AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1997
REGISTRATION NO. 333-__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
CROSSMANN COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA
(State or other jurisdiction
of incorporation or organization)
1521
(Primary Standard Industrial
Classification Code Number)
35-1880120
(I.R.S. Employer
Identification No.)
9202 NORTH MERIDIAN STREET, SUITE 300
INDIANAPOLIS, INDIANA 46260
(317) 843-9514
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOHN B. SCHEUMANN
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CROSSMANN COMMUNITIES, INC.
9202 NORTH MERIDIAN STREET, SUITE 300
INDIANAPOLIS, INDIANA 46260
(317) 843-9514
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies To:
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Steven K. Humke, Esq. James A. Aschleman, Esq.
Ice Miller Donadio & Ryan Baker & Daniels
One American Square, Box 82001 300 N. Meridian Street, Suite 2700
Indianapolis, Indiana 46282-0002 Indianapolis, Indiana 46204-1782
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
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, check the following box:
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, 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 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:
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to Amount to be Registered(1) Proposed Maximum Offering Price per Unit(2)
be Registered
Common Shares, no par value 1,725,000 Shares $ 24.75
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Title of Each Class of Securities to Proposed Maximum Aggregate Offering Price(2) Amount of Registration
be Registered Fee(2)
Common Shares, no par value $ 42,693,750 $ 12,938
</TABLE>
(1) Includes 225,000 Common Shares that may be sold if the over-allotment
option granted to the Underwriters is exercised in full. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457, based on the average of the high and low prices
reported for Crossmann Communities, Inc. Common Shares on the NASDAQ-NMS on
August 11, 1997.
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED AUGUST , 1997
2,250,000 COMMON SHARES
CROSSMANN COMMUNITIES, INC.
Of the 2,250,000 Common Shares, no par value (the "Shares"), offered
hereby, 1,500,000 Shares are being sold by Crossmann Communities , Inc., an
Indiana corporation (the "Company"), and 750,000 are being sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will
not receive any of the proceeds from the sale of Shares by the Selling
Shareholders. See "Principal and Selling Shareholders." The Shares are
quoted on the Nasdaq National Market System under the symbol "CROS." On
August 14, 1997, the last reported sale price of the Shares as quoted on the
Nasdaq National Market System was $26.375 per Share. This price has not been
adjusted to reflect a three-for-two split of the Shares to be effected by a
Share dividend payable on August 25, 1997. Except as otherwise noted, all
other information in this Prospectus, including financial information, Share
and per Share data, has been adjusted to reflect a three-for-two split of the
Shares.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THE PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES 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.
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Price to Public Underwriting Proceeds to Proceeds to Selling Shareholders
Discounts and Company (2)
Commissions (1)
Per Share $ $ $ $
Total(3) $ $ $ $
<FN>
(1) The Company and the Selling Shareholders have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Does not include expenses payable by the Company estimated to be $290,000.
(3) The Company and the Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to 337,500 additional Shares solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders will be $_______,
$_______, $_______ and $______, respectively. See "Underwriting."
</TABLE>
The Shares are offered by the Underwriters, subject to receipt and
acceptance of the Shares by them. The Underwriters reserve the right to
reject any order in whole or in part. It is expected that delivery of the
Shares will be made against payment therefor at the offices of McDonald &
Company Securities, Inc. or through the facilities of The Depository Trust
Company on or about September ___, 1997.
McDonald & Company
Securities, Inc.
Dillon, Read & Co. Inc.
Raymond James & Associates, Inc.
The date of this Prospectus is _______________, 1997.
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>
A COLLAGE OF PHOTOGRAPHS OF THE COMPANY'S PRODUCTS WILL BE INSERTED HERE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may be obtained at prescribed rates by writing the
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site, located at http://www.sec.gov,
that contains reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with
the Commission. The Shares are listed on the Nasdaq National Market System,
and reports, proxy statements and other information concerning the Company may
also be inspected at the offices of the Nasdaq National Market System, 1735 K
Street, N.W., Washington, D.C. 20006-1506.
The Company has filed with the Commission a registration statement (the
"Registration Statement," which term shall include any amendments thereto) on
Form S-2 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Shares offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
and schedules thereto, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, and to which reference is hereby
made. For further information, reference is hereby made to the Registration
Statement and the exhibits and schedules thereto.
Unless the context otherwise requires, references herein to the "Company"
include the Company and its direct and indirect subsidiaries.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission pursuant to the Exchange Act are incorporated by reference in this
Prospectus and shall be deemed to be a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 000-22562).
2. The Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1997 (File No. 000-22562).
3. The Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1997 (File No. 000-22562).
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL
REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE INFORMATION THAT HAS BEEN
INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS TO THE
INFORMATION THAT ARE INCORPORATED BY REFERENCE UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS
PROSPECTUS INCORPORATES). REQUESTS SHOULD BE DIRECTED TO JENNIFER A. HOLIHEN,
CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY, CROSSMANN COMMUNITIES, INC.,
AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES, 9202 N. MERIDIAN ST., SUITE 300,
INDIANAPOLIS, INDIANA 46260, TELEPHONE NUMBER (317) 843-9514. PERSONS
REQUESTING COPIES OF EXHIBITS TO SUCH DOCUMENTS THAT WERE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE CHARGED FOR THE COSTS OF
REPRODUCTION AND MAILING.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE SHARES OF THE COMPANY ON NASDAQ IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
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.
"Trimark" is a federally registered service mark for real estate
development services that is owned by the Company. The Company has not yet
registered its "Deluxe" or its "New American Homes" trademark. "Crossmann
Communities" is a federally registered service mark for construction planning,
laying out residential communities and residential construction services that
is owned by the Company. This Prospectus also includes trade names, trade
marks and service marks of other companies.
<PAGE>
PROSPECTUS SUMMARYPROSPECTUS SUMMARY
Except as otherwise noted, all information in this Prospectus, including
financial information, Share and per Share data (i) assumes no exercise of the
Underwriters' over-allotment option and (ii) has been adjusted to reflect a
three-for-two split of the Shares to be effected by a Share dividend declared
by the Company's Board of Directors (the "Board") on August 7, 1997 and
payable on August 25, 1997.
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
THE COMPANY
The Company develops, constructs and markets single family homes in nine
markets in Indiana, Ohio and Kentucky. The Company targets primarily
first-time and first move-up home buyers. During the 12 months ended June 30,
1997, the Company closed 2,339 homes with an average selling price of
approximately $112,000.
The Company has been profitable every year since 1975 and in 1996
recorded its tenth consecutive year of growth in both sales and net income.
During the five-year period ended December 31, 1996, the Company's sales and
operating income increased at a compounded annual growth rate of 40.2% and
44.2%, respectively. Over the three years ended December 31, 1996, the
Company's net income per Share increased at a compounded annual growth rate of
39.3%. During the 12 months ended June 30, 1997, the Company's sales and net
income were approximately $263.0 million and $16.9 million, respectively.
The Company's proven operating strategy is comprised of the following
principal elements:
Focus on Entry-level Market. The Company is focused on providing
affordably priced, entry-level and first move-up single family homes. Based
on current market conditions and available financing programs, the Company's
homes can be purchased by a qualifying buyer having an annual income as low as
$27,000. The Company's experience has been that this market offers
significant and stable long-term demand for its products. The Company
provides a high level of counseling to new home buyers on available financing
options that address the financial concerns of the entry-level buyer. For
first move-up buyers, the Company has devised a Guaranteed Sale Program which
assists customers with the sale of their existing homes.
Emphasis on Customer Service. The Company serves its customers by
offering quality construction and a comprehensive warranty. In addition, the
Company has a policy of not closing on a home until it passes a number of
quality standards which are verified at pre-closing inspections. The Company
also conducts post-closing inspections 90 days and one year after closing.
Standardized Construction and Home Design. Management believes that
entry-level housing generally allows high volume homebuilders, such as the
Company, to build a standardized product permitting cost efficiencies that
result in higher margins. Typically, the Company seeks to utilize mass
production techniques and prepackaged components to streamline on-site
construction and reduce delays and expenses associated with integrating new
design requirements. Through volume purchasing, the Company is able to offer
quality brand name products, including Whirlpool appliances, Armstrong
flooring, DuPont Stainmaster carpeting, Porter Paints and Delta Faucets , as
standard items in its homes.
Active Land Development. The Company currently develops approximately
one-half of the lots upon which it builds its homes. This practice is
generally cost effective and gives the Company the ability to (i) reduce its
cost per lot developed, (ii) ensure an adequate and timely supply of buildable
lots, (iii) construct homes on contiguous lots to further reduce construction
costs and (iv) control the developments in which the Company builds homes.
Entry Into New Markets. Since the Company's initial public offering in
1993, it has entered seven new markets and intends to continue exploring
opportunities to expand its homebuilding operations in similar markets where
it can implement its operating strategy. The Company has entered three new
markets through acquisitions of local homebuilders and four new markets
through start-up operations. It is probable that the Company will continue to
make selected acquisitions of other homebuilders in connection with its
expansion into new markets as management believes that this process may
shorten the time required to become profitable in a new market.
The Company was incorporated under the laws of Indiana in 1992. The
Company's principal executive offices are located at 9202 North Meridian
Street, Suite 300, Indianapolis, Indiana 46260, and its telephone number is
(317) 843-9514.
RECENT DEVELOPMENTS
The Company has entered into a non-binding letter of intent to form a
joint venture with Trinity Homes, Inc. ("Trinity"), a homebuilder based in
Indianapolis, Indiana. Trinity will contribute its operating assets and
related liabilities and the Company will contribute a specified amount of
cash, each for a 50.0% interest in the joint venture.
Trinity builds homes targeted to the first and second move-up buyer.
According to its management, Trinity closed 412 homes in the Indianapolis
market in 1996. The Company believes that participation in the joint venture
will solidify its position as the leading homebuilder in Indianapolis and
enhance its land position in this market.
The Company has also entered into a non-binding letter of intent to
acquire the Memphis, Tennessee division of Heartland Homes, LLC ("Heartland
Homes"), a homebuilder based in Oklahoma City, Oklahoma. The Company will
acquire the assets of the Memphis division in exchange for cash and the
assumption of the liabilities associated with the acquired assets.
Heartland Homes builds homes targeted to the first-time and first move-up
buyer. According to its management, Heartland Homes closed 82 homes in the
Memphis market in 1996. The Company believes the Memphis market offers stable
economic characteristics similar to those of its existing markets, including a
diversified industrial base and an adequate supply of undeveloped land and
developed lots.
The Company's aggregate investment in these proposed transactions will be
approximately $10.0 million. Consummation of each of these proposed
transactions is contingent on numerous conditions, including due diligence,
the negotiation of definitive agreements and receipt of various consents and
approvals.
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THE OFFERING
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Shares offered by the Company 1,500,000 Shares
Shares offered by the Selling Shareholders 750,000 Shares
Shares to be outstanding after the Offering (1) 10,754,678 Shares
Nasdaq National Market System Symbol CROS
Use of Proceeds To repay indebtedness
<FN>
(1) Excludes 385,200 Shares issuable upon the exercise of outstanding
stock options as of June 30, 1997, of which options to purchase 380,200 Shares
were exercisable on that date. The Company has a stock option plan for
employees and a stock option plan for non-employee directors. An aggregate of
494,988 Shares are available for issuance pursuant to such plans.
</TABLE>
<PAGE>
SELECTED FINANCIAL AND OPERATING DATASELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following selected financial and operating data of the Company were
derived from the Company's audited financial statements as of and for the
years ended December 31, 1992 through 1996 and from unaudited interim
financial statements as of and for the six months ended June 30, 1996 and
1997. The unaudited interim consolidated financial statements reflect all
adjustments consisting only of normal recurring accruals, which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. Results for interim periods are not necessarily indicative
of full-year results. See "Risk Factors-Fluctuations in Quarterly Operating
Results." The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
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YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1992(1) 1993(1) 1994
STATEMENT OF INCOME DATA:
Sales of residential
real estate $ 59,360 $ 83,750 $ 112,140
Gross profit 13,494 18,575 24,494
Income from operations 5,741 10,540 12,566
Net income 5,858 9,949 7,751
Net income per Share - - .85
OPERATING DATA
(UNAUDITED):
Number of closings (2) 616 852 1,073
Average home sales price $ 95,909 $ 97,400 $ 104,250
Homes in backlog (at period 219 366 345
end) (2)
Number of markets 2 3 5
(at period end)
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YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
STATEMENT OF INCOME DATA:
Sales of residential
real estate $ 177,590 $ 229,485 $ 82,809 $ 116,360
Gross profit 35,704 48,051 16,964 23,722
Income from operations 18,621 24,854 6,616 9,780
Net income 11,111 15,066 3,994 5,793
Net income per Share 1.22 1.65 .44 .63
OPERATING DATA
(UNAUDITED):
Number of closings (2) 1,675 2,068 765 1,036
Average home sales price $ 106,024 $ 110,970 $ 108,250 $ 112,320
Homes in backlog (at period 757 1,006 1,481 1,638
end) (2)
Number of markets 5 8 8 9
(at period end)
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DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, 1997
1992(1) 1993(1) 1994 1995 1996 ACTUAL
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents $ 357 $ 3,651 $ - $ 5,233 $ 100 $ 100
Real estate inventories 17,206 34,976 54,667 69,683 113,202 137,562
Total assets 19,079 44,621 62,026 83,954 128,336 155,980
Total debt 3,401 11,583 20,554 25,472 49,326 66,102
Total shareholders' equity 9,289 25,267 33,011 44,212 59,649 66,332
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JUNE 30, 1997
AS ADJUSTED(3)
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents $ 100
Real estate inventories 137,562
Total assets 155,980
Total debt 41,472
Total shareholders' equity 90,962
<FN>
________________________
(1) The data for the years ended December 31, 1992 and 1993 include the separate capital structures of the Company's
predecessor entities and are presented on a combined basis as companies under common control and, therefore, do not
provide a meaningful basis for presentation of earnings per share data. The Company's predecessor entities were S
corporations and therefore made no provisions for income taxes.
(2) A home is included in "closings" when title is transferred to the buyer. Sales of residential real estate and
cost of sales are recognized at the date of closing. A home is included in "backlog" after a sales contract is executed
and prior to the transfer of title to the buyer. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(3) As adjusted to reflect the sale of 1,500,000 Shares being offered by the Company and the application of the net
proceeds therefrom to reduce indebtedness outstanding under the Company's $60.0 million unsecured line of credit.
</TABLE>
<PAGE>
RISK FACTORSRISK FACTORS
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act which represent the Company's
expectations or beliefs, including, but not limited to, statements concerning
industry performance, the Company's operations, performance, financial
condition, growth and acquisition strategies and margins and growth in sales
of the Company's products. For this purpose, any statement contained in this
Prospectus that is not a statement of historical fact may be deemed to be a
forward-looking statement. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control, and actual results may differ materially depending on a variety of
important factors, including those described below under this "Risk Factors"
Section and elsewhere in this Prospectus. Prospective investors should
consider carefully the following factors, in addition to the other information
contained in this Prospectus, prior to making an investment in the Shares.
GENERAL ECONOMIC, REAL ESTATE AND OTHER CONDITIONS. The Company's
financial performance is significantly affected by changes in national and
local economic and other conditions, including employment levels, interest
rates, availability of financing, consumer confidence and housing demand. The
majority of the homes in the Company's product lines are targeted to
first-time home buyers who often obtain financing under programs sponsored by
the Federal Housing Administration ("FHA") and the Veterans Administration
("VA"). These programs enable buyers to purchase homes with lower down
payments than conventional mortgage lenders and allow participants to direct a
larger percentage of their incomes toward housing expenses. As these programs
generally require the buyer to have a reliable source of income to qualify for
financing, the Company's financial performance also is dependent upon a low
unemployment rate. Any reduction in the scope or funding of FHA/VA mortgage
programs or an increase in the unemployment rate could have a material adverse
affect on the Company's business, financial condition and results of
operations. Additionally, if mortgage interest rates increase and the ability
of prospective buyers to finance home purchases is adversely affected thereby,
the Company's business, financial condition and results of operations may be
materially adversely affected.
In addition, the Company's operations are subject to various risks, many
of which are outside the control of the Company, including (i) competitive
overbuilding, (ii) availability and cost of building lots, (iii) availability
and cost of materials and labor, (iv) adverse weather conditions, (v) changes
in government regulations, including regulations concerning the environment,
zoning, building design and density requirements and (vi) increases in real
estate taxes and other local government fees. The Company generally does not
pass on cost increases to customers who have signed purchase contracts.
Therefore, an increase in its cost of operations as a result of one or a
combination of these factors could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
GEOGRAPHIC CONCENTRATION AND RISKS INHERENT IN EXPANSION. The Company's
operations are currently focused principally in Indianapolis, Indiana and its
surrounding areas, including Lafayette, Fort Wayne and Columbus, Indiana. The
Company also has operations in Columbus, Cincinnati and Dayton, Ohio and
Louisville and Lexington, Kentucky and intends to expand into Memphis,
Tennessee and other markets. See "Prospectus Summary-Recent Developments."
Adverse general economic conditions in any of these markets could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Growth in the Company's revenues and earnings will depend in part on the
Company's ability to expand into other geographic areas. Expansion by the
Company involves elements of risk not found in its current business
operations. New markets may prove to be less stable and may involve delays,
problems and expenses not typically found by the Company in its existing
markets. The success of the Company's expansion plans will be dependent upon,
among other things, identifying favorable acquisition candidates, successfully
integrating and managing operations in new markets, developing relationships
with local contractors and suppliers, acquiring and developing land and hiring
additional personnel. While the Company has acquired two homebuilders in the
last eighteen months, there can be no assurance that the Company will be able
to identify other attractive acquisition candidates or that any future
acquisitions will be successful. See "Prospectus Summary-Recent Developments"
and "Business-Markets."
COMPETITION. The development and sale of residential properties is
highly competitive. The Company competes in the sale of homes with other
homebuilders and with the resale market for existing homes. The Company
competes with other homebuilders on the basis of a number of interrelated
factors, including location, reputation, amenities, design, quality and price.
The Company competes against local, regional and national homebuilders, some
of which have greater financial and other resources than the Company. The
Company competes with these homebuilders for both undeveloped land and
developed lots upon which it can build homes. As a result, the Company has
historically experienced lower operating margins and sales in the early stages
of operations in a new market. The Company also competes for home sales with
individual resales of existing homes and condominiums. The resale market for
existing homes is attractive for home buyers because buyers can generally take
occupancy of their homes more quickly and resale homes are often less
expensive and are generally located in established neighborhoods. The Company
attempts to meet this competition from the home resale market by offering
benefits which this market cannot provide, notably the latest design features,
the flexibility to select interior and exterior finishes, new home warranties
and more desirable locations from which to choose a home site.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent on a number of key employees, including Mr. John B.
Scheumann, the Chairman of the Board and Chief Executive Officer of the
Company, and Mr. Richard H. Crosser, the President and Chief Operating Officer
of the Company. Neither Mr. Scheumann nor Mr. Crosser is subject to an
employment or non-competition agreement. The Company's ability to implement
its business strategy is substantially dependent upon its ability to attract
and retain skilled personnel. There can be no assurance that the Company will
be successful in attracting and retaining such personnel. The loss of the
services of one or more key employees, including Messrs. Scheumann and
Crosser, or the failure to attract and retain qualified employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management."
LOCATING AND ACQUIRING SUITABLE LAND. The Company's operating strategy
is premised on the purchase of undeveloped land and developed lots at
competitive prices. Factors beyond the Company's control, including
inflation, zoning and density requirements and competition, can have an
adverse effect on the ability of the Company to purchase land at prices
suitable for the profitable development of communities targeted to the
first-time and first move-up home buyer. Moreover, there can be no assurance
that the Company will be successful in acquiring suitable land for development
in additional markets. If the Company is unable to locate and acquire
suitable land which it can profitably develop, its business, financial
condition and results of operations could be materially adversely affected.
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS. The housing industry
and the Company are subject to increasing local, state and federal statutes,
ordinances, rules and regulations concerning zoning, resource protection,
building design, construction and similar matters, including local regulations
which impose restrictive zoning and density requirements in order to limit the
number of residences that can eventually be built within the boundaries of a
particular location. Furthermore, in developing a project the Company must
obtain the approval of numerous governmental authorities regulating such
matters as permitted land uses and levels of density and the installation of
utility services such as electricity, water and waste disposal.
The length of time necessary to obtain permits and approvals increases
the carrying cost of unimproved property acquired for the purpose of
development and construction. In addition, the continued effectiveness of
permits already granted is subject to factors such as changes in policies,
rules and regulations and their interpretation and application. Such
regulation affects construction activities and may result in delays, cause the
Company to incur substantial compliance costs and prohibit or severely
restrict development in certain environmentally sensitive regions or areas.
To date, the governmental approval processes discussed above have not had a
material adverse effect on the Company's development activities. In addition,
because the Company purchases land contingent upon necessary zoning,
restrictive zoning issues also have not had a material adverse effect on the
Company's development activities. However, there is no assurance that these
and other restrictions will not adversely affect the Company's development
activities and thus its business, financial condition and results of
operations in the future.
The Company generally will condition its obligation to purchase land on,
among other things, an environmental review of the land. However, there can
be no assurance that the Company will not incur material liabilities relating
to the removal of toxic wastes or other environmental matters affecting land
owned by the Company or land which the Company no longer owns. To date, the
Company has not incurred any liability related to the removal of toxic wastes
or other environmental matters and to its knowledge has not acquired any land
with environmental problems; however, there can be no assurance that the
Company will not incur such liabilities or acquire land with environmental
problems in the future. If the Company is liable for the removal of toxic
wastes or other environmental matters, its business, financial condition and
results of operations could be materially adversely affected.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company has experienced
in the past, and expects to experience in the future, fluctuations in
quarterly operating results. The Company typically does not commence
significant construction on a home before a sales contract has been executed.
See "Business-Construction." A significant percentage of the Company's sales
contracts are executed during the first four months of the year. Construction
of a home typically requires three months and, with weather delays that often
occur during late winter and early spring, may take somewhat longer. As a
result, the Company historically has experienced higher revenues and operating
income during the third and fourth quarters of the calendar year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTROL RELATIONSHIPS. Messrs. Scheumann and Crosser will have voting
control of approximately 37.7% of the outstanding Shares after giving effect
to the Offering. As a result, they will be able to exercise significant
influence over all matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions.
This control of the Company could preclude or make it more difficult to effect
an acquisition of the Company which is not on terms acceptable to Messrs.
Scheumann and Crosser. See "Principal and Selling Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE. The Shares offered hereby will be
freely transferable by persons who are not affiliates of the Company without
restriction or further registration under the Securities Act. Virtually all
of the Shares, other than Shares held by affiliates of the Company, are freely
tradable. After the Offering, the affiliates of the Company will own
4,377,767 Shares in the aggregate. Shares held by affiliates of the Company
are subject to limitations on the volume that may be sold other than sales
pursuant to a registration statement under the Securities Act or an applicable
exemption from registration thereunder. The Company, its directors and
executive officers and certain other shareholders have agreed not to sell,
transfer or otherwise dispose of any Shares or any securities convertible into
or exchangeable or exercisable for Shares without the consent of McDonald &
Company Securities, Inc. for a period of 180 days after the date of this
Prospectus, except for awards of management stock options or issuances of
Shares upon the exercise of outstanding stock options or pursuant to other
employee benefit plans. The sale or issuance or the potential for sale or
issuance of such Shares could have an adverse effect on the market price of
the Shares.
EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Amended and Restated
Articles of Incorporation ("Articles") authorize the Company's Board to issue,
without shareholder approval, up to ten million preferred shares with such
rights and preferences as the Board may determine in its sole discretion. The
Company's Employee Stock Option Plan and Outside Director Stock Option Plan
provide that all outstanding options vest and become immediately exercisable
upon a merger of the Company or a similar transaction. Certain provisions of
Indiana law could have the effect of making it more difficult for a third
party to acquire, or discouraging a third party from attempting to acquire,
control of the Company. Further, certain provisions of Indiana law impose
various procedural and other requirements that could make it more difficult
for shareholders to effect certain corporate actions. The foregoing
provisions could discourage an attempt by a third party to acquire a
controlling interest in the Company without the approval of the Company's
management even if such third party were willing to purchase Shares at a
premium over the then market price. See "Description of Capital Stock."
NO CASH DIVIDENDS. The Company has not paid cash dividends on its Shares
since its initial public offering in October 1993. The Company anticipates
that future earnings will be retained to finance the continuing development of
its business and does not anticipate paying cash dividends on its Shares in
the foreseeable future. The Company is party to credit agreements with
noteholders and commercial banks which prohibit the payment of cash dividends
on the Shares without the lenders' consent. See "Dividend Policy."
<PAGE>
USE OF PROCEEDSUSE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 Shares in
the Offering are estimated to be $24.6 million ($26.5 million if the
Underwriters' over-allotment option is exercised in full), at an assumed
offering price of $17.58 per Share. The net proceeds will be used by the
Company to reduce indebtedness outstanding under a $60.0 million unsecured
line of credit. The Company intends to use the increased availability of
funding under the line of credit to finance land acquisition and development
and for future expansion into new markets, including the possible acquisition
of other homebuilders. The Company will not receive any proceeds from the
sale of Shares by the Selling Shareholders.
SHARE PRICE RANGESHARE PRICE RANGE
The Shares trade on the Nasdaq National Market System under the symbol
"CROS." During the year ended December 31, 1996, the high closing sale price
per Share as reported by the Nasdaq National Market System was $14.50, and the
low closing sale price per Share was $10.50.
High and low closing prices for the last two fiscal years and the first
two quarters of 1997 were:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995 1995 1996 1996 1997 1997
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
March 31 $ 6.33 $3.50 $14.00 $11.67 $13.83 $10.50
June 30 7.33 5.83 14.50 11.67 14.50 12.67
September 30 10.67 7.00 13.17 10.83
December 31 12.67 9.33 12.92 10.50
</TABLE>
The closing sale price of the Shares as reported on the Nasdaq National
Market System on August 14, 1997 was $26.375 per Share. This price does not
reflect a three-for-two stock split to be effected by a share dividend payable
on August 25, 1997. As adjusted for the stock split, the closing sale price
on August 14, 1997 would have been $17.58 per Share. As of August 14, 1997
there were 49 holders of record of the Shares. The transfer agent for the
Shares is American Stock Transfer & Trust, 40 Wall Street, New York, NY 10005.
The Company believes that there are approximately 890 beneficial owners of the
Shares.
DIVIDEND POLICYDIVIDEND POLICY
The Company has not paid cash dividends on its Shares since its initial
public offering in October 1993. The Company anticipates that future
earnings will be retained to finance the continuing development of its
business and does not anticipate paying cash dividends on its Shares in the
foreseeable future. The Company is party to credit agreements with
noteholders and commercial banks which prohibit the payment of cash dividends
on the Shares without the lenders' consent. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and
Capital Resources."
<PAGE>
CAPITALIZATIONCAPITALIZATION
The following table sets forth (i) the capitalization of the Company as
of June 30, 1997 and (ii) the capitalization of the Company, as adjusted, to
reflect the issuance and sale of Shares offered hereby and the application of
the net proceeds therefrom as described under "Use of Proceeds." The
following data should be considered in connection with the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 1997 JUNE 30, 1997
(IN THOUSANDS) UNAUDITED UNAUDITED
ACTUAL AS ADJUSTED (1)
Debt
Line of credit $ 43,329 $ 18,699
Senior notes 22,222 22,222
Other debt 551 551
Total debt 66,102 41,472
Shareholders' equity (2):
Preferred Shares, 10,000,000 Shares authorized; none outstanding - -
Common Shares, 30,000,000 Shares authorized; 9,254,678 Shares issued and
outstanding and 10,754,678 Shares issued and outstanding, as adjusted 25,290 49,920
Retained earnings 41,042 41,042
Total shareholders' equity 66,332 90,962
Total capitalization $ 132,434 $ 132,434
<FN>
________________________
(1) As adjusted to reflect the sale of 1,500,000 Shares being offered by the Company and the application of
the net proceeds therefrom to reduce indebtedness outstanding under the Company's $60.0 million unsecured line
of credit.
(2) Excludes 385,200 Shares issuable upon the exercise of outstanding stock options as of June 30, 1997, of
which options to purchase 380,200 Shares were exercisable on that date. The Company has a stock option plan
for employees and a stock option plan for non-employee directors. An aggregate of 494,988 Shares are available
for issuance pursuant to such plans.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONSMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial and Operating Data" and the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
Except for the historical information contained herein, the discussions in
this Prospectus contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section entitled "Risk Factors," as well as those discussed elsewhere in this
Prospectus.
The Company achieved an impressive growth rate over the five-year period
ended December 31, 1996 with sales and operating income increasing at a
compounded annual growth rate of 40.2% and 44.2%, respectively. The Company's
growth has come primarily from continued growth in its core markets, through
effective land development and new product introductions and entry into new
markets. The Company intends to continue strategic expansion into new markets
that offer stable economic characteristics similar to those of its existing
markets. The Company plans to implement this strategy through start-up
operations and the acquisition of existing homebuilders. The Company often
experiences a number of additional costs associated with geographic expansion,
including costs associated with integrating a start-up operation or acquired
entity into the Company's systems, establishing relationships with local
subcontractors and suppliers and establishing a favorable land position.
These increased costs generally result in lower margins during the initial
stages of operations in a new market. Additionally, sales typically are lower
in the early stages of operations in a new market. Historically, the
Company's margins and sales performance in its new markets have improved over
time.
RESULTS OF OPERATIONS
The following table sets forth certain data relating to the operations of
the Company for the years ended December 31, 1994, 1995 and 1996 and the six
months ended June 30, 1996 and 1997. Results of operations for the first six
months of 1997 may not be indicative of the results for the full year.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
(unaudited) (unaudited)
OPERATING DATA (AT END OF PERIOD,
UNAUDITED): 1994 1995 1996 1996 1997
Closings (for the period ended) 1,073 1,675 2,068 765 1,036
Homes in backlog 345 757 1,006 1,481 1,638
Aggregate sales value of units in
Backlog (in millions) $ 36 $ 80 $ 108 $ 158 $ 178
Average sales price of
Units in backlog $ 105,098 $ 105,150 $ 107,440 $ 106,685 $ 108,550
PERCENTAGE OF SALES:
Sales of residential real estate 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of residential real estate sold 78.2 79.9 79.1 79.5 79.6
Gross profit 21.8 20.1 20.9 20.5 20.4
Selling, general and administrative
Expenses 10.6 9.6 10.1 12.5 12.0
Income from operations 11.2 10.5 10.8 8.0 8.4
Other income (expense) 0.2 0.01 (0.1) 0.0 0.0
Income before income taxes 11.4 10.5 10.7 8.0 8.4
Income taxes 4.5 4.2 4.2 3.2 3.4
Net income 6.9% 6.3 % 6.5% 4.8 % 5.0 %
</TABLE>
BACKLOG
Backlog at June 30, 1997 was 1,638 homes with an aggregate sales value of
approximately $177.8 million, compared to 1,481 homes with an aggregate sales
value of approximately $158.0 million at June 30, 1996, an increase in the
number of homes in backlog of approximately 10.6%. This increase reflects a
higher year-end backlog (1,006 at December 31, 1996 compared to 757 at
December 31, 1995) and stronger orders in the first six months of 1997 (1,668
contracts written in the first six months of 1997, compared to 1,490 in the
first six months of 1996), an increase of 12.0%. Indianapolis, Southern
Indiana and all Ohio markets showed strong improvement in orders in the first
six months of 1997. Louisville, which had no marketing presence in the first
six months of 1996, also posted strong orders in the first six months of 1997.
On June 13, 1997, the Company acquired a company in Lexington, Kentucky that
had a backlog of 45 homes at the time of purchase.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
Sales increased approximately $33.6 million, or 40.5%, to approximately
$116.4 million for the six months ended June 30, 1997 from approximately $82.8
million for the six months ended June 30, 1996. Sales were higher primarily
as a result of increased home sales (1,036 homes were sold in the six months
ended June 30, 1997 compared to 765 homes sold during the six months ended
June 30, 1996), and higher selling prices, (approximately $112,000 per home
for the six months ended June 30, 1997 as compared to approximately $108,000
during the same period in 1996). Mild weather and improving production
systems in the Company's newer divisions also contributed to the increase in
sales.
Gross profit increased approximately $6.8 million, or 39.8%, to
approximately $23.7 million for the six months ended June 30, 1997 from
approximately $16.9 million for the six months ended June 30, 1996,
representing 20.4% of sales in the first six months of 1997 as compared to
20.5% of sales in the first six months of 1996. This increase is attributable
primarily to the increased number of closings in the first six months of 1997
as compared to the same period in 1996. As a percentage of sales, gross
profit was relatively flat.
Selling, general and administrative expenses increased approximately $3.6
million, or 34.7%, to approximately $13.9 million for the six months ended
June 30, 1997 from approximately $10.3 million for the six months ended June
30, 1996. This increase reflects increased sales commissions on the higher
sales volume and higher advertising and administrative expenses associated
with the Company's new divisions. The Company incurred approximately $400,000
in non-recurring charges associated with the negotiated release from an
employment agreement with the seller of Tom Peebles Builders, Inc. and legal
and administrative expenses associated with a terminated acquisition.
Selling, general and administrative expenses decreased as a percentage of
sales to 12.0% in the first six months of 1997 from 12.5% in the first six
months of 1996.
Income before income taxes increased approximately $3.0 million, or
46.2%, to approximately $9.7 million for the six months ended June 30, 1997
from approximately $6.7 million for the six months ended June 30, 1996. This
represents an increase to 8.4% of sales in the first six months of 1997 from
8.0% of sales in the first six months of 1996. Net income increased
approximately $1.8 million, or 45.1%, to approximately $5.8 million in the
first six months of 1997 from approximately $4.0 million in the first six
months of 1996. Net income as a percentage of sales increased to 5.0% in the
first six months of 1997 from 4.8% in the first six months of 1996. The
Company's effective tax rate was 40.5% in the first six months of 1997 as
compared to 40.0% in the first six months of 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales increased by approximately $51.9 million, or 29.2%, to
approximately $229.5 million in 1996 from approximately $177.6 million in
1995. Sales were higher primarily as a result of increased home sales, (2,068
homes were sold in 1996 compared to 1,675 homes sold in 1995). Management
attributes increased volume in its markets to aggressive marketing programs
and to the comparatively high value of the Company's product compared to
others offered in the marketplace. Average selling price was also higher,
approximately $111,000 in 1996, compared to approximately $106,000 in 1995.
The average selling price increased because of the larger contribution of
sales from Ohio. In the Company's Ohio markets, most new homes are sold with
basements while in Indiana, most new homes are sold on a slab foundation.
Gross profit increased by approximately $12.4 million, or 34.6%, to
approximately $48.1 million in 1996 from approximately $35.7 million in 1995,
representing 20.9% of sales in 1996 as compared to 20.1% of sales in 1995.
The increase in gross profit is attributable in part to moderating interest
rates resulting in lower contributions by the Company to customers' mortgage
loan discount points.
Selling, general and administrative expenses increased approximately $6.1
million, or 35.8%, to approximately $23.2 million in 1996 from approximately
$17.1 million in 1995. Selling, general and administrative expenses increased
as a percentage of sales from 9.6% in 1995 to 10.1% in 1996. Management
believes that the increase reflects higher general and administrative expenses
incurred with the addition of the new homebuilding divisions in Southern
Indiana and Louisville, Kentucky.
Due primarily to the increase in unit sales, income before income taxes
for 1996 increased approximately $6.0 million, or 32.4%, to approximately
$24.7 million in 1996 from approximately $18.6 million in 1995. This
represents an increase to 10.7% of sales in 1996 from 10.5% of sales in 1995.
Net income increased approximately $4.0 million, or 35.6%, to approximately
$15.1 million in 1996 from approximately $11.1 million in 1995. Net income as
a percentage of sales increased to 6.6% in 1996 from 6.3% in 1995. The
Company's effective tax rate was 38.9% in 1996 as compared to 40.3% in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Sales increased by approximately $65.5 million, or 58.0%, to
approximately $177.6 million in 1995 from approximately $112.1 million in
1994. This increase was primarily a result of increased home sales (1,675
homes were sold in 1995 compared to 1,073 homes sold in 1994). Sales
increased in all divisions except the Lafayette division where they were
approximately flat. The Ft. Wayne and Cincinnati divisions, in their first
full year of operation, contributed 116 closings and 159 closings,
respectively, in 1995 compared with 12 closings and 13 closings, respectively,
in 1994. Management attributes increased volume in its markets to aggressive
marketing programs, mortgage rate lock-ins provided to customers during a
period of fluctuating interest rates in the early part of 1995 and consumer
confidence due to stable interest rates in the latter part of 1995. Average
selling price was also higher, approximately $106,000 in 1995, compared to
approximately $104,000 in 1994.
Gross profit increased by approximately $11.2 million, or 46.0%, to
approximately $35.7 million in 1995 from approximately $24.5 million in 1994,
representing 20.1% of sales in 1995 as compared to 21.8% in 1994. The
decrease in gross profit percentage is attributable in part to increased
contributions by the Company to customers' mortgage loan discount points. It
is likely the Company will continue to make this expenditure to retain
customers when interest rates fluctuate.
Selling, general and administrative expenses increased approximately $5.2
million, or 43.2%, to approximately $17.1 million in 1995 from approximately
$11.9 million in 1994. Selling, general and administrative expenses decreased
as a percentage of sales to 9.6% in 1995 from 10.6% in 1994. Management
believes that the percentage decrease reflects increased sales from the new
homebuilding divisions in Ft. Wayne and Cincinnati and increased fees from
Crossmann Mortgage Corp., the Company's mortgage brokerage subsidiary.
Due primarily to the increase in unit sales, income before income taxes
for 1995 increased approximately $5.8 million, or 45.7%, to approximately
$18.6 million in 1995 from approximately $12.8 million in 1994. This
represents a decrease to 10.5% of sales in 1995 from 11.4% of sales in 1994.
Net income increased approximately $3.4 million, or 43.4%, to approximately
$11.1 million in 1995 from approximately $7.8 million in 1994. Net income as
a percentage of sales was 6.3% in 1995 compared to 6.9% in 1994. The
Company's effective tax rate was 40.3% in 1995 as compared to 39.4% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of capital are home construction costs and the
purchase and development of land. Real estate inventories were approximately
$137.6 million, or 88.2% of total assets, at June 30, 1997 compared to
approximately $113.2 million, or 88.2% of total assets, at June 30, 1996. To
ensure the availability of developed lots for future operations, from time to
time in the normal course of business, the Company contracts to purchase a
portion of its developed lots from outside developers. At June 30, 1997,
total commitments for lot purchases were approximately $153.8 million,
representing approximately 7,745 lots. The purchases of these lots are
subject to various conditions imposed on both the sellers and the Company.
Capital is also used for the addition and improvement of equipment used in
administering the business, for the building and development of multi-family
housing, and for model home furnishings.
At June 30, 1997, the Company had a cash balance of $100,000. During the
first six months of 1997, cash expenditures were financed with cash from
operations and with borrowings from a $60.0 million unsecured line of credit
with Bank One, Indianapolis, N.A. and its participant, NBD Bank, N.A. The
line of credit bears interest at the bank's prime lending rate, but permits
portions of the outstanding balance to be committed for fixed periods of time
at a rate equal to LIBOR plus 2.4%. For the first six months of 1997, the
interest rate on the line of credit was 8.3%. The credit facility matures
March 31, 1999. The Company also has approximately $22.2 million of senior
notes outstanding, payable over eight years at a fixed interest rate of
7.625%, held by the Minnesota Mutual Life Insurance Company and Combined
Insurance Company of America. On December 21, 1997, the Company will make a
scheduled reduction in the outstanding principal balance of the senior notes
of $2,777,778.
Both the note agreements and the bank line of credit require compliance
with certain financial and operating covenants and place certain limitations
on the Company's investments in land and unconsolidated joint ventures. The
agreements also restrict payments of cash dividends on the Shares by the
Company. The acquisition of Cutter Homes, Ltd. on June 13, 1997 caused the
Company to exceed the debt to tangible base requirements of the senior notes.
The Company's management believes that the Company will be in compliance on
the next measurement date, September 30, 1997, and the holders of the senior
notes have waived compliance with the covenant through that date.
After the proceeds from this offering are used to repay a portion of the
outstanding borrowings under the line of credit, the Company believes that the
line of credit will provide the Company with adequate liquidity for planned
internal growth and capital expenditures. In the event that the Company seeks
to accelerate growth through the acquisition of large parcels of land or of
other homebuilders, additional capital may be necessary. The Company believes
that such capital could be obtained from banks, the issuance of additional
Shares, seller financing or other financing alternatives.
INFLATION
The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of
higher land and construction costs. To date, inflation has not had a material
adverse effect on the Company's business, financial condition and results of
operations. However, there is no assurance that inflation will not have a
material adverse impact on the Company's future business, financial condition
and results of operations.
SEASONALITY
The Company's business is subject to weather-related seasonal factors
which can affect quarterly results of operations. During the first and second
quarters of the year, weather conditions usually restrict site development
work and limit construction. This generally results in fewer closings during
this period although the Company attempts to mitigate the effect of winter
weather by building an inventory of foundations in the fall. Results of
operations during the first half of the year may reflect increased costs
associated with adverse weather. The number of sales contracts signed tends
to rise during the first four months of the year, creating a backlog which
declines during the second half of the year. A home is included in "backlog"
upon the execution of a sales contract by the customer, and sales and cost of
sales of a home are recognized when title is transferred and the home is
delivered to the buyer at closing.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards ("SFAS")
No. 128, Earnings per Share, was issued which establishes new standards for
computing and presenting earnings per share ("EPS"). Specifically, SFAS No.
128 replaces the presentation of primary EPS with a presentation of basic EPS,
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures, and requires a
reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. SFAS No. 128
is effective for financial statements issued for periods ending after December
15, 1997; earlier application is not permitted. Management has determined
that the adoption of SFAS No. 128 will not have a material effect on the
Company's calculation of net income per Share.
In June 1997, SFAS No. 130, Comprehensive Income, was issued which
becomes effective in 1998 and requires reclassification of earlier financial
statements for comparative purposes. SFAS No. 130 requires that changes in
the amounts of certain items, including foreign currency translation
adjustments and gains and losses on certain securities, be shown in the
financial statements. SFAS No. 130 does not require a specific format for the
financial statement in which comprehensive income is reported, but does
require that an amount representing total comprehensive income be reported in
that statement. Management has not yet determined the effect, if any, of SFAS
No. 130 on the Company's consolidated financial statements.
Also in June 1997, SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, was issued. This Statement will change
the way public companies report information about segments of their business
in their annual financial statements and requires them to report selected
segment information in their quarterly reports issued to shareholders. It
also requires entity-wide disclosures about the products and services an
entity provides, the material countries in which it holds assets and reports
revenues, and its major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined the
effect, if any, of SFAS No. 131 on the Company's consolidated financial
statements.
<PAGE>
BUSINESSBUSINESS
GENERAL
The Company develops, constructs and markets single family homes in nine
markets in Indiana, Ohio and Kentucky. The Company targets primarily
first-time and first move-up home buyers. During the 12 months ended June 30,
1997, the Company closed 2,339 homes with an average selling price of
approximately $112,000.
The Company has been profitable every year since 1975 and in 1996
recorded its tenth consecutive year of growth in both sales and net income.
During the five-year period ended December 31, 1996, the Company's sales and
operating income increased at a compounded annual growth rate of 40.2% and
44.2%, respectively. Over the three years ended December 31, 1996, the
Company's net income per Share increased at a compounded annual growth rate of
39.3%. During the 12 months ended June 30, 1997, the Company's sales and net
income were approximately $263.0 million and $16.9 million, respectively.
The Company's proven operating strategy is comprised of the following
principal elements:
Focus on Entry-level Market. The Company is focused on providing
affordably priced, entry-level and first move-up single family homes. Based
on current market conditions and available financing programs, the Company's
homes can be purchased by a qualifying buyer having an annual income as low as
$27,000. The Company's experience has been that this market offers
significant and stable long-term demand for its products. The Company
provides a high level of counseling to new home buyers on available financing
options that address the financial concerns of the entry-level buyer. For
first move-up buyers, the Company has devised a Guaranteed Sale Program which
assists customers with the sale of their existing homes.
Emphasis on Customer Service. The Company serves its customers by
offering quality construction and a comprehensive warranty. In addition, the
Company has a policy of not closing on a home until it passes a number of
quality standards which are verified at pre-closing inspections. The Company
also conducts post-closing inspections 90 days and one year after closing.
Standardized Construction and Home Design. Management believes that
entry-level housing generally allows high volume homebuilders, such as the
Company, to build a standardized product permitting cost efficiencies that
result in higher margins. Typically, the Company seeks to utilize mass
production techniques and prepackaged components to streamline on-site
construction and reduce delays and expenses associated with integrating new
design requirements. Through volume purchasing, the Company is able to offer
quality brand name products, including Whirlpool appliances, Armstrong
flooring, DuPont Stainmaster carpeting, Porter Paints and Delta Faucets , as
standard items in its homes.
Active Land Development. The Company currently develops approximately
one-half of the lots upon which it builds its homes. This practice is
generally cost effective and gives the Company the ability to (i) reduce its
cost per lot developed, (ii) ensure an adequate and timely supply of buildable
lots, (iii) construct homes on contiguous lots to further reduce construction
costs and (iv) control the developments in which the Company builds homes.
Entry Into New Markets. Since the Company's initial public offering in
1993, it has entered seven new markets and intends to continue exploring
opportunities to expand its homebuilding operations in similar markets where
it can implement its operating strategy. The Company has entered three new
markets through acquisitions of local homebuilders and four new markets
through start-up operations. It is probable that the Company will continue to
make selected acquisitions of other homebuilders in connection with its
expansion into new markets as management believes that this process may
shorten the time required to become profitable in a new market.
MARKETS
The Company currently operates in nine markets, seven of which it has
entered in the last four years. In 1993, the Company entered the Columbus,
Ohio market through the acquisition of Deluxe Homes of Columbus, Inc. In
1994, the Company entered the Cincinnati, Ohio and Ft. Wayne, Indiana markets
through start-up operations. In 1996, the Company closed its first homes in
Dayton as a start-up operation and subsequently strengthened its position in
this market through the acquisition of Tom Peebles Builders, Inc. Also in
1996 the Company opened operations in Louisville, Kentucky and in 1997
expanded its Kentucky operations into Lexington through the acquisition of
Cutter Homes, Ltd. The following table sets forth the Company's home closings
in the markets in which it has operated during the last five years.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended Year Ended Year Ended Year Ended Six Months Six Months
December 31, December 31, December 31, December 31, December 31, Ended June 30, Ended June 30,
1992 1993 1994 1995 1996 1996 1997
Indianapolis 491 686 732 1,043 1,124 400 543
Lafayette 125 143 183 160 188 71 67
Columbus 23 133 197 247 113 117
Cincinnati 13 159 162 67 61
Ft. Wayne 12 116 94 39 38
Dayton 83 11 90
Southern Indiana 169 64 97
Louisville 1 20
Lexington 3
Total 616 852 1,073 1,675 2,068 765 1,036
</TABLE>
The Company intends to continue strategic expansion into new markets that
offer stable economic characteristics similar to those of its existing
markets, including low unemployment, diversified industrial base, an adequate
infrastructure and the potential to increase the Company's earnings in a
relatively short period of time. The Company intends to implement its
expansion strategy in part through acquisitions of homebuilders having a
strong land position in a given market, efficient operating systems similar to
those of the Company and a strong management team. The Company believes that
selected acquisitions of homebuilders may reduce the time required to become
profitable in a new market.
Set forth below are the demographic characteristics of the Company's
existing markets, which the Company believes contribute to its overall success
in those markets.
Indianapolis, Indiana. Indianapolis is the capital of Indiana. According to
the Census Bureau, the Indianapolis metropolitan statistical area ("MSA") had
an estimated population of 1,476,865 as of July 1, 1995, an increase of 7.0%
over 1990. In June, 1997, the Indianapolis metropolitan area had a
preliminary unemployment rate of 2.6% as compared to the national unemployment
rate of 5.2%. According to the Sales & Marketing Management 1996 Survey of
Buying Power (the "Survey") the Indianapolis metropolitan area had a median
household effective buying income ("EBI") of $35,982 as compared to the
national EBI of $32,238. Effective buying income is defined by Sales &
Marketing Management to be an individual's money income, including wage,
salary, dividend and interest income, less personal tax payments and personal
non-tax payments, such as personal contributions to Social Security. Major
employers in the Indianapolis metropolitan area include Eli Lilly and Company,
Allison Engine Company Inc., Allison Transmission, a division of General
Motors Corporation, Dow Elanco, Boehringer Mannheim Corporation, Thomson
Consumer Electronics Inc., Conseco Inc. and federal, state and local
government.
The Company delivered 1,124 homes in the Indianapolis metropolitan market in
1996, more than any other homebuilder. The average price of a home sold by
the Company in the Indianapolis metropolitan area was approximately $107,000.
At December 31, 1996, the Company offered homes in 40 communities in the
Indianapolis metropolitan area.
Lafayette, Indiana. Lafayette is located approximately 66 miles
northwest of Indianapolis. According to the Census Bureau, the Lafayette MSA
had an estimated population of 167,879 as of July 1, 1995, an increase of 3.9%
over 1990. In June 1997, the Lafayette metropolitan area had a preliminary
unemployment rate of 2.3% as compared to the national unemployment rate of
5.2%. According to the Survey, the Lafayette metropolitan area had an EBI of
$32,169 as compared to the national EBI of $32,238. The city's largest
employer is Purdue University. Other major employers in the Lafayette
metropolitan area include Subaru-Isuzu Automotive, Inc., Wabash National
Corp., Great Lakes Chemical Corporation and A.E. Staley Manufacturing Co.
The Company delivered 188 homes in the Lafayette metropolitan market in 1996,
more than any other homebuilder. The average price of a home sold by the
Company in the Lafayette metropolitan area was approximately $108,000. At
December 31, 1996, the Company offered homes in four communities in the
Lafayette metropolitan area.
Columbus, Ohio. Columbus is the capital of the state of Ohio. According
to the Census Bureau, the Columbus MSA had an estimated population of
1,437,512 as of July 1, 1995, an increase of 6.8% over 1990. In June 1997,
the Columbus metropolitan area had a preliminary unemployment rate of 2.8% as
compared to the national unemployment rate of 5.2%. According to the Survey,
the Columbus metropolitan area had an EBI of $34,964 as compared to the
national EBI of $32,238. Major employers in Columbus metropolitan area
include Ohio State University, The Limited, Inc., Nationwide Insurance
Enterprise, Honda of America Manufacturing, Inc., Banc One Corporation and
federal, state and local government.
The Company delivered 247 homes in the Columbus metropolitan market in 1996,
with an average price of approximately $117,000. At December 31, 1996, the
Company offered homes in 18 communities in the Columbus metropolitan area.
Cincinnati, Ohio. According to the Census Bureau, the Cincinnati Consolidated
MSA had an estimated population of 1,907,438 as of July 1, 1995, an increase
of over 4.9% over 1990. In June 1997, the Cincinnati metropolitan area had a
preliminary unemployment rate of 3.6% as compared to the national unemployment
rate of 5.2%. According to the Survey, the Cincinnati metropolitan area had
an EBI of $34,379 as compared to the national EBI of $32,238. Major employers
in the Cincinnati metropolitan area include federal and local government
agencies, The Procter & Gamble Company, the University of Cincinnati, The
Kroger Co. and G.E. Aircraft Engines.
The Company delivered 162 homes in the Cincinnati metropolitan market in 1996,
with an average price of approximately $117,000. At December 31, 1996, the
Company offered homes in nine communities in the Cincinnati metropolitan area.
Ft. Wayne, Indiana. According to the Census Bureau, the Ft. Wayne MSA had an
estimated population of 471,508 as of July 1, 1995, an increase of 3.3% over
1990. In June 1997, the Ft. Wayne metropolitan area had a preliminary
unemployment rate of 2.7% as compared to the national unemployment rate of
5.2%. According to the Survey, the Ft. Wayne metropolitan area had an EBI of
$34,644 as compared to the national EBI of $32,238. Major employers in the
Ft. Wayne metropolitan area include Lincoln National Corporation, Magnavox
Electronics Systems Group, G.E. Capital Fleet Services, ITT Aerospace and Dana
Corporation.
The Company delivered 94 homes in the Ft. Wayne metropolitan market in 1996,
with an average price of approximately $103,000. At December 31, 1996, the
Company offered homes in eight communities in the Ft. Wayne metropolitan area.
Dayton, Ohio. According to the Census Bureau, the Dayton MSA had an estimated
population of 956,412 as of July 1, 1995, an increase of 0.5% over 1990. In
June 1997, the Dayton metropolitan area had a preliminary unemployment rate of
3.9% as compared to the national unemployment rate of 5.2%. According to the
Survey, the Dayton metropolitan area had an EBI of $34,072 as compared to the
national EBI of $32,238. Major employers in the Dayton metropolitan area
include Wright-Patterson Air Force Base, The Mead Corporation, Airborne
Express and The Elder-Beerman Stores Corp.
The Company delivered 83 homes in the Dayton metropolitan market in 1996, with
an average price of approximately $150,000. The average selling price in
Dayton was higher than in the Company's other markets primarily as a result of
the closing of homes in backlog acquired in connection with the acquisition of
Tom Peebles Builders, Inc. At December 31, 1996, the Company offered homes in
eight communities in the Dayton metropolitan area.
Southern Indiana. The Company's Southern Indiana division operates in
Columbus, Bloomington, Franklin and Seymour, Indiana. Major employers in this
area include Cummins Engine Company, Inc., Toyota Industrial Equipment Mfg.,
Inc., Atlas Van Lines, Inc., Arvin Industries, Inc. and Whirlpool Corp.
The Company's Southern Indiana division delivered 169 homes in 1996, with an
average price of approximately $100,000. At December 31, 1996, the Company
offered homes in 13 communities in Southern Indiana.
Louisville, Kentucky. According to the Census Bureau, the Louisville MSA had
an estimated population of 987,102 as of July 1, 1995, an increase of 4.0%
over 1990. In June 1997, the Louisville metropolitan area had a preliminary
unemployment rate of 4.0% as compared to the national unemployment rate of
5.2%. According to the Survey, the Louisville metropolitan area had an EBI of
$31,677 as compared to the national EBI of $32,238. Major employers in the
Louisville metropolitan area include G.E. Appliances and Humana Inc.
The Company delivered one home in Louisville in 1996 with a price of $84,470.
At December 31, 1996, the Company offered homes in six communities in the
Louisville metropolitan area.
Lexington, Kentucky. According to the Census Bureau, the Lexington MSA had an
estimated population of 435,736 as of July 1, 1995, an increase of 7.3% over
1990. In June 1997, the Lexington metropolitan area had a preliminary
unemployment rate of 2.7% as compared to the national unemployment rate of
5.2%. According to the Survey, the Lexington metropolitan area had an EBI of
$30,192 as compared to the national EBI of $32,238. Major employers in the
Lexington metropolitan area include University of Kentucky, Toyota Motor
Corporation and Lexmark International, Inc.
The Company began operations in the Lexington market on June 13, 1997. As of
June 30, 1997, the Company had delivered three homes with an average price of
approximately $121,000. At June 30, 1997, the Company offered homes in three
communities in Lexington.
Memphis, Tennessee. The Company intends to begin operations in the Memphis
market through the acquisition of the Memphis division of Heartland Homes. See
"Prospectus Summary-Recent Developments." According to the Census Bureau, the
Memphis MSA had an estimated population of 1,068,891 as of July 1, 1995, an
increase of 6.1% over 1990. In June 1997, the Memphis metropolitan area had a
preliminary unemployment rate of 5.1% as compared to the national
unemployment rate of 5.2%. According to the Survey, the Memphis metropolitan
area had an EBI of $31,300 as compared to the national EBI of $32,238. Major
employers in the Memphis metropolitan area include Federal Express
Corporation, Kellog Company and National Commerce Bancorporation.
PRODUCT LINES
The Company markets homes under the names "New American Homes," "Deluxe
Homes" and "Trimark Homes." Within these product categories, the Company
offers a variety of floor plans and exterior styles with two, three and four
bedrooms, two or more bathrooms and, usually, a two-car attached garage.
Contracts for the sale of homes are at fixed retail prices. Standard features
of each product line include built-in appliances and custom wood cabinets in
the kitchen, wall-to-wall carpeting, a high-efficiency furnace,
maintenance-free vinyl siding, landscaped yard and poured concrete walks,
porches and driveways. Purchasers are given the opportunity to select, at
additional cost, such amenities as patios or decks, wood windows, skylights,
upgraded carpeting and flooring, a fireplace or a basement.
Each of the Company's product lines is targeted at entry-level and first
move-up buyers. Although there are similarities among the homes in the
different product lines, New American Homes tend to be smaller and include
fewer standard amenities than Deluxe Homes or Trimark Homes, and Trimark Homes
tend to offer greater living space and include more standard amenities than
New American Homes or Deluxe Homes. In 1996, the approximate average price of
the homes sold in these categories was $90,000 for the New American Homes
line, $108,000 for the Deluxe Homes line and $123,000 for the Trimark Homes
line.
The Company intends to remain focused on delivering housing desired by
entry-level and first move-up buyers. It will explore modification of its
existing product lines or creation of new product lines when local marketing
efforts indicate changes will appeal to this segment and where such
modifications can be implemented without significant delay or expense.
Currently, the Company is at various stages of building three multi-family
rental properties. One of the properties is complete and as of August 10,
1997, the Company had leased approximately 66.0% of the units in this
property. The Company intends to either hold and manage such properties or to
sell them to third parties. The Company may continue to develop and build
multi-family units if, and to the extent that, the Company determines that
such activity is consistent with the Company's financial performance
objectives. The core single-family home building business will continue to
command first priority in capital commitment by the Company.
CONSTRUCTION
The Company acts as the general contractor for the construction of its
residential communities. The Company's construction supervisors monitor the
construction of each home, participate in design and building decisions,
coordinate the activities of subcontractors and suppliers, maintain quality
and cost controls and monitor compliance with zoning and building codes.
The construction of detached single-family homes by the Company is
generally tied to home buyer sales contracts to minimize the costs and risks
of completed but unsold inventory. When a buyer has received pre-approval
from a mortgage company for his or her financing, the Company develops a
budget for the construction of the house, which takes into account the model
of the home, the options selected and the lot on which the house is to be
constructed. A contract is entered into with the buyer on the basis of this
budget.
Construction time for each home is tied to a construction schedule
established for each of the Company's home types. The Company's construction
schedules range in duration from 60 to 120 days. Variances from the schedule
are infrequent but may occur due to weather conditions or the availability of
labor, materials and supplies.
Once a contract has been signed, a "house work order" is generated and
sent out to the Company's field supervisor and to each subcontractor who will
work on the home. The house work order describes each task that must be
completed to build the house and the materials required to complete the task.
Subcontractors prepare vouchers on the basis of a price list provided by the
Company which specifies the current rate that the Company will pay for the
nature of the task completed and the materials used. Price lists are updated
periodically based on changes in the costs of raw materials and other factors.
Vouchers prepared by the subcontractor must be reviewed and approved by the
field supervisor before they are paid by the Company.
The use of subcontractors enables the Company to minimize its investment
in direct employee labor, capital, equipment and building supply inventory.
This practice also increases the Company's flexibility in responding to
changes in the demand for housing. The Company has had long business
relationships with many of its subcontractors. These relationships, coupled
with the volume of homes built by the Company, enable the Company to negotiate
favorable agreements with its subcontractors.
The Company's office staff is responsible for sales processing,
estimating, architectural design, centralized purchasing, contract management,
home site planning, obtaining governmental approvals, closing, accounting and
warranty service, among other responsibilities. The Company's management
information system is designed to monitor the progress of each home built by
the Company, from acceptance of a sales contract to delivery of the completed
home to the buyer. The Company's office staff also monitors the vouchers
submitted by the Company's sub-contractors. Variances in the submitted
vouchers from the established price lists are reviewed and, where not
reasonable under the circumstances, are charged back to the vendor.
Despite seasonal changes in the weather, the Company has maintained a
construction schedule throughout the entire year. To permit winter
construction, the Company pours additional slab foundations during the fall.
The cost of these additional foundations is not significant. However,
additional construction charges are incurred during winter months due to such
factors as temporary heating costs, additives to concrete, extra utility
charges and the placement of temporary stone driveways, sidewalks and
landscaping.
Except as necessary to maintain customer satisfaction with the aesthetics
of its product lines, the Company does not materially change its home designs
and floor plans from year to year. The Company believes that consistency in
the design of its homes helps reduce costs and minimize delays by avoiding
expenses associated with educating subcontractors on the requirements of a new
design. Where practical, the Company uses mass production techniques,
construction on contiguous lots and prepackaged standardized components to
streamline the on-site construction phase.
The Company maintains small inventories of some construction materials in
addition to the construction materials for work in process of homes under
construction. The Company has not experienced any significant delays in
construction due to shortages of materials or labor.
LAND ACQUISITION AND DEVELOPMENT
The Company typically acquires unimproved land through contingent
purchase agreements. Closing of the land is contingent upon, among other
things, the Company's ability to obtain necessary zoning and other
governmental approvals for the proposed development, confirmation of the
availability of utilities and completion of an environmental review.
Once the land has been purchased, the Company undertakes development
activities that include site planning and engineering, as well as constructing
roads, sewer, water and drainage facilities and other amenities. The
activities are carefully managed, with phases geared to the Company's
projected sales. Generally, management of the Company attempts to maintain an
inventory of "finished" lots sufficient for approximately one-half the homes
which the Company anticipates it will construct during the next 18 months. In
addition, the Company maintains an inventory of raw land in anticipation of
its needs for a period of 18 to 36 months in the future. The following chart
summarizes the Company's available lot inventory as of June 30, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINISHED LOTS UNDER RAW LAND UNDER
LOTS DEVELOPMENT (EST. LOTS) TOTAL OPTION
Indianapolis 1,315 515 586 2,416 4,315
Lafayette 72 45 140 257 669
Columbus 442 105 699 1,246 706
Cincinnati 246 77 519 842 245
Ft. Wayne 189 -0- -0- 189 212
Dayton 186 155 713 1,054 175
Southern Indiana 271 117 207 595 723
Louisville 117 -0- 60 177 295
Lexington 121 -0- -0- 121 405
Totals 2,959 1,014 2,924 6,897 7,745
</TABLE>
In addition to purchasing unimproved land outright, the Company from time
to time has used partnerships and joint ventures to acquire and develop land.
The partnerships and joint ventures sell finished lots to homebuilders,
including, but not limited to, the Company. The Company will continue to
consider such partnership and joint venture arrangements in the future when
management perceives a favorable opportunity. As of June 30, 1997, the
Company was a participant in five such partnerships and joint ventures.
The development of land is extremely capital intensive, and as a result,
the Company's ability to develop land is limited. In 1996, the Company
developed approximately 56.0% of the lots on which its homes were built,
compared to approximately 50.0% in 1995. In 1997, the Company expects
approximately one-half of its houses will be built on lots it has developed.
MARKETING AND SALES
The Company sells its homes through a sales force of commissioned
independent contractors ("New Home Counselors") who work from sales offices
located at the Company's division headquarters and in model homes located in
each residential community. New Home Counselors advise prospective buyers
throughout the home buying process by providing information on the Company's
homes such as, pricing, options and upgrades, financing options, warranties
and construction.
New Home Counselors also advise buyers, many of whom are first-time home
buyers, on available financing options. The Company builds most of its homes
under the guidelines and specifications of the FHA and the VA, thereby
offering eligible buyers the benefit of FHA/VA mortgages. The Company
believes that such counseling and the availability of FHA/VA financing is
important to its overall success because many entry-level and first move-up
buyers have limited financial resources.
New Home Counselors contract with the Company, and the Company attempts
to maintain long term relationships with them. New Home Counselors attend
weekly sales meetings at which they are kept apprised of changes in available
financing options and other information relevant to prospective buyers.
While the Company does most of its advertising in the classified
advertisement section of local newspapers, it also attracts buyers as a
result of referrals, directional signs and direct mailings. From time to time
the Company also may participate in television and radio advertising
promotions.
The Company offers a Guaranteed Sale Program to certain buyers having
existing homes which they intend to sell before purchasing a home constructed
by the Company. Under the Guaranteed Sale Program, the Company will assist
the buyer in selling his or her existing home and, if that home is unsold at
closing, the Company will purchase the buyer's home at a predetermined price.
Management of the Company believes that the Guaranteed Sale Program has been
an effective marketing tool for the Company as many prospective buyers are
hesitant to purchase a new home until they are certain that they will be able
to sell their existing residence. Sales to new home buyers who executed
contracts under the Guaranteed Sale Program contributed approximately $14.6
million to 1996 sales.
FINANCING
The Company assists its customers in financing their new home in several
ways. First, the Company's New Home Counselors are available to consult with
the customers on available financing options to determine how much the
individual can afford to spend on a home. Second, the Company builds most of
its homes under the guidelines and specifications of the FHA and the VA,
thereby providing eligible prospective buyers the added benefit of the
availability of FHA/VA mortgages. This is significant because FHA and VA
financing generally enables buyers to purchase homes with lower down payments
than the down payments required by conventional mortgage lenders and allows
applicants to direct a larger percentage of their incomes toward housing
expenses. The FHA/VA insured mortgages also provide more liberal rules with
respect to the amount of points and closing costs that the Company may pay.
In 1996, approximately 64.0% of the homes delivered by the Company were
financed with FHA/VA mortgages.
As is typical in the homebuilding industry, the Company's home sales
contracts generally provide that the Company will pay on behalf of the buyer
the mortgage loan closing costs, origination fees and discount points incurred
by the buyer, within limits established in the sales contract and not in
excess of the maximum amounts allowable by the government mortgage programs
utilized by the Company.
MORTGAGE BROKERAGE SUBSIDIARY
The Company has a mortgage brokerage subsidiary, Crossmann Mortgage Corp.
In 1994, Crossmann Mortgage Corp. was certified as a correspondant lender by
FHA, and in January, 1997 was upgraded to a direct endorsement lender. Once
upgraded, the subsidiary began underwriting FHA and selected conventional
loans and selling the servicing rights. This designation requires the Company
to maintain minimum equity and cash balances. The revenue of this subsidiary
is comprised of origination fees and servicing release fees, and its expenses
primarily include administrative personnel salaries and other general office
expenses. Crossmann Mortgage Corp. does not warehouse or fund loans and, as a
result, does not incur a credit risk or market risk associated with loans it
originates.
CUSTOMER SERVICE AND QUALITY CONTROL
It is the view of the Company's management that the Company is primarily
a service company rather than a manufacturing concern. This philosophy is
reflected in the way the Company treats its customers before and after the
sale.
Before the sale, the Company's New Home Counselors work with the customer
to select from available options in order to customize their new home to their
particular taste. Once an application has been approved and construction on a
new home commenced, the Company encourages the buyer to visit the site during
the construction process. Before a buyer closes on a new house, the house
must pass certain criteria established by the Company. Moreover, before a
buyer takes occupancy of a new house, a pre-inspection tour is conducted with
the buyer to ensure that the buyer is satisfied with the condition of the home
and to attempt to correct any problems before the buyer takes possession.
When the buyer visits the Company's administrative office to make color
selections and complete the house work order, the Company provides the new
homeowner with a detailed checklist which describes the items covered by the
Company's warranty. Customers are encouraged to request a walk-through of the
home approximately 90 days after closing. In addition, the Company offers its
customers a final inspection on the first anniversary of the closing to check
the home for items to be submitted for warranty action and to discuss any
items which the customer believes warrant the Company's attention.
Each home sold by the Company is covered by a comprehensive warranty from
an independent Department of Housing and Urban Development approved warranty
company. The warranty extends coverage for ten years for structural matters,
four years for the roof of the home and two years for other specified items.
By maintaining this warranty program, the Company is required to undergo one
inspection, rather than three, to qualify for FHA/VA financing, thereby
reducing the cost and time delay associated with such inspections.
<PAGE>
MANAGEMENTMANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information regarding the
Company's executive officers and directors.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS OF SERVICE
NAME AGE WITH THE COMPANY (1) POSITION(S)
John B. Scheumann 48 21 Chairman; Chief Executive Officer; and Director
Richard H. Crosser 58 24 President; Chief Operating Officer; and Director
Jennifer A. Holihen 39 14 Chief Financial Officer; Treasurer; Secretary; and Director
John M. Moody 58 5 Vice President and General Manager-Indianapolis, Indiana Division
Steven M. Dunn 43 3 Vice President and General Manager-Columbus, Ohio Division
Lynn Cooper 58 8 Vice President and General Manager-Southern Indiana Division
Todd Roberts 32 1 Vice President and General Manager-Ft. Wayne, Indiana Division
Blaine Ballard 47 1 Vice President and General Manager-Louisville, Kentucky Division
Charles F. Holle 57 14 Vice President and General Manager-Lafayette, Indiana Division
Ronald W. Rooze 57 3 Vice President and General Manager-Cincinnati/ Dayton, Ohio Division
James C. Shook 65 3 Director
Larry S. Wechter 41 3 Director
<FN>
____________________
(1) Includes service with the Company and its predecessor entities.
</TABLE>
Mr. Shook is President of The Shook Agency, Inc., a real estate brokerage
firm in Lafayette, Indiana specializing in commercial and industrial sales and
leasing. Mr. Shook's other corporate affiliations include directorships of
NBD Indianapolis, N.A., Indiana Energy Inc. (Indiana Gas Company) and
Lafayette Life Insurance Company.
Mr. Wechter is one of the founders and the former President and director
of ADESA Corporation, an owner and operator of auto auctions and currently a
wholly owned subsidiary of Minnesota Power & Light. ADESA was a publically
held company during Mr. Wechter's tenure. Mr. Wechter now serves as Managing
Director of Monument Advisors, an investment bank based in Indianapolis,
Indiana, and is a member of Eagle Investments I, LLC, a private investment
company.
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERSPRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Shares as of August , 1997 and immediately
following the completion of this Offering by each Selling Shareholder and
each person who is known by the Company to beneficially own more than 5.0% of
the outstanding Shares. Except as indicated in the footnotes to this table
and pursuant to applicable community property laws, the Company believes that
the persons named in the tables have sole voting and investment power with
respect to all Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Shares Beneficially Shares Beneficially
Owned Prior to Shares Owned After
Offering to be Sold Offering
Name Number Percent in Offering Number Percent
John B. Scheumann 2,614,500 28.3% 375,000 2,239,500 20.8%
Richard H. Crosser (1) 2,196,000 23.7% 375,000 1,821,000 16.9%
<FN>
*Less than 1% of outstanding Shares.
(1) All of the Shares beneficially owned by Mr. Crosser are owned by the Richard H. Crosser
Living Trust. The beneficiaries of the trust are Mr. Crosser's children. Mr. Crosser is the
trustee of the trust.
</TABLE>
<PAGE>
DESCRIPTION OF CAPITAL STOCKDESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 30.0 million Shares, all of which have
identical rights and preferences, and ten million preferred shares, no par
value ("Preferred Shares"). As of August 14, 1997, the Company had 9,254,678
Shares outstanding and intends to issue an additional 1,500,000 Shares in
connection with the Offering. The Company will receive an opinion of its
counsel at the time of issuance that the Shares issued in this Offering are
validly issued, fully paid and not subject to further call or assessment.
COMMON SHARES
Each holder of a Share is entitled to one vote for each share held on
matters voted upon by shareholders, subject to limitations discussed under the
caption "-Other Restrictions on Acquisition of the Company." Under Indiana
law and pursuant to the Company's Amended and Restated Articles of
Incorporation (the "Articles"), the holders of the Shares possess exclusive
voting power in the Company and will continue to possess exclusive voting
power, unless one or more series of Preferred Shares are issued and voting
rights are granted to the holders thereof or unless the Articles are amended
as provided therein and pursuant to Indiana law. Subject to preferences that
may be applicable to Preferred Shares issued in the future, holders of the
Shares are entitled to receive ratably such dividends as may be declared by
the Board of Directors of the Company (the "Board") out of funds legally
available therefor, and, in the event of liquidation or dissolution of the
Company, all assets of the Company (after payment or provision for payment of
all debts and liabilities of the Company and of all Preferred Shares having
priority over the Shares) available for distribution, in cash or in kind.
Shareholders of the Company have no pre-emptive rights to acquire additional
Shares which may be subsequently issued. There are no redemption or sinking
fund provisions applicable to the Shares. All outstanding Shares are, and all
Shares to be outstanding upon completion of this Offering will be, fully paid
and nonassessable.
PREFERRED SHARES
The Board is authorized, without further action by the shareholders, to
issue up to ten million Preferred Shares in one or more series. The Board is
authorized to fix and state the relative rights, preferences, privileges and
restrictions thereof, including voting rights, dividend rights, conversion
rights, terms of redemption, liquidation preferences, the number of shares
constituting any series and the designation of such series. Preferred Shares
may rank prior to the Shares as to dividend rights and/or liquidation
preferences and may have full or limited voting rights. The holders of
Preferred Shares will be entitled to vote as a separate class or series under
certain circumstances (principally in cases directly affecting the rights of
the then existing holders of Preferred Shares, such as a merger, share
exchange or modification of terms of the Preferred Shares), regardless of any
other voting rights which such holders may have. Accordingly, the Board can,
without shareholder approval, issue Preferred Shares with voting and
conversion rights that would materially adversely affect the voting power of
the holders of the Shares.
ANTI-TAKEOVER PROVISIONS
The following discussion is a general summary of the material provisions
of the Articles and the Amended and Restated Bylaws of the Company (the
"Bylaws") and certain other provisions which may be deemed to have an effect
of delaying, deferring or preventing a change in control of the Company. The
following description of certain of these provisions is general and not
necessarily complete and is qualified by reference to the Articles and Bylaws.
See also "Risk Factors-Control Relationships" and "Risk Factors-Effect of
Anti-takeover Provisions."
Directors. The Articles provide that the Board will be divided into
three classes, with directors in each class elected for three-year staggered
terms. Therefore, it would take two annual elections to replace a majority of
the Company's Board. The Articles also provide that the size of the Board
shall range between three and 15 directors with the exact number of directors
to be fixed from time to time by the Board pursuant to a resolution adopted by
a majority of the total number of directors. The Articles provide that any
vacancy occurring on the Board, including a vacancy created by an increase in
the number of directors, shall be filled for the remainder of the unexpired
term only by a majority vote of the directors then in office. Finally, the
Bylaws impose certain notice and information requirements in connection with
the nomination by shareholders of candidates for election to the Board or the
proposal by shareholders of business to be acted upon at an annual meeting of
shareholders.
The Articles provide that a director or the entire Board may be removed
only for cause and only by the affirmative vote of at least two-thirds of the
shares eligible to vote generally in the election of directors.
Authorization of Preferred Shares. As discussed above, the Board is
authorized to fix and state the relative rights, preferences, privileges and
restrictions of the Preferred Shares, including voting rights and conversion
rights. In the event of a proposed merger, tender offer or other attempt to
gain control of the Company without Board approval, it would be possible for
the Board to authorize the issuance of a series of Preferred Shares with
rights and preferences which might impede the completion of such a
transaction. If the Company issues any Preferred Shares that would
disproportionately reduce the voting rights of the Shares, the Shares could be
required to delist from the Nasdaq National Market System.
Amendments to Articles and Bylaws. Amendments to the Articles must be
approved by a majority vote of the Company's Board and also by a majority of
the outstanding shares of the Company's voting shares; provided, however, that
approval by at least two-thirds of the outstanding voting shares is required
to amend certain provisions of the Articles (i.e., (i) provisions relating to
number, classification and removal of directors, (ii) call of special
shareholder meetings and (iii) amendments to provisions relating to the
foregoing). The Bylaws may be amended only by a majority vote of the total
number of directors of the Company.
OTHER RESTRICTIONS ON ACQUISITION OF THE COMPANY
Several provisions of the Indiana Business Corporation Law (the "IBCL")
could affect the acquisition of Shares or control of the Company. Chapter 43
of the IBCL prohibits, without advance approval by the Board, business
combinations between corporations such as the Company and any person who is,
or any affiliate or associate of the Company that at any time within five
years immediately before the date in question who was, the beneficial owner of
10.0% or more of the total combined voting power of all outstanding classes of
stock of the Company ("10% Shareholders") for five years following the date on
which the person became a 10% Shareholder. If such prior approval is not
obtained, several price and procedural requirements must be satisfied before a
business combination can be completed.
In addition, the IBCL contains provisions designed to assure that
minority shareholders have a voice in determining their future relationship
with an acquiror in the event that an acquiror makes a tender offer for, or
otherwise acquires, shares giving the acquiror more than 20.0%, 33.3% or 50.0%
of the voting power of the corporation (the "Control Share Acquisitions
Statute"). Under certain circumstances, if the Control Share Acquisitions
Statute applies, an acquiror may vote those shares which exceed the
aforementioned thresholds ("Control Shares") only to the extent that voting
rights are approved by the holders of a majority of each class or series of
shares entitled to vote separately on the proposal (excluding shares held by
officers of the corporation, by employees of the corporation who are directors
thereof and by the acquiror). A corporation may redeem Control Shares at
their fair market value, if such authority is contained in the articles of
incorporation or by-laws of the corporation. The Company has adopted such a
provision as part of its Bylaws.
The IBCL specifically authorizes directors in considering a proposed
business transaction to consider both the long and short-term interests of the
corporation, as well as the effects of such transaction on shareholders,
employees, suppliers and customers of the corporation, the communities in
which offices or other facilities of the corporation are located and any other
factors the directors consider pertinent. The IBCL expressly states that
limitations on board discretion in response to a potential takeover, such as
those adopted by Delaware courts, do not apply to directors of Indiana
companies.
<PAGE>
UNDERWRITINGUNDERWRITING
In the Underwriting Agreement, the Underwriters, represented by McDonald
& Company Securities, Inc., Dillon, Read & Co. Inc. and Raymond James &
Associates, Inc. (the "Representatives"), have agreed, severally, subject to
the terms and conditions therein set forth, to purchase from the Company and
the Selling Shareholders, and the Company and the Selling Shareholders have
severally agreed to sell to them, the number of Shares totaling 2,250,000
Shares, set forth opposite their respective names below. The Underwriters are
committed to take and pay for all Shares if any Shares are purchased.
<TABLE>
<CAPTION>
<S> <C>
NUMBER OF
NAME OF UNDERWRITER FIRM SHARES
McDonald & Company Securities, Inc
Dillon, Read & Co. Inc
Raymond James & Associates, Inc
Total 2,250,000
</TABLE>
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the Shares to the
public at the public offering price set forth on the cover page of this
Prospectus. The Underwriters may allow to certain selected dealers who are
members of the National Association of Securities Dealers, Inc. (the "NASD") a
discount not exceeding $ per Share, and the Underwriters may allow, and
such selected dealers may re-allow, a discount not exceeding $ per Share
to other dealers who are members of the NASD. After the Offering, the public
offering price and the discount to dealers may be changed.
The Company and the Selling Shareholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 337,500 Shares at the public
offering price, less the underwriting discount, as set forth on the cover page
of this Prospectus. If the over-allotment option is exercised in full,
112,500 of such Shares will be sold by the Company and 112,500 of such Shares
will be sold by each of the Selling Shareholders. To the extent that the
over-allotment option is not exercised in full, the respective numbers of
Shares to be sold by the Company and each Selling Shareholder will be reduced
proportionately. The Underwriters may exercise such option only to cover
over-allotments in the sale of Shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment, subject to certain conditions,
to purchase the same percentage of the option Shares as the number of Shares
to be purchased and offered by that Underwriter in the table above bears to
the total.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities which may be incurred in connection
with the Offering, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make.
The Company, its directors and executive officers and certain other
shareholders have agreed not to sell, transfer or otherwise dispose of any
Shares or any securities convertible into or exchangeable or exercisable for
Shares without the consent of McDonald & Company Securities, Inc. for a period
of 180 days after the date of this Prospectus, except for awards of management
stock options or issuances of Shares upon the exercise of outstanding stock
options or pursuant to other employee benefit plans.
In connection with the Offering, certain Underwriters may engage in
passive market making transactions in the Shares on the Nasdaq National Market
System in accordance with Rule 103 of Regulation M under the Exchange Act
during the business day prior to the pricing of the Offering before the
commencement of offers and sales of the Shares. Passive market making
consists of displaying bids on the Nasdaq National Market System limited by
the bid prices of independent market makers and purchases limited by such
prices and effected in response to order flow. Net purchases by a passive
market maker on each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the Shares during a specified
prior period and must be discontinued when such limit is reached. Passive
market making may stabilize the market price of the Shares at a level above
which might otherwise prevail and, if commenced, may be discontinued at any
time.
The Representatives have advised the Company that, pursuant to Regulation
M under the Exchange Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Shares at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is
a bid for or a purchase of the Shares on behalf of the Underwriters for the
purpose of fixing or maintaining the price of the Shares. A "syndicate
covering transaction" is a bid for or a purchase of Shares on behalf of the
Underwriters to reduce a short position incurred by the Underwriters in
connection with the Offering. A "penalty bid" is an arrangement permitting
the Representatives to reclaim the selling concession otherwise accruing to an
Underwriter or syndicate member in connection with the Offering if the Shares
originally sold by such Underwriter or syndicate member is purchased by the
Representatives in a syndicate covering transaction and has therefore not been
effectively placed by such Underwriter or syndicate member. The
Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market System or otherwise and, if commenced,
may be discontinued at any time.
McDonald & Company Securities, Inc. has from time to time performed
various investment banking and financial advisory services for the Company and
has received customary fees in respect of such services.
LEGAL MATTERSLEGAL MATTERS
The validity of the Shares will be passed upon for the Company and for
the Selling Shareholders by Ice Miller Donadio & Ryan, Indianapolis, Indiana.
Certain legal matters in connection with this Offering will be passed upon for
the Underwriters by Baker and Daniels, Indianapolis, Indiana.
EXPERTSEXPERTS
The consolidated financial statements as of December 31, 1996 and 1995
and for each of the two years in the period ended December 31, 1996 included
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and are included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The audited consolidated financial statements included and incorporated
by reference in this Prospectus and elsewhere in the Registration Statement
for the year ended December 31, 1994 have been audited by Ernst & Young LLP,
independent auditors, and are included herein in reliance on the authority of
their report as experts in accounting and auditing.
<PAGE>
CROSSMANN COMMUNITIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1995 and 1996 and
June 30, 1997 (unaudited)
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995
and 1996 and the Six Months Ended June 30, 1996 and 1997 (unaudited)
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996 and for the Six Months Ended
June 30, 1997 (unaudited)
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1995
and 1996 and the Six Months Ended June 30, 1996 and 1997 (unaudited)
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditors' Report
Board of Directors and Shareholders
Crossmann Communities, Inc.
We have audited the accompanying consolidated balance sheets of Crossmann
Communities, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the two years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and the significant estimates made by management,
as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such 1995 and 1996 consolidated financial statements present
fairly, in all material respects, the financial position of Crossmann
Communities, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
We also audited the adjustments to weighted average number of common shares
outstanding and net income per common share for the year ended December 31,
1994 to reflect the retroactive effect of the three-for-two stock split
described in Note 13. In our opinion, such adjustments are appropriate and
have been properly applied.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
February 14, 1997
(August 7, 1997 as to Note 13)
<PAGE>
Report of Independent Public Accountants
The Board of Directors and Shareholders
Crossmann Communities, Inc.
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of Crossmann Communities, Inc. for the
year ended December 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of Crossmann Communities, Inc. for the year ended
December 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
February l, 1995, except for the 1995 Transaction
portion of Note 5 to the 1994 financial statements
as to which the date is March 28, 1995
<PAGE>
<TABLE>
<CAPTION>
CROSSMANN COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
AND JUNE 30, 1997 (UNAUDITED)
<S> <C> <C> <C>
December 31, December 31, June 30,
Assets 1995 1996 1997
Cash and cash equivalents $ 5,232,950 $ 100,000 $ 100,000
Retainages 604,973 1,151,700 1,514,650
Real estate inventories 69,682,696 113,202,107 137,561,653
Furniture and equipment, net 1,310,259 2,919,333 3,023,799
Investments in joint ventures 1,172,289 3,404,742 4,952,602
Goodwill, net 2,898,722 2,737,328 3,068,990
Other assets 3,052,587 4,821,259 5,758,371
Total assets $ 83,954,476 $ 128,336,469 $155,980,065
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $10,304,193 $ 14,110,634 $ 18,109,450
Accrued expenses and other
Liabilities 3,966,255 5,250,256 5,437,101
Notes payable 25,472,321 49,326,220 66,101,609
Total liabilities 39,742,769 68,687,110 89,648,160
Commitments and contingencies -- -- --
(Note 12)
Shareholders' equity:
Preferred shares, without par value:
Authorized shares - 10,000,000
No shares issued and outstanding
Common shares, without par value
Authorized shares - 30,000,000
Issued and outstanding shares
9,122,250, 9,188,652, and
9,254,678 at December 31, 1995
and 1996 and June 30, 1997
Respectively 24,028,879 24,400,903 25,290,069
Retained earnings 20,182,828 35,248,456 41,041,836
Total shareholders' equity 44,211,707 59,649,359 66,331,905
Total liabilities and
Shareholders' equity $83,954,476 $128,336,469 $155,980,065
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROSSMANN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
<S> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
1994 1995 1996 1996 1997
Sales of residential real estate $ 112,140,346 $ 177,589,906 $ 229,485,094 $ 82,809,121 $ 116,360,129
Cost of residential real estate sold 87,646,413 141,886,168 181,434,071 65,845,422 92,638,587
Gross profit 24,493,933 35,703,738 48,051,023 16,963,699 23,721,542
Selling, general and
Administrative expenses 11,928,092 17,082,842 23,196,933 10,347,450 13,941,742
Income from operations 12,565,841 18,620,896 24,854,090 6,616,249 9,779,800
Other income, net 710,101 687,389 853,896 424,437 550,300
Interest expense (485,246) (678,095) (1,039,251) (380,271) (589,250)
224,855 9,294 (185,355) 44,166 (38,950)
Income before income taxes 12,790,696 18,630,190 24,668,735 6,660,415 9,740,850
Income taxes 5,040,187 7,518,778 9,603,107 2,666,850 3,947,470
Net income $ 7,750,509 $ 11,111,412 $ 15,065,628 $ 3,993,565 $ 5,793,380
Weighted average number of
Common shares outstanding 9,105,000 9,112,197 9,149,993 9,141,165 9,195,840
Net income per common share $ .85 $ 1.22 $ 1.65 $ .44 $ .63
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROSSMANN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<S> <C> <C> <C> <C>
COMMON SHARES COMMON SHARES RETAINED
SHARES AMOUNT EARNINGS TOTAL
Balances at January 1, 1994 9,105,000 $ 23,946,485 $ 1,320,907 $ 25,267,392
Net income - - 7,750,509 7,750,509
Additional public offering costs - (6,731) - (6,731)
Balances at December 31, 1994 9,105,000 23,939,754 9,071,416 33,011,170
Net income - - 11,111,412 11,111,412
Sale of common shares 17,250 89,125 - 89,125
Balances at December 31, 1995 9,122,250 24,028,879 20,182,828 44,211 ,707
Net income - - 15,065,628 15,065,628
Issuance of common shares 66,402 372,024 - 372,024
Balances at December 31, 1996 9,188,652 24,400,903 35,248,456 59,649,359
Net income (unaudited) - - 5,793,380 5,793,380
Issuance of common shares
(unaudited) 66,026 889,166 - 889,166
Balances at June 30, 1997
(unaudited) 9,254,678 $ 25,290,069 $41,041,836 $ 66,331,905
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CROSSMANN COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND SIX MONTHS JUNE 30, 1996 AND 1997 (UNAUDITED)
(SEE NOTES 6 AND 8)
<S> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
1994 1995 1996 1996 1997
OPERATING ACTIVITIES:
Net income $ 7,750,509 $ 11,111,412 $ 15,065,628 $ 3,993,565 $ 5,793,380
Adjustments to reconcile net
Income to net cash provided
(used) by operating activities:
Depreciation 271,599 397,769 539,443 248,919 318,097
Amortization 161,694 161,696 161,394 (121,774) 81,148
Deferred income taxes 2,353 (76,994) (169,308) (3,880) (2,651)
Cash provided (used) by changes in:
Retainages 94,657 (342,678) (525,387) (1,067,847) (362,950)
Real estate inventories (19,691,238) (15,015,713) (37,567,373) (22,627,961) (20,552,886)
Other assets (711,198) (340,196) (1,001,198) (1,346,720) (1,002,417)
Accounts payable 141,843 3,569,110 2,974,123 7,182,855 3,742,955
Accrued expenses and other
liabilities 548,329 2,240,414 530,734 1,080,114 (194,415)
Net cash provided (used) by
Operating activities (11,431,452) 1,704,820 (19,991,944) (12,662,729) (12,179,739)
INVESTING ACTIVITIES:
Purchases of furniture
equipment (1,072,453) (860,488) (2,023,660) (1,862,079) (398,425)
Proceeds from disposition
Furniture and equipment 13,128 380,000 - 7,000 2,651
Investments in joint ventures (125,211) (734,500) (2,206,582) (607,699) (1,547,860)
Business acquisition - - (330,901) - 124,840
Net cash used by investing activities (1,184,536) (1,214,988) (4,561,143) (2,462,778) (1,818,794)
FINANCING ACTIVITIES:
Proceeds from bank borrowings 58,727,590 84,076,258 119,832,796 34,250,000 64,000,644
Principal payments on
Bank borrowings (46,642,156) (99,631,250) (97,534,584) (24,517,223) (49,663,000)
Payments on notes and
Long-term debt - - (3,250,099) 128,780 (361,611)
Proceeds from issue of
Senior notes - 25,000,000 - - -
Payment of deferred
Financing costs - (263,926) - - -
Payments on related party loan (3,114,003) (4,527,089) - - -
Proceeds from sale of
Common shares - 89,125 372,024 31,000 22,500
Additional public offering costs (6,731) - - - -
Net cash provided by
Financing activities 8,964,700 4,743,118 19,420,137 9,892,557 13,998,533
Net increase (decrease) in cash
And cash equivalents (3,651,288) 5,232,950 5,132,950 (5,232,950) -
Cash and cash equivalents at
Beginning of period 3,651,288 - 5,232,950 5,232,950 100,000
Cash and cash equivalents at
End of period $ -0- $ 5,232,950 $ 100,000 $ -0- $ 100,000
<PAGE>
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE>
CROSSMANN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
CROSSMANN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(Interim financial information as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 is unaudited. The unaudited interim consolidated
financial statements reflect all adjustments consisting only of normal
recurring accruals which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods.)
<PAGE>
CROSSMANN COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BASIS OF PRESENTATION
Crossmann Communities, Inc. (the "Company") is engaged primarily in the
development, construction, marketing and sale of new single-family homes for
first time and first move-up buyers. The Company also acquires and develops
land for construction of such homes and originates mortgage loans for the
buyers. The Company operates in Indianapolis, Ft. Wayne, and Lafayette,
Indiana; Cincinnati, Columbus and Dayton, Ohio; and Louisville, Kentucky.
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation.
The consolidated financial statements include the accounts of all wholly-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated. The Company owns a 50.0% interests in certain unconsolidated
joint ventures, which are accounted for using the equity method.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Warranties are provided by the Company. Reserves of approximately $378,000
and $553,400 at December 31, 1995 and 1996, respectively, are recorded based
on historical trends of expenses incurred for repairs. The amount of the
warranty reserve is considered adequate; however, it is reasonably possible
that the reserves may not be sufficient for future claims.
Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
Real Estate Inventories
Real estate inventories are stated at the lower of cost (specific
identification method) or net realizable value. In addition to direct land
acquisition, land development and housing construction costs, inventory costs
include interest, real estate taxes and related overhead costs of development
and construction which are capitalized in inventory during the development and
construction periods. Net realizable value represents estimates, based on
management's present plans and intentions, of sale price less development and
disposition cost, assuming that disposition occurs in the normal course of
business.
Goodwill
Goodwill, which was recorded in the acquisition of Deluxe Homes of Columbus,
Inc. and the minority interests in certain of the Deluxe Entities, is
amortized over 20 years using the straight-line method. Accumulated
amortization was approximately $352,400 and $513,800 at December 31, 1995 and
1996, respectively.
The Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets
to be Disposed Of ("SFAS No. 121") in the fourth quarter of 1995. SFAS No.
121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company,
using its best estimates based on reasonable and supportable assumptions and
projections, has reviewed long-lived assets and certain identifiable
intangibles to be held and used, and no impairment appears to exist as of
December 31, 1996. Adopting SFAS No. 121 had no material effect on the 1995
consolidated financial statements.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
respective assets ranging from five to 39 years. Accumulated depreciation is
approximately $1,120,700 and $1,644,700 at December 31, 1995 and 1996,
respectively. Repairs and maintenance costs are expensed as incurred.
Revenue Recognition
Revenue is recognized upon a formal closing and as title to the property
transfers to the buyer.
Income Taxes
Deferred tax assets and liabilities are computed based on differences between
the financial statement and income tax bases of assets and liabilities using
the enacted tax rate. Deferred income tax expense or benefit is based on the
change in assets and liabilities from period to period, subject to an ongoing
assessment of realization.
Per Share Disclosures
Net income per common share is calculated based on the actual weighted average
number of shares outstanding during the year. Common share equivalents do not
have a dilutive effect on net income per common share. All per share
disclosures have been retroactively adjusted to give effect to the
three-for-two stock split to be effected by a common share dividend declared
by the Board of Directors of the Company on August 7, 1997, and payable on
August 25, 1997 to holders of record on August 18, 1997 (see Note 13).
New Pronouncements
In February 1997, SFAS No. 128, Earnings per Share, was issued which
establishes new standards for computing and presenting earnings per share
("EPS"). Specifically, SFAS No. 128 replaces the presentation of primary EPS
with a presentation of basic EPS, requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997; earlier
application is not permitted. Management has determined that the adoption of
SFAS No. 128 will not have a material effect on the Company's calculation of
net income per share.
In June 1997, SFAS No. 130, Comprehensive Income, was issued which becomes
effective in 1998 and requires reclassification of earlier financial
statements for comparative purposes. SFAS No. 130 requires that changes in
the amounts of certain items, including foreign currency translation
adjustments and gains and losses on certain securities be shown in the
financial statements. SFAS No. 130 does not require a specific format for the
financial statement in which comprehensive income is reported, but does
require that an amount representing total comprehensive income be reported in
that statement. Management has not yet determined the effect, if any, of SFAS
No. 130 on the Company's consolidated financial statements.
Also in June 1997, SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, was issued. This Statement will change the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined the
effect, if any, of SFAS No. 131 on the Company's consolidated financial
statements.
1. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosure About Fair
Value of Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. The following summarizes the estimated fair values of
financial instruments and the major methods and assumptions used in estimating
such amounts:
Short-term financial instruments are valued at their carrying amounts included
in the consolidated balance sheets, which are reasonable estimates of fair
value due to the relatively short period to maturity. This applies to cash
and cash equivalents, retainages, certain other assets, accounts payable and
certain other liabilities.
Debt with variable interest rates is valued at carrying amounts which
approximate the fair value based on discounted future cash flows. The
carrying amount of senior notes payable at December 31, 1996, approximates the
fair value based upon debt instruments with similar terms and conditions.
1. REAL ESTATE INVENTORIES
Real estate inventories at December 31 consist of:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1995 1996
Residential homes under construction $ 34,808,900 $ 50,512,565
Land held for future development 10,297,886 16,644,887
Land under development 15,606,514 30,639,075
Purchased developed lots 3,093,133 8,456,435
Homes held for resale 1,301,469 939,770
Model homes 4,574,794 6,009,375
$ 69,682,696 $ 113,202,107
</TABLE>
The Company occasionally purchases homes from customers to facilitate the sale
of new homes. Such homes held for resale are recorded at the lower of cost or
market.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company has entered into joint ventures with various land development
contractors and owns 50.0% interests in each venture. The joint ventures are
accounted for using the equity method. Aggregated condensed financial
information for unconsolidated joint ventures is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
Revenue $ 1,803,452 $ 29,171 $ 518,372
Expenses 1,496,514 27,007 487,938
Net Income $ 306,938 $ 2,164 $ 30,434
Assets $ 1,772,338 $ 2,341,058 $ 7,962,009
Liabilities 896,760 726,250 3,627,019
Equity $ 875,578 $ 1,614,808 $ 4,334,990
</TABLE>
Assets of the joint ventures consist primarily of developed lots, land under
development and land held for future development. Revenue consists primarily
of residential lot sales. Investments in joint ventures include accounts
receivable from the joint ventures and certain lot deposits of approximately
$365,000 and $1,312,000 in 1995 and 1996, respectively. The Company purchased
lots from the joint ventures for $843,000 in 1994 and $217,000 in 1996.
CREDIT ARRANGEMENTS
Notes payable consists of the following at December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1995 1996
Unsecured line of credit with
banks, maximum $40,000,000,
with interest payable on funds
committed for fixed periods at
LIBOR (5.5% at December 31, 1996)
plus 2.4% and on floating funds at the
banks' prime rate (8.25% at
December 31, 1996), maturing in
March 1998. $ - $ 25,842,000
Various notes payable repaid during 1996. 472,321 -
Various notes payable collateralized by land,
with periodic principal payments, maturing
from May 1997 through November 2000,
and bearing interest at rates ranging from
prime plus 1% to 8.25%. - 1,261,998
Senior notes payable, due
December 2004 with annual
principal payments of
2,777,777, and quarterly interest
payments at 7.625% per annum. 25,000,000 22,222,222
25,472,321 49,326,220
</TABLE>
On December 22, 1995, the Company issued senior notes in the amount of $25
million, pari passu with its senior bank facility, payable over nine years
with interest payable quarterly at 7.625%. Proceeds, net of deferred
financing costs of approximately $264,000, were used to redeem outstanding
subordinated notes and outstanding bank debt. Concurrent with the issue of
the notes, the Company renegotiated its $40.0 million line of credit with the
banks to make the covenants consistent with its senior note agreement
covenants and to extend the term to three years. In March 1997, the Company
further renegotiated the line of credit to increase its capacity to $60.0
million and to extend the term through March 31, 1999.
The senior note and line of credit agreements require a minimum current ratio,
a minimum fixed charge coverage ratio, a maximum ratio of debt to tangible
capital base, a maximum ratio of land to equity, and a maximum ratio of debt
to a borrowing base derived from inventory levels. The senior note agreement
requires a pre-payment premium in the event of early extinguishment of the
debt. Additionally, both credit agreements limit investment in unconsolidated
joint ventures, payments of cash dividends, and require express written
consent of the lenders for certain transactions.
Interest capitalized during real estate development and construction was
approximately $767,000, $1,299,700 and $2,155,400 for 1994, 1995 and 1996,
respectively.
Interest paid, including amounts capitalized, was approximately $1,427,000,
$1,977,800 and $3,194,655 in 1994, 1995 and 1996, respectively. The weighted
average interest rate on borrowings outstanding at December 31, 1995 was 7.64%
and 7.83% at December 31, 1996.
Scheduled maturities of the notes payable for each of the five years and
thereafter as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 3,249,633
1998 29,209,921
1999 2,877,778
2000 2,877,778
2001 2,777,778
Thereafter 8,333,332
$49,326,220
</TABLE>
1. SHAREHOLDERS' EQUITY
The Company has authorized 10,000,000 preferred shares which remain unissued
at December 31, 1996. The Board of Directors of the Company has not yet
determined the preferences, qualifications, relative voting or other rights of
the authorized preferred shares.
The Company has incentive share option plans for employees and directors
pursuant to which 937,500 common shares are reserved. The options were issued
at market prices on the grant date, became exercisable on the grant date or in
some cases three years from the grant date, and expire 10 years after the
grant date. Details of stock options for the years ended December 31, 1994,
1995 and 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Price per share 1994 1995 1996
Beginning Balance 75,000 195,000 243,750
Options granted $ 5.17 - $11.83 135,000 111,000 90,750
Options exercised $ 5.17 - $6.00 - (17,250) (36,312)
Options forfeited $ 5.17 - $11.83 (15,000) (45,000) (27,738)
Ending Balance 195,000 243,750 270,450
Exercisable 180,000 228,750 255,450
</TABLE>
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for the plans. No
compensation cost has been recognized for the plans because the stock option's
price is equal to fair value at the grant date. Had compensation cost for the
plans been determined based on the fair value at the grant dates for awards
under the plan consistent with the method of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net income and net income per share
for the years ended December 31, 1995 and 1996 would have decreased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
Net income 1995 1996
As reported $ 11,111,412 $ 15,065,628
Pro forma 10,978,736 14,829,416
Net income per share
As reported 1.22 1.65
Pro forma 1.20 1.62
</TABLE>
The weighted average fair value of options granted was $2.46 in 1995 and $3.79
in 1996. The fair value of the option grants are estimated on the date of
grant using the Black- Scholes option pricing model with the following
assumptions: no dividend yield, risk-free interest rates of 6.07% to 7.13%,
volatility of 39 to 42 and expected lives of five years. The pro forma
amounts are not representative of the effects on reported net income for
future years.
1. INCOME TAXES
The reconciliation of income taxes computed at the U.S. federal statutory tax
rate to income tax expense for the years ended December 31, 1994, 1995 and
1996 is:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1994 1995 1996
Tax at U.S. statutory rate $ 4,348,837 $ 6,520,567 $ 8,634,057
State income taxes,
Net of federal tax benefit 643,227 931,510 1,233,437
Other, net 48,123 66,701 (264,387)
$ 5,040,187 $ 7,518,778 $ 9,603,107
</TABLE>
The following is a summary of the components of the provision for income
taxes:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
Current tax expense:
Federal $4,063,248 $6,115,338 $8,014,453
State 974,586 1,480,434 1,757,962
5,037,834 7,595,772 9,772,415
Deferred tax expense
(benefit) 2,353 (76,994) (169,308)
$5,040,187 $7,518,778 $9,603,107
</TABLE>
Income taxes paid were $4,556,199, $6,233,382 and $7,570,365 during 1994, 1995
and 1996, respectively.
Deferred income taxes result principally from temporary differences in the
recognition of warranty expense for tax and financial reporting purposes. A
deferred tax asset of approximately $157,000 at December 31, 1995 and $326,000
at December 31, 1996 is recorded for temporary differences. In the opinion of
management, it is more likely than not that the deferred tax asset will be
realized.
1. RELATED PARTY TRANSACTIONS
The Company is affiliated with several other companies, which have not been
consolidated herein, through common ownership. Transactions with the related
parties are made in the normal course of business.
Office and warehouse space at the Company's headquarters is leased from a
related party. During 1994, 1995 and 1996 approximately $100,000, $222,800
and $251,200, respectively, in rental payments were made.
Interest paid on debt from related parties was approximately $611,900 and
$447,000 for the years ended December 31, 1994 and 1995 respectively.
Prior to 1994 the Company sold new and existing homes to related parties.
Closing on sales of new and existing homes to related parties was $240,000 in
1994.
1. LEASES
The Company leases office and warehouse space, vehicles and office equipment
pursuant to operating lease agreements expiring from May 1999 to May 2001.
Annual minimum payments to be made to a related party incorporated in the
amounts below range from $284,435 in 1997 to $5,160 in 2001.
Annual minimum operating lease payments due as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 552,133
1998 494,851
1999 256,474
2000 136,614
2001 26,360
$1,413,140
</TABLE>
Rent expense was approximately $236,200, $314,800 and $479,100 for 1994, 1995
and 1996, respectively.
1. EMPLOYEE BENEFITS
The Company's defined contribution savings plan covers substantially all
employees of the Company. Participants are allowed to make nonforfeitable
contributions up to limits established by the Internal Revenue Code. In 1995,
the Company matched in cash 50.0% of the first 6.0% of compensation
contributed by each participant, totaling $116,631. At December 31, 1995, the
Company declared a discretionary contribution of an additional 5.7% of
compensation, not to exceed 15.0% of all participants' compensation or $30,000
per individual. This contribution was $322,510.
During 1996, the Company further amended the plan to permit investment by
employees in the Company's common shares. The Company registered the common
shares to be offered under the plan with the Securities Exchange Commission on
Form S-8 on March 22, 1996. In 1996, as in 1995, the Company matched in cash
50.0% of the first 6.0% of compensation contributed by each participant,
totaling $114,835. On December 31, 1996, the Company declared a discretionary
profit sharing contribution of approximately $340,000 payable in the Company's
common shares. This contribution was the maximum amount deductible by the
Company under the rules set forth in section 404(a)(3) of the Internal Revenue
Code.
Prior to 1995, the Company maintained a Simplified Employee Pension Plan for
certain employees. This defined contribution plan covered employees at least
21 years of age who worked for the Company at least three years, and permitted
discretionary contributions for eligible employees up to 15.0% of the first
$150,000 of compensation per employee. The contribution for 1994 was
$251,600.
1. COMMITMENTS AND CONTINGENCIES
To assure the future availability of various developed lots, in the normal
course of business, the Company has contracted to purchase developed lots.
Total commitments for these purchases were approximately $106.0 million at
December 31, 1996. The purchase of these lots is subject to various
conditions imposed on both the sellers and the Company.
The Company from time, to time is involved in routine litigation incidental to
its business. The Company does not believe that any liabilities resulting
from litigation to which it is a party will materially affect the Company's
financial position and results of operations.
SUBSEQUENT EVENT
On August 7, 1997 the Company's Board of Directors approved a three-for-two
stock split of the Company's common shares payable on August 25, 1997 to
shareholders of record at the close of business on August 18, 1997. All
references to share amounts of common stock and per share information have
been restated to reflect the stock split.
<PAGE>
No person has been authorized to give
any information or to make any representations in
connection with this offering other than those
contained in this Prospectus and, if given or made,
such other information and representations must
not be relied upon as having been authorized by
the Company or the Underwriters. Neither the
delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create
any implication that there has been no change in
the affairs of the Company since the date hereof or
that the information contained herein is correct as
of any time subsequent to its date. This
Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy such securities in
any circumstances in which such offer or
solicitation is unlawful.
TABLE OF CONTENTS
Page
Prospectus Summary 4
Selected Financial And Operating Data 7
Risk Factors 8
Use of Proceeds 12
Share Price Range 12
Dividend Policy 12
Capitalization 13
Management's Discussion And Analysis of
Financial Condition And Results of
Operations 14
Business 20
Management 29
Principal And Selling Shareholders 30
Description of Capital Stock 31
Underwriting 34
Legal Matters 35
Experts 35
Index to Consolidated Financial Statements F-1
2,250,000 Common Shares
Crossmann Communities, Inc.
__________________
P R O S P E C T U S
__________________
McDonald & Company
Securities, Inc.
Dillon, Read & Co. Inc.
Raymond James & Associates, Inc.
August ____, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant will bear the entire cost of the estimated expenses, as
set forth in the following table, in connection with the distribution of the
securities covered by this Registration Statement.
<TABLE>
<CAPTION>
<S> <C>
Expenses Amount*
Securities and Exchange Commission Registration fee $ 12,938
National Association of Securities Dealers, Inc. fee 4,770
Nasdaq listing fee 17,500
Printing and engraving expenses 75,000
Legal fees and expenses 75,000
Accounting fees and expenses 70,000
Transfer agent and registrar fees and expenses 3,500
Miscellaneous 31,292
Total $290,000
</TABLE>
*All of the above items, except the Securities and Exchange Commission
Registration fee, the National Association of Securities Dealers, Inc. fee and
the Nasdaq fee, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Indiana Business Corporation Law ("IBCL"), the provisions of which
govern the Registrant, empowers an Indiana corporation to indemnify present
and former directors, officers, employees or agents or any person who may have
served at the request of the corporation as a director, officer, employee or
agent of another corporation ("Eligible Persons") against liability incurred
in any proceeding, civil or criminal, in which the Eligible Person is made a
party by reason of being or having been in any such capacity, or arising out
of his status as such, if the individual acted in good faith and reasonably
believed that (a) the individual was acting in the best interests of the
corporation, or (b) if the challenged action was taken other than in the
individual's official capacity as an officer, director, employee or agent, the
individual's conduct was at least not opposed to the corporation's best
interests, or (c) if in a criminal proceeding, either the individual had
reasonable cause to believe his conduct was lawful or no reasonable cause to
believe his conduct was unlawful.
The IBCL further empowers a corporation to pay or reimburse the
reasonable expenses incurred by an Eligible Person in connection with the
defense of any such claim, including counsel fees; and, unless limited by its
articles of incorporation, the corporation is required to indemnify an
Eligible Person against reasonable expenses if he is wholly successful in any
such proceeding, on the merits or otherwise. Under certain circumstances, a
corporation may pay or reimburse an Eligible Person for reasonable expenses
prior to final disposition of the matter. Unless a corporation's articles of
incorporation otherwise provide, an Eligible Person may apply for
indemnification to a court which may order indemnification upon a
determination that the Eligible Person is entitled to mandatory
indemnification for reasonable expenses or that the Eligible Person is fairly
and reasonably entitled to indemnification in view of all the relevant
circumstances without regard to whether his actions satisfied the appropriate
standard of conduct.
<PAGE>
Before a corporation may indemnify any Eligible Person against liability
or reasonable expenses under the IBCL, a quorum consisting of directors who
are not parties to the proceeding must (1) determine that indemnification is
permissible in the specific circumstances because the Eligible Person met the
requisite standard of conduct, (2) authorize the corporation to indemnify the
Eligible Person and (3) if appropriate, evaluate the reasonableness of
expenses for which indemnification is sought. If it is not possible to obtain
a quorum of uninvolved directors, the foregoing action may be taken by a
committee of two or more directors who are not parties to the proceeding,
special legal counsel selected by the Board or such a committee, or by the
shareholders of the corporation.
In addition to the foregoing, the IBCL states that the indemnification it
provides shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any provision of the articles of
incorporation or bylaws, resolution of the board of directors or shareholders,
or any other authorization adopted after notice by a majority vote of all the
voting shares then issued and outstanding. The IBCL also empowers an Indiana
corporation to purchase and maintain insurance on behalf of any Eligible
Person against any liability asserted against or incurred by him in any
capacity as such, or arising out of his status as such, whether or not the
corporation would have had the power to indemnify him against such liability.
Reference is made to Article 8 of the Amended and Restated Articles of
Incorporation of the Registrant concerning indemnification of directors,
officers, employees and agents.
Reference is also made to the Form of Underwriting Agreement filed as
Exhibit 1.1 hereto which provides for indemnification of the directors and
officers signing the Registration Statement and certain controlling persons of
the Registrant against certain liabilities, including certain liabilities
under the Securities Act, in certain instances by the Underwriters.
The Registrant may obtain directors' and officers' liability insurance,
the effect of which will be to indemnify the directors and officers of the
corporation and its subsidiaries against certain losses caused by errors,
misleading statements, wrongful acts, omissions, neglect or breach of duty by
them or any matter claimed against them in their capacities as directors and
officers.
The Registrant also carries liability insurance covering officers and
directors. There is a deductible of $1.0 million per claim payable by the
Company and the policy has an aggregate $5.0 million limit of liability per
year. The policy contains certain exclusions including, but not limited to,
certain claims by shareholders.
ITEM 16. EXHIBITS
The list of exhibits is incorporated herein by reference to the Index to
Exhibits on pages E-1 through E-3.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, 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 Securities 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, 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 Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liabilities under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus to be filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act
of 1933, 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.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto, duly authorized in the City of Indianapolis, State of Indiana, on
August 15, 1997.
<PAGE>
CROSSMANN COMMUNITIES, INC.
By: /s/ John B. Scheumann
John B. Scheumann
Chairman of the Board,
Chief Executive Officer and Director
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below irrevocably constitutes and
appoints John B. Scheumann and Richard H. Crosser, and each or either of them
(with full power to act alone), his or her true and lawful attorneys-in-fact
and agents with full power of substitution and re-substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign
any and all amendments to this registration statement therewith, filed with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact, agents or their
substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE CAPACITY DATE
/s/ John B. Scheumann Chairman of the Board August 15,1997
John B. Scheumann Chief Executive Officer and Director
/s/ Richard H. Crosser President, Chief Operations Officer August 15,1997
Richard H. Crosser and Director
(Principal Executive Officer)
/s/ Jennifer A. Holihen Chief Financial Officer, August 15,1997
Jennifer A. Holihen Secretary, Treasurer and Director
(Principal Financial Officer and
Principal Accounting Officer)
Director August , 1997
James C. Shook
Larry S. Wechter Director August , 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CROSSMANN COMMUNITIES, INC.
REGISTRATION STATEMENT
ON
FORM S-2
INDEX TO EXHIBITS
NUMBER ASSIGNED IN
REGULATION S-K EXHIBIT DESCRIPTION OF
ITEM 601 NUMBER EXHIBIT
<C> <C> <S>
(1) 1.1 Form of Underwriting Agreement.
(2) No Exhibit.
(4) 4.1 Specimen Share Certificate for Common Shares (Incorporated by reference to Exhibit
2.9 to Form S-1, Registration No. 33-68396.)
(5) 5.1 Opinion of Ice Miller Donadio & Ryan.
(8) No Exhibit.
(10) 10.1 1993 Outside Director Stock Option Plan (Incorporated by reference to Exhibit 10.2 to
Registration Statement on Form S-1, Registration No. 33-68396.)
</TABLE>
<TABLE>
<CAPTION>
<C> <S>
10.2 Crossmann Communities, Inc. Employee Stock Option Plan (Incorporated by reference
to Exhibit 10.2 to Form 10-Q dated August 14, 1997.)
10.3 Employee Stock Option Agreement, dated December 16, 1993 by and between
Crossmann Communities, Inc. and John Moody. (Incorporated by reference to Exhibit
10.14 to Form 10-K dated March 25, 1994.)
10.4 Employee Stock Option Agreement, dated June 28, 1994 by and between Crossmann
Communities, Inc. and John Moody. (Incorporated by reference to Exhibit 10.17 to
Form 10-K dated March 24, 1995.)
10.5 Director Stock Option Agreement, dated May 18, 1995 by and between Crossmann
Communities, Inc. and James C. Shook. (Incorporated by reference to Exhibit 10.35 to
Form 10-K dated March 20, 1996.)
10.6 Director Stock Option Agreement, dated May 18, 1995 by and between Crossmann
Communities, Inc. and Larry S. Wechter. (Incorporated by reference to Exhibit 10.36
to Form 10-K dated March 20, 1996.)
10.7 Non-standardized Joinder Agreement for McCready and Keene, Inc. 401(k) Basic
Regional Prototype Plan (with Revised Options) for Crossmann Communities, Inc.
(Incorporated by reference to Exhibit 10.26 to Form 10-Q dated May 10, 1995.)
10.8 McCready and Keene, Inc. 401(k) Basic Regional Prototype Plan Basic Plan Document
#03. (Incorporated by reference to Exhibit 10.27 to Form 10-Q dated May 10, 1995.)
10.9 Trust Agreement for Crossmann Communities, Inc. 401(k) Profit Sharing Plan, by and
between Crossmann Communities, Inc. and Richard H. Crosser, John Scheumann, and
Jennifer Holihen, Trustees. (Incorporated by reference to Exhibit 10.28 to Form 10-Q
dated May 10, 1995.)
10.10 Employee Stock Option Agreement, dated June 28, 1994 by and between Crossmann
Communities, Inc. and Ronald W. Rooze. (Incorporated by reference to Exhibit 10.31
to Form 10-K dated March 20, 1996.)
10.11 Employee Stock Option Agreement, dated March 2, 1995 by and between Crossmann
Communities, Inc. and John Moody. (Incorporated by reference to Exhibit 10.32 to
Form 10-K dated March 20, 1996.)
10.12 Employee Stock Option Agreement, dated March 2, 1995 by and between Crossmann
Communities, Inc. and Ronald W. Rooze. (Incorporated by reference to Exhibit 10.34
to Form 10-K dated March 20, 1996.)
10.13 Director Stock Option Agreement, dated May 18, 1995 by and between Crossmann
Communities, Inc. and James C. Shook. (Incorporated by reference to Exhibit 10.35 to
Form 10-K dated March 20, 1996.)
10.14 Director Stock Option Agreement, dated May 18, 1995 by and between Crossmann
Communities, Inc. and Larry S. Wechter. (Incorporated by reference to Exhibit 10.36
to Form 10-K dated March 20, 1996.)
10.15 Note Agreement dated as of December 19, 1995, $25,000,000 7.625% Senior Notes due
December 19, 2004, by Crossmann Communities, Inc., et al. (Incorporated by reference
to Exhibit 10.37 to Form 10-K dated March 20, 1996.)
10.16 7.625% Senior Note due December 19, 2004, issued to Combined Insurance Company
of America by Crossmann Communities, Inc., et al. (Incorporated by reference to
Exhibit 10.38 to Form 10-K dated March 20, 1996.)
10.17 7.625% Senior Note due December 19, 2004, issued to The Minnesota Mutual Life
Insurance Company by Crossmann Communities, Inc., et al. (Incorporated by reference
to Exhibit 10.39 to Form 10-K dated March 20, 1996.)
10.18 Amended and Restated Credit Agreement, dated December 22, 1995, by and between
Crossmann Communities, Inc., and Bank One, Indianapolis, N.A. (Incorporated by
reference to Exhibit 10.40 to Form 10-K dated March 20, 1996.)
10.19 First Amendment to Amended and Restated Credit Agreement, dated March 27, 1997.
(Incorporated by reference to Exhibit 10.41 to Form 10-Q dated May 13, 1997.)
10.20 Promissory Note, dated March 27, 1997, by and between Crossmann Communities, Inc.
et al. and Bank One, Indiana, N.A. (Incorporated by reference to Exhibit 10.42 to Form
10-Q dated May 13, 1997.)
10.21 Employee Stock Option Agreement, dated March 13, 1996 by and between Crossmann
Communities, Inc. and John Moody. (Incorporated by reference to Exhibit 10.43 to
Form 10-K dated March 14, 1997.)
10.22 Employee Stock Option Agreement, dated March 13, 1996 by and between Crossmann
Communities, Inc. and Ronald W. Rooze. (Incorporated by reference to Exhibit 10.44
to Form 10-K dated March 14, 1997.)
10.23 Director Stock Option Agreement, dated March 13, 1996 by and between Crossmann
Communities, Inc. and Larry S. Wechter. (Incorporated by reference to Exhibit 10.45
to Form 10-K dated March 14, 1997.)
10.24 Director Stock Option Agreement, dated March 13, 1996 by and between Crossmann
Communities, Inc. and James C. Shook. (Incorporated by reference to Exhibit 10.46 to
Form 10-K dated March 14, 1997.)
10.25 Change of Control Severance Benefits Agreement, dated March 31, 1997 by and
between Crossmann Communities, Inc. and Jennifer A. Holihen (Incorporated by
reference to Exhibit 10.25 to Form 10-Q dated August 14, 1997).
10.26 Change of Control Severance Benefits Agreement, dated March 31, 1997 by and
between Crossman Communities, Inc. and David McCormick (Incorporated by
reference to Exhibit 10.26 to Form 10-Q dated August 14, 1997).
</TABLE>
<TABLE>
<CAPTION>
<C> <C> <S>
(11) 11.1 Statement Regarding Computation of Per Share Earnings
(12) 12.1 No Exhibit.
(13) No Exhibit.
(15) No Exhibit.
(16) 16.1 No Exhibit.
(23) 23.1 Consent of Ice Miller Donadio & Ryan (included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP, independent public accountants.
23.3 Consent of Ernst & Young LLP, independent public accountants.
(24) 24.1 Power of Attorney - See Signature Page.
(25) No Exhibit.
(26) No Exhibit.
(27) No Exhibit.
(99) No Exhibit.
</TABLE>
<PAGE>
<PAGE>
3
EXHIBIT 1.1
2,250,000 SHARES
CROSSMANN COMMUNITIES, INC.
COMMON SHARES
UNDERWRITING AGREEMENT
, 1997
McDonald & Company Securities, Inc.
Dillon, Read & Co. Inc.
Raymond James & Associates, Inc.
As Representatives of the several
Underwriters named in Schedule A hereto
c/o McDonald & Company Securities, Inc.
Suite 2100
800 Superior Avenue
Cleveland, Ohio 44114-2603
Ladies and Gentlemen:
Crossmann Communities, Inc., an Indiana corporation (the "Company"), and
the Selling Shareholders (as hereinafter defined) propose to sell Common
Shares of the Company to you and the other underwriters named in Schedule A
annexed hereto, subject to the terms and conditions of this Agreement.
Section 1. Underwriters and Representatives. The term "Underwriters",
as used herein, will mean and refer collectively to you and the other
underwriters named in Schedule A annexed hereto and the term "Representatives"
will refer to the three of you in your capacity as the representatives of the
Underwriters. Except as may be expressly set forth below, any reference to
you in this Agreement shall be solely in your capacity as the Representatives.
Section 2. Shares Offered. The Company proposes to issue and sell to
the several Underwriters an aggregate of 1,500,000 of its authorized and
unissued common shares, no par value per share (the "Common Shares"). Certain
shareholders of the Company named in Schedule B hereto (the "Selling
Shareholders"), acting severally and not jointly, propose to sell to the
several Underwriters an aggregate of 750,000 Common Shares. The 2,250,000
Common Shares to be sold by the Company and the Selling Shareholders are
herein referred to as the "Firm Shares." The Company and the Selling
Shareholders, acting severally and not jointly, also propose to grant to the
Underwriters the Option (as hereinafter defined) to purchase up to an
additional aggregate of 337,500 of the Common Shares (the "Option Shares") on
the terms and for the purposes set forth in Section 4(b) hereof. The Firm
Shares and the Option Shares are hereinafter sometimes together called the
"Shares."
<PAGE>
Section 3. Representations and Warranties of the Company and the Selling
Shareholders.
I. The Company represents and warrants to each Underwriter that:
(a) A registration statement on Form S-2 (File No. 333-______),
relating to the Shares, including a preliminary prospectus, has been prepared
by the Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules, regulations and instructions (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed by the Company with the
Commission. One or more amendments to such registration statement, including
in each case a revised preliminary prospectus, have been so prepared and
filed. If such registration statement has not become effective as of the
execution and delivery of this Agreement, and the filing of a further
amendment (the "Final Amendment") to such registration statement is necessary
to permit such registration statement to become effective, such amendment will
promptly be filed by the Company with the Commission. If such registration
statement has become effective and any post-effective amendment has been filed
with the Commission prior to the execution and delivery of this Agreement, the
most recent post-effective amendment has been declared effective by the
Commission. If such registration statement has become effective, a final
prospectus (the "Rule 430A Prospectus") containing information permitted to be
omitted at the time of effectiveness by Rule 430A of the Rules and Regulations
will promptly be filed by the Company pursuant to Rule 424(b) of the Rules and
Regulations. The term "preliminary prospectus" as used herein means any
preliminary prospectus (as referred to in Rule 430 of the Rules and
Regulations) with respect to the Shares included at any time as part of such
registration statement or filed with the Commission pursuant to Rule 424(a) of
the Rules and Regulations; the registration statement referred to in this
Section 3.I.(a) as amended at the time that it becomes or became effective,
or, if applicable, as amended at the time the most recent post-effective
amendment to such registration statement filed with the Commission prior to
the execution and delivery of this Agreement became effective, including
financial statements and all exhibits and other information (whether filed or
incorporated by reference) deemed to be a part thereof at such time pursuant
to Rule 430A of the Rules and Regulations is herein called the "Registration
Statement"; and the final prospectus relating to the Shares in the form first
filed with the Commission pursuant to Rule 424(b)(1) or (4) of the Rules and
Regulations or, if no such filing is required, the form of final prospectus
included in the Registration Statement at the Effective Date (as hereinafter
defined) is herein called the "Prospectus." The date on which the
Registration Statement becomes effective is herein called the "Effective
Date."
(b) When the Registration Statement becomes effective, and at all
subsequent times to and including the Closing Time (as hereinafter defined)
and at the Option Exercise Time (as hereinafter defined), or for such longer
period as the Prospectus may be required, by the Act or the Rules and
Regulations or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the rules and regulations promulgated thereunder (the "Exchange Act
Regulations"), to be delivered in connection with sales of the Shares by the
Underwriters or a dealer, the Registration Statement and the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto, provided that no amendment or
supplement to the Registration Statement or the Prospectus shall be made
without prior consultation with you) will comply in all material respects with
the requirements of the Act and the Rules and Regulations, will contain all
statements required to be stated therein in accordance with the Act and the
Rules and Regulations, will not contain an untrue statement of a material fact
and will not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection (b) do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon and made in conformity with written information furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically
for inclusion therein.
(c) The Commission has not issued an order preventing or suspending
the use of any preliminary prospectus with respect to the Shares and has not
instituted or, to the Company's knowledge, threatened to institute any
proceedings with respect to such an order. Each preliminary prospectus, when
filed with the Commission, conformed in all material respects with the
requirements of the Act and the Rules and Regulations and, as of its date, did
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this sentence do not apply to
statements or omissions in each such preliminary prospectus based upon and
made in conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion in such preliminary prospectus.
(d) The documents incorporated or deemed to be incorporated by
reference in the Registration Statement and the Prospectus, at the time they
were filed with the Commission, complied in all material respects with the
requirements of the Exchange Act and the Exchange Act Regulations and, when
read together with the other information in the Prospectus, at the date
hereof, at the date of the Prospectus, and at the Closing Time and the Option
Exercise Time, and during the period in which a Prospectus is required to be
delivered in connection with sales of the Shares, did not and will not include
an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(e) As of the date hereof, the Company has no subsidiaries and does
not own, directly or indirectly, any capital stock or other equity securities
in any other corporation or any interest in any partnership, limited liability
company, joint venture or other association, except as set forth in Schedule C
hereto. The term "Subsidiaries," as used herein, will mean and refer
collectively to: Crossmann Management, Inc., Crossmann Investments, Inc.,
Deluxe Homes, Inc., Deluxe Homes of Lafayette, Inc., Trimark Homes, Inc.,
Trimark Development, Inc., Crossmann Mortgage Corp., Merit Realty, Inc.,
Deluxe Aviation, Inc., Crossmann Communities of Ohio, Inc., Cutter Homes, Ltd.
and Crossmann Communities Partnership ("CCP"). At the Closing Time and at the
Option Exercise Time, the Company will not have any subsidiaries, other than
the Subsidiaries, and will not own, directly or indirectly, any capital stock
or other equity securities in any corporation or any interest in any
partnership, limited liability company, joint venture or other association,
except as disclosed in Schedule C hereto.
(f) The Company and each of the Subsidiaries (other than CCP) is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its organization. At the Closing Time and the Option Exercise
Time, the Company and each of the Subsidiaries (other than CCP) will be a
corporation duly organized and validly existing under the laws of the
jurisdiction of its organization. CCP is now, and at the Closing Time and the
Option Exercise Time will be, a duly organized and validly existing general
partnership under the laws of the State of Indiana. Each of the Company and
the Subsidiaries have, and at the Closing Time and at the Option Exercise Time
will have, the power and authority (corporate, governmental, regulatory and
otherwise) and all necessary approvals, orders, licenses, certificates,
permits and other governmental authorizations to own or lease all of their
assets owned or leased by them and to conduct their businesses as described in
the Registration Statement and the Prospectus. The Company and the
Subsidiaries are, and at the Closing Time and at the Option Exercise Time will
be, duly licensed or qualified to do business and in good standing as a
foreign entity in all jurisdictions (i) in which the nature of the activities
conducted by them require such qualification and (ii) in which they own or
lease real property, except where the failure to be so qualified would not
have a material adverse effect on the business, business prospects, financial
condition or results of operations of the Company and the Subsidiaries, taken
as a whole ("Material Adverse Effect"). A complete and correct copy of the
articles of incorporation and the by-laws or the partnership agreement (or
other similar constituent documents) of each of the Company and the
Subsidiaries, in each case as amended and as currently in effect, have been
delivered or made available to you or your counsel and no changes therein will
be made subsequent to the date hereof and prior to the expiration of the
Option.
(g) The Company is, and at the Closing Time and at the Option
Exercise Time will be, authorized to issue 30,000,000 Common Shares, and has
heretofore validly issued, and at the Closing Time and at the Option Exercise
Time will have outstanding, fully paid and non-assessable, _______ Common
Shares, without giving effect to the issuance of Shares by the Company
pursuant to this Agreement or pursuant to the exercise of options granted
under the option plans described below. The Company has, and at the Closing
Time and at the Option Exercise Time will have, duly reserved for issuance
_________ Common Shares under the 1993 Employee Stock Option Plan, as amended
(the "1993 Employee Stock Option Plan") and ________ Common Shares under the
Outside Director Stock Option Plan (the "Director Stock Option Plan").
Subsequent to the date hereof and prior to the Closing Time and the Option
Exercise Time, the Company will not issue any securities. Except as
contemplated by this Agreement and as set forth in the Registration Statement
and the Prospectus, the Company does not have outstanding, and at the Closing
Time and at the Option Exercise Time the Company will not have outstanding,
any options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, any shares of capital stock or any warrants, convertible
securities or obligations. All of the issued and outstanding stock of the
Subsidiaries has been duly and validly authorized and issued, are fully paid
and non-assessable and at the Closing Time and at the Option Exercise Time
will be owned by the Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, shareholders' agreements, voting trusts,
equities or claims, except as described in the Prospectus and have not been
issued and are not owned in violation of any preemptive rights of
shareholders.
(h) The Company's outstanding Common Shares have been and, upon
issuance and payment therefor, all of the Shares will be, duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights. The holders of Common Shares (including the Shares) will not be
subject to personal liability for the obligations of the Company solely by
reason of being such holders. The Common Shares (including the Shares)
conform, and when the Registration Statement becomes effective and at the
Closing Time and at the Option Exercise Time will conform, in all material
respects to all statements with regard thereto contained in the Registration
Statement and the Prospectus; and the issuance and sale of the Shares to be
issued and sold by the Company have been duly and validly authorized by all
necessary corporate action on the part of the Company. At the Closing Time,
the Company will have, based upon the assumptions set forth in the Prospectus,
the adjusted capitalization set forth in the Prospectus under the caption
"Capitalization" in the column captioned "June 30, 1997 - As Adjusted."
(i) The financial statements included or incorporated by reference in
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the consolidated financial position of the
Company at the respective dates indicated and the consolidated statement of
income, shareholders' equity and cash flows of the Company for the periods
specified. Such financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The supporting schedules, if any,
included or incorporated by reference in the Registration Statement and the
Prospectus present fairly, in accordance with GAAP, the information required
to be stated therein. The selected financial data, the summary financial
information and other financial information and data included or incorporated
by reference in the Prospectus present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements included or incorporated by reference in the Registration
Statement and the Prospectus. All financial statements and financial
information required by the Act, the Rules and Regulations, the Exchange Act
and the Exchange Act Regulations are included or incorporated by reference in
the Registration Statement and the Prospectus. The accountants who certified
the financial statements and supporting schedules included in the Registration
Statement and the Prospectus are independent public accountants as required by
the Act and the Rules and Regulations.
(j) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and at all times prior
to the expiration of the Option, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) the Company and the
Subsidiaries have and will have conducted their businesses in substantially
the same manner as of June 30, 1997; (ii) the Company and the Subsidiaries
have not incurred and will not have incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions
not in the ordinary course of business; (iii) the Company and the Subsidiaries
have not paid or declared and will not pay or declare any dividends or other
distributions on their capital stock except as described in the Registration
Statement and the Prospectus; and (iv) there has not been and will not have
been any change in the capitalization of the Company and the Subsidiaries or
any change in the business, business prospects, financial condition or results
of operations of the Company and the Subsidiaries or in the condition or in
the value of their assets arising for any reason whatsoever which could have a
Material Adverse Effect, except as disclosed in the Prospectus.
(k) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, the Company and the Subsidiaries do not have,
and at the Closing Time and the Option Exercise Time will not have, any
material contingent obligations.
(l) There are no actions, suits or proceedings at law or in equity
pending, or to the knowledge of the Company threatened, against the Company or
any of the Subsidiaries, any of their assets or any of their officers or
directors, before or by any federal, state, county or local commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would have a
Material Adverse Effect. Neither the Company nor any of the Subsidiaries is
involved in any labor dispute nor, to their knowledge, is any such dispute
threatened, which dispute would have a material adverse effect upon the
properties, businesses, financial condition or results of operations of the
Company or any of the Subsidiaries.
(m) The Company and the Subsidiaries have, and at the Closing Time
and at the Option Exercise Time will have, complied in all material respects
with all laws, regulations, ordinances, and orders applicable to them or their
businesses (including, without limitation, all laws, regulations, ordinances
and orders relating to releases, discharges, emissions or disposal to air,
water, land or groundwater, to the withdrawal or use of groundwater, to the
use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or
urea formaldehyde, to the treatment, storage, disposal or management of
hazardous substances, pollutants or contaminants, to exposure to toxic,
hazardous or other controlled, prohibited or regulated substances), the
violation of which would have a material adverse effect upon any of their
legal existence or their businesses, business prospects, financial condition,
results of operations, earnings or properties. In addition, and irrespective
of such compliance, neither the Company nor any of the Subsidiaries are
subject to any liabilities for environmental remediation or clean-up,
including any liability or class of liability of the lessee under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, or the Resource Conservation and Recovery Act of 1976, as amended,
which liability would have a Material Adverse Effect. The Company and the
Subsidiaries have, and at the Closing Time and at the Option Exercise Time
will have, in all respects performed all of the obligations required to be
performed by them, and the Company and the Subsidiaries are not, and at the
Closing Time and Option Exercise Time will not be, in default under and there
exists no state of facts which with notice or lapse of time or both would
constitute a default under any indenture, mortgage, deed of trust, voting
trust agreement, loan agreement, letter of credit agreement, bond, debenture,
note agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which any of them are a party or by which any of
them or any of their property is bound, and, to the knowledge of the Company,
no other party under any such agreement or instrument to which any of the
Company or the Subsidiaries is a party is in default in any respect
thereunder, except, in each case, where such failure or default has either
been waived or would not have a Material Adverse Effect.
(n) The Company and the Subsidiaries (i) keep books, records and
accounts that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of their assets, and (ii) maintain systems of
internal accounting controls sufficient to provide reasonable assurances that
(A) transactions are executed in accordance with management's general or
specific authorization, (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (C) access to
assets is permitted only in accordance with management's general or specific
authorization and (D) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. Neither the Company nor any of the
Subsidiaries have made any payment to any state, federal or foreign
governmental officer or official or other person charged with similar public
or quasi-public duties (other than payments required or permitted by the laws
of the United States or any jurisdiction thereof).
(o) The Company and the Subsidiaries (other than CCP) are not in
violation of their respective Articles of Incorporation or By-Laws, in each
case as amended as of the date hereof. CCP is not in violation of its
Agreement of Partnership as of the date hereof.
(p) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles and except as rights to indemnity and contribution hereunder may be
limited by applicable law; the performance of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default (and there exists no state of facts which with notice or
lapse of time or both would constitute a default) under or result in the
creation or imposition of any lien, charge, or encumbrance upon the assets or
properties of the Company or any of the Subsidiaries, pursuant to any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
letter of credit agreement, bond, debenture, note agreement or other evidence
of indebtedness, lease, contract or other agreement or instrument to which any
of the Company or the Subsidiaries is a party or by which any of them or any
of their properties are bound, and will not result in a breach or violation of
the articles of incorporation, by-laws or partnership agreement (or other
similar constituent documents) of any of the Company or the Subsidiaries or
any statute or any regulation, ordinance or order applicable to any of the
Company or the Subsidiaries or their businesses or properties or of any court
or other governmental body except where any such conflict, breach or default
would not have a Material Adverse Effect; and no consent, approval,
authorization or order of any court or governmental agency or body is required
for the consummation by the Company or the Subsidiaries of the transactions on
their part herein contemplated, except such as may be required under the Act,
the Exchange Act or under state securities or blue sky laws.
(q) Each of the Company and the Subsidiaries have, and will have at
the Closing Time and the Option Exercise Time, good and marketable title to
all properties and assets owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in or referred to
in the Prospectus or except for those which would not have a Material Adverse
Effect. The Company and the Subsidiaries have, and will have at the Closing
Time and the Option Exercise Time, valid, subsisting and enforceable leases
for the properties described in the Prospectus as leased by them.
(r) There is no document or contract of a character required to be
described in the Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed as required; and no statement,
representation, warranty or covenant made by the Company in this Agreement or
in any certificate or document required by this Agreement to be delivered to
you is, was when made, or as of the Closing Time or the Option Exercise Time
will be, inaccurate, untrue or incorrect. No transaction has occurred between
or among the Company and any of its officers, directors or shareholders or any
affiliate of any such officer, director or shareholder that is required by the
Act or the Rules and Regulations to be described in and is not described in or
incorporated by reference in the Registration Statement and the Prospectus.
(s) The Company owns or possesses the trademarks, service marks, and
trade names (collectively, "Proprietary Rights") used in or necessary for the
conduct of the business of the Company as now conducted and as proposed to be
conducted as described in the Prospectus. The Company has the right to use
all Proprietary Rights used in or necessary for the conduct of its business
without infringing the rights of any person or violating the terms of any
licensing or other agreement to which it is a party, and to the Company's
knowledge, no person is infringing upon any of the Proprietary Rights. No
charges, claims or litigation have been asserted or, to the Company's
knowledge, threatened against the Company contesting the right of the Company
to use, or the validity of, any of the Proprietary Rights or challenging or
questioning the validity or effectiveness of any license or agreement
pertaining thereto or asserting the misuse thereof, and, to the Company's
knowledge, no valid basis exists for the assertion of any such charge, claim
or litigation.
(t) The Company and the Subsidiaries do not, and do not intend to,
conduct their businesses in a manner in which any of them would become an
"investment company" as defined in Section 3(a) of the Investment Company Act
of 1940, as amended.
(u) All issuances and sales by the Company of its securities prior to
the date hereof were either (i) registered under the Act, or (ii) exempt from
registration under the Act and complied in all respects with the provisions of
all applicable federal and state securities laws. No holder of any securities
of the Company has the right to require registration of any of the Common
Shares or other securities of the Company because of the filing or
effectiveness of the Registration Statement.
(v) Neither the Company nor any of the Subsidiaries, nor any of their
officers or directors or affiliates (as defined in the Rules and Regulations),
has taken, nor will take, directly or indirectly, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company, to
facilitate the sale or resale of any of the Shares.
(w) The Company and the Subsidiaries have not, and at the Closing
Time and at the Option Exercise Time will not have, incurred any liability for
financial advisory, finder's or brokerage fees or agent's commissions in
connection with the offer and sale of the Shares, this Agreement or the
transactions hereby contemplated, except for the Underwriters' discounts and
commissions provided for in this Agreement.
(x) The Company and the Subsidiaries have filed all federal, state
and local income, employment, withholding, franchise and other tax returns
required to be filed through the date hereof and have paid all taxes due with
respect thereto, and no tax deficiency has been, nor do they have any
knowledge of any tax deficiency which might be, asserted against them which
could have a Material Adverse Effect.
II. Each Selling Shareholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Shareholder now has, and at the Closing Time will
have, valid marketable title to the Firm Shares that are to be sold by such
Selling Shareholder hereunder, and such Selling Shareholder now has, and at
the Option Exercise Time will have, valid marketable title to the Option
Shares that are to be sold by such Selling Shareholder hereunder, in each case
free and clear of any pledge, lien, security interest, incumbrance, claim or
equitable interest other than pursuant to this Agreement; such Selling
Shareholder has full right, power and authority to enter into this Agreement
and to sell, assign, transfer and deliver the Shares being sold by such
Selling Shareholder hereunder; and upon delivery of such Shares hereunder and
payment of the purchase price as herein contemplated, each of the Underwriters
will obtain valid marketable title to such Shares purchased by it, free and
clear of any pledge, lien, security interest, incumbrance, claim or equitable
interest, including any liability for estate or inheritance taxes, or any
liability to or claims of any creditor, devisee, legatee or beneficiary of
such Selling Shareholder.
(b) Such Selling Shareholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the
Representatives, a Power of Attorney (the "Power of Attorney") appointing John
B. Scheumann as attorney-in-fact (the "Attorney-in-Fact") and a Letter of
Transmittal and Custody Agreement (the "Custody Agreement") appointing
American Stock Transfer & Trust as custodian thereunder (the "Custodian");
each of the Power of Attorney and the Custody Agreement constitutes a valid
and binding agreement of such Selling Shareholder, enforceable in accordance
with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and each of such Selling Shareholder's Attorney-in-Fact, acting
alone, is authorized to execute and deliver this Agreement and the certificate
referred to in Section 8(h) hereof on behalf of such Selling Shareholder, to
authorize the delivery of the Shares to be sold by such Selling Shareholder
under this Agreement and to duly endorse (in blank or otherwise) the
certificate or certificates representing such Shares or a stock power or
powers with respect thereto, to accept payment therefor, and otherwise to act
on behalf of such Selling Shareholder in connection with this Agreement.
Certificates in negotiable form representing all Shares to be sold by such
Selling Shareholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Shareholder, have been placed in
custody under the Custody Agreement for the purpose of effecting delivery
hereunder. Each Selling Shareholder agrees that the certificates for the
Shares being sold by such Selling Shareholder so held in custody are subject
to the interests of the Underwriters hereunder, that the arrangements made by
such Selling Shareholder for such custody, including the Power of Attorney,
are to that extent irrevocable and that the obligations of such Selling
Shareholder hereunder shall not be terminated by the act of such Selling
Shareholder or by operation of law, whether by the death or incapacity of such
Selling Shareholder or the occurrence of any other event, except as
specifically provided herein or in the Custody Agreement. If any Selling
Shareholder should die or be incapacitated, or if any other such event should
occur, before the delivery of the certificates for the Shares being sold by
such Selling Shareholder hereunder, such Shares shall, except as specifically
provided herein or in the Custody Agreement, be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such death,
incapacity or other event had not occurred, regardless of whether the
Custodian shall have received notice of such death or other event.
(c) All authorizations, approvals, consents and orders necessary for
the execution and delivery by such Selling Shareholder of the Power of
Attorney, the Custody Agreement and this Agreement and the sale and delivery
of the Shares to be sold by such Selling Shareholder under this Agreement
(other than, at the time of the execution hereof (if the Registration
Statement has not yet been declared effective by the Commission), the issuance
of the order of the Commission declaring the Registration Statement effective
and such authorizations, approval or consents as may be necessary under state
or other securities or blue sky laws) have been obtained and are in full force
and effect; such Selling Shareholder, if other than a natural person, has been
duly organized and is validly existing and in good standing under the laws of
the jurisdiction of its organization; and such Selling Shareholder has full
right, power and authority to enter into and perform its obligations under the
Power of Attorney, the Custody Agreement and this Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling Shareholder
under this Agreement.
(d) Such Selling Shareholder will not, for a period of 180 days after
the Effective Date, offer to sell, contract to sell or otherwise sell or
dispose of any Common Shares, any options or warrants to purchase any Common
Shares, or any securities convertible into or exchangeable for Common Shares,
owned directly by such Selling Shareholder or with respect to which such
Selling Shareholder has the power of disposition, otherwise than hereunder or
(i) as a gift or other private transfer or sale, provided the transferee or
transferees thereof agree to be bound by this restriction or (ii) with the
prior written consent of McDonald & Company Securities, Inc. in its sole
discretion. Such Selling Shareholder agrees and consents to the entry of
stock transfer instructions with the Company's transfer agent against the
transfer of Common Shares held by such Selling Shareholder except in
compliance with the foregoing restrictions.
(e) This Agreement has been duly authorized (if applicable), executed
and delivered by such Selling Shareholder and is a valid and binding agreement
of such Selling Shareholder, enforceable in accordance with its terms, except
as the indemnification and contribution provisions hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and the performance of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a breach
of or default under any material bond, debenture, note or other evidence of
indebtedness, or any material contract, indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder or any Shares to
be sold by such Selling Shareholder hereunder may be bound or, to the best of
such Selling Shareholder's knowledge, result in any violation of any law,
order, rule, regulation, writ, injunction or decree of any court or
governmental agency or body or, if such Selling Shareholder is other than an
natural person, result in any violation of any provisions of the
organizational documents of such Selling Shareholder.
(f) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Shares to facilitate the sale or resale of the Shares.
(g) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(h) All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Shares to be sold by
such Selling Shareholder hereunder that is contained in the Power of Attorney,
Registration Statement or the Prospectus is, and at the Closing Time and at
the Option Exercise Time will be, true, correct and complete, and does not,
and at the Closing Time and at the Option Exercise Time will not, contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make such statements, in light of the
circumstances under which they were made, not misleading.
(i) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Time or at the Option Exercise Time, as the case may be.
(j) Such Selling Shareholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by
the Company to the Underwriters pursuant to this Agreement; and such Selling
Shareholder does not own any warrants, options or similar rights to acquire,
and does not have any right or arrangement to acquire, any capital stock,
rights, warrants, options or other securities from the Company, other than
those described in the Registration Statement and the Prospectus.
(k) Such Selling Shareholder is not aware that any of the
representations and warranties of the Company set forth in Section 3.I above
is untrue or inaccurate in any material respect.
Section 4. Purchase, Sale and Delivery of the Shares, Closing,
Distribution.
(a)(i) On the basis of the representations and warranties set forth
in this Agreement and subject to the terms and conditions herein set forth,
the Company agrees to issue and sell to the several Underwriters an aggregate
of 1,500,000 Firm Shares, each Selling Shareholder agrees to sell to the
several Underwriters the number of Firm Shares set forth on Schedule B
opposite the name of such Selling Shareholder and each of the Underwriters
agrees to purchase from the Company and the Selling Shareholders, at a
purchase price of $_______ per share, the respective aggregate number of Firm
Shares determined in the manner set forth below. The obligation of each
Underwriter to the Company and each of the Selling Shareholders, respectively,
shall be to purchase that portion of the number of Common Shares to be sold by
the Company or such Selling Shareholder pursuant to this Agreement as the
number of Firm Shares set forth opposite the name of such Underwriter on
Schedule A bears to the total number of Firm Shares to be purchased by the
Underwriters pursuant to this Agreement, in each case adjusted by you such
that no Underwriter shall be obligated to purchase Firm Shares other than in
100 share amounts. In making this Agreement, each Underwriter is contracting
severally and not jointly.
(ii) Delivery of the Firm Shares shall be made to you for the
accounts of the respective Underwriters, at the offices of McDonald & Company
Securities, Inc. ("McDonald & Company"), at Suite 2100, 800 Superior Avenue,
Cleveland, Ohio, or such other location, including New York, New York, as you
shall advise the Company and the Selling Shareholders by at least two full
business days' notice in writing, against payment by you on behalf of the
several Underwriters of the purchase price therefor to the Company and the
Selling Shareholders by delivery of certified or bank cashier's checks payable
in next day funds to the order of the Company and to each of the Selling
Shareholders in the amount to which each is entitled, at 10:00 A.M.,
Indianapolis time, on ________ __, 1997, or on such other time and business
day (Saturdays, Sundays and legal holidays in the City of Indianapolis not
being considered business days for the purposes of this Agreement), not later
than the third full business day following the first day that the Shares are
traded, which time and date are herein called the "Closing Time." Delivery of
the Firm Shares shall be made in registered form in such name or names and in
such denominations as you shall request by at least two full business days'
notice in writing. If the Representatives so elect, delivery of the Shares
may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. The cost of
original issue tax stamps and transfer stamps, if any, in connection with the
issuance and delivery or sale of the Firm Shares by the Company and the
Selling Shareholders to the respective Underwriters shall be borne by the
Company or the Selling Shareholders, as the case may be. The Company and the
Selling Shareholders will pay and save each Underwriter or its nominees, and
any subsequent holder of the Firm Shares, harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
federal or state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the sale by the Company or the
Selling Shareholders to such Underwriter of the Firm Shares or any portion
thereof.
(iii) The Company and the Selling Shareholders will make the
certificates for the Firm Shares available to you for examination at such
offices as you shall designate, not later than 2:00 P.M., on the business day
preceding the Closing Time.
(iv) The obligations of the several Underwriters to purchase and pay
for the Firm Shares at the Closing Time shall be subject to compliance as of
such date with all of the conditions specified in Section 8 hereof and to the
absence of any termination of this Agreement pursuant to Section 10 hereof.
(b)(i) The Company and the Selling Shareholders, severally and not
jointly, hereby grant to the several Underwriters an option (the "Option") to
purchase from the Company and the Selling Shareholders up to 337,500 Option
Shares, in the same proportion as each Underwriter has agreed to purchase the
Firm Shares, at and for the purchase price per share for the Firm Shares set
forth in Section 4(a)(i) hereof; provided, however, that the Option may be
exercised only for the purpose of covering any over-allotments which may be
made by you in connection with the distribution and sale of the Firm Shares.
If the Option is exercised in full by the Underwriters, the respective numbers
of Option Shares to be sold by the Company and each of the Selling
Shareholders will be as set forth on Schedule B hereto. To the extent that
the Option is exercised for fewer than 337,500 Shares, the respective numbers
of the Option Shares to be sold by the Company and each Selling Shareholder
will be reduced proportionately.
(ii) The Option is exercisable by you in whole or in part at any time
on or before 12:00 noon, Indianapolis time, on the day prior to the Closing
Time, and at any time thereafter during the period ending 30 days after the
date of the Prospectus, by giving notice to the Company and the Selling
Shareholders in the manner provided in Section 12 hereof, setting forth the
number of Option Shares as to which the Option is being exercised, the name or
names in which the certificates for such Option Shares are to be registered,
the denominations of such certificates and the date of delivery of such Option
Shares, which date, if not the Closing Time, shall not be less than two nor
more than three business days after such notice. The number of Option Shares
to be purchased by each Underwriter upon any exercise of the Option shall be
the same proportion of the total number of Option Shares to be purchased by
the several Underwriters pursuant to the exercise of such Option as the number
of Firm Shares purchased by such Underwriter (set forth in Schedule A hereto)
bears to the total number of Firm Shares purchased by the several Underwriters
(set forth in Schedule A hereto), adjusted by the Representatives in such
manner as to avoid fractional shares.
(iii) Delivery of the Option Shares with respect to which the Option
shall have been exercised shall be made to you for the account of the several
Underwriters, at the offices of McDonald & Company at Suite 2100, 800 Superior
Avenue, Cleveland, Ohio or such other location, including New York, New York,
as you shall determine and advise the Company and the Selling Shareholders,
against payment by you, on behalf of the respective Underwriters, of the
purchase price therefor to the Company and the Selling Shareholders by
certified or bank cashier's checks payable in next day funds to the order of
the Company and to each of the Selling Shareholders in the amount to which the
Company and each of the Selling Shareholders is entitled, at 10:00 A.M.,
Indianapolis time, on the date designated in the notice given by you as above
provided for, unless some other place, time and date is mutually agreed upon
(such time and date being herein called the "Option Exercise Time"). If the
Representatives so elect, delivery of the Option Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives. The cost of original issue tax stamps or
transfer stamps, if any, in connection with each issuance and delivery of the
Option Shares by the Company and the Selling Shareholders to the respective
Underwriters shall be borne by the Company or the Selling Shareholders, as the
case may be. The Company and the Selling Shareholders will pay and save each
Underwriter, and any subsequent holder of Option Shares, harmless from any and
all liabilities with respect to or resulting from any failure or delay in
paying federal and state stamp taxes, if any, which may be payable or
determined to be payable as a result of the sale by the Company or the Selling
Shareholders to such Underwriter of the Option Shares or any portion thereof.
(iv) The Company and the Selling Shareholders will make the
certificates for the Option Shares to be purchased at the Option Exercise Time
available to you for examination at such offices as you shall designate, not
later than 2:00 P.M., on the business day next preceding such Option Exercise
Time.
(v) The obligation of the several Underwriters to purchase and pay
for the Option Shares at the Option Exercise Time shall be subject to
compliance as of such date with all the conditions specified in Section 8
hereof and to the absence of any termination of this Agreement pursuant to
Section 10 hereof.
(c) Subject to the terms and conditions hereof, the several
Underwriters agree that (i) they will offer the Shares to the public as set
forth in the Prospectus as soon after the Registration Statement becomes
effective as may be practicable, and (ii) they will offer and sell the Shares
to the public only in those jurisdictions, and in such amounts, where due
qualification and/or registration has been effected or an exemption from such
qualification and/or registration is available under the applicable securities
or blue sky laws of such jurisdiction; it being understood, however, that such
agreement only covers the initial sale of the Shares by the Underwriters and
not any subsequent sale of such Shares in any trading market which may develop
after the public offering.
Section 5. Registration Statement and Prospectus.
(a) The Company will deliver to you, without charge, four fully
signed copies of the Registration Statement and of each amendment thereto,
including all financial statements and exhibits, and to each Underwriter the
number of conformed copies of the Registration Statement and of each amendment
thereto, including all financial statements, but excluding exhibits, as each
Underwriter may reasonably request.
(b) The Company has delivered to each Underwriter, and each of the
dealers selected by you in connection with the distribution of the Shares
(hereafter sometimes referred to individually as a "Selected Dealer" and
collectively as "Selected Dealers"), without charge, as many copies as you
have requested of each preliminary prospectus heretofore filed with the
Commission and will deliver to each Underwriter and to any Selected Dealer,
without charge, on the Effective Date, and thereafter from time to time during
the period in which the Prospectus is required by law to be delivered in
connection with sales of Shares by an Underwriter or a dealer, as many copies
of the Prospectus (and, in the event of any amendment of or supplement to the
Prospectus, of such amended or supplemented Prospectus) as you may request.
(c) The Company has authorized the Underwriters to use, and make
available for use by prospective dealers, the preliminary prospectuses, and
authorizes each Underwriter, all Selected Dealers and all dealers to whom any
of such Shares may be sold by the Underwriters or by any Selected Dealer, to
use the Prospectus, as from time to time amended or supplemented, in
connection with the sale of the Shares in accordance with the applicable
provisions of the Act, the applicable Rules and Regulations and applicable
state law until completion of the public offering of the Shares and for such
longer period as you may request if the Prospectus is required to be delivered
in connection with sales of the Shares by an Underwriter or a dealer.
Section 6. Covenants.
I. The Company covenants and agrees with each Underwriter that:
(a) After the execution and delivery of this Agreement, the Company
will not, at any time, whether before or after the Effective Date, file any
amendment of or supplement to the Registration Statement or the Prospectus of
which you shall not previously have been advised and furnished with a copy, or
which you or Baker & Daniels ("counsel for the Underwriters") shall not have
approved or which is not in compliance with the Act or the Rules and
Regulations.
(b) If the Registration Statement has not become effective, the
Company will promptly file the Final Amendment with the Commission and will
use its best efforts to cause the Registration Statement to become effective.
If the Registration Statement has become effective, the Company will file the
Rule 430A Prospectus or other Prospectus with the Commission as promptly as
practicable, but in no event later than is permitted by Rule 424(b). The
Company will promptly advise you (i) when the Registration Statement, or any
post-effective amendment thereto, shall hereafter become effective, or any
amendments or supplements to the Prospectus shall have been filed with the
Commission; (ii) of any request of the Commission or any state or other
regulatory body for any amendment or supplement of the Registration Statement
or the Prospectus or for additional information and the nature and substance
thereof; (iii) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or prohibiting the offer or
sale of any of the Shares or of the initiation of any proceedings for such
purpose; (iv) of any receipt by the Company of any notification with respect
to the suspension of qualification of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; and (v)
of the happening of any event during the periods in which the Prospectus is to
be used in conjunction with the offer or sale of Shares which makes any
statement made in the Registration Statement or the Prospectus untrue in any
material respect or which requires the making of any changes in the
Registration Statement or the Prospectus in order to make the statements
therein not misleading. The Company will use its best efforts to prevent the
issuance of any stop order or any order preventing or suspending the use of
the Registration Statement or Prospectus and, if such order is issued, to
obtain the lifting thereof as promptly as possible.
(c) The Company will prepare and file with the Commission, upon your
request, any such amendments of or supplements to the Registration Statement
or the Prospectus, in form satisfactory to Ice Miller Donadio & Ryan ("counsel
for the Company"), as in the opinion of counsel for the Underwriters may be
necessary or advisable in connection with the distribution of the Shares or
any change in the price at which, or the terms upon which, the Shares may be
offered by you, and will use its best efforts to cause the same to become
effective as promptly as possible.
(d) The Company will comply with the Act and the Rules and
Regulations and the Exchange Act and the Exchange Act Regulations so as to
permit the continuance of sales of and dealings in the Shares under the Act
and the Exchange Act. If at any time when a prospectus is required to be
delivered under the Act an event shall have occurred as a result of which it
is necessary to amend or supplement the Prospectus in order to make the
statements therein not untrue or misleading in any material respect or to make
the Prospectus comply with the Act and the Rules and Regulations, the Company
will notify you promptly thereof and will, subject to the provisions of
Section 6.I.(a) hereof, file with the Commission an amendment or supplement
which will correct such statement in accordance with the requirements of
Section 10 of the Act.
(e) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement.
(f) The Company will take all reasonable actions to furnish to
whomever you direct, when and as requested by you, all necessary documents,
exhibits, information, applications, instruments and papers as may be required
or, in the opinion of counsel for the Underwriters, desirable in order to
permit or facilitate the sale of the Shares. The Company will use its best
efforts to qualify or register the Shares for sale under the blue sky laws of
such jurisdictions as you shall request, to make such applications, file such
documents and furnish such information as may be required for such purpose and
to comply with such laws so as to continue such qualification in effect so
long as required for the purposes of the distribution of the Shares; provided,
however, that the Company shall not be required to qualify as a foreign
corporation in any jurisdiction or to file a consent to service of process in
any jurisdiction in any action other than one arising out of the offering or
sale of the Shares.
(g) During the period of two years commencing on the Effective Date,
the Company will furnish to each Underwriter, in such number of copies as such
Underwriter may reasonably request, (i) within 90 days after the end of each
fiscal year of the Company, either (A) a consolidated balance sheet of the
Company, and a separate balance sheet of any subsidiaries of the Company the
accounts of which are not included in such consolidated balance sheet, as of
the end of such fiscal year, and consolidated statements of income and
retained earnings of the Company, and separate statements of income and
retained earnings of each of the Company and any subsidiaries of the Company
the accounts of which are not included in such consolidated statements, for
the fiscal year then ended, all in reasonable detail, prepared in accordance
with generally accepted accounting principles, consistently applied, and all
certified by independent accountants (within the meaning of the Act and the
Rules and Regulations), or (B) the Company's Form 10-K for such fiscal year as
filed with the Commission in accordance with the Exchange Act; (ii) within 45
days after the end of each of the first three fiscal quarters of each fiscal
year, either (A) similar balance sheets as of the end of such fiscal quarter
and similar statements of income and retained earnings for the fiscal quarter
then ended, all in reasonable detail, and all certified by the Company's
principal financial officer or the Company's principal accounting officer as
having been prepared in accordance with generally accepted accounting
principles, consistently applied, or (B) the Company's Form 10-Q for such
fiscal quarter as filed with the Commission in accordance with the Exchange
Act; (iii) as soon as available, each report and each proxy or information
statement furnished to or filed with the Commission or any securities exchange
and each report and financial statement furnished to the Company's
shareholders generally; and (iv) any material reports filed by the Company in
connection with the quotation of its Common Shares in the National Association
of Securities Dealers Automated Quotation System - National Market System
("NASDAQ/NMS") or any listing on any stock exchange.
(h) Counsel for the Company, Deloitte & Touche LLP and the officers
of the Company will respectively furnish the opinions, the letters and the
certificates referred to in subsections (e), (f), (g), and (i) of Section 8
hereof, and, in the event that the Company shall file any amendment to the
Registration Statement relating to the offering of the Shares or any amendment
or supplement to the Prospectus relating to the offering of the Shares
subsequent to the Effective Date, whether pursuant to subsection (c) of this
Section 6.I or otherwise, such counsel, such accountants, and such officers
will, at the time of such filing or at such subsequent time as you shall
specify, respectively, furnish to you such opinions, letters and certificates,
each dated the date of its delivery, of the same nature as the opinions, the
letters and the certificates referred to in said subsections (e), (f), (g),
and (i), respectively, as you may reasonably request, or, if any such opinion,
letter or certificate cannot be furnished by reason of the fact that such
counsel or such accountants or any such officer believes that the same would
be inaccurate, such counsel or such accountants or any such officer will
furnish an accurate opinion, letter or certificate with respect to the same
subject matter.
(i) Prior to the expiration of the Option, the Company will not
issue, directly or indirectly, without first consulting with you and counsel
for the Underwriters, any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby.
(j) The Company will not, for a period of 180 days after the
Effective Date, issue, offer to sell, contract to sell or otherwise sell or
dispose of, directly or indirectly, any Common Shares, any options or warrants
to purchase any Common Shares, or any securities convertible into or
exchangeable for Common shares, otherwise than hereunder or (i) the issuance
of options under the 1993 Stock Option Plan or the Director Stock Option Plan,
(ii) the issuance of Common Shares under the Company's 401(k) Profit Sharing
Plan, or (iii) with the prior written consent of McDonald & Company
Securities, Inc. in its sole discretion; and the Company has caused each of
its current executive officers and directors and Donald Cutter to execute and
deliver to you, on or before the date of this Agreement, an agreement
satisfactory in form and substance to you and counsel for the Underwriters,
whereby each agrees that he or she will not, for a period of 180 days after
the Effective Date, offer to sell, contract to sell or otherwise sell or
dispose of any Common Shares, any options or warrants to purchase any Common
Shares, or any securities convertible into or exchangeable for Common Shares,
owned directly by such person or with respect to which such Selling
Shareholder has the power of disposition, otherwise than (i) as a gift or
other private transfer or sale, provided the transferee or transferees agree
to be bound by this restriction or (ii) with the prior written consent of
McDonald & Company Securities, Inc. in its sole discretion.
(k) The Company will not at any time, directly or indirectly, take
any action designed to or which will constitute or which might reasonably be
expected to cause or result in the stabilization of the price of the Shares to
facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the sale of the
Shares sold by it in the manner set forth under "Use of Proceeds" in the
Prospectus.
(m) The Company will file with the National Association of Securities
Dealers, Inc. ("NASD") all documents and notices required of companies that
have issued securities that are traded in the over-the-counter market and
quotations for which are reported by the NASDAQ/NMS.
(n) After the Closing Time and the Option Exercise Time, the Company
will be in compliance with the financial record-keeping requirements and
internal accounting control requirements of Section 13(b)(2) of the Exchange
Act.
(o) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders and deliver to
you an earnings statement (which need not be audited) covering a period of at
least 12 months beginning not earlier than the Effective Date which shall
satisfy the provisions of Section 11(a) of the Act and/or Rule 158 promulgated
under the Act.
II. Each Selling Shareholder, severally and not jointly, covenants
and agrees with each of the Underwriters that:
(a) As soon as any Selling Shareholder is advised thereof, such
Selling Shareholder will advise the Representatives and confirm such advice in
writing, (i) of receipt by the Selling Shareholder or by any representative or
agent of such Selling Shareholder of any communication from the Commission
relating to the Registration Statement, the Prospectus or any preliminary
prospectus, or any notice or order of the Commission relating to the Company
or any of the Selling Shareholders in connection with the transactions
contemplated by this Agreement and (ii) of the happening of any event which
makes or may make any statement made in the Registration Statement, the
Prospectus or any preliminary prospectus untrue or that requires the making of
any change in the Registration Statement, the Prospectus or preliminary
prospectus, as the case may be, in order to make such statement, in light of
the circumstances in which it was made, not misleading.
(b) Such Selling Shareholder will deliver to the Representatives
prior to the Closing Time a properly completed and executed United States
Treasury Department Form W-9.
Section 7. Expenses. The Company and the Selling Shareholders will pay
and bear all costs, fees, taxes and expenses incident to the performance of
the obligations of the Company and the Selling Shareholders under this
Agreement, including, but not limited to: (a) the costs incident to the
issuance, sale and delivery to the Underwriters of the Shares; (b) the costs
incident to the preparation, printing and filing under the Act of each
preliminary prospectus, the Prospectus, the Registration Statement and any
amendments or supplements thereof and exhibits thereto; (c) the costs of
printing and distributing to the Representatives, the other Underwriters and
any Selected Dealers copies of any preliminary prospectus, the Prospectus, the
Registration Statement and any amendment or supplement to the Prospectus or
Registration Statement required by this Agreement or the Act; (d) the costs of
preparation, printing, mailing, delivery, filing and distribution of
preliminary and final blue sky memoranda, Underwriter's Questionnaires and
Powers of Attorney, letters to prospective Underwriters, the Agreement Among
Underwriters, the Selected Dealer Agreement, this Agreement and all documents
related thereto; (e) the filing fees of the Commission; (f) the costs of
qualification or registration of the Shares in the jurisdictions referred to
in Section 6.I.(f) hereof, including the legal fees and expenses of counsel
for the Underwriters in connection therewith, and all filing fees in
connection therewith; (g) the cost of preparation of all filings with NASD and
all filing fees in connection therewith (excepting fees and expenses of
counsel for the Underwriters); (h) fees and expenses of counsel for the
Company, the Company's accountants and the Company's consultants; (i) fees in
connection with the qualification of the Shares for quotation in NASDAQ/NMS;
and (j) all costs and expenses incurred or to be incurred by the Company and
the Selling Shareholders in connection with the transactions contemplated by
this Agreement. The provisions of this Section 7 are intended to relieve the
Underwriters from the payment of the expenses and costs which the Selling
Shareholders and the Company hereby agree to pay, but shall not affect any
agreement which the Selling Shareholders and the Company may make, or may have
made, for the sharing of any such expenses and costs. Such agreements shall
not impair the obligations of the Company and the Selling Shareholders
hereunder to the several Underwriters. If the Firm Shares are not sold to the
Underwriters by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholders to perform any agreement on their part to
be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if you shall terminate this Agreement pursuant to
Section 10(a)(ii) hereof, the Company and the Selling Shareholders shall
reimburse you for all of the actual out of pocket expenses reasonably incurred
in connection with the financing including without limitation all reasonable
fees and disbursements of counsel for the Underwriters in connection
therewith.
Section 8. Conditions of the Underwriters' Obligations. The
Underwriters' obligations hereunder to purchase and pay for the Shares are
subject (as of the date hereof, the Closing Time and the Option Exercise Time)
to the accuracy of and compliance with the representations and warranties of
the Company and the Selling Shareholders herein and in each certificate and
document contemplated under this Agreement to be delivered, to the performance
by the Company and the Selling Shareholders of their covenants and agreements
hereunder and under each such certificate and document, and to the following
additional conditions:
(a)(i) The Registration Statement shall have become effective not
later than 5:00 P.M., Indianapolis time, on the date of this Agreement, or at
such later time or on such later date as you may agree to in writing; (ii) if
required, the Prospectus shall have been filed with the Commission pursuant to
Rule 424(b)(1) or (4) of the Rules and Regulations within the applicable time
period prescribed for such filing thereunder and in accordance with the
provisions of Section 6.I.(b) hereof, (iii) at or prior to the Closing Time or
the Option Exercise Time, as the case may be, no stop order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the blue sky laws of any jurisdiction shall
have been issued and no proceeding for that purpose shall have been initiated
or shall be threatened or contemplated by the Commission or the authorities of
any such jurisdiction; (iv) any request for additional information on the part
of the Commission or any such authorities shall have been complied with to the
satisfaction of the Commission or such authorities and to the reasonable
satisfaction of counsel for the Underwriters; (v) the NASD, upon review of the
terms of the public offering of Shares, shall not have objected to such
offering, such terms, or the Underwriters' participation in the same; and (vi)
after the date hereof, no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed without your prior consent.
(b) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto, in
your reasonable judgment after conferring with counsel for the Underwriters,
contains an untrue statement of a fact which is material, or omits to state a
fact which is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) Between the time of the execution and delivery of this Agreement
and the Closing Time or the Option Exercise Time, as the case may be, there
shall be no litigation instituted against the Company, the Subsidiaries or any
of their officers or directors, as such, and between such dates there shall be
no proceeding instituted or threatened against the Company or the Subsidiaries
or any of their officers or directors, as such, before or by any federal,
state, county or local commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding would have a Material
Adverse Effect.
(d) Each of the representations and warranties of the Company and the
Selling Shareholders contained herein and in each certificate and document
contemplated under this Agreement to be delivered shall be true and correct at
the Closing Time and the Option Exercise Time as if made at the Closing Time
or the Option Exercise Time, as the case may be, and all covenants and
agreements contained herein, and in each such certificate and document, to be
performed on the part of the Company and the Selling Shareholders and all
conditions contained herein and in each such certificate and document to be
fulfilled or complied with by the Company and the Selling Shareholders at or
prior to the Closing Time or the Option Exercise Time, as the case may be,
shall have been duly performed, fulfilled or complied with.
(e) At the Closing Time and the Option Exercise Time, counsel for the
Company and the Selling Shareholders shall furnish to you an opinion, in form
and substance reasonably satisfactory to you and your counsel, dated as of the
date of its delivery, to the effect that:
(i) The Company and each of the Subsidiaries (other than CCP) have
been duly incorporated and are validly existing as corporations under the laws
of their respective jurisdictions of incorporation. CCP has been duly
organized and validly exists as a general partnership under the laws of the
State of Indiana. Each of the Company and the Subsidiaries has the power and
authority to own, lease and operate their properties and to conduct their
businesses as described in the Prospectus, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership
or leasing of their properties or the conduct of their businesses require such
qualification, except where the failure so to qualify would not have a
Material Adverse Effect.
(ii) The Company has the corporate power and authority to enter into
this Agreement, and has the power and authority to issue, sell and deliver to
the Underwriters the Shares to be issued and sold by it hereunder.
(iii) This Agreement and the issuance of the Shares pursuant hereto
each has been duly authorized by all necessary corporate action on the part of
the Company and this Agreement has been duly executed and delivered by the
Company.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization"
as of the Closing Time; and the issued and outstanding Common Shares,
including the Shares to be sold by the Selling Shareholders, have been duly
and validly authorized and issued, are fully paid and nonassessable, and have
not been issued in violation of any preemptive right.
(v) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement will be, upon
issuance and delivery against payment therefor in accordance with the terms
hereof, duly authorized and validly issued and fully paid and nonassessable,
and not issued in violation of any preemptive right and the holders of the
Shares will not be subject to personal liability for the obligations of the
Company solely by reason of being such a holder.
(vi) To such counsel's knowledge, no holders of Common Shares or
other securities of the Company have registration rights with respect to
securities of the Company because of the filing or effectiveness of the
Registration Statement.
(vii) The terms and provisions of the Common Shares (including the
Shares) conform in all material respects to the description thereof contained
in the Registration Statement and Prospectus; and the forms of certificates
evidencing the Common Shares (including the Shares) comply with the Indiana
Business Corporation Law.
(viii) The execution and delivery of this Agreement by the Company,
and the consummation by it of the transactions herein contemplated did not and
will not, (x) result in any violation of any of the Company's and the
Subsidiaries' respective articles of incorporation, by-laws or agreement of
partnership (or other similar constituent documents), or (y) result in the
breach or violation of any of the terms and provisions, or constitute a
default under, any indenture, mortgage or other agreement or instrument known
to such counsel to which the Company or any of the Subsidiaries is a party or
by which their properties are bound, or any applicable statute, rule or
regulation or any order, writ or decree known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of the
Subsidiaries or any of their properties; provided however, that no opinion
need be rendered concerning state securities or blue sky laws.
(ix) No authorization, approval or consent of any governmental
authority or agency is necessary in connection with the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby by the Company and the Selling Shareholders, except such
as have been obtained under the Act or the Exchange Act, or such as may be
required under state or other securities or blue sky laws in connection with
the purchase and the distribution of the Shares by the Underwriters.
(x) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, (a) no stop order suspending the
effectiveness of the Registration Statement has been issued and (b) no
proceedings for that purpose have been instituted or are pending or threatened
under the Act. The opinion delivered at the Closing Time shall confirm that
all filings required by Rule 424 and, if applicable, Rule 430A, of the Rules
and Regulations have been made.
(xi) Each of the Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements,
financial data and supporting schedules included in such financial statements,
as to which such counsel need express no opinion) as of the effective date of
the Registration Statement, complied as to form with and appeared on its face
to be appropriately responsive in all material respects to the requirements of
the Act and the applicable Rules and Regulations.
(xii) Each of the documents incorporated by reference in the
Registration Statement and the Prospectus and any amendments and supplements
thereto (other than the financial statements, financial data and supporting
schedules included in such financial statements, as to which such counsel need
express no opinion), on the date of filing thereof with the Commission,
complied as to form with and appeared on its face to be appropriately
responsive in all material respects to the requirements of the Exchange Act
and the Exchange Act Regulations.
(xiii) The descriptions included or incorporated by reference in the
Registration Statement and the Prospectus of contracts are accurate in all
material respects and fairly present the information required by the Act or
the Rules and Regulations to be presented; and to such counsel's knowledge,
there are no contracts or documents of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement that are not described or referred to
therein and filed as required.
(xiv) Neither the Company nor any of the Subsidiaries is an
"investment company" as defined in Section 3(a) of the Investment Company Act
of 1940, as amended, and, if the Company and Subsidiaries conduct their
businesses as set forth in the Registration Statement and the Prospectus, will
not become an "investment company" and will not be required to register under
the Investment Company Act of 1940, as amended.
(xv) Each Selling Shareholder that is not a natural person has full
right, power and authority to enter into and perform its obligations under the
Power of Attorney and Custody Agreement to be executed and delivered by it;
the Power of Attorney and Custody Agreement of each Selling Shareholder that
is not a natural person has been duly authorized by such Selling Shareholder;
the Power of Attorney and Custody Agreement of each Selling Shareholder has
been duly executed and delivered by or on behalf of such Selling Shareholder;
and the Power of Attorney and Custody Agreement of each Selling Shareholder
constitutes the valid and binding agreement of such Selling Shareholder,
enforceable in accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(xvi) Each Selling Shareholder has full right, power and authority to
enter into and to perform its obligations under this Agreement and to sell,
transfer and deliver the Shares to be sold by such Selling Shareholder
hereunder.
(xvii) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Shareholder.
In addition, such counsel shall confirm that although they have not
verified the accuracy or completeness of the statements contained or
incorporated by reference in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective, the
Registration Statement (except as to financial statements, financial data and
supporting schedules contained in such financial statements, as to which such
counsel need express no opinion) 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, or the Prospectus
(except as aforesaid), as of date of the Prospectus and as of the Closing Time
or the Option Exercise Time, as the case may be, 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, in light of the
circumstances under which they were made, not misleading.
Such opinion shall be to such further effect with respect to other legal
matters relating to this Agreement and the sale of the Shares hereunder as
counsel for the Underwriters may reasonably request. In rendering the
opinions and confirmations set forth above, such counsel may rely upon
certificates of officers of the Company, the Selling Shareholders and public
officials as to matters of fact.
(f) Concurrently with the execution and delivery of this Agreement,
at the Closing Time and at the Option Exercise Time, Deloitte & Touche LLP
shall have furnished to you a letter, dated as of the date of its delivery,
addressed to you and in form and substance reasonably satisfactory to you, to
the effect set forth in Annex I hereto.
(g) At the Closing Time, and at the Option Exercise Time, there shall
be furnished to you, on behalf of the Company, a certificate, dated the date
of its delivery, signed by both the chief executive officer and the chief
financial officer of the Company, in form and substance reasonably
satisfactory to you, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) to the signer's knowledge,
as of the date of such certificate and as of the Effective Date, the
statements in the Registration Statement and the Prospectus are and were true
and correct in all material respects and neither the Registration Statement
nor the Prospectus omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; (B) since the
Effective Date, no event has occurred of which the signer has knowledge and
which was required by the Act or the Rules and Regulations to be set forth in
a supplement to or amendment of the Prospectus but which has not been so set
forth; and (C) since the dates as of which and the periods for which
information is given in the Registration Statement and the Prospectus, there
has not been to the signer's knowledge any material adverse change, financial
or otherwise, in the condition or business prospects of the Company from that
set forth in the Registration Statement and the Prospectus, other than changes
which the Registration Statement and the Prospectus specifically disclose have
occurred or may occur subsequent to the Effective Date.
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
commenced or are, to the knowledge of each signer of such certificate,
threatened or contemplated by the Commission.
(iii) The Company has not received notice that any stop order
suspending the qualification or registration of any of the Shares under the
blue sky laws of any jurisdiction has been issued, or that any proceedings for
such purpose have been commenced, and, to the knowledge of each signer of such
certificate, no such proceedings are threatened or contemplated by any
jurisdiction.
(iv) The conditions, separately set forth in such certificate,
contained in subsections (a), (c) and (j) of this Section 8 have been complied
with.
(v) There has been no breach of any of the terms or provisions of the
agreements referred to in Section 6.I.(j) hereof.
(vi) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document contemplated
under this Agreement to be delivered to you was, when originally made and is,
at the time such certificate is dated, true and correct.
(vii) Each of the covenants required herein to be performed by the
Company on or prior to the date of such certificate has been duly, timely and
fully performed and each condition herein required to be complied with by the
Company on or prior to the date of such certificate has been duly, timely and
fully complied with by the Company.
(h) At the Closing Time and at the Option Exercise Time, there shall
be furnished to you a certificate from the Attorney-in-Fact for each Selling
Shareholder to the effect that, as of the Closing Time or the Option Exercise
Time, as the case may be, he has not been informed that: (i) the
representations and warranties made by such Selling Shareholder herein are not
true or correct, as if made at and as of the Closing Time or the Option
Exercise Time; and (ii) such Selling Shareholder has not complied with all the
obligations and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Time or the Option Exercise Time.
(i) The Company and the Selling Shareholders shall have furnished to
you such certificates, in addition to those specifically mentioned herein, as
you may have reasonably requested in a timely manner as to the accuracy and
completeness, at the Closing Time and the Option Exercise Time, of any
statement in the Registration Statement or the Prospectus; as to the accuracy,
at the Closing Time and the Option Exercise Time, of the representations and
warranties of the Company and the Selling Shareholders herein and in each
certificate and document contemplated under this Agreement to be delivered to
you; as to the performance by the Company and the Selling Shareholders of
their obligations hereunder and under each such certificate and document; or
as to the fulfillment of the conditions concurrent and precedent to your
obligations hereunder.
(j) Except as contemplated by the Registration Statement and the
Prospectus, since the date hereof, there shall not have been any change in the
capitalization of the Company or change in the business, business prospects,
financial condition or results of operations of the Company or in the value of
the assets of the Company which would have a Material Adverse Effect.
(k) Each of the agreements referred to in Section 6.I.(j) hereof
shall have been delivered to you and there shall have been no breach of any
such agreement.
(l) All corporate proceedings and other legal matters relating to the
sale and transfer of the Shares, this Agreement, the Registration Statement,
the Prospectus and other related matters shall be reasonably satisfactory in
all material respects to counsel for the Underwriters, who shall have
furnished to you at the Closing Time and Option Exercise Time such opinion, in
form and substance reasonably satisfactory to you, with respect to the
sufficiency of the aforementioned corporate proceedings and other legal
matters as you may reasonably require; and the Company shall have furnished to
such counsel such records and documents as such counsel may have reasonably
requested in a timely manner for the purpose of enabling them to pass upon
such matters.
(m) The Shares shall be authorized for quotation in NASDAQ/NMS and/or
approved for listing in NASDAQ/NMS upon notice of issuance which notice shall
have been given.
All of the opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters. You reserve the right to waive
any condition hereinabove set forth.
Section 9. Indemnification and Contribution.
(a) The Company and each of the Selling Shareholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act and each and all of them, from and against
any and all losses, claims, damages, liabilities or actions, joint or several
(including any investigation, legal or other expense incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which an Underwriter or they or any of them may become
subject under the Act, the Exchange Act or otherwise but only insofar as such
losses, claims, damages, liabilities or actions arise out of, or are based
upon,
(i) any untrue statement or alleged untrue statement made by the
Company or either of the Selling Shareholders in Section 3 of this Agreement;
or
(ii) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendment or supplement thereto or in any application or
other document executed by the Company or the Selling Shareholders based upon
written information furnished by or on behalf of the Company or the Selling
Shareholders filed in any jurisdiction in order to register or qualify the
Shares under the securities laws thereof or filed with the Commission, or the
omission or alleged omission to state therein 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;
provided, however, that the indemnity agreement contained in this subsection
(a) shall not extend to any Underwriter in respect of any such losses, claims,
damages, liabilities or actions arising out of, or based upon, any such untrue
statement or alleged untrue statement or any such omission or alleged
omission, if such statement or omission was made in reliance upon information
furnished in writing to the Company through you or on behalf of any
Underwriter specifically for use in connection with the preparation of the
Registration Statement, any preliminary prospectus or the Prospectus or any
such amendment or supplement thereto and, provided further, that the indemnity
agreement provided in this subsection (a) with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based
upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected has not been
sent or given to such person within the time required by the Act and the Rules
and Regulations thereunder, unless such failure is the result of noncompliance
by the Company with Section 5(a) hereof. The Company and the Selling
Shareholders agree to pay any legal and other expenses for which they are
liable under this subsection (a) from time to time (but not more frequently
than monthly) within 30 days after its receipt of a bill therefor.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company, its directors and officers who shall have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and the Selling Shareholders (i) to the same extent as the
foregoing indemnity from the Company and the Selling Shareholders to such
Underwriter, but in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto was made in reliance upon information furnished in writing
to the Company by such Underwriter specifically for use in connection with the
preparation of the Registration Statement, any preliminary prospectus or the
Prospectus or any such amendment or supplement thereto, and (ii) to the extent
any such loss, claim, damage, liability or action arises out of, or is based
upon a failure or alleged failure of such Underwriter to deliver the
Prospectus as required by applicable laws. Each Underwriter agrees to pay any
legal and other expenses for which it is liable under this subsection (b) from
time to time (but not more frequently than monthly) within 30 days after
receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsection (a) or (b) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
subsections, such indemnified party shall promptly notify such indemnifying
party in writing of the commencement thereof; but the omission so to notify
the indemnifying party of any such action shall not release the indemnifying
party from any liability it may have to such indemnified party otherwise than
on account of the indemnity agreement contained in subsection (a) or (b) of
this Section 9. In case any such action is brought against an indemnified
party and it notifies an indemnifying party of the commencement thereof, the
indemnifying party against which a claim is to be made will be entitled to
participate therein at its own expense and, to the extent that it may wish, to
assume at its own expense the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that (i) if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
based upon advice of counsel that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party shall have
the right to select separate counsel to assume such legal defenses and
otherwise to participate in the defense of such action on behalf of such
indemnified party or parties; and (ii) in any event, the indemnified party
shall be entitled to have counsel chosen by such indemnified party participate
in, but not conduct, the defense. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 9 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (x) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel); (y)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action; or (z) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. An indemnifying
party shall not be liable for any settlement of any action or proceeding
effected without its written consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in subsection (a)
or (b) of this Section 9 is unavailable in accordance with its terms, the
Company, the Selling Shareholders and, subject to the limitations set forth
below, the Underwriters shall contribute to the aggregate losses, claims,
damages and liabilities, of the nature contemplated by said indemnity
agreement, incurred by the Company, the Selling Shareholders and one or more
Underwriters, in such proportions as are applicable to reflect the relative
benefits received by the Company and the Selling Shareholders, on the one
hand, and the Underwriters, on the other hand, from the offering of the
Shares; provided, however, that if such allocation is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) of this Section 9, then the relative fault of the Company
and the Selling Shareholders, on the one hand, and the Underwriters, on the
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages and liabilities and other relevant equitable
considerations will be considered together with such relative benefits. The
relative benefits received by the Company and the Selling Shareholders, on the
one hand, and the Underwriters, on the other hand, shall be deemed to be in
such proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholders bear to the
total underwriting discount received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus and in the notes
thereto. The relative fault of the Company and the Selling Shareholders, on
the one hand, and of the Underwriters, on the other hand, shall be determined
by reference to, among other things, whether in the case of an untrue
statement or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact, such statement or omission relates
to information supplied by the Company, by a Selling Shareholder or by the
Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company, the Selling Shareholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by 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 this subsection (d). The amount paid or payable
by the indemnified party as a result of the losses, claims, damages or
liabilities referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending against or appearing as a
third-party witness in any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares purchased by it were offered 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; and (ii) 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 is not guilty of such fraudulent misrepresentation. For purposes
of this subsection (d), each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
shall have the same rights to contribution as such Underwriter. The
Underwriters' obligations to contribute pursuant to this subsection (d) are
several in proportion to their respective underwriting commitments and not
joint.
(e) The liability of each Selling Shareholder under the
representations and warranties contained in Section 3.II. hereof and under the
indemnity agreements contained in the provisions of this Section 9 shall be
limited to an amount equal to the initial public offering price of the Firm
Shares and the Option Shares sold by such Selling Shareholder to the
Underwriters minus the amount of the underwriting discount paid thereon to the
Underwriters by such Selling Shareholder. The Company and the Selling
Shareholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
(f) The respective indemnity and contribution agreements by the
Underwriters, the Selling Shareholders and the Company contained in
subsections (a), (b), (c), (d) and (e) of this Section 9, and the respective
covenants, representations and warranties of the Company and the Selling
Shareholders set forth in Sections 2, 3, 4, 5, 6 and 7 hereof, shall remain
operative and in full force and effect regardless of (i) any investigation
made by any Underwriter, on its behalf or by or on behalf of any person who
controls an Underwriter, the Company or any controlling person of any of the
Company or any director or officer of the Company or any Selling Shareholder;
(ii) acceptance of any of the Shares and payment therefor; or (iii) (with
respect to Section 7 and this Section 9 only) any termination of this
Agreement, and shall survive the delivery of the Shares, and any successor of
any Underwriter, the Company or any Selling Shareholder, or of any person who
controls any Underwriter, the Company or any Selling Shareholder, as the case
may be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements
by the Underwriters, the Selling Shareholders and the Company contained in
subsections (a), (b), (c), (d) and (e) of this Section 9 shall be in addition
to any liability which the Underwriters, the Selling Shareholders and the
Company may otherwise have.
Section 10. Termination.
(a) This Agreement (except for the provisions of Sections 7 and 9
hereof) may be terminated by you by notifying the Company and the Selling
Shareholders at any time:
(i) prior to the earliest of (A) 11:00 A.M., Indianapolis time, on
the business day immediately following the date hereof, (B) the time of
release by the Representatives for publication of the first newspaper
advertisement which subsequently is published with respect to the Shares or
(C) the time when the Shares are first generally offered by the
Representatives to dealers by letter or telegram;
(ii) at or prior to the Closing Time if any of the conditions
specified in Section 8 hereof shall not have been fulfilled when and as
required by this Agreement to be fulfilled or if any of the covenants,
representations or warranties contained herein or in any certificate or
document contemplated under this Agreement to be delivered to you shall not
have been satisfied or fulfilled within the respective times herein provided
for, unless compliance therewith or performance or satisfaction thereof shall
have been expressly waived by you in writing; or
(iii) at or prior to the Closing Time if any one or more of the
following shall have occurred or have been established between the time of
your execution of this Agreement and the Closing Time and in your judgment the
same has made or makes it inadvisable or impracticable for you generally to
proceed with the offering, sale, delivery, or collection of payment for, the
Shares pursuant to the public offering contemplated by this Agreement: (A) a
general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange, American Stock Exchange, NASDAQ/NMS
or in the over-the-counter market; (B) any new legal or regulatory restriction
materially affecting the distribution of securities generally or of the
Shares; (C) a material adverse change in general market or economic
conditions, either domestic or foreign, from such conditions on the date
hereof; (D) a declaration of a banking moratorium by Federal or New York,
Indiana, or Ohio state authorities; (E) any outbreak of major hostilities or
other national or international calamity; (F) a material interruption in the
mail service or other means of communications within the United States; (G) an
action by any government in respect of its monetary affairs which, in your
opinion, has a material adverse effect on the United States securities
markets; or (H) any material adverse change or any material adverse
development involving a prospective change not contemplated in the
Registration Statement or Prospectus or affecting particularly the business or
properties of the Company.
(b) Your right to terminate under subsections (a)(ii) and (a)(iii) of
this Section 10 will not be waived or otherwise relinquished because you do
not give the required notice of termination prior to the time that the event
giving rise to the right to terminate shall have ceased to exist, provided
that you give the required notice prior to the Closing Time.
Section 11. Default of Underwriters. If any Underwriter or Underwriters
default in their obligation to take and pay for Firm Shares or Option Shares
and the aggregate number of Firm Shares or Option Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10%
of the aggregate number of Firm Shares or Option Shares, as the case may be,
the other Underwriters shall be obligated severally in proportion to their
respective commitments hereunder to purchase the Firm Shares or Option Shares
which such defaulting Underwriter or Underwriters agreed but failed to
purchase. If any Underwriter or Underwriters so default and the aggregate
number of Firm Shares or Option Shares with respect to which such default or
defaults occur is more than 10% of the aggregate number of Firm Shares or
Option Shares, as the case may be, and arrangements satisfactory to you and
the Company for the purchase of such Firm Shares or Option Shares by other
persons (who may include one or more of the non-defaulting Underwriters
including you) are not made within 36 hours after such default, this Agreement
may be terminated by you. If such arrangements satisfactory to you and the
Company shall have been made within such 36-hour period as aforesaid, (a) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (b) the respective number
of Firm Shares or Option Shares, as the case may be, to be purchased by the
remaining Underwriters and substituted underwriters shall be taken as the
basis of their underwriting obligation.
In the event of any termination of this Agreement pursuant to this
Section 11, neither the Company nor any Selling Shareholder shall be liable to
any Underwriter (except as provided in Section 7 (with the exception of the
last sentence thereof) and Section 9 hereof) nor shall any Underwriter (other
than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the number of Firm Shares or
Option Shares agreed by such Underwriter to be purchased hereunder, which
Underwriter shall remain liable to the Company and the other Underwriters for
damages, if any, resulting from such default) be liable to the Company or any
Selling Shareholder (except to the extent provided in Section 9 hereof). As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section 11. Nothing herein shall relieve a
defaulting Underwriter from liability for its default.
Section 12. Notice. Except as otherwise expressly provided in this
Agreement, whenever advice or a notice, objection, designation, request or
report is given or is required by the provisions of this Agreement to be
given, such advice, notice, objection, designation, request or report shall be
in writing, by telegraph confirmed in writing, or by telecopy confirmed by
letter (a) if to the Company, addressed to the Company and delivered at
Crossmann Communities, Inc., 9202 North Meridian Street, Indianapolis, Indiana
46260, telecopier number (317) 571-2210, Attention: John B. Scheumann, with a
copy to Ice Miller Donadio & Ryan, One American Square, Box 82001,
Indianapolis, Indiana 47282-0002, telecopier number (317)236-2219, Attention:
Steven K. Humke, Esq.; (b) if to you or the Underwriters, addressed to
McDonald & Company Securities, Inc., and delivered at One American Square,
Suite 2615, Indianapolis, Indiana 46282, telecopier number (317) 464-0372,
Attention: Andrew J. Paine III, First Vice President, and McDonald & Company
Securities, Inc., Suite 2100, 800 Superior Avenue, Cleveland, Ohio 44114-2603,
telecopier number (216) 443-2993, Attention: Equity Syndicate Department,
with a copy to Baker & Daniels, 300 North Meridian Street, Suite 2700,
Indianapolis, Indiana 46204, telecopier number (317) 237-1000, Attention:
James A. Aschleman, Esq.; and (c) if to one or more of the Selling
Shareholders, to John B. Scheumann , as Attorney-in-Fact, at 9202 North
Meridian Street, Suite 300, Indianapolis, Indiana 46260, telecopier number
(317) 571-2210; or at such other address as a party hereto may give notice in
accordance herewith.
Section 13. Miscellaneous.
(a) This Agreement is made solely for the benefit of the parties
hereto, their officers and directors, those who shall have signed the
Registration Statement and any controlling person referred to in Section 9
hereof, and their respective executors, administrators, successors and
assigns, and no other person, partnership, association or corporation shall
acquire or have any right under or by virtue of this Agreement. The term
"successor" or the term "successors and assigns" as used in this Agreement
shall not include any buyer, as such, of any of the Shares from the
Underwriters. All of the obligations of the Underwriters hereunder are
several and not joint.
(b) The information in the Prospectus under the caption
"Underwriting" with respect to (i) the names of, and number of Shares to be
purchased by, each of the Underwriters and (ii) the amounts of the selling
discount and reallowance shall constitute the only information furnished in
writing by or on behalf of the several Underwriters for use in connection with
the preparation of the Registration Statement as originally filed or in any
amendment thereto, any preliminary prospectus or the Prospectus as the case
may be.
(c) This Agreement shall supersede any agreement or understanding,
oral or in writing, express or implied, between the Company and you or any of
the Selling Shareholders and you relating to the sale of any of the Shares.
(d) No change, amendment or supplement to, or waiver of, this
Agreement or any term, provision or condition contained herein, shall be valid
or of any effect unless in writing and signed by the party against whom such
is asserted.
(e) This Agreement shall be governed by and construed in accordance
with the law of the State of Indiana applicable to contracts made and to be
performed therein without giving effect to the principles of conflicts of law
thereof.
(f) This Agreement may be signed in two or more counterparts with the
same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed copy hereof, whereupon it
will be a binding agreement by and among the parties in accordance with its
terms.
Very truly yours,
Crossmann Communities, Inc.
By: ______________________________
Its: ______________________________
Selling Shareholders
By: ______________________________
As Attorney-in-Fact for the Selling
Shareholders named in Schedule B
hereto.
Accepted as of the date first written above:
McDonald & Company Securities, Inc.
Dillon, Read & Co. Inc.
Raymond James & Associates, Inc.
Acting on behalf of themselves and as the
Representatives of the several Underwriters
McDonald & Company Securities, Inc.
By: ______________________________
Its: ______________________________
<PAGE>
4
ANNEX I
Pursuant to Section 8(f) of the Underwriting Agreement, Deloitte & Touche
LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent public accountants with respect to the
Company within the meaning of the Act and the applicable published rules and
regulations thereunder;
(ii) In their opinion, the consolidated financial statements and any
financial statement schedules audited by them and included or incorporated by
reference in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Exchange Act and the related published rules and regulations;
(iii) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards, but
including a review of interim financial information as described in SAS No.
71, Interim Financial Information, on the unaudited consolidated financial
statements for each of the three-month periods ended since the date of the
latest audited consolidated financial statements included or incorporated by
reference in the Registration Statement, reading of the latest available
interim financial statements of the Company, inspection of the minute books of
the Company since the date of the latest audited consolidated financial
statements included or incorporated by reference in the Registration
Statement, inquiries of officials of the Company responsible for financial and
accounting matters and such other inquiries and procedures as may be specified
in such letter, nothing came to their attention that caused them to believe
that:
(A) any material modifications should be made to the unaudited
consolidated financial statements for each of the three-month periods ended
since the date of the latest audited financial statements included or
incorporated by reference in the Registration Statement for them to be in
conformity with GAAP; or that such financial statements do not comply as to
form in all material respects with the applicable accounting requirements of
the Act, or the Exchange Act as it applies to Form 10-Q, and the related
published rules and regulations;
(B) any unaudited income statement and balance sheet data included or
incorporated by reference in the Registration Statement do not agree with the
corresponding amounts set forth in the unaudited consolidated financial
statements for those same periods; or that such unaudited data were not
determined on a basis substantially consistent with that of the corresponding
amounts in the audited consolidated financial statements included or
incorporated by reference in the Registration Statement;
(C) any unaudited pro forma consolidated financial information
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the Act and
the Rules and Regulations thereunder; or that the pro forma adjustments have
not been properly applied to the historical amounts in the compilation of that
information;
(D) as of the date of the latest available unaudited interim
financial statements of the Company, and as of a specified date not more than
three days prior to the date of such letter, there has been any change in the
capital stock, increase in debt or amounts due to or from related parties, or
any decrease in real estate inventories or shareholders' equity, or any
changes, increases or decreases in any other items specified by the
Representatives, in each case as compared with amounts shown in the latest
unaudited consolidated balance sheet included or incorporated by reference in
the Registration Statement, except in all instances for changes, increases or
decreases that the Registration Statement discloses have occurred or may occur
or that are described in such letter; and
(E) for the period from the date of the latest unaudited consolidated
financial statements included or incorporated by reference in the Registration
Statement to the date of the latest available unaudited interim financial
statements of the Company, and to the specified date referred to in clause
(D), there were any decreases in consolidated sales of residential real
estate, gross profit or the total amount of net income, or any changes,
increases or decreases in any other items specified by the Representatives, in
each case as compared to the applicable corresponding period of the preceding
year, except in all instances for changes, increases or decreases that the
Registration Statement discloses have occurred or may occur or that are
described in such letter; and
(iv) In addition to the audit referred to in their report(s) included
or incorporated by reference in the Registration Statement and limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (ii) and (iii) above, they have carried out certain
specified procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information identified by the Representatives on an
attached copy of the Registration Statement and reports filed by the Company
under the Exchange Act incorporated by reference therein, which are derived
from the general accounting records of the Company (or derived from such
records by analysis or computation), and have compared such amounts,
percentages and financial information with the accounting records or analyses
of the Company and have found them to be in agreement.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C>
NUMBER OF
NAME OF UNDERWRITER FIRM SHARES
McDonald & Company Securities, Inc
Dillon, Read & Co. Inc
Raymond James & Associates, Inc
Total 2,250,000
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B
<S> <C>
NUMBER OF FIRM
NAME OF SELLING SHAREHOLDER SHARES TO BE SOLD
John B. Scheumann 375,000
Richard H. Crosser Living Trust 375,000
Total 750,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
NUMBER OF OPTION
NAME SHARES TO BE SOLD
Crossmann Communities, Inc 112,500
John B. Scheumann 112,500
Richard H. Crosser Living Trust 112,500
Total 337,500
</TABLE>
<PAGE>
SCHEDULE C
Crossmann Management, Inc.
Crossmann Investments, Inc.
Deluxe Homes, Inc.
Deluxe Homes of Lafayette, Inc.
Trimark Homes, Inc.
Trimark Development, Inc.
Crossmann Mortgage Corp.
Merit Realty, Inc.
Deluxe Aviation, Inc.
Crossmann Communities of Ohio, Inc.
Cutter Homes, Ltd.
Crossmann Communities Partnership
Crossmann Properties, LLC
R&D Land Development
3G Partnership
Mark/Anthony Partnership
Triton Development LLC
Five Points Road Development LLC
Saddlebrook Development LLC
Bridgeport Commons LLC
First Crossmann LLC
<TABLE>
<CAPTION>
Crossmann Communities, Inc.
Exhibit 11.1 - Computation of Per Share Net Income
For the Period Ended
<S> <C> <C> <C> <C> <C>
Year Ended Year Ended Year Ended Six Months Ended Six Months Ended
December 31, December 31, December 31, June 30, June 30,
Primary 1994 1995 1996 1996 1997
Weighted Average Number of Shares:
Average Common Shares Outstanding 9,105,000 9,112,197 9,149,993 9,141,165 9,195,840
Dillutive Effect of Common Stock Equivalents - 69,048 57,467 73,438 71,445
Weighted Average Shares Outstanding 9,105,000 9,181,245 9,207,459 9,214,603 9,267,285
Net Income $ 7,750,509 $ 11,111,412 $ 15,065,628 $ 3,993,565 $ 5,793,380
Net Income per Common Share $ .85 $ 1.21 $ 1.64 $ .43 $ .63
Year Ended Year Ended Year Ended Six Months Ended Six Months Ended
December 31, December 31, December 31, June 30, June 30,
Fully Diluted 1994 1995 1996 1996 1997
Weighted Average Number of Shares:
Average Common Shares Outstanding 9,105,000 9,112,197 9,149,993 9,141,165 9,195,840
Dillutive Effect of Common Stock Equivalents - 131,321 57,467 73,438 79,952
Weighted Average Shares Outstanding 9,105,000 9,243,518 9,207,459 9,214,603 9,275,792
Net Income $ 7,750,509 $ 11,111,412 $ 15,065,628 $ 3,993,565 $ 5,793,380
Net Income per Common Share $ .85 $ 1.20 $ 1.64 $ .43 $ .62
</TABLE>
August 15, 1997
Board of Directors
Crossmann Communities, Inc.
9202 North Meridian Street, Suite 300
Indianapolis, Indiana 46260
Gentlemen and Ms. Holihen:
We have acted as counsel to Crossmann Communities, Inc., an Indiana
corporation (the "Company"), in connection with the filing of a Registration
Statement on Form S-2 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") for the purposes of registering under
the Securities Act of 1933, as amended (the "Securities Act"), an aggregate of
up to 2,587,500 Common Shares of the Company (the "Shares") which are to be
offered to the public. Of the Shares, up to 837,500 Shares may be issued by
the Company, including the shares covered by the over-allotment option to be
granted to the underwriters (the "Company Shares").
In connection therewith, we have investigated those questions of law we
have deemed necessary or appropriate for purposes of this opinion. We have
also examined originals, or copies certified or otherwise identified to our
satisfaction, of those documents, corporate or other records, certificates and
other papers that we deemed necessary to examine for the purpose of this
opinion, including:
1. A copy of the Company's Articles of Incorporation, together with
all amendments thereto, certified by the Secretary of State of the State of
Indiana on August 15, 1997 to be a true and correct copy thereof;
2. A copy of the Bylaws of the Company, as amended to date;
3. Resolutions relating to the offering of the Company Shares and the
filing of the Registration Statement adopted by the Company's Board of
Directors (the "Resolutions") on August 14, 1997;
4. A specimen certificate representing the Shares; and
<PAGE>
5. The Registration Statement.
We have also relied, without investigation as to the accuracy thereof, on
other certificates of and oral and written communication from public officials
and officers of the Company.
For purposes of this opinion, we have assumed (i) the authenticity of all
documents submitted to us as originals and the conformity to authentic
originals of all documents submitted to us as certified or photostatic copies;
(ii) that the Company Shares will be issued pursuant to the terms of the
Registration Statement; (iii) that the Resolutions will not be amended,
altered or superseded before the issuance of the Company Shares; and (iv) that
no changes will occur in the applicable law or the pertinent facts before the
issuance of the Company Shares.
Based upon the foregoing and subject to the qualifications set forth in
this letter, we are of the opinion that the Company Shares are validly
authorized and, when (a) the pertinent provisions of the Securities Act and
all relevant state securities laws have been complied with and (b) the Company
Shares have been delivered against payment therefor as contemplated by the
Registration Statement, the Company Shares will be legally issued, fully paid
and non- assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this Firm under the caption
"Legal Matters" in the Prospectus included as a part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the
Securities Act or under the rules and regulations relating thereto.
Very truly yours,
/s/ ICE MILLER DONADIO AND RYAN
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Crossmann Communities,
Inc. on Form S-2 of our report dated February 14, 1997 (August 7, 1997 as to
Note 13), appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 14, 1997
Exhibit 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-2 and related Prospectus (expected to be
filed on or about August 15, 1997) of Crossmann Communities, Inc. for the
registration of 2,250,000 shares of its common stock and to the inclusion and
incorporation by reference therein of our report dated February 1, 1995,
except for the 1995 Transaction portion of Note 5 to the 1994 financial
statements as to which the date is March 28, 1995, with respect to the
consolidated financial statements of Crossmann Communities, Inc., included in
its Annual Report on Form 10-K for the year ended December 31, 1996, filed
with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
August 14, 1997
