PACIFIC GREYSTONE CORP /DE/, 424B4, 1996-06-21

PACIFIC GREYSTONE CORP /DE/
424B4, 1996-06-21
GENERAL BLDG CONTRACTORS - RESIDENTIAL BLDGS

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<PAGE>
PROSPECTUS

5,000,000 SHARES

[LOGO]

PACIFIC GREYSTONE CORPORATION

COMMON STOCK
---------

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

Prior to this Offering, there has not been a public market for the Common
Stock of the Company. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.

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

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

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

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $13.00 $.91 $12.09 $12.09
Total(3)...................... $65,000,000 $4,550,000 $55,165,461 $5,284,539
</TABLE>

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

(2) Before deducting expenses of the Offering payable by the Company estimated
at $575,000.

(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 675,000 additional shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $73,775,000, $5,164,250, $58,039,762 and $10,570,988, respectively.
--------------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by the
Underwriters and subject to certain conditions. It is expected that certificates
for the shares of Common Stock will be available for delivery on or about June
26, 1996 at the offices of Smith Barney Inc., 333 West 34th Street, New York,
New York, 10001.
--------------
SMITH BARNEY INC.
MORGAN STANLEY & CO.
INCORPORATED
ROBERTSON, STEPHENS & COMPANY

June 20, 1996
<PAGE>

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

CROWN POINTE
ALAMEDA, CALIFORNIA
[PHOTO OF HOUSE]

[PHOTO OF HOUSE]
TASSAJARA
DANVILLE, CALIFORNIA

[PHOTO OF HOUSE]

REUNION
CHANDLER, ARIZONA

THE COLLECTION
SIMI VALLEY, CALIFORNIA
</TABLE>

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

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

THE COMPANY

Pacific Greystone is a leading regional builder of high quality, single
family homes primarily targeted to first time and move-up homebuyers in infill
and emerging markets located throughout Northern and Southern California. The
Company's operations are geographically diverse, with a total of 53 owned
residential projects at March 31, 1996, including 41 projects in 12 counties in
California and seven projects in Phoenix, Arizona and five projects in Las
Vegas, Nevada added as part of the Company's expansion which began in December
1995. Since commencing its homebuilding operations in 1992, revenues have grown
rapidly from $26.2 million to $293.9 million in 1995, with pretax income
increasing from a loss of $5.7 million to a profit of $17.5 million over the
same period. The number of homes closed during that period increased from 135 in
1992 to 1,374 in 1995. In the first quarter of 1996, revenues increased by 83%
to $63.5 million as compared to $34.7 million for the same quarter of 1995, with
pretax income increasing to $3.2 million in the first quarter of 1996 from $0.5
million in the first quarter of 1995.

California is the third largest housing market (measured by permits issued)
in the United States and the Company believes it is well-positioned to benefit
from the recovery in the California housing market. In 1994, employment growth
in California showed a positive trend for the first time in three years and
during the twelve months ended March 1996, nonfarm employment growth was 2.4%,
significantly outpacing the 1.7% gain nationwide. As a result, the unemployment
rate in California has declined from 10.1% in January 1994 to 7.7% in March
1996, although it is still above the national average. Since May 1989, the
percentage of California households able to afford a median-priced single family
home has increased from 14% to 41% in March 1996. Single family building permits
issued in California totaled 162,600 at the last cyclical peak in 1989 and
declined to 68,673 in 1995, a decline of 57.7%. In the first three months of
1996, 15,541 single family permits were issued in California, a 15.0% increase
above the 13,510 permits issued during the first three months of 1995.

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

BUSINESS STRATEGY

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

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

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

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

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

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

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

EXPERIENCED MANAGEMENT WITH DECENTRALIZED OPERATING STRUCTURE. Pacific
Greystone balances its local operating structure with centralized
corporate-level management. The Company's local managers, who have
significant experience in both the homebuilding industry and their
respective markets, are responsible for operating decisions regarding
project identification, house design, construction and marketing. Decisions
related to overall Company strategy, project acquisition, financing and
disbursements are centralized at the corporate level. The Company's senior
operating and financial management is very experienced with the 13 most
senior managers averaging 22 years of experience in the homebuilding
industry.

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

4
<PAGE>
THE OFFERING

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

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

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

Common Stock to be outstanding immediately after the
Offering (1)............................................... 14,959,741 Shares

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

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

- ------------
(1) Includes 1,699,595 shares of Common Stock to be issued as payment of a
portion of the accrued dividends on the Series A Cumulative Senior Preferred
Stock of the Company (the "Series A Preferred") as described under
"Dividends", and 2,868,178 shares of Common Stock to be issued upon
conversion of the Series C Cumulative Convertible Preferred Stock of the
Company (the "Series C Preferred") and a portion of the accrued dividends
thereon into Common Stock upon the consummation of the Offering, as
described under "Dividends." Excludes 14,282 shares of Common Stock subject
to outstanding stock options, 598,390 shares subject to options to be
granted upon consummation of the Offering and 337,328 additional shares of
Common Stock reserved for issuance under the Company's Amended and Restated
1995 Eligible Directors' Stock Option Plan, 1996 Employee Stock Option and
Award Plan and 1996 Employee Stock Purchase Plan. See
"Management--Directors' Compensation" and "--Executive Compensation."

5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except share amounts)

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

PRO FORMA DATA:
Pro forma earnings per
share(3).................. $ 0.69 $ 0.02 $ 0.13
--------- --------- ---------
--------- --------- ---------
Pro forma weighted average
number of shares
outstanding (in
thousands)(4)............. 14,955 14,960 14,972
--------- --------- ---------
--------- --------- ---------

OPERATING DATA:(5)
Homes closed (units)....... -- 135 717 1,331 1,374 227 306
Average price of homes
closed.................... -- $ 317 $ 264 $ 261 $ 235 $ 238 $ 209
Number of projects owned
(at period end)........... -- 27 30 43 46 41 53
Net new orders
(units)(6)................ -- 67 807 1,331 1,497 311 492
Backlog (units)(at period
end)(7)................... -- 112 202 202 325 286 511
Sales value of backlog (at
period end)(7)............ -- $ 33,811 $ 53,677 $ 50,388 $ 60,219 $ 67,611 $ 101,011
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------
PRO FORMA AS
ACTUAL ADJUSTED(8)
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Housing inventories.................................................................... $ 246,780 $ 246,780
Total assets........................................................................... 296,064 296,064
Total liabilities...................................................................... 168,272 160,900
Total shareholders' equity............................................................. 127,792 135,164
</TABLE>

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

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

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

(FOOTNOTES CONTINUE ON NEXT PAGE)

6
<PAGE>
(3) The pro forma earnings available to holders of Common Stock for purposes of
this calculation is historical pretax income less an assumed provision for
income tax at an effective rate of 40.8% for each period.

(4) Pro forma weighted average number of shares outstanding were calculated as
if the Offering was consummated on January 1, 1995 and giving effect to (a)
the redemption of the Series A Preferred with approximately $44.7 million of
the net proceeds of the Offering, (b) the declaration and payment of the
accrued dividends on the Series A Preferred as described under "Dividends,"
(c) the conversion of all the outstanding shares of the Series C Preferred
and a portion of the accrued dividends thereon into Common Stock as
described under "Dividends," and (d) the adjustment to the weighted average
number of shares of Common Stock outstanding to reflect a 1.4282 for 1.00
stock split.

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

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

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

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

7
<PAGE>
RISK FACTORS

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

REAL ESTATE, ECONOMIC AND CERTAIN OTHER CONDITIONS

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

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

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

DEPENDENCE ON CALIFORNIA ECONOMY AND HOUSING MARKET

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

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

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

INTEREST RATES; MORTGAGE FINANCING

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

8
<PAGE>
limit the deduction for home mortgage interest. If effective mortgage interest
rates increase and the ability or willingness of prospective buyers to finance
home purchases is adversely affected, the Company's operating results may be
negatively affected. The Company's homebuilding activities also are dependent
upon the availability and cost of mortgage financing for buyers of homes owned
by potential customers, permitting those customers to sell their existing homes
and purchase homes from the Company. Any limitations or restrictions on the
availability of such financing could adversely affect the Company's sales.

COMPETITION

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

EXPANSION INTO NEW MARKETS

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

REGULATORY AND ENVIRONMENTAL MATTERS

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

The Company and its competitors are also subject to a variety of local,
state and federal statutes, ordinances, rules and regulations concerning the
protection of health and the environment. The particular environmental laws
which apply to any given homebuilding site vary according to the site's
location, its environmental conditions and the present and former uses of the
site, as well as adjoining properties. Environmental laws and conditions may
result in delays, may cause the Company to incur substantial compliance and
other costs, and may prohibit or severely restrict homebuilding activity in
environmentally sensitive regions or areas.

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

VARIABILITY OF RESULTS

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

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

ACCESS TO FINANCING

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

CONCENTRATION OF OWNERSHIP

Immediately after consummation of this Offering, Warburg will own
approximately 56.2% (55.4% if the Underwriters' over-allotment option is
exercised in full) of the Company's outstanding Common Stock. Accordingly,
Warburg may elect the entire Board of Directors of the Company and control its
management, operations and affairs. See "Principal and Selling Stockholders."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE.

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

DILUTION

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

EFFECT ON MARKET PRICE OF COMMON STOCK OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
14,959,741 shares of Common Stock (assuming the payment of the accrued dividends
on the Series A Preferred and the conversion of the Series C Preferred and a
portion of the accrued dividends thereon as set forth under "Dividends"). On the
date of this Prospectus, only shares offered hereby will be immediately eligible
for sale in the public market. Subject to volume limitations on sales pursuant
to Rule 144 under the Securities Act of 1933, and taking into

10
<PAGE>
account the effect of lock-up agreements binding the Company's stockholders,
9,959,741 additional shares of Common Stock will be eligible for sale beginning
180 days after the date of this Prospectus, unless earlier released by Smith
Barney Inc., and will have certain registration rights. The Securities and
Exchange Commission has recently proposed to reduce the Rule 144 holding
periods. If enacted, such modifications will have a material effect on the
timing of when shares of Common Stock become eligible for resale. Sales of
substantial amounts of such shares in the public market or the prospect of such
sales could adversely affect the market price of the Common Stock. See
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."

DEPENDENCE ON KEY PERSONNEL

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

BLANK CHECK PREFERRED STOCK

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

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

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

COMPANY FORMATION AND ORGANIZATION

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

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

11
<PAGE>
the new markets. Between September 1992 and March 1996, the Company developed 28
start-up residential projects in its existing markets and expanded into the
counties of Los Angeles, Sacramento, San Diego, San Joaquin, San Mateo and
Ventura, California with the development of 17 additional residential projects.
In December 1995, the Company further expanded into the Las Vegas, Nevada and
Phoenix, Arizona markets through the acquisition of seven residential projects
from another homebuilder and employed substantially all local management.
Management believes that this acquisition expanded its operations into two of
the Southwest's fast growing markets.

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

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,562,900 shares of
Common Stock offered hereby are estimated to be $54.6 million ($57.5 million if
the Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company intends to use approximately $44.7 million of the net proceeds from the
Offering to redeem the Series A Preferred. See "Dividends." The remainder of the
net proceeds of the Offering will be used to reduce temporarily amounts then
outstanding under the Company's revolving credit facility (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources") and for general corporate
purposes, including capital expenditures and working capital. A portion of the
net proceeds may be used to acquire lots and land through the acquisition of
other companies or divisions of other companies. From time to time, the Company
evaluates such potential acquisitions; however, the Company has no present
understandings, commitments or agreements with respect to any material
acquisitions. Pending use of the net proceeds for the above purposes, the
Company intends to invest such funds in short-term and medium-term,
interest-bearing, investment-grade obligations. The Company will not receive any
of the proceeds from the sale of shares of Common Stock by the Selling
Stockholders.

DIVIDENDS

In connection with the consummation of the Offering, the Company will
declare a dividend on the Series A Preferred equal to the accrued dividends
thereon to the date of the closing of the Offering. The Company and the holders
of the Series A Preferred have agreed that the accrued dividends on the Series A
Preferred through March 31, 1996, aggregating approximately $20.5 million, will
be paid by the issuance of Common Stock valued at a per share price equal to the
initial per share offering price to the public in the Offering less underwriting
discounts and commissions. Dividends on the Series A Preferred from April 1,
1996 to the closing of the Offering, aggregating approximately $1.7 million,
will be paid in cash. The principal amount of the Series A Preferred will be
redeemed at the closing of the Offering at its liquidation preference of $10.00
per share. See "Use of Proceeds." In addition, the Company will declare a
dividend on the Series C Preferred equal to the accrued dividends thereon to the
date of the closing of the Offering. At the closing of the Offering, all
outstanding shares of Series C Preferred (based upon a liquidation preference of
$10.00 per share) and accrued dividends thereon, aggregating approximately $9.8
million, through March 31, 1996 will be converted into Common Stock at a price
equal to 80% of the initial per share offering price to the public in the
Offering. Dividends on the Series C Preferred from April 1, 1996 to the closing
of the Offering, aggregating approximately $0.8 million, will be paid in cash.
The Company has never declared a dividend and, except as noted above, will not
declare a dividend on its capital stock prior to the consummation of the
Offering.

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

12
<PAGE>
CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of March 31, 1996, and as adjusted to reflect (i) the redemption of the Series A
Preferred with a portion of the net proceeds of the Offering, (ii) the
declaration of accrued dividends on the Series A Preferred and the payment of
those dividends as described under "Dividends," (iii) the conversion of all the
outstanding shares of the Series C Preferred and a portion of the accrued
dividends thereon into Common Stock as described under "Dividends," (iv) the
change in the number of authorized shares of Common Stock and Preferred Stock to
be effective upon consummation of the Offering and (v) the sale by the Company
of the shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom.

<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------
PRO FORMA
AS
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt............................................................................ $ 147,401 $ 140,029
---------- ----------
Shareholders' equity:
Preferred Stock, 7,100,000 shares authorized Actual, 5,000,000 shares authorized As
Adjusted;
Series A Cumulative Senior Preferred Stock, 5,100,000 shares authorized, 4,474,706
shares outstanding Actual, none authorized or outstanding As Adjusted................ 44,747 --
Series C Cumulative Convertible Preferred Stock, 2,000,000 shares authorized,
2,000,000 shares outstanding Actual, none authorized or outstanding As Adjusted...... 20,000 --
Common Stock, 5,000,000 shares authorized Actual, 35,000,000 shares authorized As
Adjusted; 4,081,413 shares outstanding Actual, 14,959,741 shares outstanding As
Adjusted(1)............................................................................ 41 150
Additional paid-in capital.............................................................. 27,898 132,756
Retained earnings....................................................................... 35,106 2,258
---------- ----------
Total shareholders' equity.............................................................. 127,792 135,164
---------- ----------
Total capitalization.................................................................. $ 275,193 $ 275,193
---------- ----------
---------- ----------
</TABLE>

- ------------
(1) Excludes 14,282 shares issuable upon the exercise of outstanding stock
options at a weighted average exercise price of $1.83 per share, 598,390
shares subject to options to be granted upon consummation of the Offering
and 337,328 additional shares reserved for issuance under the Company's
Amended and Restated 1995 Eligible Directors' Stock Option Plan, 1996
Employee Stock Option and Award Plan and 1996 Employee Stock Purchase Plan.
See "Management--Directors' Compensation" and
"--Executive Compensation."

13
<PAGE>
DILUTION

The net tangible book value (total tangible assets less total liabilities)
of the Company at March 31, 1996 was approximately $83.1 million, or $7.99 per
share of Common Stock, after giving effect to the declaration and payment of
accrued dividends on the Series A Preferred as described under "Dividends" and
the conversion of the Series C Preferred and a portion of the accrued dividends
thereon as described under "Dividends." After giving effect to the sale by the
Company of the 4,562,900 shares of Common Stock offered hereby (resulting in
estimated net proceeds of $54.6 million), the Company's pro forma net tangible
book value at March 31, 1996 would have been $135.2 million, or $9.04 per share.
This represents an immediate increase in net tangible book value of $1.05 per
share to existing stockholders and an immediate dilution in net tangible book
value of $3.96 per share to new investors purchasing shares in the Offering. The
following table illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Initial public offering price per share...................................... $ 13.00
Net tangible book value per share before the Offering.................... $ 7.99
Increase per share attributable to new investors......................... 1.05
---------
Pro forma net tangible book value per share after the Offering............... 9.04
---------
Dilution per share to new investors.......................................... $ 3.96
---------
---------
</TABLE>

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

<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. 10,396,841 69.5% $ 78,316,000 56.9% $ 7.53
New investors..................................... 4,562,900 30.5 59,317,700 43.1 $ 13.00
------------ ----- -------------- -----
Total........................................... 14,959,741 100.0% $ 137,633,700 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>

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

(1) Sales by the Selling Stockholders in the Offering will cause the number of
shares of Common Stock held by existing stockholders to be reduced to
9,959,741, or 66.6% of the total number of shares to be outstanding after
the Offering (9,522,483 shares, or 62.7%, if the Underwriters'
over-allotment is exercised in full), and will increase the number of shares
of Common Stock held by new investors to 5,000,000, or 33.4% of the total
number of shares to be outstanding after the Offering (5,675,000 shares, or
37.3%, if the Underwriters' option is exercised in full). See "Principal and
Selling Stockholders."

The foregoing computations assume no exercise of outstanding stock options.
There are options outstanding to purchase 14,282 shares of Common Stock at a
weighted average exercise price of $1.83 per share. To the extent these options
are exercised, there will be further dilution to new investors. 598,390 shares
will be subject to options to be granted upon consummation of the Offering at
the initial offering price to the public in the Offering and 337,328 additional
shares are reserved for issuance under the Company's Amended and Restated 1995
Eligible Directors' Stock Option Plan, 1996 Employee Stock Option and Award Plan
and 1996 Employee Stock Purchase Plan. See "Management--Directors' Compensation"
and "Executive Compensation."

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

The following tables include consolidated financial data of the Company as
of December 31, 1991, 1992, 1993, 1994 and 1995 and for the period October 10,
1991 (the date of inception of the Company) to December 31, 1991, and for the
years ended December 31, 1992, 1993, 1994 and 1995 which are derived from the
Company's Consolidated Financial Statements which have been audited by Ernst &
Young LLP, independent auditors. The consolidated financial data of the Company
as of and for the three months ended March 31, 1995 and 1996 are derived from
unaudited consolidated financial statements of the Company, which, in the
opinion of the Company's management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for the unaudited periods. These tables should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Results of operations for the three months ended March
31, 1996 are not necessarily indicative of the results of operations for the
full fiscal year.
<TABLE>
<CAPTION>
OCTOBER 10,
1991
(INCEPTION) THREE MONTHS ENDED
TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------------------------ --------------------
1991(1) 1992(2) 1993 1994 1995 1995 1996
------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ -- $ 26,209 $ 172,830 $ 260,185 $ 293,921 $ 34,733 $ 63,535
Cost of sales................... -- (25,816) (144,395) (215,437) (247,827) (29,269) (51,840)
------------- --------- --------- --------- --------- --------- ---------
Gross margin.................... -- 393 28,435 44,748 46,094 5,464 11,695
Equity in pretax income (loss)
of unconsolidated joint
ventures....................... -- 608 1,096 2,581 1,742 659 (148)
Selling, general and
administrative expenses........ (938) (7,133) (19,521) (29,059) (31,468) (5,970) (8,502)
Interest and other, net......... 92 435 32 388 1,162 371 159
------------- --------- --------- --------- --------- --------- ---------
Pretax income (loss)............ (846) (5,697) 10,042 18,658 17,530 524 3,204
Provision for income taxes...... -- -- (3,966) -- (2,512) -- (1,307)
------------- --------- --------- --------- --------- --------- ---------
Net income (loss)............... $ (846) $ (5,697) $ 6,076 $ 18,658 $ 15,018 $ 524 $ 1,897
------------- --------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- --------- ---------

PRO FORMA DATA:
Pro forma earnings per
share(3)....................... $ 0.69 $ 0.02 $ 0.13
--------- --------- ---------
--------- --------- ---------
Pro forma weighted average
number of shares outstanding
(in thousands)(4).............. 14,955 14,960 14,972
--------- --------- ---------
--------- --------- ---------

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

(FOOTNOTES APPEAR ON NEXT PAGE)

15
<PAGE>

<TABLE>
<CAPTION>
OCTOBER 10,
1991
(INCEPTION) THREE MONTHS ENDED
TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------------------------- --------------------
1991 1992(2) 1993 1994 1995 1995 1996
------------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
UNITS:
Homes closed:
Consolidated.......................... -- 83 604 1,012 1,220 157 303
Unconsolidated(5)..................... -- 52 113 319 154 70 3
------------- ----------- --------- --------- --------- --------- ---------
Total............................... -- 135 717 1,331 1,374 227 306
------------- ----------- --------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- --------- ---------
Net new orders:(6)
Consolidated.......................... -- 57 696 996 1,393 256 491
Unconsolidated(5)..................... -- 10 111 335 104 55 1
------------- ----------- --------- --------- --------- --------- ---------
Total............................... -- 67 807 1,331 1,497 311 492
------------- ----------- --------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- --------- ---------
Backlog (at period end):(7)
Consolidated.......................... -- 73 165 149 322 248 510
Unconsolidated(5)..................... -- 39 37 53 3 38 1
------------- ----------- --------- --------- --------- --------- ---------
Total............................... -- 112 202 202 325 286 511
------------- ----------- --------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- --------- ---------
DOLLARS:
Average price of homes closed:
Consolidated.......................... -- $ 311 $ 258 $ 252 $ 231 $ 217 $ 209
Unconsolidated(5)..................... -- $ 327 $ 296 $ 288 $ 265 $ 286 $ 216
Sales value of backlog (at period
end):(7)...............................
Consolidated.......................... -- $ 21,157 $ 43,681 $ 34,563 $ 59,550 $ 56,800 $ 100,847
Unconsolidated(5)..................... -- 12,654 9,996 15,825 669 10,811 164
------------- ----------- --------- --------- --------- --------- ---------
Total............................... -- $ 33,811 $ 53,677 $ 50,388 $ 60,219 $ 67,611 $ 101,011
------------- ----------- --------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- --------- ---------
</TABLE>

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

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

(3) The pro forma earnings available to holders of Common Stock for purposes of
this calculation is historical pretax income less an assumed provision for
income taxes at an effective rate of 40.8% for each period.

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

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

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

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

RESULTS OF OPERATIONS

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

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

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

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

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

17
<PAGE>
periodic basis, and recorded net realizable value adjustments to specific
projects as considered necessary. As a result, the Company's implementation of
SFAS No. 121 effective January 1, 1996 had no impact on the Company's
consolidated financial position and results of operations.

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

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

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

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

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

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

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

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

18
<PAGE>
three months ended March 31, 1996 and 1995 were 6.4% and 7.4%, respectively. The
selling percentage in the first quarter of 1996 declined from the first quarter
in 1995 due primarily to the increased revenue. General and administrative
expenses as a percentage of revenues for the three months ended March 31, 1996
and 1995 were 7.0% and 9.8%, respectively. The reduction in general and
administrative expenses as a percentage of revenues is largely attributable to
the increased revenues in 1996. In addition, the Company incurred general and
administrative expenses in the prior period to manage the 70 joint venture
closings which were not included in revenues.

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

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

FISCAL 1995 COMPARED TO FISCAL 1994

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

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

Joint ventures reported combined housing revenues of $40.8 million on 154
homes closed for 1995, compared to $92.6 million on 319 homes closed in 1994.
Equity in pretax income of unconsolidated joint ventures was $1.7 million for
1995 compared to $2.6 million in 1994. This decrease can be largely attributable
to a lower number of joint venture closings and a $0.8 million loss recognized
principally on a joint venture land sale to an outside party. Partially
offsetting this decrease was a $0.9 million increase from the completion of a
joint venture project, however, this increase is a non-recurring event and is
not indicative of future profits upon the completion of joint venture projects.
The Company's management expects joint venture closings to continue to decline
significantly in 1996.

19
<PAGE>
Selling, general and administrative expenses as a percentage of revenues
decreased to 10.7% for 1995 from 11.2% in 1994. Selling expenses as a percentage
of revenues for 1995 and 1994 were 5.7% and 4.8%, respectively. The increase in
selling expense as a percent of revenues is principally attributable to
increased sales commissions and advertising costs required to stimulate housing
sales. General and administrative expenses as a percentage of revenues for 1995
and 1994 were 5.0% and 6.4%, respectively. General and administrative expenses
as a percent of revenues decreased primarily due to a decrease in incentive
compensation expense which is based on operating results.

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

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

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

FISCAL 1994 COMPARED TO FISCAL 1993

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

Gross margin, excluding land sales, as a percent of housing revenues
remained relatively constant in 1994 and 1993 at 17.3% and 17.7%, respectively.
Total gross margin was $44.7 million or 17.2% of revenues in 1994 compared to
$28.4 million or 16.5% of revenues in 1993. The lower gross margin as a percent
of revenues in 1993 is attributable to the $9.6 million land sale to a related
joint venture at approximately a break-even margin. Gross margin is net of
reductions in housing inventory to net realizable value of $2.0 million in 1994
and $0.9 million in 1993.

20
<PAGE>
For the years ended December 31, 1994 and 1993, joint ventures reported
combined revenues of $92.6 million on 319 homes closed and $33.4 million on 113
homes closed, respectively. In 1993, activity at two unconsolidated joint
ventures, which were purchased as part of the AM Operations, slowed
significantly and increased marketing costs and sales incentives reduced their
contribution to equity in pretax income of unconsolidated joint ventures. The
Company recorded equity in pretax income of unconsolidated joint ventures of
$2.6 million in 1994 compared to $1.1 million in 1993.

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

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

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

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

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

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

BACKLOG

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

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

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

SELECTED UNAUDITED QUARTERLY OPERATING DATA

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

23
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1994 1994 1995 1995 1995 1995
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 46,186 $ 59,696 $ 73,869 $ 80,434 $ 34,733 $ 62,283 $ 77,595 $ 119,310
Cost of sales........... (38,932) (49,786) (59,919) (66,800) (29,269) (54,087) (65,060) (99,411)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin............ 7,254 9,910 13,950 13,634 5,464 8,196 12,535 19,899
Equity in pretax income
(loss) of
unconsolidated joint
ventures............... 174 556 1,194 657 659 1,349 (189) (77)
Selling, general and
administrative
expenses............... (5,801) (6,551) (7,644) (9,063) (5,970) (7,164) (8,438) (9,896)
Interest and other,
net.................... 243 235 (152) 62 371 334 292 165
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Pretax income........... 1,870 4,150 7,348 5,290 524 2,715 4,200 10,091
Income tax benefit
(provision)............ (767) (1,340) 2,107 -- -- 3,204 (1,680) (4,036)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. $ 1,103 $ 2,810 $ 9,455 $ 5,290 $ 524 $ 5,919 $ 2,520 $ 6,055
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin as a
percent of revenues.... 15.7% 16.6% 18.9% 17.0% 15.7% 13.2% 16.2% 16.7%
Selling, general and
administrative expenses
as a percent of
revenues............... 12.6% 11.0% 10.3% 11.3% 17.2% 11.5% 10.9% 8.3%
OPERATING DATA:(1)
Homes closed (units).... 211 295 400 425 227 323 322 502
Average price of homes
closed................. $ 256 $ 265 $ 269 $ 251 $ 238 $ 220 $ 234 $ 243
Net new orders
(units)................ 351 437 309 234 311 380 383 423
Backlog (at period end)
(units)................ 342 484 393 202 286 343 404 325
Sales value of backlog
(at period end)........ $ 91,425 $ 130,322 $ 100,849 $ 50,388 $ 67,611 $ 84,997 $ 105,918 $ 60,219

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

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

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

(1) Includes consolidated and unconsolidated projects.

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

INTEREST RATES AND INFLATION

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

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

24
<PAGE>
BUSINESS

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

BUSINESS STRATEGY

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

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

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

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

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

25
<PAGE>
related to overall Company strategy, project acquisition, financing and
disbursements are centralized at the corporate level. The Company's senior
operating and financial management is very experienced with the 13 most senior
managers averaging 22 years of experience in the homebuilding industry.

THE CALIFORNIA ECONOMY AND HOUSING MARKETS

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

HOUSING TRENDS

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

CALIFORNIA SINGLE FAMILY vs. U.S. SINGLE FAMILY HOUSING STARTS
(1969-1995)

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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

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

Since peaking in early 1991, median single family home sales prices have
fallen dramatically. The price of a median single family home declined to
$176,150 in March 1996. As home sales prices and mortgage rates declined, the
percentage of California households able to afford a median-priced single family
home has increased from a low of 14% in May of 1989 to 41% in March 1996.

26
<PAGE>
CALIFORNIA AFFORDABILITY INDEX BASED ON MEDIAN HOME PRICE

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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

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

EMPLOYMENT TRENDS

The rate of nonfarm employment growth in California turned negative in
December 1990 and showed a negative trend through 1993. In 1994, nonfarm
employment growth turned positive for the first time in over three years. Since
1991, Northern California only experienced one year of negative employment
growth, 1992. In contrast, Southern California's rate of nonfarm employment
growth was negative for the years 1991 through 1993 and only mildly positive in
1994. Over the twelve months ended March 1996, the California Employment
Development Department estimated that California nonfarm employment increased by
2.4%, or 296,000 jobs, significantly outpacing the 1.7% gain nationwide. During
that period, all of California's metropolitan statistical areas posted job
gains. Additionally, the California Department of Finance in January 1996
projected a 2.5% increase in nonfarm employment in 1996 and a 2.3% increase in
1997.

27
<PAGE>
YEAR-0VER-YEAR NONFARM EMPLOYMENT GROWTH (1920-1995)

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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

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

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

MARKETS AND PRODUCTS

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

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

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

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

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

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

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

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

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

LAND ACQUISITION AND DEVELOPMENT

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

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

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

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

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

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

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

SALES AND MARKETING

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

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

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

CONSTRUCTION

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

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

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

CUSTOMER SERVICE AND QUALITY MANAGEMENT

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

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

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

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

MORTGAGE BROKERAGE OPERATIONS

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

INFORMATION SYSTEMS

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

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

COMPETITION

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

REGULATORY AND ENVIRONMENTAL MATTERS

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

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

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

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

EMPLOYEES

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

PROPERTIES

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

LEGAL PROCEEDINGS

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

33
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

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

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

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

(1) Member of the Executive Management Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TERM OF OFFICE OF DIRECTORS AND OFFICERS

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

DIRECTORS COMPENSATION

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

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

36
<PAGE>
Plan provides that upon becoming an Eligible Director, the director will receive
an option to purchase 5,000 shares of Common Stock and that annually thereafter
the Eligible Director will receive an option to purchase an additional 1,000
shares of Common Stock, in each case at an exercise price equal to the market
price of the Common Stock on the date of grant. The Board of Directors has
authorized 75,000 shares of Common Stock for issuance under the Director Plan.
Stock options granted under the Director Plan will expire five years after the
date of grant. If a person's service as a member of the Board of Directors
terminates, any unexercisable portion of the option shall terminate and the
option will terminate six months after the date of termination or the earlier
expiration of the option by its terms. Options generally vest over a three-year
period. Upon a Change in Control Event (as defined in the Director Plan), the
options will become fully exercisable. "Eligible Director" means a member of the
Board of Directors of the Company who as of the applicable date of grant is not
(i) an officer or employee of the Company or any subsidiary, or (ii) a person to
whom equity securities of the Company or an affiliate have been granted or
awarded within the prior year under or pursuant to any other plan of the Company
or an affiliate that provides for the grant or award of equity securities, or
(iii) an affiliate, associate or employee of either Warburg or Jennings Holdings
(USA). The Director Plan also provides that the Board of Directors may authorize
discretionary grants of options to Eligible Directors after recent changes to
Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act") become applicable to the Company. On August 3, 1995, stock options with
respect to 14,282 shares were granted to David Kaplan pursuant to the Director
Plan. These stock options are first exercisable on August 3, 1996 and expire
August 2, 2000.

COMMITTEES OF THE BOARD OF DIRECTORS

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

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

37
<PAGE>
EXECUTIVE COMPENSATION

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

SUMMARY COMPENSATION TABLE (1)

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

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

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

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

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

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

(FOOTNOTES CONTINUE ON NEXT PAGE)

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

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

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

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

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

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

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

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

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

INCENTIVE COMPENSATION PLAN

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

STOCK OPTION PLAN

Prior to the closing of the Offering, the Company and its stockholders will
adopt the Company's 1996 Stock Option and Award Plan (the "Plan"). The Plan
provides a means to attract, motivate, retain and reward key employees of the
Company and its subsidiaries and promote the success of the Company. A maximum
of 825,000 shares of Common Stock (subject to certain anti-dilutive adjustments)
may be issued pursuant to grants and awards under the Plan. The maximum number
of shares that may be subject to all qualifying share-based awards, either
individually or in the aggregate, that during any calendar year are granted
under the Plan to any participant will not exceed 185,000 (subject to certain
anti-dilutive adjustments).

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

40
<PAGE>
TRANSFERABILITY. Generally speaking, Awards under the Plan are not
transferable other than by will or the laws of descent and distribution, are
exercisable only by the participant, and may be paid only to the participant or
the participant's beneficiary or representatives. However, the Compensation
Committee may establish conditions and procedures under which exercise by and
transfers and payments to certain third parties are permitted, to the extent
permitted by law.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

INITIAL GRANTS OF OPTIONS. The Company will grant certain options under the
Plan at the consummation of the Offering. The options will include options to
purchase 180,714 shares and 118,481 shares of Common Stock to be granted to Jack
R. Harter, Chairman, President and Chief Executive Officer, and Antonio B. Mon,
Vice Chairman and Chief Financial Officer, respectively. These options will have
a term of ten years, will vest in full six months after issuance and will remain
exercisable for the entire ten-year term, except in the case of termination for
cause, in which event the options will terminate immediately, or upon the
employee's resignation prior to June 30, 1997 for reasons other than "good
reason" (as defined), in which event one-half of the options will terminate one
year after such resignation. Options to purchase an aggregate of 299,195
additional shares are anticipated to be granted to other executive officers of
the Company, including Messrs. Delva, Baker and Cullumber. These options are
anticipated to have a term of ten years and to vest in equal annual installments
over three years. All these options will have an exercise price equal to the
initial price to the public in the Offering.

1996 EMPLOYEE STOCK PURCHASE PLAN

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

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

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

43
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

CERTAIN TRANSACTIONS

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

PRINCIPAL AND SELLING STOCKHOLDERS

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

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------- NUMBER OF ---------------------
NUMBER OF SHARES BEING NUMBER OF
NAME SHARES PERCENT OFFERED SHARES PERCENT
- ---------------------------------------------------- ---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Investors, L.P. (1)
466 Lexington Avenue
New York, New York 10017........................... 8,411,854 80.9% -- 8,411,854 56.2%
Home Capital Pty. Ltd. and Affiliates (2)
c/o Mr. Mark A. Korda
Arthur Andersen & Co.
The Tower, Melbourne Central
360 Elizabeth Street, Melbourne 3000
GPO Box 5151AA Melbourne 3001...................... 874,358 8.4% 437,100 437,258(3) 2.9%
Jack R. Harter and Antonio B. Mon, as Trustees under
Voting Trust Agreement (4)
c/o Pacific Greystone Corporation
6767 Forest Lawn Drive
Los Angeles, CA 90068.............................. 1,110,629 10.7% -- -- --
Jack R. Harter (5).................................. 365,853(6) 3.5% -- 365,853 2.4%
Antonio B. Mon (7).................................. 230,576(6) 2.2% -- 230,576 1.5%
Steven G. Delva..................................... 31,438(8) * -- 31,438 *
Richard D. Baker.................................... 36,009(8) * -- 36,009 *
Denis G. Cullumber.................................. 39,052(8) * -- 39,052 *
Sidney Lapidus (1).................................. -- -- -- -- --
</TABLE>

- ------------
* Less than one percent
(TABLE CONTINUES ON NEXT PAGE)

44
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------- NUMBER OF ---------------------
NUMBER OF SHARES BEING NUMBER OF
NAME SHARES PERCENT OFFERED SHARES PERCENT
- ---------------------------------------------------- ---------- --------- ------------ ---------- ---------
Reuben S. Leibowitz (1)............................. -- -- -- -- --
<S> <C> <C> <C> <C> <C>
John D. Santoleri (1)............................... -- -- -- -- --
David Kaplan........................................ -- -- -- -- --
All directors and executive officers as a group (17
persons) (9)....................................... 850,831(8) 8.2% -- 850,831 5.7%
</TABLE>

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

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

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

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

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

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

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

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

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

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

45
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon the completion of the Offering, the authorized capital stock of the
Company will consist of 35,000,000 shares of Common Stock and 5,000,000 shares
of undesignated Preferred Stock after giving effect to the redemption of the
Series A Preferred and the payment of the accrued dividends thereon and the
conversion of the Series C Preferred and a portion of the accrued dividends
thereon into Common Stock, which will occur upon the consummation of the
Offering.

COMMON STOCK

As of March 31, 1996, there were 10,396,841 shares of Common Stock
outstanding (as adjusted to reflect the issuance of Common Stock in payment of a
portion of the accrued dividends on the Series A Preferred and the conversion of
the outstanding Series C Preferred and a portion of the accrued dividends
thereon into Common Stock as described under "Dividends"), held of record by six
stockholders, and stock options to purchase an aggregate of 14,282 shares of
Common Stock were also outstanding.

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

PREFERRED STOCK

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

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

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

SHAREHOLDERS' AGREEMENT AND REGISTRATION RIGHTS

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

46
<PAGE>
Subsequent to this Offering, the provisions of the Shareholders' Agreement
with respect to a right of first refusal under certain circumstances in favor of
the Company with respect to the Common Stock held by Jennings and certain
registration rights of the parties to the Shareholders' Agreement will continue.
After consummation of this Offering, the parties to the Shareholders' Agreement
will hold 9,959,741 shares of Common Stock (assuming the payment of the accrued
dividends on the Series A Preferred and the conversion of the Series C Preferred
and a portion of the accrued dividends thereon as described under "Dividends").
If the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of other securityholders
(including for the account of Warburg as discussed below), the parties to the
Shareholders' Agreement are entitled to include their shares of Common Stock in
the registration statement, subject to certain conditions and limitations. This
right to include shares of Common Stock will not apply to registration
statements of the Company relating to certain stock option, purchase or
incentive plans, any dividend reinvestment plan, or certain merger or exchange
transactions. In addition, Warburg has the right at any time subsequent to the
consummation of the Offering, to require the Company to register its shares of
Common Stock under the Securities Act. Warburg is entitled to three (3) such
requested registrations. The right of Warburg to sell securities immediately
after the Offering is subject to the lock-up agreement restricting sale for 180
days after the date of this Prospectus. See "Shares Eligible For Future Sale"
and "Underwriting."

TRANSFER AGENT OR REGISTRAR

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

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have 14,959,741 shares of
Common Stock outstanding (assuming no exercise of any outstanding options and
the payment of the accrued dividends on the Series A Preferred and the
conversion of the Series C Preferred and a portion of the accrued dividends
thereon as described under "Dividends"). The 5,000,000 shares sold in this
Offering (5,675,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction under the
Securities Act, except for shares held by an "affiliate" of the Company, as such
term is defined under Rule 144 of the Securities Act. The remaining 9,959,741
shares (the "Restricted Shares") were issued and sold by the Company in private
transactions and may be publicly sold only if registered under the Securities
Act or sold in accordance with an applicable exemption from registration, such
as Rule 144.

All of the shares of Common Stock held by existing stockholders are subject
to lock-up agreements (as described below) which restrict their sale prior to
180 days from the date of this Prospectus. A total of approximately 9,959,741
shares subject to these lock-up agreements will become eligible for sale
beginning 180 days from the date of this Prospectus, or earlier in the
discretion of Smith Barney Inc., upon expiration of these agreements, of which
9,522,483 shares may be sold in accordance with Rule 144 and 437,258 shares held
by Jennings may be sold without restriction in reliance on Rule 144(k). Jennings
has agreed with the Company that if all or any part of the 437,258 shares held
by it are not purchased pursuant to the Underwriters' over-allotment option (the
"Jennings Remaining Shares"), for a period of 180 days after the end of the
180-day lock-up period, Jennings will not offer, sell, contract to sell or
otherwise dispose of more than one-half of the Jennings Remaining Shares in any
90-day period.

In general, under Rule 144 as currently in effect, after this Offering (but
subject to the lock-up agreements described below), a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares as to which
two years have elapsed between the later of the date of acquisition of the
securities from the Company or from an affiliate of the Company, is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of 1% of the then-outstanding number of shares of Common Stock (149,597
shares immediately after this Offering) or the average weekly trading volume of
the Common Stock on The New York Stock Exchange during the four calendar weeks
preceding the sale. Sales under Rule 144 are subject to certain "manner of sale"
provisions and notice requirements and to the availability of current public
information about the Company. Rule 144(k) provides that a person who is not
deemed to have been an "affiliate" during the 90 days preceding a sale, and who
beneficially owns Restricted

47
<PAGE>
Shares as to which three years have elapsed since the later of the date of
acquisition of the security from the Company or from an affiliate of the
Company, is entitled to sell the shares under Rule 144 without regard to the
limitations described above. The Securities and Exchange Commission has proposed
to reduce the Rule 144 holding periods. If enacted, these modifications will
have a material effect on the timing of when shares of the Common Stock become
eligible for resale.

Holders of 9,959,741 shares of Common Stock after the Offering will also be
entitled to certain registration rights with respect to shares of Common Stock.
See "Description of Capital Stock--Shareholders' Agreement and Registration
Rights."

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

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

48
<PAGE>
UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------- -----------
<S> <C>
Smith Barney Inc............................. 1,077,000
Morgan Stanley & Co. Incorporated............ 1,076,500
Robertson, Stephens & Company LLC............ 1,076,500
Bear, Stearns & Co. Inc. .................... 90,000
Alex. Brown & Sons Incorporated.............. 90,000
CS First Boston Corporation.................. 90,000
Crowell, Weedon & Co. ....................... 60,000
Dillon, Read & Co. Inc. ..................... 90,000
A.G. Edwards & Sons, Inc. ................... 90,000
EVEREN Securities, Inc. ..................... 60,000
Furman Selz LLC.............................. 60,000
Goldman, Sachs & Co. ........................ 90,000
Hanifen, Imhoff Inc. ........................ 60,000
Janney Montgomery Scott Inc. ................ 60,000

<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------- -----------
<S> <C>
Lehman Brothers Inc. ........................ 90,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................... 90,000
Montgomery Securities........................ 90,000
Oppenheimer & Co., Inc. ..................... 90,000
PaineWebber Incorporated..................... 90,000
Prudential Securities Incorporated........... 90,000
Ragen MacKenzie Incorporated................. 60,000
Salomon Brothers Inc......................... 90,000
The Seidler Companies Incorporated........... 60,000
SouthCoast Capital Corporation............... 60,000
Southeast Research Partners, Inc. ........... 60,000
Wedbush Morgan Securities.................... 60,000
-----------
Total.................................... 5,000,000
-----------
-----------
</TABLE>

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

The Underwriters, for whom Smith Barney Inc., Morgan Stanley & Co.
Incorporated and Robertson, Stephens & Company LLC are acting as
Representatives, propose to offer part of the shares directly to the public at
the public offering price set forth on the cover page of this Prospectus and
part of the shares to certain dealers at a price that represents a concession
not in excess of $.53 per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $.10 per share to certain other dealers. After the Offering, the public
offering price and such concessions may be changed by the Underwriters. The
Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm any shares to any accounts over which they
exercise discretionary authority.

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

49
<PAGE>
Inc., offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock of the Company or any securities convertible into, or exercisable or
exchangeable for, any class of Common Stock of the Company, other than by the
Company pursuant to its existing employee benefit plans.

Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in this Offering has been determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for growth
of the Company's revenues and earnings, the current state of the economy in the
United States and California and the current level of economic activity in the
industry in which the Company competes and in related or comparable industries,
and currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies which are comparable to the
Company.

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

LEGAL MATTERS

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

EXPERTS

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

ADDITIONAL INFORMATION

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

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

50
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Pacific Greystone Corporation

We have audited the accompanying consolidated balance sheets of Pacific
Greystone Corporation as of December 31, 1994 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pacific
Greystone Corporation at December 31, 1994 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Los Angeles, California
January 24, 1996

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

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

See accompanying notes.

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

ASSETS

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

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

See accompanying notes.

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

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

See accompanying notes.

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

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

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

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

See accompanying notes.

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

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

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

2. ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

CASH AND CASH EQUIVALENTS

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

HOUSING INVENTORIES

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

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

INCOME TAXES

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

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

2. ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

RECLASSIFICATIONS

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

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

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

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

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

SUMMARY COMBINED BALANCE SHEETS
ASSETS

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

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

SUMMARY COMBINED STATEMENTS OF INCOME

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

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

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

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

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

5. NOTES PAYABLE
Notes payable consist of the following:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8. PREFERRED STOCK

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

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

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

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

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

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

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

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

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

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

GREYSTONE HOMES, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS
ASSETS

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

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

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

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

GREYSTONE HOMES, INC.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME

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

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

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

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

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

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

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

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

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

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

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

See accompanying notes.

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

ASSETS

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

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

See accompanying notes.

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

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

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

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

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

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

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

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

See accompanying notes.

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

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

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

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

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

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

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

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

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

GREYSTONE HOMES, INC.
SUMMARY CONSOLIDATED BALANCE SHEETS

ASSETS

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

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

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

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

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

GREYSTONE HOMES, INC.
SUMMARY CONSOLIDATED STATEMENTS OF INCOME

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

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

F-21
<PAGE>
MAP OF CALIFORNIA, NEVADA AND ARIZONA

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

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

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

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

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

TABLE OF CONTENTS

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

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

UNTIL JULY 15, 1996 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

5,000,000 SHARES

[LOGO]

PACIFIC GREYSTONE CORPORATION

COMMON STOCK

---------

PROSPECTUS

JUNE 20, 1996

---------

SMITH BARNEY INC.
MORGAN STANLEY & CO.
INCORPORATED

ROBERTSON, STEPHENS & COMPANY

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