CROSSMANN COMMUNITIES INC, 424B4, 1997-09-12

CROSSMANN COMMUNITIES INC
424B4, 1997-09-12
OPERATIVE BUILDERS

Previous: GLOBAL PARTNERS INCOME FUND INC, DEFS14A, 1997-09-12

Next: CROSSMANN COMMUNITIES INC, S-3, 1997-09-12

<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-33809 and
Registration No. 333-7592

2,425,000 COMMON SHARES

CROSSMANN
COMMUNITIES, INC.
[LOGO]

Of the 2,425,000 Common Shares, no par value (the "Shares"), offered hereby
(the "Offering"), 1,675,000 Shares are being sold by Crossmann Communities-SM-,
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 "Selling Shareholders." The Shares are quoted on the Nasdaq
National Market System under the symbol "CROS." On September 11, 1997, the last
reported sale price of the Shares as quoted on the Nasdaq National Market System
was $18.75 per Share. Except as otherwise noted, all 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 which was effected by a
Share dividend paid on August 25, 1997.
--------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 8 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.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $17.50 $.96 $16.54 $16.54
Total(3)...................... $42,437,500 $2,328,000 $27,704,500 $12,405,000
</TABLE>

(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 363,750 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 $48,803,125, $2,677,200,
$29,999,425 and $16,126,500, respectively. See "Underwriting."

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

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 17, 1997.

MCDONALD & COMPANY
SECURITIES, INC.

SBC WARBURG DILLON READ INC.

RAYMOND JAMES & ASSOCIATES, INC.

The date of this Prospectus is September 12, 1997.
<PAGE>
A COLLAGE OF PHOTOGRAPHS OF THE COMPANY'S PRODUCTS WILL BE INSERTED HERE.

2
<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."

3
<PAGE>
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, trademarks and service
marks of other companies.

4
<PAGE>
PROSPECTUS 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 WHICH WAS EFFECTED BY A SHARE DIVIDEND
DECLARED BY THE COMPANY'S BOARD OF DIRECTORS (THE "BOARD") ON AUGUST 7, 1997 AND
PAID 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, including its predecessor entities, 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-Registered Trademark- appliances,
Armstrong-Registered Trademark- flooring, DuPont
Stainmaster-Registered Trademark- carpeting, Porter
Paints-Registered Trademark- and Delta Faucets-Registered Trademark-, 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.

5
<PAGE>
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.

THE OFFERING

Shares offered by the Company.................................. 1,675,000 Shares

Shares offered by the Selling Shareholders....................... 750,000 Shares

Shares to be outstanding after the Offering (1)............... 10,929,678 Shares

Nasdaq National Market System Symbol....................................... CROS

Use of Proceeds........................................... To repay indebtedness

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

(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.

6
<PAGE>
SELECTED 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.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------
1992(1) 1993(1) 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales of residential real
estate................. $ 59,360 $ 83,750 $ 112,140 $ 177,590 $ 229,485 $ 82,809 $ 116,360
Gross profit............. 13,494 18,575 24,494 35,704 48,051 16,964 23,722
Income from operations... 5,741 10,540 12,566 18,621 24,854 6,616 9,780
Net income............... 5,858 9,949 7,751 11,111 15,066 3,994 5,793
Net income per Share..... -- -- .85 1.22 1.65 .44 .63
OPERATING DATA (UNAUDITED):
Number of closings (2)... 616 852 1,073 1,675 2,068 765 1,036
Average home sales
price.................. $ 95,909 $ 97,400 $ 104,250 $ 106,024 $ 110,970 $ 108,250 $ 112,320
Homes in backlog
(at period end) (2).... 219 366 345 757 1,006 1,481 1,638
Number of markets
(at period end)........ 2 3 5 5 8 8 9
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
----------------------------------------------------- ----------------------
AS
1992(1) 1993(1) 1994 1995 1996 ACTUAL ADJUSTED(3)
--------- --------- --------- --------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 357 $ 3,651 $ -- $ 5,233 $ 100 $ 100 $ 100
Real estate inventories............ 17,206 34,976 54,667 69,683 113,202 137,562 137,562
Total assets....................... 19,079 44,621 62,026 83,954 128,336 155,980 155,980
Total debt......................... 3,401 11,583 20,554 25,472 49,326 66,102 38,687
Total shareholders' equity......... 9,289 25,267 33,011 44,212 59,649 66,332 93,747
</TABLE>

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

(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 1,675,000 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.

7
<PAGE>
RISK 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. As a
result, the Company has historically experienced lower operating margins and
sales in the early stages of operations in a new market. 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

8
<PAGE>
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 18 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

9
<PAGE>
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 37.2% 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 "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, 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

10
<PAGE>
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."

11
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,675,000 Shares in the
Offering are estimated to be $27.4 million ($29.7 million if the Underwriters'
over-allotment option is exercised in full), at a public offering price of
$17.50 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 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>
1995 1996 1997
-------------------- -------------------- --------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- -------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 September 11, 1997 was $18.75 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 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."

12
<PAGE>
CAPITALIZATION

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>
JUNE 30, 1997
(UNAUDITED)
----------------------
AS
ACTUAL ADJUSTED(1)
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Line of credit....................................................... $ 43,329 $ 15,914
Senior notes......................................................... 22,222 22,222
Other debt........................................................... 551 551
--------- -----------
Total debt......................................................... 66,102 38,687

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 10,929,678 Shares issued and outstanding, as
adjusted........................................................... 25,290 52,705
Retained earnings.................................................... 41,042 41,042
--------- -----------
Total shareholders' equity......................................... 66,332 93,747
--------- -----------
Total capitalization............................................... $ 132,434 $ 132,434
--------- -----------
--------- -----------
</TABLE>

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

(1) As adjusted to reflect the sale of 1,675,000 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.

13
<PAGE>
MANAGEMENT'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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA (AT END OF PERIOD,
UNAUDITED):
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 0.0 (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>

14
<PAGE>
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

15
<PAGE>
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

16
<PAGE>
$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

17
<PAGE>
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.

18
<PAGE>
BUSINESS

GENERAL

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-Registered Trademark-
appliances, Armstrong-Registered Trademark- flooring, DuPont
Stainmaster-Registered Trademark- carpeting, Porter
Paints-Registered Trademark- and Delta Faucets-Registered Trademark-, 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.

19
<PAGE>
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>
SIX MONTHS
ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
--------------------------------- ------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
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

20
<PAGE>
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 the 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.

21
<PAGE>
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.

22
<PAGE>
PRODUCT LINES

The Company markets homes under the names "New American Homes," "Deluxe
Homes" and "Trimark-SM- 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

23
<PAGE>
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

24
<PAGE>
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>
FINISHED LOTS UNDER RAW LAND UNDER OPTION
LOTS DEVELOPMENT (ESTIMATED LOTS) TOTAL (ESTIMATED LOTS)
----------- ------------- ----------------- --------- -----------------
<S> <C> <C> <C> <C> <C>
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.

25
<PAGE>
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 correspondent 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.

26
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

The following table sets forth certain information regarding the Company's
executive officers and directors.

<TABLE>
<CAPTION>
YEARS OF SERVICE
NAME AGE WITH THE COMPANY(1) POSITION(S)
- ------------------------ --- ------------------- -----------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>

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

(1) Includes service with the Company and its predecessor entities.

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
Bank, 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.

27
<PAGE>
SELLING SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Shares as of August 18, 1997 and immediately following the
completion of this Offering by each Selling Shareholder. Except as indicated in
the footnote to this table and pursuant to applicable community property laws,
the Company believes that the persons named in the table have sole voting and
investment power with respect to all Shares.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES TO OWNED AFTER OFFERING
----------------------- BE SOLD IN -----------------------
NAME NUMBER PERCENT OFFERING NUMBER PERCENT
- -------------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
John B. Scheumann....................................... 2,614,500 28.3% 375,000 2,239,500 20.5%

Richard H. Crosser (1).................................. 2,196,000 23.7% 375,000 1,821,000 16.7%
</TABLE>

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

(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.

DESCRIPTION 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 1,675,000 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

28
<PAGE>
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

29
<PAGE>
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.

30
<PAGE>
UNDERWRITING

In the Underwriting Agreement, the Underwriters, represented by McDonald &
Company Securities, Inc., SBC Warburg Dillon Read 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 2,425,000
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>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
McDonald & Company Securities, Inc......................................................... 669,000
SBC Warburg Dillon Read Inc................................................................ 668,000
Raymond James & Associates, Inc............................................................ 668,000
Allen & Co., Inc........................................................................... 30,000
Cowen & Company............................................................................ 30,000
Crowell, Weedon & Co....................................................................... 30,000
Furman Selz Inc............................................................................ 30,000
Interstate/Johnson Lane Corp............................................................... 30,000
Janney Montgomery Scott, Inc............................................................... 30,000
Ladenburg, Thalmann & Co., Inc............................................................. 30,000
Legg Mason Wood Walker, Inc................................................................ 30,000
NatCity Investments, Inc................................................................... 30,000
Principal Financial Securities, Inc........................................................ 30,000
The Seidler Companies Incorporated......................................................... 30,000
Sutro & Co................................................................................. 30,000
Traub & Co., Inc........................................................................... 30,000
Tucker Anthony Inc......................................................................... 30,000
----------
Total................................................................................ 2,425,000
----------
----------
</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 $.57 per Share, and the Underwriters may allow, and such selected
dealers may re-allow, a discount not exceeding $.10 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 363,750 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, 138,750 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.

31
<PAGE>
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 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 & Daniels, Indianapolis, Indiana.

EXPERTS

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.

32
<PAGE>
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.

33
<PAGE>
CROSSMANN COMMUNITIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2

Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited)................. F-4

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)................................................................. F-5

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)....................................................... F-6

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).......................................................... F-7

Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>

F-1
<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)

F-2
<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

F-3
<PAGE>
CROSSMANN COMMUNITIES, INC.

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
AND JUNE 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- JUNE 30,
1995 1996 1997
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS

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

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
------------- -------------- --------------
------------- -------------- --------------
</TABLE>

See accompanying notes.

F-4
<PAGE>
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)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
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
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
</TABLE>

See accompanying notes.

F-5
<PAGE>
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)

<TABLE>
<CAPTION>
COMMON SHARES
------------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
---------- ------------- ------------- -------------
---------- ------------- ------------- -------------
</TABLE>

See accompanying notes.

F-6
<PAGE>
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)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

See accompanying notes.

F-7
<PAGE>
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.)

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.

2. 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.

F-8
<PAGE>
CROSSMANN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

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

F-9
<PAGE>
CROSSMANN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

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.

3. 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.

F-10
<PAGE>
CROSSMANN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

4. REAL ESTATE INVENTORIES

Real estate inventories at December 31 consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
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.

5. 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>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
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.

F-11
<PAGE>
CROSSMANN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

6. CREDIT ARRANGEMENTS

Notes payable consists of the following at December 31:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
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.

F-12
<PAGE>
CROSSMANN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

Scheduled maturities of the notes payable for each of the five years and
thereafter as of December 31, 1996 are as follows:

<TABLE>
<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>

7. 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>
PRICE PER
SHARE 1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
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

F-13
<PAGE>
CROSSMANN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

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>
YEAR ENDED DECEMBER
31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Net income
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.

8. 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>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
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>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
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.

F-14
<PAGE>
CROSSMANN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

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.

9. 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.

10. 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:

Rent expense was approximately $236,200, $314,800 and $479,100 for 1994,
1995 and 1996, respectively.

F-15
<PAGE>
CROSSMANN COMMUNITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

11. 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.

12. 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.

13. 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.

F-16
<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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
Prospectus Summary........................................................ 5
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.................................................................. 19
Management................................................................ 27
Selling Shareholders...................................................... 28
Description of Capital Stock.............................................. 28
Underwriting.............................................................. 31
Legal Matters............................................................. 32
Experts................................................................... 32
Index to Consolidated Financial Statements................................ F-1
</TABLE>

2,425,000 COMMON SHARES

CROSSMANN

COMMUNITIES, INC.

[LOGO]

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

PROSPECTUS

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

MCDONALD & COMPANY
SECURITIES, INC.

SBC WARBURG DILLON READ INC.
RAYMOND JAMES & ASSOCIATES, INC.
September 12, 1997

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