Notes to Consolidated Financial Statements
    

Note 3 - Company Merges with and into Wholly-owned Subsidiary

On November 5, 1999 at a Special Meeting of Holders of Common Stock, the Holders of Common Stock approved a proposal to adopt a certificate of ownership and merger pursuant to which The Presley Companies would merge with and into Presley Merger Sub, Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of The Presley Companies, with Presley Merger Sub, Inc. being the surviving corporation. In the merger, each outstanding share of common stock of The Presley Companies became exchangeable for 0.2 share of common stock of Presley Merger Sub, Inc. In the merger, the surviving corporation was renamed The Presley Companies, which in turn was renamed William Lyon Homes on December 31, 1999. On November 11, 1999, the certificate of ownership and merger was filed in the State of Delaware and the merger became effective. Beginning on November 12, 1999, the shares of the surviving company (then named "The Presley Companies") commenced trading on the New York Stock Exchange under the symbol "PDC."

The principal purpose of the merger is to help preserve the Company's substantial net operating loss carryforwards and other tax benefits for use in offsetting future taxable income by decreasing, but not eliminating, the risk of an "ownership change" for federal income tax purposes.

In general, the transfer restrictions prohibit, without prior approval of the board of directors of the Company, the direct or indirect disposition or acquisition of any stock of the Company by or to any holder who owns or would so own upon the acquisition (either directly or through the tax attribution rules) 5% or more of the Company's stock.

The Company after the consummation of the merger had substantially the same financial position as that of The Presley Companies immediately before the merger (the merger took effect after consummation of the transactions contemplated in the Purchase Agreement with Old William Lyon Homes - see Note 2). Except for the transfer restrictions and the elimination of provisions dividing the common stock into two series, the new shares of common stock issued by the surviving company in the merger have terms substantially similar to the old shares of common stock.

In connection with the acquisition and merger, the Company has incurred costs of approximately $2,197,000 and $1,286,000 for the years ended December 31, 1999 and 1998, respectively, which are reflected in the Consolidated Statement of Income as financial advisory expenses.

Effective on November 5, 1999, Old William Lyon Homes changed its name to Corporate Enterprises, Inc. Effective after the close of business on December 31, 1999, The Presley Companies changed its name to William Lyon Homes. Effective on January 3, 2000, the Company's stock ticker symbol changed from PDC to WLS. The Company's common stock continues to trade on the New York Stock Exchange under the stock symbol WLS.