) as shall be
determined by the Committee, but in the case of Options, stock appreciation
rights ("SARs") or other rights to acquire Common Stock not later than ten (10)
years after the Award Date.

1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.

(a) PROVISIONS FOR EXERCISE. Unless the Committee otherwise
expressly provides in the applicable Award Agreement, no Award shall be
exercisable or shall vest until at least six months after the initial Award
Date, and once exercisable an Award shall remain exercisable until the
expiration or earlier termination of the Award.

(b) PROCEDURE. Any exercisable Award shall be deemed to be
exercised when the Corporation receives written notice of such exercise from the
Participant, together with any required payment in accordance with Sections 2.2
and 6.5.

(c) FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests
shall be disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Employees that cash, other securities, or
other property will be paid or

<PAGE>

transferred in lieu of any fractional share interests. No fewer than 100 shares
may be purchased on exercise of any Award at one time unless the number
purchased is the total number at the time available for purchase under the
Award.

1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE.

The Corporation may, with the Committee's approval, accept one
or more notes from any Eligible Employee in connection with the exercise or
receipt of any outstanding Award; PROVIDED that any such note shall be subject
to the following terms and conditions:

(a) The principal of the note shall not exceed the amount required
to be paid to the Corporation upon the exercise or receipt of one or more Awards
under this Plan and the note shall be delivered directly to the Corporation in
consideration of such exercise or receipt.

(b) The initial term of the note shall be determined by the
Committee; PROVIDED that the term of the note, including extensions, shall not
exceed a period of 10 years.

(c) The note shall provide for full recourse to the Employee
Participant and shall bear interest at a rate determined by the Committee but
not less than the interest rate necessary to avoid the imputation of interest
under the Code.

(d) If the employment of the Employee Participant terminates, the
unpaid principal balance of the note shall become due and payable on the 10th
business day after such termination; PROVIDED, HOWEVER, that if a sale of such
shares would cause such Employee Participant to incur liability under Section
16(b) of the Exchange Act, the unpaid balance shall become due and payable on
the 10th business day after the first day on which a sale of such shares could
have been made without incurring such liability assuming for these purposes that
there are no other transactions (or deemed transactions in securities of this
Corporation) by the Employee Participant subsequent to such termination.

(e) If required by the Committee or by applicable law, the note
shall be secured by a pledge of any shares or rights financed thereby in
compliance with applicable law.

(f) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall conform with all
applicable laws, including rules and regulations of the Federal Reserve Board as
then in effect.

<PAGE>

1.9 NO TRANSFERABILITY.

(a) LIMIT ON EXERCISE. Except as provided herein and subject to
Section 6.10, Awards may be exercised only by, and amounts payable or shares
issuable pursuant to an Award shall be paid only to (or for the account of), the
Participant or, if the Participant has died, the Participant's Beneficiary or,
if the Participant has suffered a Disability, the Participant's Personal
Representative, if any, or if there is none, the Participant. Subject to
Section 6.4 and 6.10, the Committee may by express written authorization permit
Awards to be exercised by and/or paid to certain persons or entities related to
the Participant who are transferees of the Participant without consideration, or
to such other persons as the Committee deems appropriate, pursuant to such
conditions and procedures as the Committee in writing may establish and set
forth in or by amendment to an Award Agreement.

(b) LIMIT ON TRANSFER. No option, right or other Award granted
under this Plan including, without limitation, any undistributed performance
share or share of Restricted Stock that has not vested, shall be transferrable
by the Participant or shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge (other
than to the Corporation), except (i) by will or the laws of descent and
distribution, or (ii) pursuant to a qualified domestic relations order or
pursuant to any other exception to transfer restrictions expressly permitted by
the Committee and set forth in the Award Agreement (or an amendment thereto),
but (in the case of Awards intended to satisfy the conditions of Rule 16b-3),
only to the extent permitted by Section 6.10(d) and Rule 16b-3, and (iii) in the
case of Awards comprising Incentive Stock Options, as permitted by the Code.
The Corporation shall disregard any attempted transfer in violation of these
provisions, and the attempt shall be void.

(c) DESIGNATION OF BENEFICIARY. The designation of a Beneficiary
shall not constitute a transfer prohibited by the foregoing provisions.

II. EMPLOYEE OPTIONS

2.1 GRANTS.

One or more Options may be granted under this Article to any
Eligible Employee. Each Option granted shall be designated by the Committee in
the applicable Award Agreement as either a Nonqualified Stock Option or an
Incentive Stock Option.

2.2 OPTION PRICE.

(a) PRICING LIMITS. The purchase price per share of the Common
Stock covered by each Option shall be determined by the Committee at the time of
the Award, but in the case of Incentive Stock Options shall not be less than
100% (110% in the case

<PAGE>

of a Participant described in Section 2.4) of the Fair Market Value of the
Common Stock on the date of grant.

(b) PAYMENT PROVISIONS. The purchase price of any shares purchased
on exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by certified or cashier's check
payable to the order of the Corporation; (iii) if authorized by the Committee or
specified in the applicable Award Agreement, by a promissory note of the
Participant consistent with the requirements of Section 1.8; or (iv) by the
delivery of shares of Common Stock of the Corporation already owned by the
Participant, PROVIDED, HOWEVER, that the Committee may in its absolute
discretion limit the Participant's ability to exercise an Award by delivering
shares, and PROVIDED FURTHER that any shares delivered which were initially
acquired upon exercise of a stock option must have been owned by the Participant
at least six months as of the date of delivery. Shares of Common Stock used to
satisfy the exercise price of an Option shall be valued at their Fair Market
Value on the date of exercise. In addition to the payment methods described
above, the Committee may provide that the Option can be exercised and payment
made by delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Corporation the amount of
sale proceeds necessary to pay the exercise price and, unless otherwise allowed
by the Committee, any applicable tax withholding under Section 6.5. The
Corporation shall not be obligated to deliver certificates for the shares unless
and until it receives full payment of the exercise price therefor and any
related withholding obligations have been satisfied.

2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.

(a) $100,000 LIMIT. To the extent that the aggregate Fair Market
Value of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000, taking into
account both Common Stock subject to Incentive Stock Options under this Plan and
stock subject to incentive stock options under all other plans of the Company or
any parent corporation, such options shall be treated as nonqualified stock
options. For this purpose, the Fair Market Value of the stock subject to
options shall be determined as of the date the options were awarded. In
reducing the number of options treated as incentive stock options to meet the
$100,000 limit, the most recently granted options shall be reduced first. To
the extent a reduction of simultaneously granted options is necessary to meet
the $100,000 limit, the Committee may, in the manner and to the extent permitted
by law, designate which shares of Common Stock are to be treated as shares
acquired pursuant to the exercise of an Incentive Stock Option.

(b) OPTION PERIOD. Each Option and all rights thereunder shall
expire no later than ten years after the Award Date or at such earlier time as
provided in or pursuant to Section 6.3.

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(c) OTHER CODE LIMITS. There shall be imposed in any Award
Agreement relating to Incentive Stock Options such terms and conditions as from
time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.

(d) OPTIONEE NOTICE REQUIREMENT. A holder of shares of Common
Stock acquired upon exercise of an Incentive Stock Option shall give written
notice to the Company of the disposition of the shares within two years of the
Award Date or one year of the date of exercise.

2.4 LIMITS ON 10% HOLDERS.

No Incentive Stock Option may be granted to any person who, at
the time the Option is granted, owns (or is deemed to own under Section 424(d)
of the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation, unless
the exercise price of such Option is at least 110% of the Fair Market Value of
the stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.

2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF
RESTRICTIONS.

Subject to Section 1.4 and Section 6.6 and the specific
limitations on Awards contained in this Plan, the Committee from time to time
may authorize, generally or in specific cases only, for the benefit of any
Eligible Employee any adjustment in the exercise or purchase price, the vesting
schedule, the number of shares subject to, the restrictions upon or the term of,
an Award granted under this Article by cancellation of an outstanding Award and
a subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such amendment or
other action may result, among other changes, in an exercise or purchase price
which is higher or lower than the exercise or purchase price of the original or
prior Award, provide for a greater or lesser number of shares subject to the
Award, or provide for a longer or shorter vesting or exercise period.

2.6 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY
OTHER CORPORATIONS.

Options and Stock Appreciation Rights may be granted to
Eligible Employees under this Plan in substitution for employee stock options
granted by other entities to persons who are or who become employees of the
Company, in connection with a distribution, merger or reorganization by or with
the granting entity or an affiliated entity, or the acquisition by the Company,
directly or indirectly, of all or a substantial part of the stock or assets of
the employing entity.

<PAGE>

III. STOCK APPRECIATION RIGHTS.

3.1 GRANTS.

In its discretion, the Committee may grant to any Eligible
Employee SARs concurrently with the grant of Options [or other Awards or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award, all] on such terms as set forth by the Committee in the Award
Agreement. Any SAR granted in connection with an Incentive Stock Option shall
contain such terms as may be required to comply with the provisions of Section
422 of the Code and the regulations promulgated thereunder, unless the holder
otherwise agrees.

3.2 EXERCISE OF SARS.

(a) EXERCISABILITY. An SAR granted independently of any other
Award shall be exercisable pursuant to the terms of the Award Agreement. Unless
the Award Agreement or the Committee otherwise provides, an SAR related to
another Award shall be exercisable at such time or times, and to the extent,
that the related Award shall be exercisable and only when the Fair Market Value
of the stock subject to the related Award exceeds the base price of the SAR.

(b) EFFECT ON AVAILABLE SHARES. To the extent that a SAR is
exercised, the number of shares of Common Stock subject to any related Award
shall be charged against the maximum amount of Common Stock that may be
delivered pursuant to Awards under this Plan. The number of shares subject to
the SAR and the related Award of the Participant shall also be reduced by such
number of shares, unless the Award Agreement otherwise provides.

(c) PROPORTIONATE REDUCTION. If an SAR extends to less than all
the shares covered by the related Award and if a portion of the related Award is
thereafter exercised, the number of shares subject to the unexercised SAR shall
be reduced only if and to the extent that the remaining number of shares covered
by such related Award is less than the remaining number of shares subject to the
SAR.

3.3 PAYMENT.

(a) AMOUNT. Unless the Committee otherwise provides in the
applicable Award Agreement, upon exercise of an SAR and surrender of an
exercisable portion of any related Award (to the extent required by Section
3.2), the Participant shall be entitled to receive, subject to Section 6.5,
payment of an amount determined by multiplying

(i) the difference obtained by subtracting the base price
per share of Common Stock under the SAR from the Fair Market Value of
a share of Common Stock on the date of exercise of the SAR, by

<PAGE>

(ii) the number of shares with respect to which the SAR shall
have been exercised.

(b) FORM OF PAYMENT. The Committee, in its sole discretion, shall
determine the form in which payment shall be made of the amount determined under
paragraph (a) above, either solely in cash, solely in shares of Common Stock
(valued at Fair Market Value on the date of exercise of the SAR), or partly in
such shares and partly in cash, provided that the Committee shall have
determined that such exercise and payment are consistent with applicable law.
If the Committee permits the Participant to elect to receive cash or shares (or
a combination thereof) on such exercise, any such election shall be subject to
such conditions as the Committee may impose and, in the case of any Section 16
Person, any election to receive cash shall be subject to any applicable
limitations under Rule 16b-3, unless the Committee otherwise provides.

3.4 LIMITED SARS.

The Committee may grant to any Eligible Employee SARs
exercisable only upon or in respect of a change in control or any other
specified event ("Limited SARs") and such Limited SARs may relate to or operate
in tandem or combination with or substitution for Options, other SARs or other
Awards (or any combination thereof), and may be payable in cash or shares based
on the spread between the base price of the SAR and a price based upon or equal
to the Fair Market Value of the Shares during a specified period (not more than
seven months) or at a specified time within a period of not more than seven
months before, after or including the date of such event.

IV. RESTRICTED STOCK AWARDS.

4.1 GRANTS.

The Committee may, in its discretion, grant one or more
Restricted Stock Awards to any Eligible Employee. Each Restricted Stock Award
Agreement shall specify the number of shares of Common Stock to be issued to the
Participant, the date of such issuance, the consideration for such shares (but
not less than the minimum lawful consideration under applicable state law) by
the Participant, the extent (if any) to which and the time (if ever) at which
the Participant shall be entitled to dividends, voting and other rights in
respect of the shares prior to vesting, and the restrictions (which may be based
on performance criteria, passage of time or other factors or any combination
thereof) imposed on such shares and the conditions of release or lapse of such
restrictions. Such restrictions shall not lapse earlier than one year after the
Award Date, except to the extent the Committee may otherwise provide in the
applicable Award Agreement. Stock certificates evidencing shares of Restricted
Stock pending the lapse of the restrictions ("Restricted Shares") shall bear a
legend making the appropriate reference to the restrictions imposed hereunder
and shall be held by the Corporation or

<PAGE>

by a third party designated by the Committee until the restrictions on such
shares shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award and Section 1.7(a). Upon issuance of the Restricted
Stock Award, the Participant may be required to provide such further assurance
and documents as the Committee may require to enforce the restrictions.

4.2 RESTRICTIONS.

(a) PRE-VESTING RESTRAINTS. Except as provided in Section 4.1 and
1.9, restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares become vested.

(b) DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
applicable Award Agreement, the holder of a Restricted Stock Award shall not be
entitled to receive dividends on any of the shares of Restricted Stock until the
shares vest. Dividends so restricted shall be retained in a restricted account
until the shares have vested and shall revert to the Corporation if they fail to
vest. Holders of Restricted Stock shall be entitled to vote (or instruct
voting) prior to vesting.

(c) CASH PAYMENTS. If the Participant shall have paid or received
cash (including any dividends) or other property in connection with the
Restricted Stock Award, the Award Agreement shall specify whether and to what
extent such cash or other property shall be returned (with or without an
earnings factor) as to shares of Restricted Stock which do not vest.

4.3 RETURN TO THE CORPORATION.

Unless the Committee otherwise expressly provides, shares of
Restricted Stock that are subject to restrictions at the time of termination of
employment or are subject to other conditions to vesting that have not been
satisfied by the time specified in the applicable Award Agreement shall not vest
and shall be returned to the Corporation in such manner and on such terms as the
Committee shall therein provide.

V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.

5.1 GRANTS OF PERFORMANCE SHARE AWARDS.

The Committee may, in its discretion, grant Performance Share
Awards to Eligible Employees based upon such factors, which in the case of any
Award to a Section 16 Person shall include but not be limited to the
contributions, responsibilities and other compensation of the person as the
Committee shall deem relevant in light of the specific type and terms of the
award. An Award Agreement shall

<PAGE>

specify the maximum number of shares of Common Stock (if any) subject to the
Performance Share Award, the consideration (but not less than the minimum lawful
consideration) to be paid for any such shares as may be issuable to the
Participant, the duration of the Award and the conditions upon which delivery of
any shares or cash to the Participant shall be based. The amount of cash or
shares or other property that may be deliverable pursuant to such Award shall be
based upon the degree of attainment over a specified period of not more than ten
years (a "performance cycle") as may be established by the Committee of such
measure(s) of the performance of the Company (or any part thereof) or the
Participant as may be established by the Committee. The Committee may provide
for full or partial credit, prior to completion of such performance cycle or the
attainment of the performance achievement specified in the Award, in the event
of the Participant's death, Retirement, or Total Disability, a Change in Control
Event or in such other circumstances as the Committee (consistent with Section
6.10(c)(2), if applicable) may determine.

5.2 GRANTS OF STOCK BONUSES.

The Committee may grant a Stock Bonus to any Eligible Employee
to reward exceptional or special services, contributions or achievements in the
manner and on such terms and conditions (including any restrictions on such
shares) as determined from time to time by the Committee. The number of shares
so awarded shall be determined by the Committee. The Award may be granted
independently or in lieu of a cash bonus.

5.3 DEFERRED PAYMENTS.

The Committee may authorize for the benefit of any Eligible
Employee the deferral of any payment of cash or shares that may become due or of
cash otherwise payable under this Plan, and provide for accreted benefits
thereon based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferment shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.

5.4 SPECIAL PERFORMANCE-BASED SHARE AWARDS

Without limiting the generality of the foregoing, and in
addition to awards granted under other provisions of this Plan, other
performance-based awards within the meaning of Section 162(m) of the Code
("Performance-Based Awards"), whether in the form of restricted stock,
performance stock, phantom stock or other rights, the vesting of which depends
on the performance of the Company on a consolidated, segment, subsidiary or
division basis with reference to net earnings (before or after tax), cash flow,
return on equity or on assets or on net investment, or cost containment or
reduction, or any combination thereof (the "criteria") relative to
preestablished performance goals, may be granted under this Plan. The
applicable business

<PAGE>

criteria and specific performance goal or goals ("targets") must be approved by
the Committee in advance of applicable deadlines under the Code and while the
performance relating to such targets remains substantially uncertain. The
applicable performance measurement period may be not less than one nor more than
ten years. Performance targets may be adjusted to mitigate the unbudgeted
impact of material, unusual or nonrecurring gains and losses, accounting changes
or other extraordinary events not foreseen at the time the targets were set.

(a) ELIGIBLE CLASS. The eligible class of persons for Awards under
this Section 5.4 shall be executive officers of the Company.

(b) MAXIMUM AWARD. In no event shall grants made in any fiscal
year to any eligible person under this Section 5.4 relate to more than 143,500
shares or, if payable in cash, a cash amount of more than $3.5 million.

(c) COMMITTEE CERTIFICATION. Before any Performance-Based Award
under this Section 5.4 is paid, the Committee must certify that the material
terms of the Performance-Based Award were satisfied.

(d) TERMS AND CONDITIONS OF AWARDS. The Committee will have
discretion to determine the restrictions or other limitations of the individual
Awards under this Section 5.4, including the authority to reduce Awards, payouts
or vesting or to pay no Awards, in its sole discretion, if the Committee
preserves such authority at the time of grant by language to this effect in its
authorizing resolutions, the applicable Award Agreement or otherwise.

VI. OTHER PROVISIONS.

6.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES.

(a) EMPLOYMENT STATUS. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.

(b) NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Award) shall confer upon any
Eligible Employee or other Participant any right to continue in the employ or
other service of the Company or constitute any contract or agreement of
employment or other service, nor shall interfere in any way with the right of
the Company to change such person's compensation or other benefits or to
terminate the employment of such person, with or without cause, but nothing
contained in this Plan or any document related hereto shall adversely affect any
independent contractual right or duty of such person without the consent of the
party to be bound.

<PAGE>

(c) PLAN NOT FUNDED. Awards payable under this Plan shall be
payable in shares or from the general assets of the Corporation, and (except as
provided in Section 1.4(b)), no special or separate reserve, fund or deposit
shall be made to assure payment of such Awards. No Participant, Beneficiary or
other person shall have any right, title or interest in any fund or in any
specific asset (including shares of Common Stock, except as expressly otherwise
provided) of the Company by reason of any Award hereunder. Neither the
provisions of this Plan (nor of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the provisions of this
Plan shall create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary or other
person. To the extent that a Participant, Beneficiary or other person acquires
a right to receive payment pursuant to any Award hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Company.

6.2 ADJUSTMENTS; ACCELERATION.

(a) ADJUSTMENTS. If there shall occur any extraordinary dividend
or other extraordinary distribution in respect of the Common Stock (whether in
the form of cash, Common Stock, other securities, or other property), or any
reclassification, recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination, repurchase, or
exchange of Common Stock or other securities of the Corporation, or there shall
occur any similar extraordinary corporate transaction (or event in respect of
the Common Stock) or a sale of substantially all the assets of the Corporation
as an entirety, then the Committee shall, in such manner and to such extent (if
any) as it deems appropriate and equitable (1) proportionately adjust any or all
of (a) the number and type of shares of Common Stock (or other securities) which
thereafter may be made the subject of Awards (including the specific maxima and
numbers of shares set forth elsewhere in this Plan), (b) the number, amount and
type of shares of Common Stock (or other securities or property) subject to any
or all outstanding Awards, (c) the grant, purchase, or exercise price of any or
all outstanding Awards, (d) the securities, cash or other property deliverable
upon exercise of any outstanding Awards, and/or (e) the performance standards
appropriate to any outstanding Awards, or (2) in the case of an extraordinary
dividend or other distribution, recapitalization, reclassification,
reorganization, merger, consolidation, combination, sale of assets, split up,
exchange, or spin off, make provision for a cash payment or for the substitution
or exchange of any or all outstanding Awards (or the cash, securities or
property deliverable to the holder of any or all outstanding Awards) based upon
the distribution or consideration payable to holders of the Common Stock of the
Corporation upon or in respect of such event; PROVIDED, HOWEVER, in each case,
that with respect to Awards of Incentive Stock Options, no such adjustment shall
be made which would cause the Plan to violate Section 424(a) of the Code or any
successor provisions thereto without the written consent of holders materially
adversely affected thereby. In any of such events, the Committee may take such
action sufficiently prior to such event if necessary to permit the Participant
to

<PAGE>

realize the benefits intended to be conveyed with respect to the underlying
shares in the same manner as is available to shareholders generally.

(b) ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Unless prior to
a Change in Control Event the Committee determines that, upon its occurrence,
there shall be no acceleration of benefits under Awards or determines that only
certain or limited benefits under Awards shall be accelerated and the extent to
which they shall be accelerated, and/or establishes a different time in respect
of such Event for such acceleration, then upon the occurrence of a Change in
Control Event

(i) each Option and SAR shall become immediately
exercisable,

(ii) Restricted Stock shall immediately vest free of
restrictions, and

(iii) the number of shares, cash or other property covered by
each Performance Share Award shall be issued to the Participant;

PROVIDED, HOWEVER, that in no event shall any Award be accelerated as to any
Section 16 Person to a date less than six months after the Award Date of such
Award. The Committee may override the limitations on acceleration in this
Section 6.2(b) by express provision in the Award Agreement and may accord any
Eligible Employee a right to refuse any acceleration, whether pursuant to the
Award Agreement or otherwise, in such circumstances as the Committee may
approve. Any acceleration of Awards shall comply with applicable legal
requirements.

(c) POSSIBLE EARLY TERMINATION OF ACCELERATED AWARDS. If any
Option or other right to acquire Common Stock under this Plan has been fully
accelerated as permitted by Section 6.2(b), the holder thereof has been accorded
an opportunity to exercise or otherwise realize the benefits thereof and the
Option or other right is not exercised prior to (i) a dissolution of the
Corporation, or (ii) an event described in Section 6.2(a) that the Corporation
does not survive, or (iii) the consummation of an event described in Section
6.2(a) that results in a Change of Control approved by the Board, the Option or
right shall thereupon terminate, subject to any provision that has been
expressly made by the Committee for the survival, substitution, exchange or
other settlement of the Option or right.

6.3 TERMINATION OF SERVICE; TERMINATION OF SUBSIDIARY STATUS;
DISCRETIONARY PROVISIONS.

(a) OPTIONS/SAR - RESIGNATION OR DISMISSAL. Unless the Committee
otherwise provides in the applicable Award Agreement, if the Participant's
employment by or service to the Company terminates for any reason other than
Retirement, Total Disability or death, the Participant shall have, subject to
earlier termination pursuant to

<PAGE>

or as contemplated by Section 1.6 or 6.2, three months from the date of
termination to exercise any Option to the extent it shall have become
exercisable on the date of termination, and any Option to the extent not
exercisable on that date shall terminate.

(b) OPTIONS/SAR - RETIREMENT, DEATH OR DISABILITY. Unless the
Committee otherwise provides in the applicable Award Agreement, and except for
limitations under the Code in respect of ISOs, if the Participant's employment
by or service to the Company terminates as a result of Retirement, Total
Disability or death, the Participant, Participant's Personal Representative or
his or her Beneficiary, as the case may be, shall have, subject to earlier
termination pursuant to or as contemplated by Section 1.6, ___ months from the
date of termination to exercise any Option or SAR to the extent it shall have
become exercisable by the date of termination, and any Option or SAR to the
extent not exercisable on that date shall terminate.

(c) CERTAIN SARS. Each SAR granted concurrently or in tandem with
an Option shall have the same post-termination provisions and exercisability
periods as the Option to which it relates, unless the Committee otherwise
provides.

(d) OTHER AWARDS. The Committee shall establish in respect of each
other Award granted hereunder the Participant's rights and benefits (if any) in
the event of a termination of employment or service and in so doing may make
distinctions based upon the cause of termination and the nature of the Award.

(e) CHANGE IN SUBSIDIARY STATUS/CHANGE IN SERVICE. For purposes of
this Plan and any Award hereunder, if an entity ceases to be a Subsidiary, a
termination of employment shall be deemed to have occurred with respect to each
employee of such Subsidiary who does not continue as an employee of another
entity owned, controlled by or under common control with the Company. In the
case of Awards to or held by an Other Eligible Person, the Committee shall
determine the applicable service requirements and the effect of a change in the
extent, status or terms of service.

(f) COMMITTEE DISCRETION. Notwithstanding the foregoing provisions
of this Section 6.3, in the event of, or in anticipation of, a termination of
employment or service with the Company for any reason, other than discharge for
cause, the Committee may, in its discretion, increase the portion of the
Participant's Award available to the Participant, or Participant's Beneficiary
or Personal Representative, as the case may be, or, subject to the provisions of
Section 1.6, extend the exercisability period upon such terms as the Committee
shall determine and expressly set forth in or by amendment to the Award
Agreement.

6.4 COMPLIANCE WITH LAWS.

This Plan, the granting and vesting of Awards under this Plan
and the offer, issuance and delivery of shares of Common Stock and/or the
payment of money under this Plan or under Awards granted hereunder are subject
to compliance with all

<PAGE>

applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin requirements) and
to such approvals by any listing, agency or any regulatory or governmental
authority as may, in the opinion of counsel for the Corporation, be necessary or
advisable in connection therewith. Any securities delivered under this Plan
shall be subject to such restrictions, and the person acquiring such securities
shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.

6.5 TAX WITHHOLDING.

Upon any exercise, vesting, or payment of any Award (or upon
the disposition of shares of Common Stock acquired pursuant to the exercise of
an Incentive Stock Option prior to satisfaction of the holding period
requirements of Section 422 of the Code), the Company shall have the right at
its option to (i) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of the amount of
any taxes which the Company may be required to withhold with respect to such
Award event or payment or (ii) deduct from any amount payable the amount of any
taxes which the Company may be required to withhold with respect to such cash
payment. In any case where a tax is required to be withheld in connection with
the delivery of shares of Common Stock under this Plan, the Committee may in its
sole discretion grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the appropriate
number of shares valued at their then Fair Market Value, to satisfy such
withholding obligation.

6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.

(a) BOARD OR COMMITTEE AUTHORIZATION. The Board may, at any time,
terminate or, from time to time, amend, modify or suspend this Plan, in whole or
in part. No Awards may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee shall retain jurisdiction as to
Awards then outstanding in accordance with the terms of this Plan.

(b) SHAREHOLDER APPROVAL. To the extent then required by Rule
16b-3 to secure benefits thereunder or to avoid liability under Section 16 of
the Exchange Act (and Rules thereunder) or required under Sections 422 and 424
of the Code or any other applicable law, or deemed necessary or advisable by the
Board, any amendment to this Plan shall be subject to shareholder approval.

(c) AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under, but subject to the express limits, of this
Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Eligible Employees that the Committee in the prior
exercise of its discretion has

<PAGE>

imposed, without the consent of a Participant, and may make other changes to the
terms and conditions of Awards that do not affect, in any manner materially
adverse to the Employee Participant, his or her rights and benefits under an
Award.

(d) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of this Plan or change of or affecting any outstanding
Award shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 shall
not be deemed to constitute changes or amendments for purposes of this
Section 6.6.

6.7 PRIVILEGES OF STOCK OWNERSHIP.

Except as otherwise expressly authorized by the Committee or
this Plan, a Participant shall not be entitled to any privilege of stock
ownership as to any shares of Common Stock not actually delivered to and held of
record by him or her. No adjustment will be made for dividends or other rights
as a shareholders for which a record date is prior to such date of delivery.

6.8 EFFECTIVE DATE OF THIS PLAN.

This Plan shall be effective as of the date it is approved by
the Board, subject to approval of the shareholders of the Corporation.

6.9 TERM OF THIS PLAN.

No Award shall be granted under this Plan after January 31,
2006 (the "termination date"). Unless otherwise expressly provided in this Plan
or in an applicable Award Agreement, any Award granted prior to the termination
date may extend beyond such date, and all authority of the Committee with
respect to Awards hereunder, including the authority to amend an Award, shall
continue during any suspension of this Plan and shall continue in respect of
Awards outstanding on the termination date.

6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.

(a) CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California.

(b) SEVERABILITY. If any provision shall be held by a court of
competent jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.

<PAGE>

(1) RULE 16b-3; BIFURCATION. It is the intent of the
Corporation that this Plan and Awards hereunder satisfy and be
interpreted in a manner that in the case of Participants who are or
may be subject to Section 16 of the Exchange Act satisfies the
applicable requirements of Rule 16b-3 so that such persons (unless
they otherwise agree) will be entitled to the benefits of Rule 16b-3
or other exemptive rules under Section 16 of the Exchange Act and will
not be subjected to avoidable liability thereunder. If any provision
of this Plan or of any Award would otherwise frustrate or conflict
with the intent expressed above, that provision to the extent possible
shall be interpreted and deemed amended so as to avoid such conflict,
but to the extent of any remaining irreconcilable conflict with such
intent as to such persons in the circumstances, such provision shall
be disregarded. Notwithstanding anything to the contrary in this
Plan, the provisions of this Plan may at any time be bifurcated by the
Board or the Committee in any manner so that certain provisions of
this Plan or any Award Agreement intended (or required in order) to
satisfy the applicable requirements of Rule 16b-3 are only applicable
to Section 16 Persons and to those Awards to Section 16 Persons
intended to satisfy the requirements of Rule 16b-3.

(2) SECTION 162(m). It is the further intent of the Company
that Options or SARs with an exercise or base price not less than Fair
Market Value on the date of grant and performance awards under Section
5.4 of this Plan that are granted to or held by an executive officer
of the Corporation shall (if so designated by the Committee) qualify
as performance-based compensation under Section 162(m) of the Code,
and this Plan shall be interpreted consistent with such intent.

(d) TRANSITION PERIOD PROVISIONS. During the applicable transition
period under new Rule 16b-3, any derivative security the grant of which is
intended to be exempt from Rule 16b-3 shall not be transferable other than as
permitted by former Rule 16b-3(d)(ii), and the consideration for any grant or
award shall conform to any additional limitations under former Rule 16b-3.

6.11 CAPTIONS.

Captions and headings are given to the sections and subsections
of this Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of this Plan or any provision thereof.

<PAGE>

6.12 NON-EXCLUSIVITY OF PLAN.

Nothing in this Plan shall limit or be deemed to limit the
authority of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.

VII. DEFINITIONS.

7.1 DEFINITIONS.

(a) "AWARD" shall mean an award of any Option, SAR, Restricted
Stock, Stock Bonus, Performance-Based Award or other Performance Share Award,
dividend equivalent or deferred payment right or other right or security that
would constitute a "derivative security" under Rule 16a-1(c) of the Exchange
Act, or any combination thereof, whether alternative or cumulative, authorized
by and granted under this Plan.

(b) "AWARD AGREEMENT" shall mean any writing setting forth the
terms of an Award that has been authorized by the Committee.

(c) "AWARD DATE" shall mean the date upon which the Committee took
the action granting an Award or such later date as the Committee designates as
the Award Date.

(d) "AWARD PERIOD" shall mean the period beginning on an Award Date
and ending on the expiration date of such Award.

(e) "BENEFICIARY" shall mean the person, persons, trust or trusts
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution, to receive the benefits specified
in the Award Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or administrator if no other
Beneficiary is designated and able to act under the circumstances.

(f) "BOARD" shall mean the Board of Directors of the Corporation.

(g) "CHANGE IN CONTROL EVENT" shall mean any of the following:

(1) Approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation;

(2) Approval by the shareholders of the Corporation of an
agreement to merge or consolidate, or otherwise reorganize, with or
into one or more entities that are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the
surviving or resulting entity immediately

<PAGE>

after the reorganization are, or will be, owned, directly or
indirectly, by shareholders of the Corporation immediately before such
reorganization (assuming for purposes of such determination that there
is no change in the record ownership of the Corporation's securities
from the record date for such approval until such reorganization and
that such record owners hold no securities of the other parties to
such reorganization, but including in such determination any
securities of the other parties to such reorganization held by
affiliates of the Corporation);

(3) Approval by the shareholders of the Corporation of the
sale, lease, conveyance or other disposition of all or substantially
all of the Corporation's business and/or assets to a person or entity
which is not a Subsidiary;

(4) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act but excluding any person described in and
satisfying the conditions of Rule 13d-1(b)(1) thereunder), other than
a person who is the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of more than 20% of the outstanding Shares of Common
Stock at the time of adoption of this Plan (or an affiliate,
successor, heir, descendent or related party of or to any such
person), becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) directly or indirectly, of securities of the
Corporation representing more than 25% of the combined voting power of
the Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation; or

(5) A majority of the Board of Directors of the Company not
being comprised of Continuing Directors. For purposes of this clause,
"Continuing Directors" are persons who were (A) members of the Board
of Directors of the Company at the time of adoption of this Plan or
(B) nominated for election or elected to the Board of Directors of the
Company with the affirmative vote of at least a majority of the
directors who were Continuing Directors at the time of such nomination
or election.

(h) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

(i) "COMMISSION" shall mean the Securities and Exchange Commission.

(j) "COMMITTEE" shall mean a committee appointed by the Board to
administer this Plan, which committee shall be comprised of at least two
directors, each of whom, during such time as one or more Participants may be
subject to Section 16 of the Exchange Act, shall be Disinterested; PROVIDED,
that until the Corporation has a class of securities registered pursuant to
Section 12 of the Exchange Act and the applicable transition period under Rule
16b-3 has expired, the Board as a whole shall comprise the

<PAGE>

Committee without regard to whether its members are "Disinterested" unless the
Board has appointed a committee comprised of at least three Disinterested
directors to administer the Plan.

(k) "COMMON STOCK" shall mean the Common Stock of the Corporation
and such other securities or property as may become the subject of Awards, or
become subject to Awards, pursuant to an adjustment made under Section 6.2 of
this Plan.

(l) "COMPANY" shall mean, collectively, the Corporation and its
Subsidiaries.

(m) "CORPORATION" shall mean Pacific Greystone Corporation, a
Delaware corporation, and its successors.

(n) "DISINTERESTED" shall mean disinterested or "outside" director
within the meaning of any applicable regulatory requirements, including Rule
16b-3 and Section 162(m) of the Code.

(o) "ELIGIBLE EMPLOYEE" shall mean an officer (whether or not a
director) or key employee of the Company, or any Other Eligible Person, as
determined by the Committee in its discretion.

(p) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.

(q) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended from time to time.

(r) "FAIR MARKET VALUE" on any date shall mean (i) if the stock is
listed or admitted to trade on a national securities exchange, the closing price
of the stock on the Composite Tape, as published in the Western Edition of THE
WALL STREET JOURNAL, of the principal national securities exchange on which the
stock is so listed or admitted to trade, on such date, or, if there is no
trading of the stock on such date, then the closing price of the stock as quoted
on such Composite Tape on the next preceding date on which there was trading in
such shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD or a similar organization; or (iv) if the
stock is not listed or admitted to trade on a national securities exchange, is
not reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by

<PAGE>

the NASD or a similar organization, the value as established by the Committee at
such time for purposes of this Plan.

(s) "INCENTIVE STOCK OPTION" shall mean an Option which is
designated and intended as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions (including
but not limited to the receipt of shareholder approval of this Plan, if the
award is made prior to such approval) and is made under such circumstances and
to such persons as may be necessary to comply with that section.

(t) "NONQUALIFIED STOCK OPTION" shall mean an Option that is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.

(u) "OPTION" shall mean an option to purchase Common Stock under
this Plan. The Committee shall designate any Option granted to an Eligible
Employee as a Nonqualified Stock Option or an Incentive Stock Option.

(v) "OTHER ELIGIBLE PERSON" shall mean any individual consultant or
advisor, or (to the extent provided in the next sentence) agent, who (A) renders
or has rendered BONA FIDE services (other than services in connection with the
offering or sale of securities of the Company in a capital raising transaction)
to the Company, (B) is not a director of the Corporation, and (C) is selected to
participate in this Plan by the Committee. A non-employee agent providing BONA
FIDE services to the Company (other than as an eligible advisor or consultant)
may also be selected as an Other Eligible Person if such agent's participation
in this Plan would not adversely affect (x) the Corporation's eligibility to use
Form S-8 to register under the Securities Act the offer and sale by the Company
of shares issuable under this Plan or (y) the Corporation's compliance with any
other applicable laws.

(w) "PARTICIPANT" shall mean an Eligible Employee who has been
granted an Award under this Plan.

(x) "PERFORMANCE SHARE AWARD" shall mean an award of a right to
receive shares of Common Stock under Section 5.1, or to receive shares of Common
Stock or other compensation (including cash) under Section 5.4, the issuance or
payment of which is contingent upon, among other conditions, the attainment of
performance objectives specified by the Committee.

(y) "PERSONAL REPRESENTATIVE" shall mean the person or persons who,
upon the disability or incompetence of a Participant, shall have acquired on
behalf of the Participant, by legal proceeding or otherwise, the power to
exercise the rights or receive

<PAGE>

benefits under this Plan by virtue of having become the legal representative of
the Participant.

(z) "PLAN" shall mean this Pacific Greystone Corporation 1996 Stock
Option and Award Plan.

(aa) "RESTRICTED STOCK" shall mean shares of Common Stock awarded to
a Participant subject to payment of such consideration, if any, and such
conditions on vesting (which may include, among others, the passage of time,
specified performance objectives or other factors) and such transfer and other
restrictions as are established in or pursuant to this Plan and the related
Award Agreement, for so long as such shares remain unvested under the terms of
the applicable Award Agreement.

(bb) "RETIREMENT" shall mean retirement with the consent of the
Company or retirement from active service as an employee or officer of the
Company on or after attaining age 65.

(cc) "RULE 16b-3" shall mean Rule 16b-3 as promulgated by the
Commission pursuant to the Exchange Act, as amended from time to time, but
subject to any applicable transition rules.

(dd) "SECTION 16 PERSON" shall mean a person subject to Section
16(a) of the Exchange Act.

(ee) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended from time to time.

(ff) "STOCK APPRECIATION RIGHT" or "SAR" shall mean a right
authorized under this Plan to receive a number of shares of Common Stock or an
amount of cash, or a combination of shares and cash, the aggregate amount or
value of which is determined by reference to a change in the Fair Market Value
of the Common Stock.

(gg) "STOCK BONUS" shall mean an Award of shares of Common Stock for
no consideration other than past services and without restriction other than
such transfer or other restrictions as the Committee may deem advisable to
assure compliance with law.

(hh) "SUBSIDIARY" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.

(ii) "TOTAL DISABILITY" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code and such other
disabilities, infirmities, afflictions or conditions as the Committee by rule
may include.

<PAGE>
FORM OF
PACIFIC GREYSTONE CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the 1996 Employee Stock
Purchase Plan of Pacific Greystone Corporation.

1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.

2. DEFINITIONS.

(a) "BOARD" shall mean the Board of Directors of the Company.

(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.

(d) "COMPANY" shall mean Pacific Greystone Corporation, a
Delaware corporation.

(e) "COMPENSATION" shall mean all regular straight time gross
earnings, payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses, commissions and other cash compensation.

(f) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.

(g) "CONTRIBUTIONS" shall mean all amounts credited to the
account of a participant pursuant to the Plan.

(h) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the

<PAGE>

Plan (including any Subsidiaries which have been so designated after the date
the Plan is approved by stockholders).

(i) "EMPLOYEE" shall mean any person, including an officer, who
is customarily employed for at least twenty (20) hours per week and more than
five (5) months in a calendar year by the Company or one of its Designated
Subsidiaries.

(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.

(k) "EXERCISE DATE" shall mean the last day of each Offering
Period of the Plan.

(l) "OFFERING DATE" shall mean the first business day of each
Offering Period of the Plan, except that in the case of an individual who
becomes an eligible Employee after the first business day of an Offering Period
but prior to the first business day of the three months of such Offering Period,
the term "Offering Date" shall mean the first business day of the calendar
quarter coinciding with or next succeeding the day on which that individual
becomes an eligible Employee.

Options granted after the first business day of an Offering
Period will be subject to the same terms as the options granted on the first
business day of such Offering Period except that they will have a different
grant date (thus, potentially, a different exercise price) and, because they
expire at the same time as the options granted on the first business day of such
Offering Period, a shorter term.

(m) "OFFERING PERIOD" shall mean a period of six (6) months,
subject to Section 4.

(n) "PLAN" shall mean this Employee Stock Purchase Plan.

(o) "SUBSIDIARY" shall mean any corporation, domestic or
foreign, in an unbroken line of corporations (beginning with the Company) in
which each corporation (other than the last corporation) has stock possessing
50% or more of the total combined voting power of all classes of stock in one or
more of the other corporations in the chain, whether or not such corporation now
exists or is hereafter organized or acquired by the Company or a Subsidiary.

3. ELIGIBILITY.

(a) Any person who has been employed as an Employee for three
(3) months as of the Offering Date of a given Offering Period (except for the
first Offering Period under the Plan, in which case the person shall be an
Employee as of the Offering Date) shall be eligible to participate during such

<PAGE>

Offering Period under the Plan, provided that such person was not eligible to
participate in such Offering Period as of any prior Offering Date, and further,
subject to the requirements of Section 5(a) and the limitations imposed by
Section 423(b) of the Code.

(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) if, immediately after
the grant, such Employee (after applying the attribution rules contained in
Section 424(d) of the Code) would own stock and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Subsidiary, or
(ii) if such option would permit his or her rights to purchase stock under all
employee stock purchase plans (described in Section 423 of the Code) of the
Company and its Subsidiaries to accrue at a rate which exceeds Twenty Five
Thousand Dollars ($25,000) of fair market value of such stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time. For this purpose, a right to purchase stock occurs
when it first becomes exercisable during the calendar year.

4. OFFERING PERIODS. The Plan shall be implemented by a series of
Offering Periods, with new Offering Periods commencing on or about January 1 and
July 1 of each year (or at such other time or times as may be determined by the
Board of Directors). The first Offering Period shall commence on July 1, 1996
(or such other date as the Board of Directors shall determine). The Plan shall
continue until terminated in accordance with Sections 19 or 23 hereof. The
Board of Directors of the Company shall have the power to change the duration
and/or the frequency of Offering Periods with respect to future offerings
without stockholder approval if such change is announced at least ten (10) days
prior to the scheduled beginning of the first Offering Period to be affected.

5. PARTICIPATION.

(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 10%) to be
applied as Contributions pursuant to the Plan.

(b) Payroll deductions shall commence on the first payroll
following the Offering Date and shall end on the last payroll paid on or prior
to the Exercise Date of the

<PAGE>

Offering Period to which the subscription agreement is applicable, unless sooner
terminated by the participant as provided in Section 10.

6. METHOD OF PAYMENT OF CONTRIBUTIONS.

(a) The participant shall elect to have payroll deductions made
on each payday during the Offering Period in an amount not less than one percent
(1%) and not more than ten percent (10%) of such participant's Compensation on
each such payday; provided that the aggregate of such payroll deductions during
the Offering Period shall not exceed ten percent (10%) of the participant's
aggregate Compensation during said Offering Period. The Company will maintain
on its books or cause to be maintained by a recordkeeper an account in the name
of such participant. All payroll deductions made by a participant shall be
credited to his or her account under the Plan. A participant may not make any
additional payments into such account.

(b) A participant may discontinue his or her participation in
the Plan as provided in Section 10, or, on one occasion only during the
Offering Period, may decrease the rate of his or her Contributions during the
Offering Period by completing and filing with the Company a new subscription
agreement. The change in rate shall be effective as of the beginning of the
calendar quarter following the date of filing of the new subscription
agreement.

(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period which is scheduled to end during the current calendar year that
the aggregate of all payroll deductions accumulated with respect to such
Offering Period and any other Offering Period ending within the same calendar
year equal $21,250. Payroll deductions shall re-commence at the rate provided
in such participant's subscription agreement at the beginning of the first
Offering Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.

7. GRANT OF OPTION.

(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on the Exercise Date a number of shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Exercise Date and retained in the participant's account as of the Exercise Date
by the lower of (i) ninety-five percent (95%) of the fair market value of a
share of the Company's Common Stock on the Offering Date, or (ii) ninety-five
percent (95%) of the fair market value of a share of the Company's Common Stock
on the

<PAGE>

Exercise Date; PROVIDED, HOWEVER, that the maximum number of shares an Employee
may purchase during each Offering Period shall be determined at the Offering
Date by dividing $12,500 by the fair market value of a share of the Company's
Common Stock on the Offering Date, and provided further that such purchase shall
be subject to the limitations set forth in Sections 3(b) and 12. The fair
market value of a share of the Company's Common Stock shall be determined as
provided in Section 7(b).

(b) The option price per share of the shares offered in a given
Offering Period shall be the lower of: (i) 95% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 95% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be the closing price on The New York Stock Exchange on such date (or,
in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported in THE WALL STREET JOURNAL or,
in the event the Common Stock is not listed on The New York Stock Exchange, the
fair market value shall be the closing price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation ("Nasdaq") or, if such price is not
reported, the mean of the bid and asked prices per share of the Common Stock as
reported by Nasdaq or, if such prices are not so reported, as determined by the
Board in its discretion.

8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan
as provided in paragraph 10, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date of the Offering Period, without
any further action on the optionee's part, and the maximum number of full shares
subject to option will be purchased at the applicable option price with the
accumulated Contributions in his or her account. The shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Exercise Date. During his or her lifetime, a participant's
option to purchase shares hereunder is exercisable only by him or her.

9. DELIVERY. As promptly as practicable after the Exercise Date of
each Offering Period, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option. Only cash remaining to the credit of a
participant's account under the Plan after a purchase by him or her of shares at
the termination of each Offering Period which is insufficient to purchase a
whole share of Common Stock of the Company shall be carried over in the
participant's account and applied to the option price for the succeeding
Offering Period.

<PAGE>

10. WITHDRAWAL; TERMINATION OF EMPLOYMENT; REDUCTION IN SERVICE.

(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
ten (10) days prior to the Exercise Date of the Offering Period by giving
written notice to the Company. All of the participant's Contributions credited
to his or her account will be paid to him or her promptly after receipt of his
or her notice of withdrawal and his or her option for the current period will be
automatically terminated. No further Contributions for the purchase of shares
will be made during the Offering Period.

(b) Upon termination of the participant's Continuous Status as
an Employee prior to the Exercise Date of the Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.

(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the Offering Period in which the employee is a participant, he or she
will be deemed to have elected to withdraw from the Plan and the Contributions
credited to his or her account will be returned to him or her and his or her
option terminated.

(d) A participant's withdrawal from an offering will not have
any effect upon his or her eligibility to participate in a succeeding offering
or in any similar plan which may hereafter be adopted by the Company.

11. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.

12. STOCK.

(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 50,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18. If the total number of shares which would otherwise be subject
to options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number

<PAGE>

of shares subject to the option to each Employee affected thereby and shall
similarly reduce the rate of Contributions, if necessary.

(b) The participant will have no interest or voting right in
shares covered by his or her option until such option has been exercised.

(c) Shares to be delivered to a participant under the Plan will
be registered in the name of the participant or, if requested by the
participant, in the name of the participant and his or her spouse.

13. ADMINISTRATION. The Board, or a committee named by the Board,
shall supervise and administer the Plan and shall have full power and discretion
to adopt, amend and rescind any rules deemed desirable and appropriate for the
administration of the Plan and not inconsistent with the Plan, to construe and
interpret the Plan, and to make all other determinations necessary or advisable
for the administration of the Plan. The composition of the committee shall be
in accordance with the requirements to obtain or retain any available exemption
from the operation of Section 16(b) of the Exchange Act.

14. DESIGNATION OF BENEFICIARY.

(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of the Offering Period but prior to delivery to him or her
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
Exercise Date of the Offering Period. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective in a form prescribed by the Board.

(b) Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice to the
Company. In the event of the death of a participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.

<PAGE>

15. TRANSFERABILITY. Neither Contributions credited to a
participant's account nor any options or rights with regard to the exercise of
options or to receive shares under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way (other than by will, the laws of
descent and distribution, or as provided in Section 14) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with Section 10.

16. USE OF FUNDS. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.

17. REPORTS. Individual bookkeeping accounts will be maintained for
each participant in the Plan. Statements of account will be given to
participating Employees promptly following the Exercise Date, which statements
will set forth the amount of Contributions, the per share purchase price, the
number of shares purchased and the remaining cash balance, if any.

18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.

(a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but have not yet been placed under option (collectively, the "Reserves"), as
well as the price per share of Common Stock covered by each option under the
Plan which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; PROVIDED, HOWEVER, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.

(b) CORPORATE TRANSACTIONS. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of

<PAGE>

such proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, to shorten the Offering Period then in
progress by setting a new Exercise Date (the "New Exercise Date"). If the Board
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least ten (10) days prior to the New Exercise
Date, that the Exercise Date for his or her option has been changed to the New
Exercise Date and that his or her option will be exercised automatically on the
New Exercise Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this paragraph, an
option granted under the Plan shall be deemed to be assumed if, following the
sale of assets or merger, the option confers the right to purchase, for each
share of option stock subject to the option immediately prior to the sale of
assets or merger, the consideration (whether stock, cash or other securities or
property) received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the transaction
(and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); PROVIDED, HOWEVER, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value of the per share consideration received by holders of Common Stock in the
sale of assets or merger.

The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.

19. AMENDMENT OR TERMINATION.

(a) The Board of Directors of the Company may at any time
terminate or amend the Plan. Except as provided in Section 18, no such
termination shall affect options previously

<PAGE>

granted, nor shall an amendment make any change in an outstanding option which
adversely affects the rights of the optionee. In addition, to the extent
necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423
of the Code (or any successor rule or provision or any applicable law or
regulation), the Company shall obtain stockholder approval in such a manner and
to such a degree as so required.

(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been adversely affected, the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess
of the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such
other limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan. In
addition, the Board (or its committee) shall have the right to designate from
time to time the Subsidiaries where employees may be eligible to participate
in the Plan and such designations shall not constitute an amendment to the
Plan requiring stockholder approval in accordance with Treasury Regulations
Section 1.423-2(c)(4).

20. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the stockholders of the Company within twelve (12) months before
or after the Plan is adopted by the Board. Such stockholder approval shall be
obtained in the manner and to the extent required under applicable federal and
state law.

21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for that purpose.

22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, any applicable state
securities laws, the rules and regulations

<PAGE>

promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed.

As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

23. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective
upon the earlier to occur of its adoption by the Board of Directors or its
approval by the stockholders of the Company. It shall continue in effect for a
term of ten (10) years unless sooner terminated under Section 19.

24. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions
of options granted hereunder to, and the purchase of shares by, persons subject
to Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.

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EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial and Operating Data" and to the use of our
report dated January 24, 1996, in the Registration Statement (Form S-1 No.
333-1388) and related Prospectus of Pacific Greystone Corporation for the
registration of $90,800,000 aggregate maximum offering price of its common
stock.

Ernst & Young LLP

Los Angeles, California
May 20, 1996