<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1997
REGISTRATION NO. 333-34859
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TRAMMELL CROW COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 53121 75-2721454
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
2001 ROSS AVENUE, DALLAS, TEXAS 75201
(214) 863-3000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
GEORGE L. LIPPE
CHIEF EXECUTIVE OFFICER
TRAMMELL CROW COMPANY
2001 ROSS AVENUE
DALLAS, TEXAS 75201
(214) 863-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
DEREK R. MCCLAIN JI HOON HONG
VINSON & ELKINS L.L.P. SHEARMAN & STERLING
2001 ROSS AVENUE 599 LEXINGTON AVENUE
3700 TRAMMELL CROW CENTER NEW YORK, NEW YORK 10022
DALLAS, TEXAS 75201
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
--------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
--------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value.................. $92,000,000 $27,879
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus"), and the other to be used in connection with a concurrent offering
outside the United States and Canada (the "International Prospectus"). The U.S.
Prospectus and the International Prospectus are identical in all respects except
that they contain different front cover pages.
The form of the U.S. Prospectus is included herein and is followed by the
front cover page to be used in the International Prospectus that differs from
the front cover page in the U.S. Prospectus. The front cover page for the
International Prospectus included herein is labeled "Alternative Front Cover
Page for International Prospectus."
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED NOVEMBER , 1997
5,000,000 SHARES
TRAMMELL CROW COMPANY
COMMON STOCK
-----------------
ALL OF THE 5,000,000 SHARES OF COMMON STOCK OFFERED HEREBY (THE "OFFERING") ARE
BEING OFFERED BY TRAMMELL CROW COMPANY (THE "COMPANY" OR "TRAMMELL CROW"). OF
THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY INSIDE THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND SHARES ARE BEING OFFERING OUTSIDE OF THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITING."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK, AND NO ASSURANCE CAN BE GIVEN THAT AN ACTIVE TRADING MARKET FOR
THE COMMON STOCK WILL DEVELOP AFTER THE OFFERING. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE OF
COMMON STOCK WILL BE BETWEEN $14 AND $16. SEE "UNDERWRITING" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE. IN 1991, THE COMPANY'S REAL
ESTATE SERVICES BUSINESS WAS SEPARATED FROM THE COMMERCIAL REAL
ESTATE ASSET BASE OWNED BY THE COMPANY'S PREDECESSOR. THE
COMPANY CONTINUED TO OPERATE THE REAL ESTATE SERVICES
BUSINESS WHILE OWNERSHIP OF THE COMMERCIAL REAL ESTATE
ASSET BASE WAS SEGREGATED INTO A NUMBER OF SEPARATE
ENTITIES DISTINCT FROM THE COMPANY, WITH
INDEPENDENT MANAGEMENT AND OPERATIONS.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO NOTICE OF ISSUANCE, UNDER THE SYMBOL "TCW".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
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.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE................................. $ $ $
TOTAL(3).................................. $ $ $
</TABLE>
- ------------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY,
ESTIMATED AT $2,700,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
750,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC, LESS
UNDERWRITING DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION IN
FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS,
AND PROCEEDS TO THE COMPANY WILL BE $ , $ AND
$ , RESPECTIVELY. SEE "UNDERWRITING."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY SHEARMAN & STERLING, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT THE
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1997 AT THE OFFICES
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
---------------------
MORGAN STANLEY DEAN WITTER
BT ALEXQ BROWN
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS
, 1997.
<PAGE>
The artwork on the inside front cover of the gatefold is a landscape-format,
two-page, tan, gray, blue, black, and white-colored depiction of: (a) a map of
the continental United States and the southern portion of Canada, three small
inset maps (labeled "TRAMMELL CROW INTERNATIONAL LOCATIONS") of Asia, South
America and Europe, logos of some of the Company's major clients, and a small
black inset box with the following text in white block lettering: "Trammell Crow
Company Locations-- Trammell Crow International is an entity with which the
Company has a strategic alliance but in which the Company has no ownership
interest" (in the upper four-fifths); and (b) a boxed, black, white and
blue-colored listing of the cities and states of the Company's North American
locations (in the lower one-fifth).
Scattered across the map of the continental U.S. are triangles which
correspond to the cities in the boxed listing described above. Within the inset
maps of Asia, South America and Europe, respectively, the countries of Japan and
Hong Kong; Brazil and Chile; and Hungary, Belgium, Germany and the Netherlands,
are identified by name. State/country names are presented in blue capital
letters; city names are presented in white large and small letters. The states
and cities listed are: Arkansas (Little Rock); Arizona (Phoenix, Scottsdale,
Tucson); California (City of Industry, Commerce, Foster City, Irvine, Los
Angeles, Northridge, Ontario, Pasadena, San Diego, San Francisco, San Juan
Capistrano, Santa Monica, Tustin); Canada (Calgary, Markham, Toronto); Colorado
(Boulder, Colorado Springs, Denver); Connecticut (Bloomfield, Hartford, New
Haven, Stamford); Delaware (Wilmington); District of Columbia (Washington);
Florida (Boca Raton, Coral Gables, Fort Lauderdale, Miami, Orlando, Pompano
Beach, Tampa); Georgia (Atlanta); Iowa (Des Moines); Idaho (Boise); Illinois
(Barrington, Chicago, Deerfield, Des Plaines, Itasca, McGaw Park, Mundelein,
Naperville, Northbrook, Oak Brook, Round Lake, Skokie, Waukegan); Indiana
(Indianapolis, South Bend); Kansas (Dodge City, Kansas City, Topeka, Wichita);
Kentucky (Louisville); Louisiana (Baton Rouge, Lafayette, Lake Charles, Monroe,
New Orleans, Shreveport); Maine (Portland); Maryland (Baltimore, Columbia,
Rockville); Massachusetts (Boston, Waltham); Michigan (Southfield, Ann Arbor);
Minnesota (Eden Prairie, Edina, Golden Valley, Minneapolis, Minnetonka);
Missouri (St. Louis, Springfield); Nevada (Reno); New Jersey (Bridgeport,
Carlstadt, Cherry Hill, Edison, Park Ridge, Parsippany, Short Hills, Toms
River); New Mexico (Albuquerque, Santa Fe); New York (Albany, Buffalo, Kingston,
Lake Grove, Long Island, Montgomery, Newburgh, Rochester, Syracuse, Utica,
Webster); North Carolina (Asheville, Charlotte, Raleigh, Wilmington,
Winston-Salem); Ohio (Cincinnati, Cleveland, Columbus, Cuyahoga Falls, Dayton,
Toledo); Oklahoma (Oklahoma City, Tulsa); Oregon (Portland); Pennsylvania (Bala
Cynwyd, Conshohocken, Exton, Philadelphia, Pittsburgh, Reading, Wayne,
Wyomissing); Rhode Island (Providence); South Carolina (Charleston, Columbia,
Greenville); Tennessee (Brentwood, Chattanooga, Cordova, Memphis, Nashville);
Texas (Arlington, Austin, Carrollton, Dallas, El Paso, Farmers Branch, Fort
Worth, Grand Prairie, Houston, Hurst, Irving, Plano, Richardson, San Antonio);
Utah (Salt Lake City); Vermont (Burlington); Virginia (Alexandria, Arlington,
Chantilly, Fairfax, Reston, Richmond, Virginia Beach); Washington (Bellevue,
Seattle, Tacoma); and Wisconsin (Milwaukee).
Logos and names of some of the Company's major clients fill the areas
between the maps; identified logos and names are as follows: the Principal
Financial Group, AEW, Fleet, AMB, HOMEPLACE, UNITEDhealthcare, KeyCorp, ARCHON
Group, MOBIL, Allegis, Baxter, Travelers Property Casualty, EXXON, Sovereign
Bank, Bank1One, Microsoft, OfficeMax, CIGNA Investment Management, NationsBank,
Kennedy Associates Real Estate Counsel, Inc., IBM and Allegiance.
The following asterisk note appears in black block lettering near the lower
lefthand corner of the area around the map of the U.S.: "The logos are the
official trademarks of these companies and are issued and used with their
permission."
The artwork on the outside cover of the gatefold is a portrait-format, blue
and black-colored depiction of the North American portion of the northern
hemisphere (in the bottom-most two-thirds of the representation) overlaid, in
part, with five portrait-format boxes presenting summary information about the
areas of service offered by Trammel Crow Company, and (in the uppermost
one-third of the representation) the following text is presented in a
gray-colored landscape-formatted, box: "Trammel Crow Company is one of the
largest diversified commercial real estate service companies in the United
States. Through the Company's 140 offices in the U.S. and Canada and its
relationship with Trammel Crow International, the Company is organized to
deliver a comprehensive range of services on a worldwide basis. Its clients
include leading multinational corporations, institutional investors and other
users of real estate services." Partially overlapping the central part of the
bottom line of this box is the Company's logo: "Trammell Crow Company" which is
presented in white lettering inside a black box that is outlined in blue and
gray.
The text of the summary information about the areas of service offered by
Trammel Crow Company listed in the five boxes is as follows: (1) Property
Management Services (Building Management, Tenant Relations, Tenant Finish,
Financial Management); (2) Brokerage Services (Tenant Representation, Investment
Sales, Listings, Land Sales); (3) Infrastructure Management Services (Strategic
Services, Facility management, Facility Planning and Project Management,
Transaction Services, Office Services); (4) Development and Construction
Services (Project Sourcing, Acquisition and Financial Services; Coordination of
Design and Approvals, Construction Management, Tenant-Finish Coordination,
General Contracting); and (5) Retail Services (Brokerage Services; Development
Services; Acquisition, Rehabilitation and Sale of Undervalued Properties). The
titles within each gray and white-outlined box are printed in blue capital
letters; the items listed within each column are printed in white large and
small letters.
The artwork on the inside back cover of the gatefold is a full-page, blue,
gray, black and white-colored, portrait-formatted photograph of several people,
overlaid with two small boxes of text. Centered one-third of the way from the
top of the page is the Company's logo: "Trammell Crow Company" which is
presented in white lettering inside a black box that is outlined in blue and
gray. Toward the lower right-hand corner of the page is an inset box of gray and
white text on a white background which reads: "Mission Statement To be the
dominant, customer-driven full-service real estate and investment company in the
industry."
------------------------------------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
For investors outside of the United States: No action has been or will be
taken in any jurisdiction by the Company or any Underwriter that would permit a
public offering of the Common Stock or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus comes
are required by the Company and the Underwriters to inform themselves about and
to observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.
------------------------
In this Prospectus references to "dollar" and "$" are to United States
dollars, and the term "United States" or "U.S." means the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 13
The Company.................................... 20
Use of Proceeds................................ 24
Dividend Policy................................ 24
Capitalization................................. 25
Dilution....................................... 26
Selected Consolidated Financial Data........... 27
Pro Forma Consolidated Financial Statements.... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 34
<CAPTION>
PAGE
---------
<S> <C>
Business....................................... 45
Management..................................... 62
Certain Transactions........................... 71
Principal Stockholders......................... 77
Description of Capital Stock................... 78
Shares Eligible for Future Sale................ 83
Certain U.S. Federal Tax Considerations for
Non-U.S. Holders of Common Stock............. 84
Underwriting................................... 86
Legal Matters.................................. 90
Experts........................................ 90
Additional Information......................... 90
Index to Financial Statements.................. F-1
</TABLE>
------------------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF
RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN THIS
PROSPECTUS UNDER THE CAPTIONS "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
PROSPECTIVE INVESTORS IN THE COMMON STOCK SHOULD CAREFULLY CONSIDER THE SPECIFIC
MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 13 AS WELL AS THE OTHER
INFORMATION AND DATA CONTAINED IN THIS PROSPECTUS. THE COMPANY IS A DELAWARE
CORPORATION THAT WAS FORMED IN AUGUST 1997 TO BECOME THE SUCCESSOR TO TRAMMELL
CROW COMPANY, A TEXAS CLOSE CORPORATION (THE "PREDECESSOR COMPANY"). PRIOR TO
THE SALE OF THE SHARES OF COMMON STOCK IN THE OFFERING, A WHOLLY-OWNED
SUBSIDIARY OF THE COMPANY WILL BE MERGED WITH AND INTO THE PREDECESSOR COMPANY
(THE "REINCORPORATION MERGER"), WITH THE PREDECESSOR COMPANY SURVIVING THE
MERGER AS A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY. UNLESS THE CONTEXT OTHERWISE
REQUIRES, ALL REFERENCES TO THE "COMPANY" OR "TRAMMELL CROW" IN THIS PROSPECTUS
ARE TO THE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES AS THEY WILL BE CONSTITUTED
IMMEDIATELY FOLLOWING THE REINCORPORATION MERGER AND CERTAIN OTHER TRANSACTIONS
EFFECTED SIMULTANEOUSLY WITH THE REINCORPORATION MERGER (COLLECTIVELY, THE
"REINCORPORATION TRANSACTIONS"). SEE "THE COMPANY--REINCORPORATION
TRANSACTIONS." ALL REFERENCES TO "EBITDA, AS ADJUSTED" IN THIS PROSPECTUS ARE TO
EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION AND AMORTIZATION, ROYALTY
AND CONSULTING FEES AND PROFIT SHARING. MANAGEMENT BELIEVES THAT EBITDA, AS
ADJUSTED, CAN BE A MEANINGFUL MEASURE OF THE COMPANY'S OPERATING PERFORMANCE,
CASH GENERATION AND ABILITY TO SERVICE DEBT. HOWEVER, EBITDA, AS ADJUSTED,
SHOULD NOT BE CONSIDERED AS AN ALTERNATIVE TO: (I) NET EARNINGS (DETERMINED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")); (II)
OPERATING CASH FLOW (DETERMINED IN ACCORDANCE WITH GAAP); OR (III) LIQUIDITY.
THERE CAN BE NO ASSURANCE THAT THE COMPANY'S CALCULATION OF EBITDA, AS ADJUSTED,
IS COMPARABLE TO SIMILARLY TITLED ITEMS REPORTED BY OTHER COMPANIES. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES (i) THAT THE
OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS IS NOT EXERCISED AND (ii) AN
INITIAL PUBLIC OFFERING PRICE OF $15.00 PER SHARE (WHICH REPRESENTS THE MIDPOINT
OF THE RANGE ON THE COVER PAGE OF THIS PROSPECTUS).
THE COMPANY
COMPANY OVERVIEW
Trammell Crow Company is one of the largest diversified commercial real
estate services companies in the United States. Through the Company's 140
offices in the United States and Canada, the Company is organized to deliver a
comprehensive range of service offerings to clients which include leading
multinational corporations, institutional investors and other users of real
estate services. In addition, the Company has a strategic alliance with Trammell
Crow International, which has nine offices in Europe, Asia and South America.
The Company has established itself as a market leader in each of its primary
businesses. The Company is the largest commercial property manager in the United
States and has held that position for the past eight years. In 1995 the Company
was one of the top five brokerage firms in the United States, measured in terms
of the number of transactions facilitated, and was the largest provider of
facilities management services (the Company's primary infrastructure management
product), measured in terms of square feet of property managed. In 1996 the
Company was also the fourth largest commercial property developer in the United
States, measured in terms of square feet under construction. The Company, which
is headquartered in Dallas, Texas, was founded in 1948 by Mr. Trammell Crow.
From its founding through the 1980's, the Company's primary business was the
development and management of industrial, office and retail projects. In 1991
the Company was reconstituted as a real estate services company. This
reconstitution entailed the separation of the Company's commercial real estate
asset base and related operations from its real estate services business. The
Company continued to operate the real estate services business while ownership
of the commercial real estate asset base was segregated into a large number of
separate entities distinct from the Company, with independent management and
operations. Many of these entities
4
<PAGE>
are managed by subsidiaries of Crow Realty Investors, L.P., which is wholly
owned by certain affiliates and descendants of Mr. Trammell Crow. See "Risk
Factors--Dealings with and Reliance on Affiliates; Potential Conflicts of
Interest." For the year ended December 31, 1996, the Company's total revenues
were $255.5 million, its net income was $12.1 million, and its EBITDA, as
adjusted, was $48.9 million. These results represented increases of 12.4%,
179.1% and 52.7%, respectively, over the prior year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
As a means of addressing the comprehensive real estate service requirements
of its diverse group of clients, the Company is organized into five principal
lines of business. The Company's property management services business provides
services relating to all aspects of building operations, tenant relations and
oversight of building improvement processes, primarily for building owners who
do not occupy the properties managed by the Company. The brokerage services
business advises buyers, sellers, landlords and tenants in connection with the
sale and leasing of office, industrial and retail space and land. Infrastructure
management entails providing comprehensive day-to-day occupancy related
services, principally to large corporations which occupy commercial facilities
in multiple locations. Specific infrastructure management services include
administration, day-to-day maintenance and repair of client occupied facilities
and strategic functions such as space planning, relocation coordination,
facilities management and portfolio management. The development and construction
services provided by the Company include financial planning, site acquisition,
procurement of approvals and permits, design and engineering coordination,
construction bidding and management and tenant finish coordination, project
close-out and user move coordination, general contracting and project finance
advisory services. The Company's retail services business provides tenant
representation, disposition, development and financial services to national and
global retail customers.
On August 22, 1997, the Company acquired the business of Doppelt & Company
("Doppelt"), a Cleveland, Ohio-based company that has specialized in both new
store roll out strategies and problem real estate disposition services. The
Company considers Doppelt to be one of the premier retail tenant representation
and disposition firms in the country. The Company believes that this acquisition
significantly increases the scale and improves the quality of the Company's
existing retail services business, and will provide the basis for future growth
of this important new business. See "The Company--Recent Developments."
COMPETITIVE ADVANTAGES
The Company believes that it holds several important competitive advantages
in the real estate services industry.
COMPREHENSIVE SERVICE OFFERINGS. The Company offers a comprehensive menu of
services designed to provide its clients with single-point solutions to all of
their commercial real estate services needs. The Company believes that its broad
service offerings give it a critical advantage in an industry where many
competitors offer fewer services. By offering a full array of services, the
Company is able to maximize the effect it has on its clients' businesses while
becoming highly integrated into its clients' operations. Further, the Company's
comprehensive service offerings decrease the Company's economic exposure to a
downturn in any one of its primary businesses.
CLIENT FOCUS. The Company is organized to meet all of its clients' real
estate services needs. This orientation has commonly allowed the Company to
commence client relationships by offering a single service and later expand
these relationships through an understanding of the client's business and its
highly specific service requirements. For example, since 1994, 72% of the
Company's twenty-five largest infrastructure management clients (measured in
revenues generated over that period) have expanded the number of services
outsourced to the Company. Moreover, the Company has carefully selected the
criteria--such as industry, geographic location and property type--which it
applies in actively seeking new
5
<PAGE>
client engagements in each of its core businesses, thereby concentrating its
efforts in areas where it can provide maximum value-added services.
GEOGRAPHIC SCOPE. The Company's 140 offices in the United States and Canada
have allowed the Company to develop and maintain extensive knowledge of local
real estate markets across the United States and Canada. Over 87% of the
Company's employees are based in markets other than Dallas, Texas, where the
Company's executive offices are located. In addition, the Company has a
strategic alliance with Trammell Crow International, which has nine offices in
Europe, Asia and South America. The broad geographic scope provided by this
local office network allows the Company to serve as a single-source, full
service provider to multinational corporations and institutional investors with
real estate interests that span regional and national boundaries. The broad
geographic service area covered by the Company also tends to limit its exposure
to an economic downturn in any single market, which provides it with a
competitive advantage over regional firms that operate in a more limited number
of geographic areas.
TECHNOLOGY. The Company is developing extensive technology applications to
better meet customer needs, principally through enhanced sharing of vital market
information and through proprietary applications designed to provide
significantly enhanced control over clients' real estate related expenses. For
example, the Company is developing an intranet resource library ("CrowsNEST")
which uses a database of field resources and related information to aid in
managing clients' real estate assets. With this technology, Company personnel
will be able to connect to CrowsNEST to access information from each of the
Company's 140 offices in the United States and Canada. This information will
include lists of property owners, tenants and vendors and financial information
for each property managed by the Company. In addition, clients may be allowed to
connect to CrowsNEST via modem to access information on industry practices or
standards.
The Company is developing a centralized call center strategy designed to
provide responses to customer needs 24 hours a day. This service will leverage
human assets and technology to deliver required support and coverage to
properties that were previously managed from several distinct service locations.
The Company has also developed the architecture for a proprietary total
occupancy cost management system using applications that are connected and
distributed across the Company's local area and wide area networks. This system
is designed to provide centralized and comprehensive cost studies and analyses
on building portfolios to customers.
MANAGEMENT/PERSONNEL. The Company believes that a key component of its
success is the experience and quality of its management team and the employees
that comprise the network through which the Company serves its clients. The
Company's 18 member operating committee has an average of approximately 13 years
of experience with the Company. Moreover, the Company has experienced very low
turnover among this senior management group. The Company believes this low
turnover is linked to its collegial internal culture and a long-standing effort
to promote talented individuals from within the organization. The Company also
believes that its growth strategy, incentive-based compensation and the high
level of ownership by Company insiders provides further motivation to achieve a
high level of performance. Immediately following the Offering, the members of
the Company's operating committee will own approximately 28.8% of the
outstanding Common Stock, and the total employee ownership of outstanding Common
Stock will be approximately 59.3%. See "Risk Factors--Recruiting and Retention
of Qualified Personnel."
BUSINESS
PROPERTY MANAGEMENT SERVICES
The Company is the largest commercial property manager in the United States
and has held that position for the past eight years (based upon information
contained in NATIONAL REAL ESTATE INVESTOR'S
6
<PAGE>
annual "Top Property Managers Survey"). The Company's property management
service business currently serves approximately 490 clients and 14,000 tenants
nationwide through its locally based property management teams present in 70
markets. The Company managed 210 million square feet of commercial property at
the end of 1996, and its 1996 property management revenues were $90.2 million,
down from $104.1 million in 1992. This decline in revenues over the past five
years has been outpaced by the increase in revenues from the Company's other
primary businesses. In 1992, revenues from property management constituted 59.8%
of the Company's total revenue, but by 1996 they represented just 35.3% of the
Company's total revenues.
BROKERAGE SERVICES
The Company has historically been an active provider of commercial brokerage
services, and in recent years its brokerage business has expanded significantly
from an already substantial base. Over the past five years the Company's
revenues from brokerage services have increased by over 75%, and in 1996
totalled $72.1 million, or 28.2% of the Company's total revenues. In 1995, the
Company was ranked as one of five top brokerage firms nationally by COMMERCIAL
PROPERTY NEWS, measured in terms of the number of transactions facilitated. In
1996, the Company facilitated 7,317 sales and lease transactions. The Company
currently employs 302 brokers, having added 156 brokerage professionals with an
average of approximately nine years of experience since the beginning of 1995.
INFRASTRUCTURE MANAGEMENT SERVICES
Through its wholly-owned subsidiary Trammell Crow Corporate Services, Inc.,
the Company is a leading provider of infrastructure management services to major
corporations in the United States and Canada. According to COMMERCIAL PROPERTY
NEWS, in 1995 the Company was the largest provider of facilities management
services (the Company's primary infrastructure management product) in terms of
square feet of property managed. The Company has established multi-year
relationships with its infrastructure management services clients, often
providing dedicated personnel on-site and integrating its accounting and
management information systems with those of its clients. The Company's
infrastructure management revenues have grown from $7.1 million in 1992 to $50.8
million in 1996, representing 19.9% of the Company's total 1996 revenues. As of
September 30, 1997, the Company served 58 infrastructure management clients
utilizing 900 employees to service approximately 15,000 properties encompassing
over 85 million square feet.
DEVELOPMENT AND CONSTRUCTION SERVICES
Since 1991, the Company has focused its efforts in the commercial real
estate development business on providing development and construction services
to third party build-to-suit customers and investors in office, industrial and
retail projects. While the Company has decreased its economic exposure to the
cyclical nature of the real estate investment markets by shifting to a service
oriented approach, it has retained the capability to implement active and
sizeable development programs, primarily on behalf of its clients, but also for
its own account. Based upon information contained in the NATIONAL REAL ESTATE
INVESTOR'S 1997 Development Survey, in 1996 the Company was the fourth largest
commercial property developer in the United States, measured by square feet
under construction. In 1996, revenues from the Company's development and
construction business were $29.9 million (consisting of $22.7 million in service
revenues, $0.6 million in income from investments in unconsolidated subsidiaries
and $6.6 million in gain on disposition of real estate), representing 11.7% of
the total revenues for the Company. Since 1992, the Company has developed and
redeveloped approximately 33.6 million square feet of projects with aggregate
project costs of approximately $1.8 billion. In 1996, the Company started
approximately 12.4 million square feet of development projects with an estimated
aggregate cost of $626 million.
7
<PAGE>
RETAIL SERVICES
The Company's retail services business focuses on providing comprehensive
real estate services to major retailers and retail real estate owners. In 1996,
the Company formed a subsidiary, Trammell Crow Retail Services, Inc. ("TCRS"),
to consolidate the focus of the Company's retail services management group and
to take better advantage of market growth opportunities. The Company believes
that by providing its full array of real estate services through TCRS, it is
able to better serve its national retail customers (who demand specialized
property and market knowledge) and compete with other service providers whose
sole focus is a retail customer base. In furtherance of its goal to be the
leading national retail real estate company, in August 1997 the Company acquired
the business of Doppelt & Company. Doppelt has been in operation since 1981 and
has specialized in supplementing or, in some cases, replacing the real estate
departments of retail companies by providing tenant representation and lease
disposition services to clients such as OfficeMax, HomePlace, TJX and General
Nutrition Centers. The Company's revenues from retail services in 1996 were $2.4
million, representing 0.9% of the Company's total revenues for 1996. After
giving pro forma effect to the Doppelt Acquisition as of January 1, 1996, the
Company's revenues from its retail service business in 1996 would have been
$11.4 million.
GROWTH STRATEGY
After completion of the Offering, the Company intends to pursue growth
opportunities by capitalizing upon its existing areas of expertise, its
long-standing client relationships and the broad industry trends now affecting
the market. Key elements of its growth strategy are as follows:
EXPAND CLIENT RELATIONSHIPS. Many of the Company's existing clients have
substantial real estate and occupancy costs in numerous locations, and therefore
represent the most immediate opportunity to increase revenues through
cross-selling the services offered by the Company. The Company has made numerous
successful efforts to capitalize on this opportunity, including the
establishment of a national client initiative which targets potential client
engagements based upon a customer profile that considers criteria such as the
industry, geographic location and type of property used by the client. Based on
a review conducted in late 1995, the Company identified 15 existing customers of
significant strategic importance, and has made substantial efforts to expand the
base of business generated from these customers. As a result, the Company has
increased the square feet under management for these clients by 11.3 million
square feet, or 12.9%, to 99.1 million square feet in 1996 from 87.8 million
square feet in 1995. Of the 91 discrete assignments secured from these major
customers in 1996, seventeen were awarded in cities where the Company previously
did not serve the client making the assignment. Through September 30, 1997,
these 15 customers have awarded 115 new business assignments to the Company in
1997.
EXPAND THE BREADTH OF SERVICE OFFERINGS. Since its reconstitution as a real
estate services company in 1991, the Company has continuously sought to expand
and enhance its breadth of service offerings, principally through internal
measures such as the creation of new service businesses. For example, based on
its long-standing position as a premier property management company, the Company
was well positioned to take advantage of the trend toward outsourcing of real
estate services. This led to creation of the Company's infrastructure management
business, which provided 19.9% of the Company's total revenues in 1996, up from
4.1% in 1992.
CO-INVESTMENT. The Company will also focus on expansion of its efforts to
make selective co-investments of capital alongside corporate and institutional
clients. Through this effort, the Company intends to leverage its relationships
with these clients and to use its extensive knowledge of the real estate
industry to create new opportunities to invest capital. The Company believes
that its knowledge of local real estate markets and its experience in each of
its primary service businesses provide it with an advantage in identifying and
evaluating investment opportunities. The Company will seek co-investments that
generate investment returns while still allowing the Company to earn fees in
exchange for services provided in the development, operation and management of
the project. After the Offering, the Company
8
<PAGE>
will have the additional financial flexibility to pursue a controlled and highly
disciplined approach to investment and co-investment.
ACQUISITIONS AND JOINT VENTURES. In addition to pursuing internal growth,
the Company is committed to a strategy of selective acquisitions of
complementary businesses. For example, the Company recently acquired the
business of Doppelt, which the Company considers to be one of the premier
national retail tenant representation firms in the country. Through this
acquisition, the Company has elevated itself to a leadership position in both
the tenant representation and disposition businesses, and anticipates expanding
its presence in these businesses through its recruiting activities at a local
level. The Company continuously surveys the marketplace for other potential
acquisitions which might further enhance the quality or the breadth of services
it can offer clients.
REINCORPORATION TRANSACTIONS
The Company was formed in August, 1997 to convert the legal form in which
the Predecessor Company's business and operations are held from a Texas close
corporation to a Delaware corporation. Immediately prior to the closing of the
Offering, a wholly-owned subsidiary of the Company will be merged with and into
the Predecessor Company, with the Predecessor Company surviving the
Reincorporation Merger. Prior to the consummation of the Reincorporation
Transactions, the Company will have minimal assets and conduct no operations
other than in connection with the Reincorporation Transactions and the Offering.
Following the Reincorporation Merger and other transactions effected
simultaneously with the Reincorporation Merger, the Company will function as a
holding company and its business and operations will be conducted through its
wholly-owned operating subsidiaries. The Company is undertaking these
transactions to facilitate access to capital markets, provide greater
flexibility for acquisitions and create longer-term liquidity for its
stockholders. See "The Company--Reincorporation Transactions."
9
<PAGE>
THE OFFERING
All of the shares of Common Stock offered hereby are being sold by the
Company.
<TABLE>
<S> <C>
Common Stock offered............. 5,000,000 shares
Common Stock to be outstanding
after the Offering............. 33,199,246 shares (1)
Use of Proceeds.................. To repay certain outstanding indebtedness of the
Company, to make certain payments required in connection
with the Reincorporation Transactions, to finance the
Company's investment in certain information and
technology infrastructure systems and for working
capital. See "Use of Proceeds."
Proposed New York Stock Exchange
Symbol......................... TCW
</TABLE>
- ------------------------
(1) Excludes an aggregate of: (i) 2,423,801 shares of Common Stock issuable upon
exercise of options with an exercise price of $3.85 per share granted by the
Predecessor Company pursuant to its 1997 Stock Option Plan (the "Assumed
Option Plan" or the "1997 Option Plan") and assumed by the Company in
connection with the Reincorporation Transactions, all of which will vest
upon the closing of the Offering and become exercisable 30 days thereafter;
(ii) 2,493,610 shares of Common Stock issuable upon exercise of options to
be granted under the Company's 1997 Long-Term Incentive Plan (the "Long-Term
Incentive Plan") as of the Offering, all of which will have an exercise
price equal to the initial public offering price and will vest in equal
increments on each of the first three anniversaries of the date of grant;
and (iii) 2,849,841 shares of Common Stock reserved for future grants or
awards under the Long-Term Incentive Plan. See "Management--Long-Term
Incentive Plan" and
"--Assumed Option Plan."
RISK FACTORS
Prospective investors should consider the factors discussed in detail
elsewhere in this Prospectus under the caption "Risk Factors."
10
<PAGE>
SUMMARY FINANCIAL INFORMATION
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Pro Forma Consolidated Financial Statements" and the historical
financial statements and notes thereto of the Predecessor Company and the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- -------------------------------
1996 PRO 1997 PRO
FORMA AS FORMA AS
1992 1993 1994 1995 1996 ADJUSTED(1) 1996 1997 ADJUSTED(1)
-------- -------- -------- -------- -------- ----------- -------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Property management
services.................... $104,104 $ 90,954 $ 99,609 $ 92,970 $ 90,179 $ 90,179 $ 68,628 $ 69,034 $ 69,034
Brokerage services............ 40,540 47,299 48,652 61,960 72,095 72,095 49,143 61,692 61,692
Infrastructure management
services.................... 7,145 16,401 27,063 38,681 50,836 50,836 33,628 47,954 47,954
Development and construction
services.................... 18,468 14,377 12,792 20,382 22,732 22,732 13,487 23,483 23,483
Retail services............... -- 1,306 1,966 1,510 2,393 11,385 1,171 1,912 6,887
Income from unconsolidated
subsidiaries................ -- 465 3,141 114 594 594 386 1,467 1,467
Gain on disposition of real
estate...................... 2,712 -- 4,646 5,026 6,630 6,630 4,787 1,566 1,566
Other......................... 1,090 3,759 3,039 6,559 9,996 9,937 4,981 6,131 6,036
-------- -------- -------- -------- -------- ----------- -------- -------- -----------
Total revenues................ 174,059 174,561 200,908 227,202 255,455 264,388 176,211 213,239 218,119
Salaries, wages and
benefits.................... 102,258 106,606 115,330 130,248 137,794 141,609 101,041 114,006 116,776
Commissions................... 14,606 15,856 20,788 23,730 27,119 27,119 17,686 25,379 25,379
General and administrative.... 36,506 35,365 35,282 40,671 41,421 43,963 27,473 33,779 35,536
Profit sharing................ 11,086 8,292 16,562 15,893 20,094 692 12,185 15,417 531
Other......................... 4,711 4,255 7,284 8,526 9,087 5,356 5,360 10,057 6,529
-------- -------- -------- -------- -------- ----------- -------- -------- -----------
Operating costs and
expenses.................... 169,167 170,374 195,246 219,068 235,515 218,739 163,745 198,638 184,751
-------- -------- -------- -------- -------- ----------- -------- -------- -----------
Income before income taxes.... 4,892 4,187 5,662 8,134 19,940 45,649 12,466 14,601 33,368
Income taxes.................. 2,513 1,854 2,636 3,793 7,826 17,809 4,824 5,747 13,066
-------- -------- -------- -------- -------- ----------- -------- -------- -----------
Income before extraordinary
gain........................ 2,379 2,333 3,026 4,341 12,114 27,840 7,642 8,854 20,302
Extraordinary gain............ 500 188 782 -- -- -- -- -- --
-------- -------- -------- -------- -------- ----------- -------- -------- -----------
Net income.................... $ 2,879 $ 2,521 $ 3,808 $ 4,341 $ 12,114 $ 27,840 $ 7,642 $ 8,854 $ 20,302
-------- -------- -------- -------- -------- ----------- -------- -------- -----------
-------- -------- -------- -------- -------- ----------- -------- -------- -----------
Pro forma as adjusted earnings
per share (2)............... $ 1.13 $ 0.62
----------- -----------
----------- -----------
OTHER DATA:
EBITDA(3), as adjusted........ $ 21,112 $ 16,969 $ 29,686 $ 32,033 $ 48,915 $ 51,491 $ 30,385 $ 39,795 $ 40,148
Cash provided by (used in)
operating activities........ (6,342) 7,556 15,907 10,648 25,148 35,153 668 (10,200) 3,466
Cash provided by (used in)
investing activities........ 2,499 (1,974) (2,748) (646) (5,019) (5,033) (2,802) (25,806) (25,892)
Cash provided by (used in)
financing activities........ (6,699) (4,412) 93 (5,457) (1,779) 25,454 (1,480) 14,961 14,550
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------
DECEMBER 31, PRO FORMA
------------------------------------------------ AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(4)
-------- -------- -------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 21,188 $ 22,358 $ 35,610 $ 40,155 $ 58,505 $ 37,460 $ 58,113
Total assets.................. 53,162 55,774 99,867 114,315 194,314 203,613 223,908
Long-term debt................ 10,851 8,425 9,762 7,065 12,361 11,463 2,747
Notes payable on real estate
held for sale............... -- -- 22,914 13,182 67,810 51,884 51,884
Deferred compensation......... 10,450 14,661 21,468 25,883 20,963 26,806 21,499
Total liabilities............. 40,818 43,767 85,516 95,090 160,018 167,212 127,069
Minority interest............. 127 27 278 3,932 3,294 4,677 4,677
Stockholders' equity.......... 12,217 11,980 14,074 15,293 31,002 31,724 92,162
</TABLE>
11
<PAGE>
- ----------------------------------
(1) As adjusted to give effect to the Doppelt Acquisition, the Reincorporation
Transactions and the sale of 5,000,000 shares of Common Stock by the Company
in the Offering and the receipt and application of the net proceeds
therefrom, as though they had occurred on January 1, 1996. See "Use of
Proceeds," "The Company--Reincorporation Transactions" and "--Recent
Developments."
(2) Pro forma as adjusted earnings per share is based upon 32,837,439 and
24,714,620 weighted average shares of Common Stock outstanding at September
30, 1997 and December 31, 1996, respectively, which includes 28,199,246
shares of Common Stock to be issued in connection with the Reincorporation
Transactions, 5,000,000 shares of Common Stock to be issued in the Offering
and the effect of 2,423,801 options issued under the Assumed Option Plan.
See "The Company--Reincorporation Transactions" and "Underwriting."
(3) EBITDA, as adjusted, represents earnings before interest, income taxes,
depreciation and amortization, royalty and consulting fees and profit
sharing. Management believes that EBITDA, as adjusted, can be a meaningful
measure of the Company's operating performance, cash generation and ability
to service debt. However, EBITDA, as adjusted, should not be considered as
an alternative either to: (i) net earnings (determined in accordance with
generally accepted accounting principles ("GAAP")); (ii) operating cash flow
(determined in accordance with GAAP); or (iii) liquidity. There can be no
assurance that the Company's calculation of EBITDA, as adjusted, is
comparable to similarly titled items reported by other companies.
(4) As adjusted to give effect to the Reincorporation Transactions and the sale
of 5,000,000 shares of Common Stock in the Offering and the receipt and
application of the net proceeds therefrom, as though they had occurred on
September 30, 1997. Also gives effect to approximately $3.9 million of
payment obligations, due six months following the closing of the Offering,
that the Company incurred in connection with the settlement of claims made
pursuant to a terminated stock appreciation rights plan. See "Use of
Proceeds" and "The Company--Reincorporation Transactions" and "--Recent
Developments."
12
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY AND
SHOULD CONSIDER, AMONG OTHER THINGS, THE RISKS INHERENT IN AND AFFECTING THE
COMPANY'S BUSINESS DESCRIBED BELOW AND THROUGHOUT THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
UNCERTAINTY. ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
THE RISK FACTORS SET FORTH BELOW AND OTHER FACTORS DISCUSSED ELSEWHERE IN THIS
PROSPECTUS. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" BELOW.
DEALINGS WITH AND RELIANCE ON AFFILIATES; POTENTIAL CONFLICTS OF INTEREST
For the year ended December 31, 1996, the Company's largest customer in
terms of revenues was Crow Realty Investors, L.P. d/b/a Crow Investment Trust,
which is wholly owned by certain affiliates and descendants of Mr. Trammell
Crow. Crow Investment Trust accounted for approximately 8.9% of the Company's
revenues for such period. Although the Company believes that its transactions
with Crow Investment Trust and related parties are on terms no less favorable to
the Company than those that could have been obtained from third parties, there
can be no assurance that these parties will continue to transact business with
the Company or that their ownership positions with the Company will not
influence the terms on which they transact business with the Company in the
future. This relationship, coupled with the significant ownership of Common
Stock and the conduct of other significant real estate-related activities by
Crow Investment Trust and other affiliates and descendants of Mr. Trammell Crow
outside the Company, could give rise to conflicts of interest.
Among other investment or development activities, Crow Investment Trust and
its affiliates engage in the business of acquiring and developing office,
industrial and retail facilities, whether as single projects or through multiple
project investment fund vehicles, and perform asset or portfolio management
services for these projects. In some instances these activities are directly
competitive with the Company's activities. There can be no assurance that the
respective activities of the Company and Crow Investment Trust will not cause a
conflict with a major customer of the Company or create confusion in the various
real estate or capital markets in which they both do business.
The Company has implemented a policy requiring any material transaction (or
series of related transactions) between the Company and related parties to be
approved by a majority of the directors who have no beneficial or economic
interest in such related party ("disinterested directors"), upon such directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could have been obtained from unrelated third parties.
The policy defines a material related party transaction (or series of related
transactions) as one involving a purchase, sale, lease or exchange of property
or assets or the making of any investment with a value to the Company in excess
of $1 million or a service agreement (or series of related agreements) with an
annual value in any fiscal year in excess of $1 million. There can be no
assurance that this policy will be successful in eliminating potential conflicts
of interest. See "Certain Transactions."
TRADE NAME LICENSE
As part of the Reincorporation Transactions, the Company and CFH
Trade-Names, L.P., an affiliate of Crow Investment Trust ("CFH"), have agreed to
enter into a License Agreement, pursuant to which, subject to certain quality
standards and other limitations summarized below, the Company will be granted
the perpetual right to use the name "Trammell Crow" throughout the world in all
areas of business except the residential real estate business. In conjunction
therewith, CFH has agreed to cause Trammell Crow International to cease using
the name "Trammell Crow" within three years after the date of the License
Agreement, and also to cease using that name in any market within 12 months
after the Company or any of its subsidiaries opens an office in that market. See
"Certain Transactions--Royalty Agreement and License
13
<PAGE>
Agreement." This perpetual license may be revoked if (a) the Company fails to
maintain the type and quality of performance of services and the type and
quality of goods and products that meet the standards of services and goods and
products historically set by the licensor or the Predecessor Company for their
affiliated entities; or (b) infringes or attempts to infringe any of the
licensor's intellectual property rights that are the subject of the License
Agreement. A loss of the right to use the Trammell Crow name would have a
material adverse effect on the Company's business, financial condition and
results of operations. Certain existing uses of this name by affiliates of CFH
will continue to be permitted under the terms of the License Agreement. Although
the License Agreement contains provisions which are designed to limit the
possible confusion that may be caused in the marketplace by affiliates of CFH
conducting business activities under such names or other names similar to
"Trammell Crow," there can be no assurance that such activities will not create
such confusion or reduce the value associated with the Trammell Crow name. See
"Business--Trademarks" and "Certain Transactions--Royalty Agreement and License
Agreement."
CONTROL BY EXISTING STOCKHOLDERS
Immediately after the Offering, directors, officers and other employees of
the Company and its affiliates will beneficially own approximately 82.9% of the
Common Stock outstanding and, thus, will be able to control the affairs and
policies of the Company and be able to approve or disapprove any matters
submitted to a vote of the stockholders, including the election of directors.
Such concentration of ownership could have the effect of delaying or preventing
a change in control of the Company. See "Description of Capital Stock" and
"Principal Stockholders."
RAPID GROWTH
The Company intends to continue to pursue an aggressive growth strategy by
increasing revenues from existing clients, expanding the breadth of its service
offerings, seeking selective co-investment opportunities and pursuing strategic
acquisitions. The Company expects that any significant growth will place demands
on its managerial, administrative, operational and financial resources. The
Company's future success and profitability will depend, in part, on its ability
to attract and retain qualified managers and other personnel, successfully
implement enhancements to its management and operating systems and secure
adequate financing for capital expenditures. There can be no assurance that the
Company will be able to so manage any significant expansion of its operations
successfully or secure adequate financing on terms favorable to the Company, if
at all. See "Business."
FUTURE ACQUISITIONS
On August 22, 1997, the Company completed the Doppelt Acquisition. See "The
Company--Recent Developments." As part of its overall strategy, the Company
intends to pursue other strategic acquisitions. There can be no assurance that
the Company will be able to identify and acquire businesses on terms favorable
to the Company. Any such acquisitions would be accompanied by the risks commonly
encountered in such transactions, including the diversion of management
attention to the assimilation of the operations and personnel of the acquired
businesses, potential adverse short-term effects on the Company's operating
results, integration of financial and other administrative systems, amortization
of any acquired intangible assets, the maintenance of uniform standards,
controls, procedures and policies and the impairment of relationships with
employees and customers as a result of any integration of new personnel and new
customers with potential conflicts. A substantial portion of the Company's
capital resources could be used for such acquisitions. Moreover, the Company may
require additional debt or equity financing for such acquisitions, which may not
be available on terms favorable to the Company, if at all. There can be no
assurance that the Company would be successful in overcoming these risks or any
other problems encountered in connection with such acquisitions or that carrying
out such acquisitions will not have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business."
14
<PAGE>
REAL ESTATE INVESTMENT AND CO-INVESTMENT ACTIVITIES
The Company intends to use the increased financial flexibility created by
the Offering to expand its real estate investment and co-investment activities.
The Company's increased participation as a principal in real estate investments
could increase fluctuations in the Company's net earnings and cash flow. The
Company's investments and co-investments also inherently involve the risk of
loss of the Company's investment. Moreover, in certain of these investments, the
Company will not have complete discretion to control the timing of the
disposition of such investments and, as a result, the recognition of any related
gain or loss. In the ordinary course of the Company's development and
construction business, the Company also assumes recourse obligations for
construction financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPETITION
The Company competes in several market segments within the commercial real
estate industry, each of which is highly competitive on a national and a local
level. Depending on the market segment, the Company faces competition from other
real estate services providers, consulting firms and in-house corporate real
estate and infrastructure management departments. Some of the Company's
principal competitors in certain of these market segments have capabilities and
financial resources equal to or greater than those of the Company and a broader
global presence. Many of the Company's competitors are local or regional firms
which are smaller than the Company on an overall basis, but may be substantially
larger than the Company on a local or regional basis. While the Company does not
believe that any of its competitors are dominant in the market segments in which
the Company operates, the providers of real estate services that compete with
the Company on a national level include LaSalle Partners Incorporated, CB
Commercial/Koll Management Services, Cushman & Wakefield, Inc. and Insignia
Financial Group. The Company has faced increased competition in recent years
which has, in some cases, resulted in lower service fees, or compensation
arrangements more closely aligned with the Company's performances in rendering
services to its clients. In recent years, there has also been a significant
increase in the number of REITs which self-manage their real estate assets.
Continuation of this trend could decrease the demand for services offered by the
Company, and thereby increase competition. In general, the Company expects the
industry to become increasingly competitive in the future. There can be no
assurance that such competition will not have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Competitive Environment."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially higher
than the pro forma net tangible book value per share of Common Stock. As a
result, assuming an initial public offering price of $15.00 per share,
purchasers of shares of Common Stock in the Offering will incur immediate and
substantial dilution of $13.10 in net tangible book value per share. See
"Dilution."
ABSENCE OF PUBLIC MARKET FOR COMMON STOCK, POSSIBLE VOLATILITY OF STOCK PRICE
AND LACK OF LIQUIDITY
There is currently no public market for the Common Stock. Although the
Common Stock has been approved, subject to notice of issuance, for listing on
the New York Stock Exchange, there can be no assurance that an active public
market in the Common Stock will develop or that the initial public offering
price thereof will correspond to the price at which the Common Stock will trade
in the public market subsequent to the Offering. The initial public offering
price for the Common Stock will be determined by negotiations among the Company,
the U.S. Representatives of the Underwriters and Morgan Stanley & Co.
Incorporated, as qualified independent underwriter, based on the factors
described under "Underwriting."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 33,199,246 shares of
Common Stock outstanding (33,949,246 if the Underwriters exercise in full the
over-allotment option). The 5,000,000 shares sold in the Offering (5,750,000 if
the Underwriters exercise in full the over-allotment option) will be freely
tradeable without restriction or further registration under the Securities Act
of 1933 (the "Securities Act"), except for shares held by "affiliates" of the
Company. The 28,199,246 shares to be held by the stockholders of the Company
upon consummation of the Reincorporation Transactions will be deemed to be
"restricted securities," as that term is defined in Rule 144 under the
Securities Act ("Rule 144"), in that such shares were issued in private
transactions not involving a public offering. None of such shares will be
eligible for sale under Rule 144 prior to the first anniversary of the closing
of the Reincorporation Transactions. The Company intends to file a registration
statement on Form S-8 with respect to the 2,423,801 shares which will underlie
options granted under the Assumed Option Plan, all of which will become
exercisable 30 days following the closing of the Offering, and 5,343,451 shares
reserved for issuance under the Long-Term Incentive Plan, including 2,493,610
shares of Common Stock underlying options which the Company expects to award to
certain employees and directors as of the closing of the Offering and which will
vest in equal increments on each of the first three anniversaries of the date of
grant. Shares so registered could be sold in the public market by such holders
at any time on or after the date such registration statement becomes effective.
The Company, each of the Company's stockholders immediately following the
consummation of the Reincorporation Transactions and the holders of options
issued pursuant to the Assumed Option Plan will enter into lock-up agreements
with the Underwriters not to sell or otherwise dispose of any of their shares of
Common Stock for a period of 180 days from the date of this Prospectus without
the prior consent of Morgan Stanley & Co. Incorporated (the "Lock-up
Agreements"). Certain stockholders of the Company will be entitled to request
the Company to file, beginning one year after the date of this Prospectus, one
or more registration statements under the Securities Act with respect to the
resale by such stockholders of all shares of Common Stock owned at that time by
such stockholders. Shares so registered could be sold in the public market by
such stockholders at any time on or after the date such registration statement
is declared effective. See "Description of Capital Stock--Registration Rights of
Certain Holders."
No prediction can be made as to the effect, if any, that future sale of such
shares, or the availability of such shares for future sale, will have on the
market price for the Common Stock. See "Shares Eligible for Future Sale."
RECRUITING AND RETENTION OF QUALIFIED PERSONNEL
The Company's continued success is dependent to a significant degree upon
the efforts of all of its executive officers and key employees. The loss or
unavailability of the services of any of its key personnel could have a material
adverse effect on the Company. As the Company continues to grow, its success
will be largely dependent upon its ability to attract and retain qualified
personnel in all areas of its business, particularly management. There can be no
assurance that the Company will be able to continue to hire and retain a
sufficient number of qualified personnel to support its planned growth. If the
Company is unable to attract and retain such qualified personnel, it may be
forced to limit its growth, and its business and operating results could be
adversely affected. See "Management."
RELIANCE ON MAJOR CLIENTS AND CONTRACT RETENTION
A significant portion of the Company's revenues are derived from relatively
few clients. The Company's ten largest clients accounted for approximately 24.4%
of the Company's total revenues during 1996, with the five largest clients
accounting for 8.9%, 3.7%, 2.6%, 2.1% and 1.8%, respectively. The loss of one or
more of the Company's major clients could have a material adverse effect on the
Company.
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The Company is substantially dependent on revenue received for services
performed under property management and infrastructure management contracts. For
the year ended December 31, 1996, revenue from property management and
infrastructure management contracts constituted approximately 35.3% and 19.9%,
respectively, of the Company's total revenue. Most of the Company's property
management contracts are cancelable for any reason upon 30 days notice by either
party. The Company's infrastructure management service contracts are typically
for initial terms of three to five years with options to renew. Accordingly,
contracts representing a significant percentage of revenues may be scheduled to
expire in any one year. While the Company has been successful in renewing a
significant portion of its contracts, there can be no assurance that the Company
will continue to be successful. Moreover, increased competition could cause the
Company's contracts to be renewed on less favorable terms. Failure of the
Company to continue to retain and renew its contracts on favorable terms could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced and expects to continue to experience quarterly
variations in revenues and net income as a result of many factors, including the
timing of transactions, the commencement of new contracts, revenue mix and the
timing of additional selling, general and administrative expenses to support new
business activities. While the effects of seasonality on the Company's business
may be obscured by the addition of new clients or new programs for existing
clients, the Company's revenues tend to be lower in the first three quarters of
the fiscal year because its clients have demonstrated a tendency to close
transactions toward the end of their fiscal years (typically the calendar year),
which causes the Company to earn a significant portion of its revenues under
transaction-oriented service contracts in the last quarter of the fiscal year.
Over the last two years, the percentage of the Company's annual revenues earned
in the first, second, third and fourth quarters were, respectively, 22%, 21%,
26% and 31% in 1996 and 21%, 24%, 24% and 31% in 1995. In addition, an
increasing percentage of the Company's property management and infrastructure
management contracts provide for bonus payments if the Company achieves certain
performance targets. Such incentive payments are generally earned in the fourth
quarter. The Company plans its capital and operating expenditures based on its
expectations of future revenues and, if revenues are below expectations in any
given quarter, the Company may be unable to adjust capital or operating
expenditures in a timely manner to compensate for any unexpected revenue
shortfall, which could have an immediate material adverse effect on the
Company's business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations and Seasonality."
ECONOMIC CONDITIONS
Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate could adversely affect certain portions of the
Company's business. Such economic conditions could result in a general decline
in rents which in turn would adversely affect revenue from property management
fees (which in most cases are calculated as a percentage of the revenue
generated by the property under management) and commissions or fees derived from
property sales and leases (which are typically based on the sale price or lease
revenue commitment, respectively). Such conditions could also lead to a decline
in sale prices as well as a decline in availability of and demand for capital
invested in commercial real estate and related assets. A decline in the
availability of capital for real estate-related investment would reduce
development activity, thereby potentially reducing the Company's development
revenues and other revenues that are derived in part from development activity
(for example, project leasing and property management revenues).
The condition of the real estate market tends to be cyclical and related to
the condition of the economy as a whole or, at least, to the perceptions of
investors and users as to the economic outlook. The sharp downturn in the
commercial real estate market in the early 1990s has caused and may continue to
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cause some property owners to dispose of their properties or to lose them
through foreclosures. A change in the ownership of properties, including
acquisition of properties by self-managed REITs, may be accompanied by a change
in property and investment management firms and could cause the Company to lose
property and investment management agreements or make the agreements retained
less profitable. See "Business."
USE OF PROCEEDS
Approximately $31.0 million of the net proceeds of the Offering will be used
by the Company to repay all of its indebtedness under an existing credit
facility. A significant portion of that amount will be paid to Bankers Trust
Company, a lender under the credit facility which has entered into a business
combination with BT Alex. Brown Incorporated, an underwriter of the Offering.
See "Use of Proceeds" and "Underwriting."
ENVIRONMENTAL LIABILITY
Various federal, state and local laws and regulations impose liability on
current or previous real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by hazardous or
toxic substances at the property. In the Company's role as a property manager,
it could be held liable as an operator for such costs. Such liability may be
imposed without regard to the legality of the original actions and without
regard to whether the Company knew of, or was responsible for, the presence of
such hazardous or toxic substances, and such liability may be joint and several
with other parties. If the liability is joint and several, the Company could be
responsible for payment of the full amount of the liability, whether or not any
other responsible party is also liable. Further, any failure by the Company to
disclose environmental issues could subject the Company to liability to a buyer
or lessee of the property. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it incurs
in connection with the contamination. The operator of a site also may be liable
under common law to third parties for damages and injuries resulting from
hazardous substances or environmental contamination at a site, including
liabilities related to the presence of asbestos-containing materials. There can
be no assurance that any of such liabilities to which the Company or any of its
affiliates may become subject will not have a material adverse effect on the
Company's business and results of operations. See "Business--Environmental
Liability."
ANTI-TAKEOVER CONSIDERATIONS
STAGGERED BOARD OF DIRECTORS. The Board of Directors is divided into three
classes serving staggered terms. The terms of the Company's Board of Directors
as constituted immediately following the Offering will expire in 1998, 1999 and
2000. The staggered terms of Directors may limit the ability of holders of
Common Stock to change control of the Company even if a change of control were
in such stockholders' best interests. This limitation may discourage offers or
other bids for the Common Stock at a premium over the market price thereof. See
"Description of Capital Stock--Anti-takeover Provisions."
CERTIFICATE OF INCORPORATION. The anti-takeover effect of certain
provisions of the Company's Certificate of Incorporation (the "Certificate of
Incorporation") may have the effect of delaying, deterring or preventing a
takeover of the Company that stockholders purchasing shares in the Offering may
consider to be in their best interest. The Company's Certificate of
Incorporation requires that stockholders follow an advance notification
procedure for certain stockholder nominations of candidates for the Board of
Directors and for certain other business to be conducted at any stockholders'
meeting. In addition, the Certificate of Incorporation authorizes the Board of
Directors to issue up to 30,000,000 shares of preferred stock of the Company,
par value $0.01 per share ("Preferred Stock"), having such rights, preferences
and privileges as designated by the Board of Directors, without stockholder
approval. The issuance of such Preferred Stock could inhibit a change of
control. See "Description of Capital Stock--Section 203 of the Delaware General
Corporation Law."
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DELAWARE ANTI-TAKEOVER STATUTE. Section 203 of the Delaware General
Corporation Law (the "DGCL"), which is applicable to the Company, restricts
certain business combinations with interested stockholders upon their acquiring
15% or more of the Common Stock. This statute may have the effect of inhibiting
a non-negotiated merger or other business combination involving the Company,
even if such event would be beneficial to the Company's stockholders. See
"Description of Capital Stock--Anti-takeover Provisions." This statute would not
prohibit the Company from entering into a business combination with any
stockholder who would otherwise have been deemed to become an "Interested
Stockholder" as a result of the Reincorporation Transactions.
GOVERNMENT REGULATION
The Company and its brokers, salespersons and, in some instances, property
managers are regulated by the states in which they do business. These
regulations include licensing procedures, prescribed fiduciary responsibilities
and anti-fraud provisions. The Company's activities are also subject to various
federal and state fair advertising, trade, housing and real estate settlement
laws and regulations and are affected by laws and regulations relating to real
estate and real estate finance and development. In particular, a number of
states and localities have imposed environmental controls and zoning
restrictions on the development of real estate. The Company is also subject to
laws governing its relationship with employees, including minimum wage
requirements, overtime, working conditions and work permit requirements. Under
the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that its
properties in which it holds an equity interest are substantially in compliance
with these requirements, a determination that the Company is not in compliance
with the ADA could result in the imposition of fines or an award of damages to
private litigants.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including without limitation statements containing the words
"believes," "anticipates," "expects" and words of similar import, are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other matters which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such matters include,
among others, those set forth in this Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such statements or to publicly announce any updates or revisions to any of the
forward-looking statements contained herein to reflect any change in the
Company's expectation with regard thereto or any change in events, conditions,
circumstances or assumptions underlying such statements.
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THE COMPANY
BACKGROUND
The Company was founded in 1948 by Mr. Trammell Crow and consisted of a
collection of affiliated partnerships and corporations doing business as
"Trammell Crow Company" until 1991. From the Company's founding through the
1970s, the Company's primary business consisted of the development and
management of industrial warehouses. In the 1980s, the Company broadened its
commercial property asset base by expanding into retail and office projects,
while continuing to develop its industrial property business. By 1989, the
Company had evolved into the largest commercial real estate developer in the
United States, with industrial, office and retail projects that were valued at
more than $11 billion.
Following a severe recession in the United States commercial real estate
industry in the late 1980s, the Company determined that a restructuring was
necessary to continue the historic growth of its business despite the adverse
changes in the industry. This restructuring, completed in 1991, entailed the
separation of the Company's commercial real estate asset base and related
operations from its real estate services business. The Company, existing as a
Texas close corporation with a total capitalization of $18 million following the
restructuring, continued to operate the real estate services business while
ownership of the commercial real estate asset base was segregated into a large
number of separate entities distinct from the Company, with independent
management and operations. While the Company no longer has an ownership interest
in the commercial real estate asset base, the entities owning such assets are
collectively one of the Company's largest post-restructuring service customers.
See "Risk Factors--Dealings with and Reliance on Affiliates; Potential Conflicts
of Interest."
REINCORPORATION TRANSACTIONS
In connection with the Offering, the Company and TCC Merger Sub, Inc., a
wholly owned subsidiary of the Company ("Merger Sub"), will enter into a series
of transactions, as described below, to convert the legal form in which the
Predecessor Company's business and operations are held from a Texas close
corporation to a Delaware corporation.
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement") dated
as of August 22, 1997, among the Company, Merger Sub, the Predecessor Company,
Crow Family Partnership, L.P. ("Crow Family"), CFH Trade-Names, L.P. ("CFH") and
J. McDonald Williams, immediately prior to the closing of the Offering, CFH, an
affiliate of Crow Family (which is currently the Company's sole stockholder),
will enter into a License Agreement (herein so called) with the Company,
pursuant to which CFH will transfer to the Company, subject to certain quality
standards, the perpetual right (the "Trade Name License") to use the name
"Trammell Crow Company," and variations thereof, throughout the world. See
"Certain Transactions--Royalty Agreement and License Agreement." The Company
will not be obligated to pay any fees under the License Agreement. However, in
exchange for the grant of the Trade Name License, the Company will issue to CFH
a number of shares of Common Stock (the "Trade Name Shares") representing 8.26%
of the number of shares of Common Stock outstanding after giving effect to the
Reincorporation Merger and the issuance of the Trade Name Shares (the
"Post-Merger Shares Outstanding").
Following the grant of the Trade Name License, Merger Sub will be merged
(the "Reincorporation Merger") with and into the Predecessor Company. As a
result of the Reincorporation Merger (i) the separate existence of Merger Sub
will cease, (ii) the Predecessor Company will survive the Reincorporation Merger
as a wholly-owned subsidiary of the Company, and (iii) all of the shares of the
Predecessor Company's common stock issued and outstanding immediately prior to
the effective time of the Reincorporation Merger (the "Effective Time") will be
converted into, in the aggregate, 91.74% of the Post-Merger Shares Outstanding.
Upon completion of the Reincorporation Merger, the Company and certain of its
stockholders will enter into a Stockholders' Agreement. See "Description of
Capital Stock-- Stockholders' Agreement." The Shareholders Agreement previously
entered into among the Predecessor Company and each of its shareholders will be
terminated.
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At the Effective Time, the Company will assume the Predecessor Company's
obligations with respect to all options issued by the Predecessor Company
pursuant to the Assumed Option Plan, and the Company will thereafter be
obligated to issue up to an aggregate of 2,423,801 shares of Common Stock
(approximately 6.8% of the shares outstanding following the Offering, assuming
the exercise of such options) at a price of $3.85 per share upon the exercise of
such options. All of such options will vest upon the closing of the Offering and
will become exercisable 30 days thereafter. Because the exercise price
established for each assumed option at the time it was granted is less than the
initial price to the public in the Offering, the Company expects to recognize a
non-cash, non-recurring charge to earnings of approximately $27.0 million in the
fourth quarter of its 1997 fiscal year.
At the Effective Time, the Royalty Agreement (herein so called) between CFH
(as assignee of Crow Family) and the Predecessor Company and all consulting
arrangements entered into between the Predecessor Company and each of Crow
Family and J. McDonald Williams, the Company's Chairman of the Board of
Directors, will be terminated. In September 1997, prior to the assignment by
Crow Family to CFH of Crow Family's rights under the Royalty Agreement, the
Predecessor Company made a cash payment in an aggregate amount of approximately
$1,414,000 to Crow Family in partial satisfaction of accrued royalty and
consulting expenses. The Predecessor Company has agreed that, no later than
April 15, 1998, it will pay CFH and Crow Family all unpaid amounts owed by the
Company to CFH and Crow Family under the Royalty Agreement and such consulting
arrangements as of the date immediately preceding the date of this Prospectus.
The Predecessor Company has also agreed that, upon the termination of its
consulting arrangements with Mr. Williams, it will pay Mr. Williams
approximately $1.6 million (the "Williams Termination Fee") in satisfaction of
all of its obligations to Mr. Williams under his consulting arrangements. See
"Certain Transactions--Royalty Agreement and License Agreement," "--Consulting
Arrangements" and "--Stockholders Agreement."
Effective as of the date immediately preceding the date of this Prospectus,
the Company will no longer grant to any past, present or future employees any
profit participation interests under its 1995 Profit Sharing Plan, as amended
(the "Profit Sharing Plan"). In September and October 1997, the Predecessor
Company made cash payments to Profit Sharing Plan participants in an aggregate
amount of approximately $11.3 million in reduction of deferred compensation
payables. The payment of these deferred compensation amounts triggered an
obligation on the part of certain Profit Sharing Plan participants to repay
certain loans receivable owed to the Predecessor Company in an aggregate amount
of approximately $0.7 million. The Company currently anticipates that at the
closing of the Offering, after giving effect to the payments described above,
the Predecessor Company will have accrued deferred compensation balances under
the Profit Sharing Plan of approximately $29.1 million, which includes
approximately $3.8 million owed to retired Profit Sharing Plan participants that
will be paid with a portion of the proceeds from the Offering. The Company
anticipates that it will pay the remaining balances of approximately $25.3
million in roughly equal installments on the final date of each of the first
eight fiscal quarters which end after the closing of the Offering. The payment
of these deferred compensation balances will trigger an obligation on the part
of certain Profit Sharing Plan participants to repay loans receivable owed to
the Predecessor Company in an aggregate amount of approximately $1.0 million. In
addition, participants will be allowed to offset up to an aggregate $6.9 million
loans receivable owed to the Company against their deferred compensation
balances, which would reduce the amount of such balances to be paid by the
Company over the next eight quarters. Following the Offering, the Predecessor
Company will maintain its obligation to pay to certain participants amounts
relating to their interests in certain of the Company's projects. See
"Management--1995 Profit Sharing Plan."
In October 1997, the Predecessor Company declared and paid dividends to its
stockholders in an aggregate amount of approximately $6.8 million.
Immediately following the Effective Time, the Company will issue to Doppelt
& Company a number of shares of Common Stock (the "Doppelt Shares") equal to the
quotient obtained when $6,000,000 is divided by the price per share at which
Common Stock is sold to the public in the Offering, without giving any effect to
any underwriters' discounts and commissions. The Doppelt Shares will be issued
in payment
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of the $6,000,000 promissory note issued by the Predecessor Company to Doppelt &
Company in connection with the Doppelt Acquisition. See "--Recent Developments."
The transactions described above are collectively referred to in this
Prospectus as the "Reincorporation Transactions." The Company is undertaking
these transactions to facilitate access to capital markets, provide greater
flexibility for acquisitions and create long-term liquidity for its
stockholders. The closing of the Offering is conditioned upon, among other
things, the completion of the Reincorporation Transactions. Prior to the
consummation of the Reincorporation Transactions, the Company will have minimal
assets and conduct no operations other than in connection with the
Reincorporation Transactions and the Offering. Following the Reincorporation
Merger and the other Reincorporation Transactions, the Company will function as
a holding company and its business and operations will continue to be conducted
through its wholly-owned subsidiaries. Each of the Company and Merger Sub are
Delaware corporations formed in August 1997. See "Description of Capital Stock."
RECENT DEVELOPMENTS
On August 22, 1997, TCRS acquired substantially all of the assets of Doppelt
& Company ("Doppelt") pursuant to an Acquisition Agreement dated August 15,
1997, among the Predecessor Company, TCRS, Doppelt and Jeffrey J. Doppelt, the
sole stockholder of Doppelt (the "Acquisition Agreement"). As consideration for
these assets, TCRS delivered to Doppelt (i) approximately $20.7 million in cash,
(ii) a subordinated promissory note of the Predecessor Company payable to
Doppelt in the principal amount of $6.0 million (described below), and (iii) the
right to receive up to $2.0 million of additional purchase price if future
commissions collected by TCRS from any source exceed $7.0 million, subject to
reduction based on the amount of certain of Doppelt's uncollected accounts
receivable and certain leases executed by Doppelt as of August 22, 1997, for
which a commission is not collected by TCRS prior to August 22, 1999. The
Predecessor Company also paid Mr. Doppelt $2.0 million upon the execution of an
employment agreement (described below). The Predecessor Company borrowed $22.7
million under its Existing Credit Facility in order to make these cash payments
at the closing of the acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
In connection with the Doppelt Acquisition, TCRS and the Predecessor Company
also assumed certain liabilities of Doppelt and Jeffrey J. Doppelt, and have
jointly and severally agreed to indemnify Doppelt and Mr. Doppelt for the
liabilities they assumed. Doppelt and Mr. Doppelt have jointly and severally
agreed to indemnify the Company and TCRS for certain liabilities. The
indemnification obligations of Doppelt and Mr. Doppelt are generally limited to
an aggregate amount of $4.0 million. With certain exceptions (including claims
relating to Doppelt's title to the assets purchased) all claims for
indemnification must be asserted against Doppelt and Mr. Doppelt on or before
December 31, 1998.
Pursuant to the Acquisition Agreement, the Predecessor Company delivered to
Doppelt a promissory note in the principal amount of $6.0 million, payable on
August 22, 1998. The note does not bear interest; however, the Company has
agreed to reimburse Doppelt for any tax liability resulting from imputed
interest under federal or state tax laws. Payment of the note is subordinated to
payment in full of the Company's outstanding indebtedness. No payment of the
note will be made by the Company if any default exists with respect to any
existing indebtedness, and holders of existing indebtedness will be entitled to
any payment or distribution of the Company's assets upon dissolution,
liquidation or reorganization before Doppelt is entitled to receive any payment
under the note. The Company may prepay the note in cash without penalty. In
addition, the Company must prepay the note with Common Stock immediately prior
to the closing of the Offering. The number of shares to be so issued in payment
of the note is equal to $6.0 million divided by the initial public offering
price for the Common Stock. If the Company does not close the Offering by August
22, 1998, the Company must pay the note with shares of common stock of TCRS
representing (i) 8.3% of the outstanding TCRS common stock on August 22, 1997,
multiplied by (ii) the percentage of the original principal amount of the note
outstanding on the date of such payment.
The Predecessor Company entered into an employment agreement with Jeffrey J.
Doppelt (the "Doppelt Employment Agreement"), pursuant to which Mr. Doppelt
serves as an officer of the Company
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with primary responsibility for its retail tenant representation and retail
disposition brokerage operations. Mr. Doppelt is also entitled to serve as a
member of the board of directors of TCRS. Mr. Doppelt's employment term under
this agreement ends on August 22, 2002, and will be automatically renewed for
successive one-year terms unless Mr. Doppelt or the Company gives the other
written notice of his or its intention not to renew the employment term. Mr.
Doppelt's base salary is $300,000 per year. In addition, Mr. Doppelt is entitled
to receive an annual bonus equal to up to 50% of his base salary upon the
achievement of performance targets to be established by the Chief Executive
Officer of TCRS. The Doppelt Employment Agreement further provides for
participation in all of the Company's insurance and other benefit plans.
If the employment term is terminated by the Company without "cause" or by
Mr. Doppelt pursuant to a "forced resignation" (as each of these terms is
defined in the Doppelt Employment Agreement), the Company will continue to pay
Mr. Doppelt's base salary for at least 12 months after termination or for the
remainder of the employment term, whichever is less, as long as Mr. Doppelt
continues to comply with certain non-competition and confidentiality provisions
contained in the Doppelt Employment Agreement. The Company may continue to pay
Mr. Doppelt's base salary for a longer period (but not beyond the scheduled
expiration date of the employment term) in order to continue to bind him to the
non-competition provisions described below.
Upon the execution of the Doppelt Employment Agreement, the Predecessor
Company paid Mr. Doppelt $2.0 million in cash as consideration for Mr. Doppelt's
agreement not to engage, directly or indirectly, in the commercial retail real
estate brokerage business in the United States, other than on behalf of the
Predecessor Company or its subsidiaries or affiliates, until the later of the
first anniversary of the date of termination of his employment or the scheduled
expiration date of the employment period, or if Mr. Doppelt is terminated
without cause or Mr. Doppelt resigns pursuant to a forced resignation, for any
subsequent period during which he continues to receive his base salary. In
addition, Mr. Doppelt agreed that he would not, directly or indirectly, provide
commercial real estate brokerage services to OfficeMax, HomePlace or Tandy
Corporation or any of their affiliates before August 22, 2007, other than on
behalf of the Predecessor Company or its subsidiaries or affiliates. Mr. Doppelt
further agreed not to solicit employees, customers or other business relations
of the Predecessor Company or its subsidiaries, or otherwise interfere in any
relationships between the Predecessor Company or its subsidiaries and any
employees, customers or business relations, during the non-competition period.
Mr. Doppelt has agreed that if he voluntarily terminates the Doppelt Employment
Agreement (excluding any forced resignation) during the first year of the
employment term, he will refund to the Company $2.0 million. If Mr. Doppelt
voluntarily terminates the agreement during the remaining four years of the
employment term, the refund owed to the Company will decrease by $400,000 each
year, provided that the refund will not exceed the then-current fair market
value of the Common Stock of the Company or the common stock of TCRS that is
held by Doppelt (or certain permitted transferees), and is subject to certain
holdback restrictions as described in the Doppelt Stockholders Agreement. See
"Description of Capital Stock--Doppelt Stockholders Agreement."
In October 1997, the Company executed a non-binding letter of intent with
the University of Pennsylvania to negotiate the terms of a definitive agreement,
pursuant to which the Company would become the exclusive provider of certain
infrastructure management services for certain of the university's properties
and grounds. See "Business--Infrastructure Management Services."
The Company also recently entered into non-binding memoranda of
understanding with Kennedy Associates Real Estate Counsel, Inc. regarding a
development program for multi-tenant office and business park development
projects and with TriNet Corporate Realty Trust, Inc. regarding a development
program for office, research and development and industrial pre-sale
build-to-suit projects. See "Business--Development and Construction Services."
23
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $67.1 million ($77.5 million if the over-allotment option is
exercised in full), assuming an initial public offering price of $15.00 per
share and after deduction of the estimated underwriting discounts and
commissions and other offering expenses. Of the net proceeds available to the
Company, (i) approximately $31.0 million will be used to repay all outstanding
indebtedness under the Existing Credit Facility, (ii) approximately $6.5 million
will be used to repay other indebtedness of the Company, described below, (iii)
approximately $1.6 million will be used to fund the Williams Termination Fee,
(iv) approximately $6.0 million will be used to finance the Company's investment
in certain information and technology infrastructure systems, and (v)
approximately $22.0 million will be used for working capital purposes, which
could include funding the Company's cash requirements relating to the UPenn
Contract or the Development Purchases. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Certain Transactions," "The Company-- Reincorporation
Transactions," "Business--Competitive Advantages--Technology," "--Infrastructure
Management Services" and "--Development and Construction Services." Pending such
use of proceeds, the Company intends to invest the net proceeds in investment
grade short-term, interest-bearing securities. Upon completion of the Offering,
the Company intends to use its borrowing capacity, cash generated from
operations and the remaining net proceeds of the Offering to pursue its growth
strategy.
Approximately $31.0 million of the net proceeds from the Offering will be
used to repay indebtedness owed by the Company under its Existing Credit
Facility. Approximately $30.0 million indebtedness was incurred on August 22,
1997, bears interest at a rate of 6.625% per year and has a maturity date of
February 22, 1998. Approximately $7.0 million of such indebtedness was incurred
in order to refinance certain indebtedness of the Predecessor Company and
approximately $22.7 million of such indebtedness was incurred in connection with
the Doppelt Acquisition. An additional $1.0 million was incurred in October 1997
for working capital purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Approximately $6.5 million of the net proceeds from the Offering will be
used to reduce certain indebtedness of the Company. Of the $6.5 million
indebtedness, approximately $3.8 million is deferred compensation payables owed
to former employees of the Company which accrue interest at an annual rate of
8.25% and have no stated maturity. See "Management--1995 Profit Sharing Plan."
The remaining indebtedness includes approximately $1.1 million owed under
various lines of credit (which accrue interest at annual rates ranging from 8.0%
to 8.5% and have stated maturities extending from March 1998 to April 2000),
approximately $0.9 million owed to former shareholders (which accrue interest at
an annual rate of 6.1% and have stated maturities extending from January 2000 to
February 2000) and approximately $0.7 million of indebtedness owed to Mr.
Williams (which accrues interest at an annual rate of 10.5% and has a stated
maturity of October 1, 2006). See "Certain Transactions--Capitalization Debt."
DIVIDEND POLICY
The Board of Directors intends to retain earnings to finance its growth and
for general corporate purposes and, therefore, does not anticipate paying any
dividends in the foreseeable future. Any future payment of dividends will be at
the discretion of the Board of Directors and will depend upon the Company's
results of operations, financial condition, cash requirements and other factors
deemed relevant by the Board of Directors, including the terms of the Company's
indebtedness. The Company expects that provisions to be contained in agreements
governing the Company's long-term indebtedness after the Offering will limit the
amount of dividends that the Company may pay to its stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Since 1994, the Predecessor Company has declared annual cash dividends which
were paid during the first six months of each year and were based upon the
Predecessor Company's earnings in the prior year. The aggregate amount of
dividends paid to the Predecessor Company's shareholders during the years ended
December 31, 1994, 1995 and 1996 were $1,672,000, $2,475,000 and $2,890,000,
respectively. In April 1997, the Predecessor Company paid dividends based on
1996 earnings in the aggregate amount of approximately $8,200,000. In October
1997, the Predecessor Company declared and paid dividends in an aggregate amount
of approximately $6,826,000. See "The Company--Reincorporation Transactions."
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997, as adjusted to give pro forma effect to the Reincorporation
Transactions as if such transactions had occurred on September 30, 1997, and as
further adjusted to give pro forma effect to the sale of 5,000,000 shares of
Common Stock by the Company in the Offering at an assumed initial public
offering price of $15 per share and the receipt and application of the net
proceeds therefrom as described under "Use of Proceeds." This table should be
read in conjunction with the pro forma consolidated financial statements of the
Company, the historical financial statements of the Company and the notes
thereto and the historical financial statements of the Predecessor Company and
the notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------
COMPANY
PRO FORMA,
COMPANY PRO AS
FORMA(1) ADJUSTED(2)
------------- -------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Total debt(3).................................................................... $ 41,463 $ 2,747
------------- -------------
Stockholders' equity:
Preferred Stock, par value $0.01 per share; 30,000,000 shares authorized; no
shares issued and outstanding................................................ -- --
Common Stock, par value $0.01 per share; 100,000,000 shares authorized;
28,199,246 shares issued and outstanding on a pro forma basis and 33,199,246
shares issued and outstanding on a pro forma basis, as adjusted.............. -- 54
Additional paid-in capital..................................................... 21,696 121,699
Retained earnings.............................................................. 8,584 (22,653)
Less: Stockholder loans........................................................ (6,938) (6,938)
------------- -------------
Total stockholders' equity................................................... 23,342 92,162
------------- -------------
Total capitalization......................................................... $ 64,805 $ 94,909
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) Giving pro forma effect to the Reincorporation Transactions as if such
transactions had occurred on September 30, 1997. See the pro forma financial
statements and notes thereto contained elsewhere in this Prospectus.
(2) Giving pro forma effect to the Reincorporation Transactions and the Offering
at an assumed initial public offering price of $15 per share as if such
transactions had occurred on September 30, 1997. Includes the effect of a
$27.0 million non-cash, non-recurring charge to earnings the Company expects
to recognize in the fourth quarter of its 1997 fiscal year because the
exercise price of the options issued under the Assumed Option Plan, which
was established at the time such options were granted, is less than the
initial price to the public in the Offering. Following the Offering, these
options, which will be assumed by the Company, will represent the right to
acquire, in the aggregate, 2,423,801 shares of Common Stock (approximately
6.8% of the shares outstanding following the Offering, assuming the exercise
of such options). Also gives effect to approximately $3.9 million of payment
obligations, due six months following the closing of the Offering, that the
Company incurred in connection with the settlement of claims made pursuant
to a terminated stock appreciation rights plan. These obligations will bear
interest at LIBOR plus 1% per annum. See the pro forma financial statements
and notes thereto contained elsewhere in this Prospectus.
(3) Excludes notes payable on real estate held for sale of $51,884 at September
30, 1997.
25
<PAGE>
DILUTION
As of September 30, 1997, the net tangible book value of the Company, giving
pro forma effect to the Reincorporation Transactions, was approximately negative
$5.8 million, or negative $0.21 per share of Common Stock. Net tangible book
value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of outstanding shares of Common Stock.
After giving effect to the sale by the Company of 5,000,000 shares of Common
Stock in the Offering and the application of the $67.1 million in estimated net
proceeds to be received by the Company therefrom, the pro forma net tangible
book value of the Company as of September 30, 1997, would have been $63.0
million, or $1.90 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.11 per share to existing stockholders
and an immediate dilution in net tangible book value of $13.10 per share to new
investors. The following table illustrates this per share dilution with respect
to a new investor's purchase of a share of Common Stock as of September 30,
1997:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $ 15.00
Pro forma net tangible book value per share before the Offering... $ (0.21)
Increase in pro forma net tangible book value per share
attributable to purchase by new stockholders in the Offering.... 2.11
---------
Pro forma net tangible book value per share after the Offering...... 1.90
---------
Dilution in net tangible book value per share to new stockholders... $ 13.10
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock outstanding, the total consideration
paid, and the average price per share paid by current stockholders and by new
investors who purchase Common Stock pursuant to the Offering, assuming an
initial public offering price of $15 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION PAID AVERAGE
------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE(1)
------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 28,199,246 84.9% $ 30,280,000 28.8% $ 1.07
New stockholders in the Offering........... 5,000,000 15.1% 75,000,000 71.2 15.00
------------ ----- -------------- -----
Total.................................... 33,199,246 100.0% $ 105,280,000 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>
- ------------------------
(1) Assumes no exercise of any outstanding stock options or the Underwriters'
over-allotment option. In connection with the Reincorporation Transactions,
the Company will assume the Predecessor Company's obligations under the
Assumed Option Plan, pursuant to which the Company will be obligated to
issue an aggregate of 2,423,801 shares of Common Stock to certain of the
Predecessor Company's officers and employees at an exercise price equal to
$3.85 per share. All of such options will be exercisable beginning 30 days
following the closing of the Offering. At the closing of the Offering,
options to purchase 2,493,610 shares of Common Stock will be granted under
the Long-Term Incentive Plan at an exercise price equal to the initial
public offering price. Following the Offering, an additional 2,849,841
shares will be reserved for future grants or awards under the Long-Term
Incentive Plan. To the extent that any such options are exercised in the
future or further awards are made, there will be further dilution to new
investors. See "Management--Long-Term Incentive Plan" and "--Assumed Option
Plan."
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below have been derived from the pro
forma consolidated financial statements of the Company and from the historical
consolidated financial statements of the Predecessor Company. The Company was
incorporated on August 21, 1997 to succeed to the business of the Predecessor
Company, and prior to the Offering will have minimal assets and conduct no
operations other than in connection with the Reincorporation Transactions and
the Offering. The historical balance sheet of the Company as of August 21, 1997
and the historical consolidated financial statements of the Predecessor Company
as of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 have been audited by Ernst & Young LLP, independent
auditors, whose reports thereon appear elsewhere in this Prospectus. The pro
forma data is unaudited but, in the opinion of management, all pro forma
adjustments necessary to reflect the effects of the Doppelt Acquisition, the
Reincorporation Transactions and the Offering have been made. The selected
financial data at September 30, 1997, and for the nine months ended September
30, 1996 and 1997 have been derived from the unaudited consolidated financial
statements of the Predecessor Company and reflect all adjustments, consisting of
normal recurring accruals, which management considers necessary for a fair
presentation of the financial position and results of operations for these
periods.
The selected financial data should be read in conjunction with "Pro Forma
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the historical financial
statements and notes thereto of the Company and the Predecessor Company
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ --------------------
PRO FORMA
AS
1992 1993 1994 1995 1996 ADJUSTED(1) 1996 1997
--------- --------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Property management services............ $ 104,104 $ 90,954 $ 99,609 $ 92,970 $ 90,179 $ 90,179 $ 68,628 $ 69,034
Brokerage services...................... 40,540 47,299 48,652 61,960 72,095 72,095 49,143 61,692
Infrastructure management services...... 7,145 16,401 27,063 38,681 50,836 50,836 33,628 47,954
Development and construction services... 18,468 14,377 12,792 20,382 22,732 22,732 13,487 23,483
Retail services......................... -- 1,306 1,966 1,510 2,393 11,385 1,171 1,912
Income from unconsolidated
subsidiaries.......................... -- 465 3,141 114 594 594 386 1,467
Gain on disposition of real estate...... 2,712 -- 4,646 5,026 6,630 6,630 4,787 1,566
Other................................... 1,090 3,759 3,039 6,559 9,996 9,937 4,981 6,131
--------- --------- --------- --------- --------- ----------- --------- ---------
Total revenues.......................... 174,059 174,561 200,908 227,202 255,455 264,388 176,211 213,239
Salaries, wages and benefits............ 102,258 106,606 115,330 130,248 137,794 141,609 101,041 114,006
Commissions............................. 14,606 15,856 20,788 23,730 27,119 27,119 17,686 25,379
General and administrative.............. 36,506 35,365 35,282 40,671 41,421 43,963 27,473 33,779
Profit sharing.......................... 11,086 8,292 16,562 15,893 20,094 692 12,185 15,417
Other................................... 4,711 4,255 7,284 8,526 9,087 5,356 5,360 10,057
--------- --------- --------- --------- --------- ----------- --------- ---------
Operating costs and expenses............ 169,167 170,374 195,246 219,068 235,515 218,739 163,745 198,638
--------- --------- --------- --------- --------- ----------- --------- ---------
Income before income taxes.............. 4,892 4,187 5,662 8,134 19,940 45,649 12,466 14,601
Income taxes............................ 2,513 1,854 2,636 3,793 7,826 17,809 4,824 5,747
--------- --------- --------- --------- --------- ----------- --------- ---------
Income before extraordinary gain........ 2,379 2,333 3,026 4,341 12,114 27,840 7,642 8,854
Extraordinary gain...................... 500 188 782 -- -- -- -- --
--------- --------- --------- --------- --------- ----------- --------- ---------
Net income.............................. $ 2,879 $ 2,521 $ 3,808 $ 4,341 $ 12,114 $ 27,840 $ 7,642 $ 8,854
--------- --------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- --------- ----------- --------- ---------
Pro forma as adjusted earnings
per share (2)......................... $ 1.13
-----------
-----------
OTHER DATA:
EBITDA, as adjusted(3).................. $ 21,112 $ 16,969 $ 29,686 $ 32,033 $ 48,915 $ 51,491 $ 30,385 $ 39,795
Cash provided by (used in) operating
activities............................ (6,342) 7,556 15,907 10,648 25,148 35,153 668 (10,200)
Cash provided by (used in) investing
activities............................ 2,499 (1,974) (2,748) (646) (5,019) (5,033) (2,802) (25,806)
Cash provided by (used in) financing
activities............................ (6,699) (4,412) 93 (5,457) (1,779) 25,454 (1,480) 14,961
<CAPTION>
PRO FORMA
AS
ADJUSTED(1)
-----------
<S> <C>
STATEMENT OF INCOME DATA:
Property management services............ $ 69,034
Brokerage services...................... 61,692
Infrastructure management services...... 47,954
Development and construction services... 23,483
Retail services......................... 6,887
Income from unconsolidated
subsidiaries.......................... 1,467
Gain on disposition of real estate...... 1,566
Other................................... 6,036
-----------
Total revenues.......................... 218,119
Salaries, wages and benefits............ 116,776
Commissions............................. 25,379
General and administrative.............. 35,536
Profit sharing.......................... 531
Other................................... 6,529
-----------
Operating costs and expenses............ 184,751
-----------
Income before income taxes.............. 33,368
Income taxes............................ 13,066
-----------
Income before extraordinary gain........ 20,302
Extraordinary gain...................... --
-----------
Net income.............................. $ 20,302
-----------
-----------
Pro forma as adjusted earnings
per share (2)......................... $ 0.62
-----------
-----------
OTHER DATA:
EBITDA, as adjusted(3).................. $ 40,148
Cash provided by (used in) operating
activities............................ 3,466
Cash provided by (used in) investing
activities............................ (25,892)
Cash provided by (used in) financing
activities............................ 14,550
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
DECEMBER 31, ------------------------
----------------------------------------------------- PRO FORMA, AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(4)
--------- --------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 21,188 $ 22,358 $ 35,610 $ 40,155 $ 58,505 $ 37,460 $ 58,113
Total assets....................................... 53,162 55,774 99,867 114,315 194,314 203,613 223,908
Long-term debt..................................... 10,851 8,425 9,762 7,065 12,361 11,463 2,747
Notes payable on real estate held for sale......... -- -- 22,914 13,182 67,810 51,884 51,884
Deferred compensation.............................. 10,450 14,661 21,468 25,883 20,963 26,806 21,499
Total liabilities.................................. 40,818 43,767 85,516 95,090 160,018 167,212 127,069
Minority interest.................................. 127 27 278 3,932 3,294 4,677 4,677
Stockholders' equity............................... 12,217 11,980 14,074 15,293 31,002 31,724 92,162
</TABLE>
- ------------------------
(1) As adjusted to give effect to the Doppelt Acquisition, the Reincorporation
Transactions and the sale of 5,000,000 shares of Common Stock by the Company
in the Offering and the receipt and application of the net proceeds
therefrom, as though they had occurred on January 1, 1996. See "Use of
Proceeds," "The Company-- Reincorporation Transactions" and "--Recent
Developments."
(2) Pro forma as adjusted earnings per share is based upon 32,837,439 and
24,714,620 weighted average shares of Common Stock outstanding at September
30, 1997 and December 31, 1996, respectively, which includes 28,199,246
shares of Common Stock to be issued in connection with the Reincorporation
Transactions, 5,000,000 shares of Common Stock to be issued in the Offering
and the effect of 2,423,801 options issued under the Assumed Option Plan.
See "The Company--Reincorporation Transactions" and "--Recent Developments."
(3) EBITDA, as adjusted, represents earnings before interest, income taxes,
depreciation and amortization, royalty and consulting fees and profit
sharing. Management believes that EBITDA, as adjusted, can be a meaningful
measure of the Company's operating performance, cash generation and ability
to service debt. However, EBITDA, as adjusted, should not be considered as
an alternative to: (i) net earnings (determined in accordance with generally
accepted accounting principles ("GAAP")); (ii) operating cash flow
(determined in accordance with GAAP); or (iii) liquidity. There can be no
assurance that the Company's calculation of EBITDA, as adjusted, is
comparable to similarly titled items reported by other companies.
(4) As adjusted to give effect to the Reincorporation Transactions and the sale
of 5,000,000 shares of Common Stock in the Offering and the receipt and
application of the net proceeds therefrom, as though they had occurred on
September 30, 1997. Also gives effect to approximately $3.9 million of
payment obligations, due six months following the closing of the Offering,
that the Company incurred in connection with the settlement of claims made
pursuant to a terminated stock appreciation rights plan. See "Use of
Proceeds" and "The Company-- Reincorporation Transactions" and "--Recent
Developments."
28
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are
derived from the Predecessor Company's historical financial statements. The
unaudited pro forma balance sheet, as adjusted, is presented as if the
Reincorporation Transactions and the Offering had occurred on September 30,
1997, and reflects the Predecessor Company at historical values, which includes
the Doppelt Acquisition under the purchase method of accounting. The unaudited
pro forma statements of income, as adjusted, are presented as if the Doppelt
Acquisition, the Reincorporation Transactions and the Offering had occurred on
January 1, 1996, and reflect the Predecessor Company at historical values and
the Doppelt Acquisition under the purchase method of accounting. See "The
Company--Reincorporation Transactions" and "--Recent Developments," "Use of
Proceeds," "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The unaudited pro forma
consolidated financial statements should be read in conjunction with the
historical financial statements of the Predecessor Company and the notes
thereto, the historical balance sheet of the Company and the notes thereto, the
historical financial statements of Doppelt and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information, all included elsewhere in this Prospectus.
The pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable under the
circumstances. The pro forma consolidated financial statements are not
necessarily indications of what the Company's actual income and financial
position would have been as of September 30, 1997, and for the year ended
December 31, 1996 and the nine months ended September 30, 1997, had the Company
completed the Reincorporation Transactions and the Offering as of the dates
indicated, nor does it purport to represent the future financial position or
results of operations of the Company.
29
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------------------------
HISTORICAL COMPANY PRO
------------ FORMA
PREDECESSOR REINCORPORATION BEFORE OFFERING
COMPANY ADJUSTMENTS OFFERING ADJUSTMENTS
------------ ---------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 37,460 (1,496)(A) $ 29,138 $ 67,050(E)
(6,826)(B) (30,000)(F)
(3,803)(G)
(1,556)(H)
(2,716)(I)
Accounts receivable, net........................................... 38,392 38,392
Receivables from affiliates........................................ 1,334 1,334
Notes and other receivables........................................ 7,161 7,161 (8)(G)
Deferred income taxes.............................................. 84 84
Real estate held for sale.......................................... 57,696 57,696
------------ -----------
Total current assets............................................. 142,127 133,805
Furniture and equipment, net......................................... 6,143 6,143
Deferred income taxes................................................ 7,641 7,641
Goodwill, net........................................................ 26,659 26,659
Investments in unconsolidated subsidiaries........................... 7,079 7,079
Other assets......................................................... 13,964 13,964 (350)(J)
------------ -----------
Total assets..................................................... $ 203,613 $ 195,291
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 7,792 $ 7,792
Accrued expenses................................................... 33,579 33,579
Payables to affiliates............................................. 1,989 1,556(C) 3,545 (1,556)(H)
Income taxes payable............................................... 1,242 1,242
Short-term debt.................................................... 30,000 30,000 (30,000)(F)
Current portion of long-term debt.................................. 8,483 8,483 (1,189)(I)
(6,000)(K)
Notes payable on real estate held for sale......................... 51,884 51,884
Other current liabilities.......................................... 423 423 3,880(M)
------------ -----------
Total current liabilities........................................ 135,392 136,948
Long-term debt, less current portion................................. 2,980 2,980 (1,527)(I)
Deferred compensation................................................ 26,806 (1,496)(A) 25,310 (3,811)(G)
Other liabilities.................................................... 2,034 2,034
------------ -----------
Total liabilities................................................ 167,212 167,272
Minority interest.................................................... 4,677 4,677
Stockholders' equity:
Common Stock....................................................... -- -- 50(E)
4(K)
Paid-in capital.................................................... 24,084 (2,388)(D) 21,696 67,000(E)
5,996(K)
27,007(L)
Retained earnings.................................................. 16,966 (6,826)(B) 8,584 (27,007)(L)
(1,556)(C) (350)(J)
(3,880)(M)
Less: Stockholder loans............................................ (6,938) (6,938)
Treasury stock................................................ (2,388) 2,388(D) --
------------ -----------
Total stockholders' equity....................................... 31,724 23,342
------------ -----------
Total liabilities and stockholders' equity....................... $ 203,613 $ 195,291
------------ -----------
------------ -----------
<CAPTION>
COMPANY PRO
FORMA, AS
ADJUSTED
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 58,113
Accounts receivable, net........................................... 38,392
Receivables from affiliates........................................ 1,334
Notes and other receivables........................................ 7,153
Deferred income taxes.............................................. 84
Real estate held for sale.......................................... 57,696
-----------
Total current assets............................................. 162,772
Furniture and equipment, net......................................... 6,143
Deferred income taxes................................................ 7,641
Goodwill, net........................................................ 26,659
Investments in unconsolidated subsidiaries........................... 7,079
Other assets......................................................... 13,614
-----------
Total assets..................................................... $ 223,908
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 7,792
Accrued expenses................................................... 33,579
Payables to affiliates............................................. 1,989
Income taxes payable............................................... 1,242
Short-term debt.................................................... --
Current portion of long-term debt.................................. 1,294
Notes payable on real estate held for sale......................... 51,884
Other current liabilities.......................................... 4,303
-----------
Total current liabilities........................................ 102,083
Long-term debt, less current portion................................. 1,453
Deferred compensation................................................ 21,499
Other liabilities.................................................... 2,034
-----------
Total liabilities................................................ 127,069
Minority interest.................................................... 4,677
Stockholders' equity:
Common Stock....................................................... 54
Paid-in capital.................................................... 121,699
Retained earnings.................................................. (22,653)
Less: Stockholder loans............................................ (6,938)
Treasury stock................................................ --
-----------
Total stockholders' equity....................................... 92,162
-----------
Total liabilities and stockholders' equity....................... $ 223,908
-----------
-----------
</TABLE>
- ------------------------------
(A) Reflects the payment of deferred compensation payable.
(B) Reflects the declaration and payment of dividends.
(C) Reflects the accrual of the payment related to the termination of consulting
agreements with affiliates of the Company.
30
<PAGE>
(D) Reflects the retirement of treasury shares in connection with the
Reincorporation Transactions.
(E) Reflects the sale of 5,000,000 shares of Common Stock in the Offering
($75,000) net of expenses of the Offering ($7,950).
(F) Reflects the repayment of the Existing Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(G) Reflects a payment of the retired Profit Sharing Plan participants' deferred
compensation balances ($3,811) partially offset by a reduction of loans
receivable ($8).
(H) Reflects termination payment relating to the consulting agreements with
affiliates of the Company.
(I) Reflects the assumed repayment of capitalization notes, lines of credit and
other notes payable.
(J) Reflects the non-cash non-recurring charge to write off the deferred loan
cost related to the assumed repayment of the Existing Credit Facility. This
non-cash non-recurring charge is expected to occur during the fourth quarter
of the Company's 1997 fiscal year.
(K) Reflects the conversion of a note payable to Mr. Doppelt into 400,000 shares
of Common Stock.
(L) Reflects the non-cash non-recurring charge to income related to the fact
that the exercise price established at the time that the stock options under
the Assumed Option Plan were granted is less than the initial public
offering price. This non-cash non-recurring charge is expected to occur
during the fourth quarter of the Company's 1997 fiscal year. Following the
Offering, these options, which will be assumed by the Company, will
represent the right to acquire, in the aggregate, 2,423,801 shares of Common
Stock (approximately 6.8% of the shares outstanding following the Offering,
assuming the exercise of such options).
(M) Reflects the non-recurring charge to income resulting from settlement of
claims by certain former employees arising out of a terminated stock
appreciation rights plan. The charge is contingent upon completion of the
Offering.
31
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------------------------
HISTORICAL
--------------- COMPANY PRO
PREDECESSOR REINCORPORATION COMPANY OFFERING FORMA, AS
COMPANY DOPPELT(1) ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
----------- -- --------------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Property management services.................. $ 69,034 $-- $ 69,034 $ 69,034
Brokerage services............................ 61,692 -- 61,692 61,692
Infrastructure management services............ 47,954 -- 47,954 47,954
Development and construction services......... 23,483 -- 23,483 23,483
Retail services............................... 1,912 4,975 6,887 6,887
----------- -- --------- -----------
204,075 4,975 209,050 209,050
Income from investments in unconsolidated
subsidiaries................................ 1,467 -- 1,467 1,467
Gain on disposition of real estate............ 1,566 -- 1,566 1,566
Other income.................................. 6,131 30 $ (101)(A) 6,036 6,036
(24)(B)
----------- -- --------- -----------
213,239 5,005 218,119 218,119
COSTS AND EXPENSES:
Salaries, wages, benefits...................... 114,006 4,281 (1,761)(C) 116,776 116,776
250(D)
Commissions................................... 25,379 -- 25,379 25,379
General and administrative.................... 33,779 1,232 35,011 $ 525(I) 35,536
Profit sharing................................ 15,417 -- (14,886)(G) 531 531
Depreciation and amortization................. 3,274 19 555(E) 3,848 3,848
Interest...................................... 3,336 -- (419)(F) 2,759 (159)(J) 2,401
(158)(G) (199)(K)
Royalty and consulting fees................... 3,167 -- (3,167)(G) -- --
Minority interest............................. 280 -- 280 280
----------- -- --------- -----------
198,638 5,532 184,584 184,751
----------- -- --------- -----------
Income (loss) before income taxes............. 14,601 (527) 33,535 33,368
Income taxes.................................. 5,747 -- 7,384(H) 13,131 (65)(L) 13,066
----------- -- --------- -----------
Net income (loss)............................. $ 8,854 $(527) $ 20,404 $ 20,302
----------- -- --------- -----------
----------- -- --------- -----------
Pro forma as adjusted earnings per share...... $ 0.62
-----------
-----------
Weighted average common shares outstanding.... 32,837,439
-----------
-----------
</TABLE>
- ------------------------
(1) Reflects the period January 1, 1997 through August 22, 1997, the date that
the Predecessor Company acquired Doppelt.
32
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------
HISTORICAL
--------------- COMPANY PRO
PREDECESSOR REINCORPORATION COMPANY OFFERING FORMA, AS
COMPANY DOPPELT ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
----------- -- --------------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Property management services.................. $ 90,179 $-- $ 90,179 $ 90,179
Brokerage services............................ 72,095 -- 72,095 72,095
Infrastructure management services............ 50,836 -- 50,836 50,836
Development and construction services......... 22,732 -- 22,732 22,732
Retail services............................... 2,393 8,992 11,385 11,385
----------- -- --------- -----------
238,235 8,992 247,227 247,227
Income from investments in unconsolidated
subsidiaries................................ 594 -- 594 594
Gain on disposition of real estate............ 6,630 -- 6,630 6,630
Other income.................................. 9,996 36 $ (68)(A) 9,937 9,937
(27)(B)
----------- -- --------- -----------
255,455 9,028 264,388 264,388
COSTS AND EXPENSES:
Salaries, wages, benefits..................... 137,794 6,773 (3,358)(C) 141,609 141,609
400(D)
Commissions................................... 27,119 -- 27,119 27,119
General and administrative.................... 41,421 1,842 43,263 $ 700(I) 43,963
Profit sharing................................ 20,094 -- (19,402)(G) 692 692
Depreciation and amortization................. 3,196 31 931(E) 4,158 4,158
Interest...................................... 1,726 -- (232)(F) 1,193 (201)(J) 992
(301)(G) --
Royalty and consulting fees................... 3,959 -- (3,959)(G) -- --
Minority interest............................. 206 206 206
----------- -- --------- -----------
235,515 8,646 218,240 218,739
----------- -- --------- -----------
Income before income taxes.................... 19,940 382 46,148 45,649
Income taxes.................................. 7,826 -- 10,179(H) 18,005 (196)(L) 17,809
----------- -- --------- -----------
Net income.................................... $ 12,114 $382 $ 28,143 $ 27,840
----------- -- --------- -----------
----------- -- --------- -----------
Pro forma as adjusted earnings per share...... $ 1.13
-----------
-----------
Weighted average common shares outstanding.... 24,714,620
-----------
-----------
</TABLE>
- ------------------------------
(A) Reflects the decrease in interest income resulting from the repayment of
loans owed to the Company by certain Profit Sharing Plan participants.
(B) Reflects the decrease in interest income related to the Doppelt stockholder
loans which were not included in the acquisition.
(C) Reflects the reduction of historical salaries to the amounts payable under
an employment agreement entered into in connection with the Doppelt
Acquisition.
(D) Reflects the amortization of the $2.0 million payment to Mr. Doppelt in
conjunction with his employment agreement. See "The Company--Recent Events."
(E) Represents the amortization of goodwill resulting from the Doppelt
Acquisition. Goodwill is amortized over 30 years.
(F) Reflects the reduction in interest expense related to the First Tennessee
credit facility repaid with proceeds from the Existing Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(G) Reflects the termination of the Company's policy of granting profit sharing
interests under the Profit Sharing Plan for key employees, including the
related interest expense on the retired Profit Sharing Plan participants'
balances, and the termination of royalty and consulting agreements with
affiliates of the Company. The profit sharing expense not eliminated relates
to Project Distributions for retired Profit Sharing Plan participants which
the Company cannot terminate without such participants' consent. In
connection with the Reincorporation Transactions, the Profit Sharing Plan
will be closed to future participants. All participants currently employed
by the Predecessor Company waived their rights to Project Distributions. See
"The Company--Reincorporation Transactions."
(H) Reflects the increase in taxes due to the pro forma adjustments and the
additional income tax expense on the Doppelt earnings as this entity was not
previously subject to income taxes.
(I) Reflects the additional costs of being a public company.
(J) Reflects the decrease in interest expense related to the repayment of
capitalization notes, lines of credit and other notes payable.
(K) Reflects the decrease in interest expense due to the repayment of the
Existing Credit Facility.
(L) Reflects the decrease in taxes due to the pro forma offering adjustments.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Predecessor
Company's Consolidated Financial Statements and the notes thereto, the Summary
Financial Data and the other information included elsewhere in this Prospectus.
OVERVIEW
Trammell Crow Company is one of the largest diversified commercial real
estate service firms in the United States. As a means of addressing the
comprehensive real estate service requirements of its diverse group of clients,
the Company is organized into five principal lines of business. Property
management services include serving the clients' needs with respect to all
aspects of building operations, tenant relations and oversight of building
improvement processes, primarily for building owners who do not occupy the
properties managed by the Company. Brokerage services include advising buyers,
sellers, landlords and tenants in connection with the sale and leasing of
office, industrial and retail space and land. Infrastructure management entails
providing comprehensive day-to-day occupancy related services, principally to
large corporations which occupy commercial facilities in multiple locations.
Specific infrastructure management services include administration, day-to-day
maintenance and repair of client occupied facilities and strategic functions
such as space planning, relocation coordination, facilities management and
portfolio management. The development and construction services provided by the
Company include financial planning, site acquisition, procurement of approvals
and permits, design and engineering coordination, construction bidding and
management and tenant finish coordination, project close-out and user move
coordination, general contracting and project finance advisory services. The
Company's retail services business provides tenant representation, disposition,
development and financial services to national and global retail customers.
The Company has benefited from the recovery of the real estate market in the
early 1990's. The Company's annual revenues increased to $255.5 million in 1996
from $200.9 million in 1994. This revenue growth was achieved during a period
when the composition of the Company's revenues shifted significantly as the
Company increased the role which brokerage, infrastructure management,
development and construction and retail services play in its overall strategy.
Rising rental and occupancy rates have largely mitigated the adverse effects
that a decrease in square footage under the Company's management might otherwise
have had on the Company's property management services revenues, and have had
the residual effect of increasing revenues from the Company's other business
lines. The steady cash flows produced by the Company's property management
services business have allowed the Company to expand its presence in these
complementary service businesses to meet the needs of its client base. From 1994
to 1996, revenues from property management services decreased by approximately
9.5%, and as a percentage of the Company's total revenues, they declined from
49.6% to 35.3%. Over this same period, revenues from brokerage, infrastructure
management, development and construction (including gain on disposition of real
estate and income from unconsolidated subsidiaries) and retail services
increased from a combined 48.9% of total revenues to 60.8% of total revenues.
The Company believes that its strong customer service orientation and its
focus on cross-selling all of its services strengthen its relationships with its
clients, which results in recurring revenues. The Company believes that its
success in establishing strong client relationships is demonstrated by the fact
that in 1996, approximately 94% of its revenues from its property management,
infrastructure management and development and construction services from those
businesses were generated from clients to whom the Company had provided services
in the prior year.
The Company's revenue streams consist primarily of recurring payments made
pursuant to service contracts and variable transaction-oriented payments. The
Company typically receives base monthly fees from clients for services provided
in its property management business. A majority of the fees generated by
34
<PAGE>
the Company's infrastructure management business are contractual and recurring
in nature. The fees generated in the Company's brokerage and retail service
businesses are typically paid in connection with the consummation of a
transaction such as the purchase or sale of commercial property or the execution
of a lease. The Company typically earns fees for development and construction
services which are based upon a negotiated percentage of a project's cost, and
the Company may receive incentive bonuses for completing a development project
under budget and within certain critical time deadlines. Although the fees
generated by the Company's brokerage service and development and construction
service businesses are not typically recurring in nature, a majority of the
aggregate revenues generated by these businesses in 1996 was earned in the
performance of services relating to properties included in the Company's
approximately 230 million square feet property management and leasing portfolio.
In 1996, the percentage of the Company's total revenues generated by each of its
property management, brokerage, infrastructure management, development and
construction and retail service businesses was 35.3%, 28.2%, 19.9%, 11.7% and
0.9%, respectively.
A majority of the Company's revenues that are not generated by its primary
businesses are generated by an insurance agency subsidiary and are based upon
commissions on insurance written on properties included in the Company's
property management and leasing portfolio and on workmen's compensation
insurance for the Company's employees. Despite a reduction in square feet under
the Company's management over the last five years, these other revenues have
increased significantly because of more favorable commission rates with
insurance carriers. In 1996, this subsidiary generated revenues of $5.2 million.
The Company's operating expenses consist of salaries, wages and benefits,
commissions, general and administrative expenses, rent, depreciation and
amortization expense, interest, royalty and consulting fees and minority
interest. Salaries, wages and benefits and commissions, which constitute a
majority of the Company's total operating costs and expenses, tend to be
relatively constant as a percentage of revenues on an annual basis.
Since 1991 the Company has maintained a profit sharing plan for key
employees (the "Profit Sharing Plan"). Each participant in the Profit Sharing
Plan has an account that is adjusted annually to reflect the participant's
percentage of the earnings of a profit sharing unit or a designated project,
cash distributions and other matters. Distributions to participants may only be
made from available cash (as defined in the Profit Sharing Plan), and any
difference between the amount expensed and the amount paid to the participants
is recorded as deferred compensation. See "Management--1995 Profit Sharing
Plan." The Company's Board of Directors approves the amount of earnings before
profit sharing which will be available to profit sharing participants. In
September and October 1997, the Company made distributions of approximately
$11.3 million in partial payment of deferred compensation balances. Immediately
prior to the closing of the Offering, the Company will terminate any future
profits participation under the Profit Sharing Plan and will partially terminate
ongoing participation in existing projects. Of the approximately $29.1 million
balance that the Company anticipates will be accrued as deferred compensation
under the Profit Sharing Plan as of the date immediately preceding the date of
this Prospectus, approximately $3.8 million will be paid to retired Profit
Sharing Plan participants from the proceeds of the Offering, and the remaining
$25.3 million, will be paid without interest, in roughly equal installments on
the final date of each of the first eight fiscal quarters which end after the
closing of the Offering. Profit sharing expense attributable to projects, to the
extent profit participation in projects is not terminated prior to the closing
of the Offering, will continue to accrue until the projects are sold by the
Company. See "The Company-- Reincorporation Transactions." Management believes
that the termination of any future profits participation under the Profit
Sharing Plan should have a significant positive effect on the Company's net
income. Payment of deferred compensation balances over each of the first eight
quarters following the Closing of the Offering should decrease the Company's net
cash flow.
Under certain agreements, two significant stockholders of the Company
receive royalty and consulting fees totalling approximately 12% of earnings
before profit sharing. Payments under these arrangements
35
<PAGE>
aggregated $3.96 million, $2.44 million and $2.68 million in 1996, 1995 and
1994, respectively. Immediately prior to the closing of the Offering, the
Royalty Agreement and consulting arrangements will be terminated. The Company
has agreed to pay approximately $1.6 million to Mr. Williams upon the
termination of the consulting arrangements. Management expects that the
termination of the Royalty Agreement and consulting arrangements should have a
positive effect on the Company's net income. See "Certain Transactions--Royalty
Agreement and License Agreement" and "--Consulting Arrangements."
Over the last two years, an average of 35.6% of the Company's income before
income taxes has been generated in the fourth quarter, due primarily to a
calendar year-end focus by the commercial real estate industry on the completion
of transactions. In addition, an increasing percentage of the Company's property
management and infrastructure management contracts provide for bonus payments if
the Company achieves certain performance targets. Such incentive payments are
generally earned in the fourth quarter. In contrast, the Company's non-variable
operating expenses, which are treated as expenses when incurred during the year,
are relatively constant on a quarterly basis. See "--Quarterly Results of
Operations and Seasonality."
The Company's revenues, net income and cash flow from operations have each
grown at a compound annual rate of 12.8%, 78.4% and 25.7%, respectively, over
the past three years. While the Company has primarily used internally generated
funds to achieve this growth, it intends to continue to pursue an aggressive
growth strategy by expanding client relationships, expanding the breadth of its
service offerings, making selective co-investments with its clients and pursuing
selective strategic acquisitions. The Company believes that its ability to
pursue acquisitions will be greatly enhanced by its ability to use external
sources of capital, including the public capital markets and the commercial
banking industry, to finance such acquisitions. As part of its strategy to
pursue selective strategic acquisitions, the Company recently purchased the
business of Doppelt. The Company believes that this strategic acquisition will
provide the foundation for rapidly growing the Company's retail services
business. See "The Company--Recent Developments."
PRO FORMA FINANCIAL INFORMATION
The Pro Forma Consolidated Financial Statements included elsewhere in this
Prospectus give effect to, among other things, the Doppelt Acquisition, the
Reincorporation Transactions and the Offering. See "Pro Forma Consolidated
Financial Statements."
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1997
On a pro forma basis the Company's total revenue for the nine months ended
September 30, 1997, was $218.1 million, compared to actual historical revenue of
$213.2 million. The increase in pro forma revenues reflects the additional
retail services revenue attributable to the Doppelt Acquisition.
Pro forma income before income taxes for the nine months ended September 30,
1997, was $33.4 million, compared to the actual historical income before income
taxes of $14.6 million. The increase in income before income taxes primarily
results from the termination of the royalty and consulting fees paid to two
affiliates of the Company, the reduction of historical salaries paid by Doppelt
to amounts required under an employment agreement signed upon closing of the
Doppelt Acquisition and the termination of future awards under the Profit
Sharing Plan.
Pro forma net income for the nine months ended September 30, 1997, was $20.3
million, as compared to the actual historical net income of $8.9 million. The
increase in net income is primarily a result of the termination of future awards
under the Profit Sharing Plan (as discussed in the preceding paragraph) and the
additional income attributable to the Doppelt Acquisition. These increases were
partially offset by the tax effect of the additional income from the pro forma
adjustments as well as the tax effect on the income of Doppelt, which was
historically not subject to income tax because Doppelt is a Subchapter S
Corporation.
36
<PAGE>
PRO FORMA YEAR ENDED DECEMBER 31, 1996
On a pro forma basis the Company's total revenue for the year ended December
31, 1996, was $264.4 million, compared to actual historical revenue of $255.5
million. The increase in pro forma revenues reflects the additional retail
services revenue attributable to the Doppelt Acquisition.
Pro forma income before income taxes for the year ended December 31, 1996,
was $45.6 million, compared to the actual historical income before income taxes
of $19.9 million. The increase in income before income taxes primarily results
from the termination of the royalty and consulting fees paid to two affiliates
of the Company, the reduction of historical salaries paid by Doppelt to amounts
required under an employment agreement signed upon closing of the Doppelt
Acquisition and the termination of future awards under the Profit Sharing Plan.
Pro forma net income for the year ended December 31, 1996, was $27.8
million, as compared to the actual historical net income of $12.1 million. The
increase in net income is primarily a result of the termination of future awards
under the Profit Sharing Plan (as discussed in the preceding paragraph) and the
additional income attributable to the Doppelt Acquisition. These increases were
partially offset by the tax effect of the additional income from the pro forma
adjustments as well as the tax effect on the income of Doppelt, which was
historically not subject to income tax because Doppelt is a Subchapter S
Corporation.
The pro forma adjustments to the consolidated statements of income do not
reflect the approximately $27.0 million non-cash charge to the income statement
that is expected to be recorded in the fourth quarter of 1997 related to the
fact that the exercise price established at the time that the stock options
under the 1997 Option Plan were granted is less than the initial public offering
price. The incremental difference between these prices will be recorded as
additional compensation expense at completion of the Offering. The adjustments
also do not reflect a charge in the amount of approximately $3.9 million that is
expected to be recorded in the fourth quarter of 1997 to give effect to payment
obligations, due six months following the closing of the Offering, that the
Company incurred in connection with settlement of claims made pursuant to a
terminated stock appreciation rights plan. These obligations will bear interest
at LIBOR plus 1% per annum. These adjustments were not recorded in the pro forma
statement of income as they are non-recurring expenses.
37
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated
Statements of Income for each of the three years in the period ended December
31, 1996, and for each of the nine month periods ended September 30, 1996 and
1997, as a percent of revenue for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Property management services.............................. 49.6% 40.9% 35.3% 38.9% 32.4%
Brokerage services........................................ 24.2% 27.3% 28.2% 27.9% 28.9%
Infrastructure management services........................ 13.5% 17.0% 19.9% 19.1% 22.5%
Development and construction services..................... 6.4% 9.0% 8.9% 7.7% 11.0%
Retail services........................................... 1.0% 0.7% 0.9% 0.7% 0.9%
Income from unconsolidated subsidiaries................... 1.6% 0.1% 0.2% 0.2% 0.7%
Gain on sale of real estate............................... 2.3% 2.2% 2.6% 2.7% 0.7%
Other..................................................... 1.4% 2.8% 4.0% 2.8% 2.9%
----- ----- ----- ----- -----
Total revenues.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries, wages & benefits................................ 57.4% 57.3% 53.9% 57.3% 53.5%
Commissions............................................... 10.4% 10.4% 10.6% 10.0% 11.9%
General and administrative................................ 17.6% 17.9% 16.2% 15.6% 15.8%
Profit sharing............................................ 8.2% 7.0% 7.9% 6.9% 7.2%
Other..................................................... 3.6% 3.8% 3.6% 3.1% 4.7%
----- ----- ----- ----- -----
Total operating costs and expenses...................... 97.2% 96.4% 92.2% 92.9% 93.1%
----- ----- ----- ----- -----
Income before income taxes................................ 2.8% 3.6% 7.8% 7.1% 6.9%
Income taxes.............................................. 1.3% 1.7% 3.1% 2.7% 2.7%
----- ----- ----- ----- -----
Income before extraordinary items......................... 1.5% 1.9% 4.7% 4.4% 4.2%
Extraordinary gain, net of taxes.......................... 0.4% -- -- -- --
----- ----- ----- ----- -----
Net income................................................ 1.9% 1.9% 4.7% 4.4% 4.2%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
CONSOLIDATED RESULTS
TOTAL REVENUE. The Company's total revenue grew $37.0 million, or 21.0%, to
$213.2 million for the nine months ended September 30, 1997 from $176.2 million
for the nine months ended September 30, 1996.
Property management services revenue, which represented 32.4% of the
Company's total revenue for the nine months ended September 30, 1997, remained
relatively constant at $69.0 million for the nine months ended September 30,
1997 as compared to $68.6 million for the prior year period. That slight
increase was primarily due to an increase in square feet of property management
assignments, and increased revenues from the clients on whom the Company's
national customer initiative has focused.
Brokerage services revenue, which represented 28.9% of the Company's total
revenue for the nine months ended September 30, 1997, increased $12.6 million,
or 25.5%, to $61.7 million for the nine months ended September 30, 1997 from
$49.1 million for the nine months ended September 30, 1996. This revenue growth
resulted from an increase in the aggregate number of brokers over the previous
year.
Infrastructure management services revenue, which represented 22.5% of total
revenues for the nine months ended September 30, 1997, increased $14.4 million,
or 42.6%, to $48.0 million for the nine months ended September 30, 1997 from
$33.6 million for the nine months ended September 30, 1996. The revenue growth
resulted primarily from the addition of new customers. These new customers
include, but are not
38
<PAGE>
limited to, Dairy Mart Convenience Stores, Inc., Key Corp., University of
Pennsylvania and Frontier Corporation. Additionally, there was expansion of
project management and facility management services provided to existing
customers such as United Healthcare and NationsBank.
Development and construction revenue includes development and construction
services fees, net construction revenues, gain on disposition of real estate and
income from unconsolidated subsidiaries. Development and construction revenue,
which represented 12.4% of the Company's total revenue for the nine months ended
September 30, 1997, increased $7.8 million, or 42.1%, to $26.5 million from
$18.7 million for the nine months ended September 30, 1996. This revenue growth
was primarily due to a $6.1 million increase in development fees from $5.4
million for the nine months ended September 30, 1996 to $11.5 million for the
nine months ended September 30, 1997, $1.1 million in rental income in 1997
related to operations of a real estate held for sale project and $2.8 million
increase in construction service fees and net construction revenues due to the
timing of construction projects. These increases were offset by a $3.2 million
decrease in gain on disposition of real estate from $4.8 million for the nine
months ended September 30, 1996 to $1.6 million for the nine months ended
September 30, 1997. Income from unconsolidated subsidiaries increased $1.1
million, or 280%, to $1.5 million for the nine months ended September 30, 1997,
from $0.4 million for the nine months ended September 30, 1996, due to the
effect from the timing of development transactions.
OPERATING COSTS & EXPENSES. The Company's operating costs and expenses
increased by $34.9 million, or 21.3%, to $198.6 million for the nine months
ended September 30, 1997 from $163.7 million for the nine months ended September
30, 1996. The increase in operating costs and expenses is generally due to
increased salaries, wages and benefits associated with an increase in staffing
levels for the Company's infrastructure management business and increased
commissions associated with increased brokerage service revenues. In addition,
the Company's general and administrative expenses increased over the nine months
ended September 30, 1997 due to increased expenditures associated with the
Company's technological support systems.
INCOME BEFORE INCOME TAXES. Based on the factors noted above, the Company's
income before income taxes increased $2.1 million, or 17.1%, to $14.6 million
for the nine months ended September 30, 1997 from $12.5 million for the nine
months ended September 30, 1996.
NET INCOME. Net income increased $1.3 million, or 15.9%, to $8.9 million
for the nine months ended September 30, 1997 from $7.6 million for the nine
months ended September 30, 1996. As a percent of total revenue, net income
decreased to 4.2% for the nine months ended September 30, 1997 from 4.4% for the
prior year period.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
CONSOLIDATED RESULTS
TOTAL REVENUE. The Company's total revenue grew $28.3 million, or 12.4%, to
$255.5 million in 1996 from $227.2 million in 1995.
Property management services revenue, which represented 35.3% of the
Company's total revenue in 1996, decreased $2.8 million, or 3.0%, to $90.2
million in 1996 from $93.0 million in 1995. This decrease was primarily due to
the net reduction in square footage of property management assignments and a
relative increase in the number of square feet under management constituted by
industrial properties, which typically generate lower property management
revenues per square foot than office, retail and other commericial property
types. Recognizing a trend toward a consolidation of service providers utilized
by large institutional owners and investors, the Company implemented a national
marketing program focused on its large customers. The implementation of this
strategic initiative increased square footage under management for these
customers by 11.3 million square feet, or 12.9%, to 99.1 million square feet in
1996 from 87.8 million square feet in 1995.
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Brokerage services revenue, which represented 28.2% of 1996 total revenues,
increased $10.1 million, or 16.4%, to $72.1 million in 1996 from $62.0 million
in 1995. This revenue growth resulted primarily from an increase in tenant
representation fees of $3.7 million, or 30.0%, to $16.0 million in 1996 from
$12.3 million in 1995 and the increase in investment sales revenue of $3.6
million, or 50.9%, to $10.7 million in 1996 from $7.1 million in 1995. The
Company believes that this revenue growth is attributable to the continuation of
a strategic initiative to expand its marketing services beyond project leasing
to include tenant representation, investment sales and land sales. This strategy
resulted in an increase in the aggregate number of brokers by 40, or 20.5%, to
235 in 1996 from 195 in 1995.
Infrastructure management services revenue, which represented 19.9% of the
Company's total revenues in 1996 increased $12.1 million, or 31.4%, to $50.8
million in 1996 from $38.7 million in 1995. The revenue growth resulted
primarily from the addition of new customers including BankOne, Niagara Mohawk
Power Corporation and Sovereign Bancorp. Additionally, there was expansion of
services provided to existing customers including Exxon Corporation, Baxter
International, Inc. and United healthcare Corporation. In addition, in September
1996, the Company acquired the remaining outstanding stock of Primaris Corporate
Services, Ltd., a Canadian provider of infrastructure management services. This
acquisition, accounted for under the purchase method, increased revenues by
approximately $1.0 million in 1996.
Development and construction revenues include development and construction
service fees, gain on disposition of real estate and income from unconsolidated
subsidiaries. Development and construction revenue, which represented 11.7% of
1996 total revenue, increased $4.5 million or 17.4%, to $30.0 million in 1996
from $25.5 million in 1995. The revenue growth was primarily due to increases in
gross profit on general contracting services of $1.0 million, or 34.8%, to $3.9
million in 1996 from $2.9 million in 1995, a decrease in development fees of
$0.5 million, or 5.8%, to $8.5 million in 1996 from $9.0 million in 1995 and an
increase in gain on sale of real estate of $1.6 million, or 31.9%, to $6.6
million in 1996 from $5.0 million in 1995. Income from unconsolidated
subsidiaries increased $0.5 million or 421%, to $0.6 million in 1996 from $0.1
million in 1995. In general, these service revenues are affected by the timing
of development transactions.
OPERATING COSTS AND EXPENSES. The Company's operating costs and expenses
increased by $16.4 million, or 7.5%, to $235.5 million in 1996 from $219.1
million in 1995. The increase in operating costs and expenses is primarily due
to increased salaries, wages and benefits (associated with the increased
staffing required for the infrastructure management service business) and
increased commissions (associated with increased brokerage services revenues).
The Company's profit sharing increased by $4.2 million, or 26.4%, to $20.1
million in 1996 from $15.9 million in 1995 due to the increase in profitability.
As a percentage of total revenue, operating costs and expenses declined to 92.2%
in 1996 from 96.4% in 1995, primarily as a result of the Company's ability to
spread its fixed costs over a greater revenue base.
INCOME BEFORE INCOME TAXES. The Company's income before income taxes
increased $11.8 million, or 145.1%, to $19.9 million in 1996 from $8.1 million
in 1995 due to the factors described above.
NET INCOME. Net income increased $7.8 million, or 179.1%, to $12.1 million
in 1996 from $4.3 million in 1995. As a percent of total revenue, net income
increased to 4.7% in 1996 from 1.9% in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
CONSOLIDATED RESULTS
TOTAL REVENUE. The Company's total revenues grew $26.3 million, or 13.1%,
to $227.2 million in 1995 from $200.9 million in 1994.
Property management services revenue, which represented 40.9% of the
Company's total revenue in 1995, decreased $6.6 million, or 6.7%, to $93.0
million in 1995 from $99.6 million in 1994. This decrease
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was primarily due to a relative increase in the number of square feet under
management constituted by industrial properties, which typically generate lower
property management revenues per square foot than office, retail and other
commercial property types.
Brokerage services revenue, which represented 27.3% of the Company's 1995
total revenue, increased $13.3 million, or 27.4%, to $62.0 million in 1995 from
$48.7 million in 1994. The revenue growth resulted from the increase in tenant
representation fees and in investment sales revenue resulting from
implementation of the Company's strategy to aggressively pursue these business
lines. The Company added 49 brokers in 1995 to fuel this growth.
Revenue from infrastructure management services, which represented 17.0% of
the Company's 1995 total revenues, increased $11.6 million, or 42.9%, to $38.7
million in 1995 from $27.1 million in 1994. The revenue growth resulted
primarily from the addition of new customers such as Corestates, Dade
International, Fleet, IBM, McDonalds, Microsoft, Nova Gas Transmission and Union
Planters, as well as the expansion of the services provided to certain
infrastructure management clients, including Exxon Corporation and Mobil.
Development and construction services include development and construction
service fees, gain on disposition of real estate and income from unconsolidated
subsidiaries. Development and construction services revenue, which represented
11.2% of the Company's 1995 total revenue, increased $4.9 million, or 24.0%, to
$25.5 million in 1995 from $20.6 million in 1994. This revenue growth was
primarily due to a $4.8 million increase in development fees from $4.2 million
in 1994 to $9.0 million in 1995 and an increase in construction management
services fees of $0.5 million to $7.1 million in 1995 from $6.6 million in 1994.
Additionally, gain on sale of real estate increased $0.4 million, or 8.2%, from
$4.6 million in 1994 to $5.0 million in 1995. These increases are partially
offset by income from unconsolidated subsidiaries which decreased $3.0 million.
The $3.1 million of income from unconsolidated subsidiaries in 1994 primarily
relates to the sale of a building.
OPERATING COSTS AND EXPENSES. The Company's operating costs and expenses
increased by $23.9 million, or 12.2%, to $219.1 million in 1995 from $195.2
million in 1994. The increase in operating costs and expenses is primarily due
to increased salaries, wages and benefits associated with the increased staffing
required for the infrastructure management services business, increased
commissions associated with increased brokerage services revenues and increased
general and administrative expenses which are primarily attributable to the
Company's increased expenditures related to certain information and technology
infrastructure systems. The Company's profit sharing decreased by $0.7 million,
or 4.0%, to $15.9 million in 1995 from $16.6 million in 1994 due to the increase
in revenues not available for profit sharing distributions. As a percentage of
total revenues, operating costs and expenses decreased to 96.4% in 1995 from
97.2% in 1994, primarily as a result of the decrease in profit sharing.
INCOME BEFORE INCOME TAXES. The Company's income before income taxes
increased $2.4 million, or 43.7%, to $8.1 million in 1995 from $5.7 million in
1994.
NET INCOME. Net income increased $0.5 million, or 14.0%, to $4.3 million in
1995 from $3.8 million in 1994. As a percent of total revenue, net income
remained constant at 1.9% in 1995 and 1994.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table presents unaudited quarterly results of operations data
for the Company for each of the four quarters of 1996 and 1995. This quarterly
information is unaudited but, in the opinion of management, reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the information for the periods presented. The results of
operations for any quarter are not necessarily indicative of results for any
future period. Revenues and income before profit sharing and taxes during the
fourth fiscal quarter historically has been somewhat greater than in the first
three fiscal quarters, primarily because the Company's clients have a
demonstrated tendency to close transactions
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toward the end of the fiscal year. The timing and introduction of new contracts
and other factors may also cause quarterly fluctuations in the Company's results
of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
----------- --------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996:
Revenues..................................................... $ 56,397 $ 54,299 $ 65,515 $ 79,244
Income before income taxes................................... 3,025 3,507 5,934 7,474
Net income................................................... $ 1,876 $ 2,093 $ 3,673 $ 4,472
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
----------- --------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995:
Revenues..................................................... $ 47,415 $ 53,692 $ 54,530 $ 71,565
Income before income taxes................................... 663 2,693 2,028 2,750
Net income................................................... $ 420 $ 1,371 $ 1,082 $ 1,468
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources requirements include
expenditures for real estate held for sale and payments on notes payable
associated with its development and construction activities; the funding of
working capital needs, primarily accounts receivable from its clients and
affiliates; and the funding of capital investments. Historically, the Company
has financed its operations, investments and acquisitions with internally
generated funds, and additional liquidity has been available to the Company
through deferred compensation arrangements under its Profit Sharing Plan. The
Company will terminate the Profit Sharing Plan immediately prior to the closing
of the Offering, and the Company expects that its cash flow from operations in
future periods will be greater as a result of this change. In addition, the
Company has routinely financed its development and construction services
activities with construction loans secured by underlying real estate.
Net cash flow used in operating activities totaled $10.2 million for the
nine months ended September 30, 1997, compared to net cash provided by operating
activities of $0.7 million for the same period in 1996. The primary reasons for
this change are an increase in payments on notes payable for real estate held
for sale and an increase in accrued liabilities due to timing of payment of
accrued liabilities and accounts payables. These increases were offset by a
decrease in deferred compensation balances due to the profit sharing
distribution made in September 1997. Net cash flows provided by operating
activities totaled $25.1 million, $10.6 million and $15.9 million for the years
ended December 31, 1996, 1995 and 1994, respectively. The changes in these cash
flows for these periods can be attributed primarily to increases in net income,
fluctuations in the net proceeds from real estate development and construction
(which contributed to increases in cash flow in 1994 and 1996 and a decrease in
1995) and variations in accounts receivable, accounts payable and accrued
expenses.
Net cash flow used in investing activities totaled $25.8 million for the
nine months ended September 30, 1997 compared to $2.8 million for the same
period in 1996. This change is primarily attributable to the acquisition of
Doppelt in August 1997, additional capital expenditures for technology related
fixed assets and the acquisition of investments in unconsolidated subsidiaries,
as offset by distributions from unconsolidated subsidiaries and contributions
from minority interest. Net cash flows used in investing activities totaled $5.0
million, $0.6 million and $2.7 million for the years ended December 31, 1996,
1995 and 1994, respectively. The changes in these cash flows for these periods
can be attributed primarily to an increase in technology related fixed asset
expenditures.
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Net cash flow provided by financing activities totaled $15.0 million for the
nine months ended September 30, 1997 compared to the net cash flow used in
financing activities of $1.5 million for the same period in 1996. The reasons
for this change are due to an increase of debt proceeds from the Existing Credit
Facility and the repayment of stock loans. These increases were offset by
increased debt payments and dividends. Net cash flows (used in) provided by
financing activities totaled ($1.8 million), ($5.5 million) and $0.1 million for
the years ended December 31, 1996, 1995 and 1994, respectively. The changes in
these cash flows for these periods can be attributed primarily to payments on
debt and payment of dividends. In connection with a private placement of stock
described below, the Company incurred indebtedness to repurchase outstanding
shares of common stock from certain of its shareholders.
In August 1996, the Company offered stock to certain employees and directors
in a private offering. In connection with the private offering the Company
utilized a credit facility in the amount of $7.75 million from First Tennessee
Bank, N.A. A portion of the funds borrowed under this credit facility were used
to finance the repurchase of common stock and the remainder was loaned to
certain stockholders to allow such stockholders to pay certain tax liabilities.
This credit facility was a fully amortizing 5-year obligation which bore
interest at the base rate as announced by First Tennessee Bank, NA from time to
time plus 0.5% per annum. All amounts outstanding under this credit facility
were repaid at August 22, 1997.
On August 22, 1997, the Predecessor Company established a $35 million credit
facility with Bankers Trust Company and certain other lenders (the "Existing
Credit Facility"). Under the terms of the Existing Credit Facility, the
Predecessor Company can obtain loans which are Base Rate Loans or Eurodollar
Rate Loans. Base Rate Loans bear interest at a base rate (which is the higher of
the prime rate announced from time to time by Bankers Trust Company or an
average federal funds rate plus .5%) plus a margin which ranges from 0.0% to
0.75% depending upon the Predecessor Company's leverage ratio at the date the
margin is determined. Eurodollar Rate Loans bear interest at an adjusted
Eurodollar rate plus a margin which ranges from 0.625% to 1.75% depending upon
the Predecessor Company's leverage ratio at the date the margin is determined.
As of the date of this Prospectus, the Company had borrowed $31.0 million under
the Existing Credit Facility, all of which bears interest at an annual rate of
6.625%. Approximately $7.0 million of this amount was used to refinance the debt
incurred with First Tennessee in connection with the private placement in 1996,
approximately $22.7 million was used to make certain cash payments in connection
with the Doppelt Acquisition and $1.0 million for working capital purposes. See
"The Company--Recent Developments." The Existing Credit Facility limits the
Company's ability to pay dividends or other similar distributions in excess of
$19.0 million. The Company anticipates using approximately $31.0 million of the
net proceeds from the Offering to repay all amounts outstanding under the
Existing Credit Facility.
The Company is currently negotiating a $150 million master line of credit.
The Company has obtained a commitment letter (the "Commitment Letter"), from
NationsBank of Texas, N.A., a national banking association ("NationsBank") in
connection with a revolving credit facility in the amount of up to $150 million
(the "Replacement Facility"). The Company expects to borrow under the
Replacement Facility to finance future strategic acquisitions, fund its
co-investment activities and provide the Company with an additional source of
working capital. The Company anticipates that the Replacement Facility will
contain financial and other covenants, including limitations on payment of cash
dividends or other distribution of assets. The Company has not yet entered into
definitive documentation for the Replacement Facility, and the Company's ability
to obtain financing under the Replacement Facility is subject to certain terms
and conditions, including, without limitation, (a) NationsBank's continuing
satisfaction that there has not occurred any material adverse change in the
financial condition, business, operations, assets or prospects of the Company;
and (b) the negotiation, execution and delivery of definitive documentation with
respect to the Replacement Facility in a form, and of substance, satisfactory to
the Company, the Agents, and the legal counsel of each. It is anticipated that
shares of certain wholly-owned subsidiaries having 5% or more of the
consolidated assets, revenues or earnings of the Company, and subsidiaries that
are engaged primarily in the business of real estate development and ownership,
whose assets are not
43
<PAGE>
subject to any financing, having more than 5% of the consolidated assets,
revenues or earnings of the Company, will be pledged as security for the
Replacement Facility. There are no assurances that the Company will be able to
obtain the Replacement Facility on terms favorable to the Company.
Following the closing of the Offering, the Company intends to retain
earnings to finance its growth and, therefore, does not anticipate paying any
dividends in the foreseeable future. The Company believes that funds generated
from operations, together with existing cash, the net proceeds of the Offering
and available credit under the Replacement Facility will be sufficient to
finance its current operations and planned capital expenditure requirements and
internal growth for the foreseeable future. If the Company enters into the UPenn
Contract or consummates any of the Development Purchases, the Company intends to
meet its payment obligations under such arrangements by using up to $22.5
million of the net proceeds of the Offering and by borrowing under the
Replacement Facility. The Company's need, if any, to raise additional funds to
meet its working capital and capital requirements will depend upon numerous
factors, including the success and pace of its implementation of its growth
strategy. The Company regularly monitors capital raising alternatives to be able
to take advantage of available avenues to supplement its working capital,
including strategic corporate partnerships or other alliances, bank borrowings
and the sale of equity and/or debt securities.
EFFECTS OF INFLATION
The Company does not believe that inflation has had a significant impact on
its results of operations in recent years. However, there can be no assurance
that the Company's business will not be affected by inflation in the future.
44
<PAGE>
BUSINESS
COMPANY OVERVIEW
Trammell Crow Company is one of the largest diversified commercial real
estate services companies in the United States. Through the Company's 140
offices in the United States and Canada, the Company is organized to deliver a
comprehensive range of service offerings to clients which include leading
multinational corporations, institutional investors and other users of real
estate services. In addition, the Company has a strategic alliance with Trammell
Crow International, which has nine offices in Europe, Asia and South America.
The Company has established itself as a market leader in each of its primary
businesses. The Company is the largest commercial property manager in the United
States and has held that position for the past eight years. In 1995 the Company
was one of the top five brokerage firms in the United States, measured in terms
of the number of transactions facilitated, and was the largest provider of
facilities management services (the Company's primary infrastructure management
product), measured in terms of square feet of property managed. In 1995 the
Company was also the fourth largest commercial property developer in the United
States, measured in terms of square feet under construction. The Company, which
is headquartered in Dallas, Texas, was founded in 1948 by Mr. Trammell Crow.
From its founding through the 1980's, the Company's primary business was the
development and management of industrial, office and retail projects. In 1991
the Company was reconstituted as a real estate services company. This
reconstitution entailed the separation of the Company's commercial real estate
asset base and related operations from its real estate services business. The
Company continued to operate the real estate service business while ownership of
the commercial real estate asset base was segregated into a large number of
separate entities distinct from the Company, with independent management and
operations. See "Risk Factors-- Dealings with and Reliance on Affiliates;
Potential Conflicts of Interest." For the year ended December 31, 1996, the
Company's total revenues were $255.5 million, its net income was $12.1 million,
and its EBITDA, as adjusted, was $48.9 million. These results represented
increases of 12.4%, 179.1% and 52.7%, respectively, over the prior year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
As a means of addressing the comprehensive real estate service requirements
of its diverse group of clients, the Company is organized into five principal
lines of business. The Company's property management services business provides
services relating to all aspects of building operations, tenant relations and
oversight of building improvement processes, primarily for building owners who
do not occupy the properties managed by the Company. The brokerage services
business advises buyers, sellers, landlords and tenants in connection with the
sale and leasing of office, industrial and retail space and land. Infrastructure
management entails providing comprehensive day-to-day occupancy related
services, principally to large corporations which occupy commercial facilities
in multiple locations. Specific infrastructure management services include
administration, day-to-day maintenance and repair of client occupied facilities
and strategic functions such as space planning, relocation coordination,
facilities management and portfolio management. The development and construction
services provided by the Company include financial planning, site acquisition,
procurement of approvals and permits, design and engineering coordination,
construction bidding and management and tenant finish coordination, project
close-out and user move coordination, general contracting and project finance
advisory services. The Company's retail services business provides tenant
representation, disposition, development and financial services to national and
global retail customers.
On August 22, 1997, the Company acquired the business of Doppelt & Company
("Doppelt"), a Cleveland, Ohio-based company that has specialized in both new
store roll out strategies and problem real estate disposition services. The
Company believes that this acquisition significantly increases the scale and
improves the quality of the Company's existing retail services business, and
will provide the basis for future growth of this important new business. See
"The Company--Recent Developments."
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COMPETITIVE ADVANTAGES
The Company believes that it holds several important competitive advantages
in the real estate services industry.
COMPREHENSIVE SERVICE OFFERINGS. The Company offers a comprehensive menu of
services designed to provide its clients with single-point solutions to all of
their commercial real estate services needs. The Company believes that its broad
service offerings give it a critical advantage in an industry where many
competitors offer fewer services. By offering a full array of services, the
Company is able to maximize the effect it has on its clients' businesses while
becoming highly integrated into its clients' operations. Further, the Company's
comprehensive service offerings decrease the Company's economic exposure to a
downturn in any one of its primary businesses.
CLIENT FOCUS. The Company is organized to meet all of its clients' real
estate services needs. This orientation has commonly allowed the Company to
commence client relationships by offering a single service and later expand
these relationships through an understanding of the client's business and its
highly specific service requirements. For example, since 1994, 72% of the
Company's twenty-five largest infrastructure management clients (measured in
revenues generated over that period) have expanded the number of services
outsourced to the Company. Moreover, the Company has carefully selected the
criteria--such as industry, geographic location and property type--which it
applies in actively seeking new client engagements in each of its core
businesses, thereby concentrating its efforts in areas where it can provide
maximum value-added services.
GEOGRAPHIC SCOPE. The Company's 140 offices in the United States and Canada
have allowed the Company to develop and maintain extensive knowledge of local
real estate markets across the United States and Canada. Over 87% of the
Company's employees are based in markets other than Dallas, Texas, where the
Company's executive offices are located. In addition, the Company has a
strategic alliance with Trammell Crow International, which has nine offices in
Europe, Asia and South America. The broad geographic scope provided by this
local office network allows the Company to serve as a single-source, full
service provider to multinational corporations and institutional investors with
real estate interests that span regional and national boundaries. The broad
geographic service area covered by the Company also tends to limit its exposure
to an economic downturn in any single market, which provides it with a
competitive advantage over regional firms that operate in a more limited number
of geographic areas.
TECHNOLOGY. The Company is developing extensive technology applications to
better meet customer needs, principally through enhanced sharing of vital market
information and through proprietary applications designed to provide
significantly enhanced control over clients' real estate related expenses. For
example, the Company is developing an intranet resource library ("CrowsNEST")
which uses a database of field resources and related information to aid in
managing clients' real estate assets. With this technology, Company personnel
will be able to connect to CrowsNEST to access information from each of the
Company's 140 offices in the United States and Canada. This information will
include lists of property owners, tenants and vendors and financial information
for each property managed by the Company. In addition, clients may be allowed to
connect to CrowsNEST via modem to access information on industry practices or
standards.
The Company is developing a centralized call center strategy designed to
provide responses to customer needs 24 hours a day. This service will leverage
human assets and technology to deliver required support and coverage to
properties that were previously managed from several distinct service locations.
The Company has also developed the architecture for a proprietary total
occupancy cost management system using applications that are connected and
distributed across the Company's local area and wide area networks. This system
is designed to provide centralized and comprehensive cost studies and analyses
on building portfolios to customers.
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<PAGE>
MANAGEMENT/PERSONNEL. The Company believes that a key component of its
success is the experience and quality of its management team and the employees
that comprise the network through which the Company serves its clients. The
Company's 18 member operating committee has an average of approximately 13 years
of experience with the Company. Moreover, the Company has experienced very low
turnover among this senior management group. The Company believes this low
turnover is linked to its collegial internal culture and a long-standing effort
to promote talented individuals from within the organization. The Company also
believes that its growth strategy, incentive-based compensation and the high
level of ownership by Company insiders provides further motivation to achieve a
high level of performance. Immediately following the Offering, the members of
the Company's operating committee will own approximately 28.8% of the
outstanding Common Stock, and the total employee ownership of outstanding Common
Stock will be approximately 59.3%.
COMPETITIVE ENVIRONMENT
In recent years, the real estate industry has experienced a steady recovery
from the severe downturn of the early 1990's which had caused a sharp reduction
in commercial and industrial property values, the withdrawal of credit, a
related reduction in new development and pressure on fee income derived from
servicing and maintaining all classes of property. The Company believes that the
recovery now underway has provided the industry with improved prospects for
growth across all of the Company's traditional service lines. Moreover,
important new trends in the real estate services business--especially among
corporations and institutional investors affected by consolidation within their
own industries--now present the Company with new opportunities to capitalize
upon the recovery in these markets.
GROWTH IN THE MARKET FOR REAL ESTATE SERVICES. The commercial real estate
services industry is large and growing. According to the U.S. Statistical
Abstract for 1996, the total US commercial real estate asset base is
approximately 68 billion square feet, with 33 billion square feet representing
industrial, office and retail properties which serve as the target market for
commercial real estate service providers. In 1996, THE OUTSOURCING INSTITUTE
estimated that this asset base produced roughly $15 billion annually in
service-related revenues which, since 1993, have grown at 260% of the rate of
growth for the overall economy. Despite this size and growth, the commercial
real estate services industry remains a highly fragmented sector. For example,
less than 20% of the market for property management services is now serviced by
outside firms, and the Company believes that other market segments are also
significantly underserved and represent a sizeable growth opportunity.
The ongoing recovery in the real estate industry has also stimulated a
revival of activity in the more traditional development and construction
business. This sector was relatively inactive in recent years, principally due
to the sharp decline in property values and the overabundant supply of new
product in the market. As property values have rebounded in many of the nation's
principal markets, new construction starts have increased. This trend provides
an opportunity for the Company to earn fees associated with new development and
to participate in development projects as both an advisor and as principal.
OUTSOURCING. Outsourcing is a rapidly growing trend in the United States.
Through outsourcing, organizations seek to reduce costs, improve profitability
and refocus management and other resources on core competencies. This trend has
resulted in the development of well established providers offering an expanding
range of outsourced services, including information processing, teleservicing
and flexible staffing. Increasingly, organizations are also seeking outside
providers for efficient and expert delivery of real estate management services.
For example, the Company believes that the total potential revenues associated
with outsourcing of infrastructure management services may be in excess of $50
billion per year. In addition to corporations and institutional investors,
potential new clients include governmental entities, which now collectively own
in excess of 15 billion square feet of commercial real estate in the United
States.
CONSOLIDATION. The traditionally fragmented real estate services industry
is witnessing rapid consolidation in customers' selection of service providers
and in alliances and combinations among providers
47
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themselves. When outsourcing real estate services, corporations and institutions
have increasingly sought to consolidate the number of providers used and engage
firms that can offer a full range of services across a wide geographic area. As
the industry becomes more sophisticated, customers require the flexibility,
multi-market perspective and technological and physical resources that large
firms possess. For example, one of the largest institutional investors in the
United States has recently communicated its intention to consolidate all real
estate activities for its industrial properties with a single real estate
services provider in each of its service regions.
As the real estate services industry has grown, it has been accompanied by
downward pressure on fees and the increased use of fee structures which reflect
shared risk and emphasize the achievement of performance targets. These trends
benefit firms with significant scale and the ability to spread fixed costs over
a larger revenue base, and have accelerated consolidation among real estate
service providers.
The Company believes that few real estate services providers can meet the
demands of large corporate and institutional customers and that many companies
are facing pressure to combine with others to remain competitive. According to
industry sources, mergers and acquisitions among traditional real estate
companies has grown from 5 transactions with an aggregate purchase price of less
than $50 million in 1991 to 46 transactions with an aggregate purchase price of
approximately $1.9 billion in 1996. In the Company's view, the competitive
imperatives presented by this consolidation trend include the need to maintain
comprehensive service offerings, serve an expansive geographic area and operate
the business with sufficient scale to achieve significant cost efficiencies.
GROWTH STRATEGY
After completion of the Offering, the Company intends to pursue growth
opportunities by capitalizing upon its existing areas of expertise, its
long-standing client relationships and the broad industry trends now affecting
the market. Key elements of its growth strategy are as follows:
EXPAND CLIENT RELATIONSHIPS. Many of the Company's existing clients have
substantial real estate and occupancy costs in numerous locations, and therefore
represent the most immediate opportunity to increase revenues through
cross-selling the services offered by the Company. The Company has made numerous
successful efforts to capitalize on this opportunity, including the
establishment of a national client initiative which targets potential client
engagements based upon a customer profile that considers criteria such as the
industry, geographic location and type of property used by the client. Based on
a review conducted in late 1995, the Company identified 15 existing customers of
significant strategic importance, and has made substantial efforts to expand the
base of business generated from these customers. As a result, the Company has
increased the square feet under management for these clients by 11.3 million
square feet, or 12.9%, to 99.1 million square feet in 1996 from 87.8 million
square feet in 1995. Of the 91 discrete assignments secured from these major
customers in 1996, seventeen were awarded in cities where the Company previously
did not serve the client making the assignment. Through September 30, 1997,
these 15 customers have awarded 115 new business assignments to the Company in
1997.
EXPAND THE BREADTH OF SERVICE OFFERINGS. Since its reconstitution as a real
estate services company in 1991, the Company has continuously sought to expand
and enhance its breadth of service offerings, principally through internal
measures such as the creation of new service businesses. For example, based on
its long-standing position as a premier property management company, the Company
was well positioned to take advantage of the trend toward outsourcing of real
estate services. This led to creation of the Company's infrastructure management
business, which provided 19.9% of the Company's total revenues in 1996, up from
4.1% in 1992.
CO-INVESTMENT. The Company will also focus on expansion of its efforts to
make selective co-investments of capital alongside corporate and institutional
clients. Through this effort, the Company intends to leverage its relationships
with these clients and to use its extensive knowledge of the real estate
industry to create new opportunities to invest capital. The Company believes
that its knowledge of local
48
<PAGE>
real estate markets and its experience in each of its primary service businesses
provide it with an advantage in identifying and evaluating investment
opportunities. The Company will seek co-investments that generate investment
returns while still allowing the Company to earn fees in exchange for services
provided in the development, operation and management of the project. After the
Offering, the Company will have the additional financial flexibility to pursue a
controlled and highly disciplined approach to investment and co-investment.
ACQUISITIONS AND JOINT VENTURES. In addition to pursuing internal growth,
the Company is committed to a strategy of selective acquisitions of
complementary businesses. For example, the Company recently acquired the
business of Doppelt, which the Company considers to be one of the premier
national retail tenant representation firms in the country. Through this
acquisition, the Company has elevated itself to a leadership position in both
the tenant representation and disposition businesses, and anticipates expanding
its presence in these businesses through its recruiting activities at a local
level. The Company continuously surveys the marketplace for other potential
acquisitions which might further enhance the quality or the breadth of services
it can offer clients.
PROPERTY MANAGEMENT SERVICES
The Company is the largest commercial property manager in the United States
and has held that position for the past eight years (based upon information
contained in NATIONAL REAL ESTATE INVESTOR'S annual "Top Property Managers
Survey"). The Company's property management service business currently serves
approximately 490 clients and 14,000 tenants nationwide through its locally
based property management teams present in 70 markets. The Company managed 210
million square feet of commercial property at the end of 1996, and its 1996
property management revenues were $90.2 million, down from $104.1 million in
1992. This decline in revenues over the past five years has been outpaced by the
increase in revenues from the Company's other primary businesses. In 1992,
revenues from property management constituted 59.8% of the Company's total
revenue, but by 1996 they represented just 35.3% of the Company's total
revenues.
The following charts and table show the total square feet managed by the
Company at year end and the Company's revenues from its property management
business for each of the last five years:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REVENUES(1)
<S> <C>
1992 $104,104
1993 $90,954
1994 $99,609
1995 $92,970
1996 $90,179
Square Feet
1992 222,867
1993 215,025
1994 207,020
1995 212,499
1996 210,102
</TABLE>
<TABLE>
<CAPTION>
(000)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
<CAPTION>
1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Square Feet.................. 222,867 215,025 207,020 212,499 210,102
Revenues(1).................. $ 104,104 $ 90,954 $ 99,609 $ 92,970 $ 90,179
</TABLE>
- ------------------------------
(1) Revenue is not a measure of profitability. Except with respect to
infrastructure management services (which were conducted through a separate
subsidiary), the Company did not accumulate costs by revenue type for the
years shown. Accordingly, a measure of profitability for property management
services cannot be shown for such periods. For information concerning
earnings on a Company-wide basis, see "Selected Consolidated Financial
Data."
49
<PAGE>
The objective of the Company's property management business is to enhance
its clients' investment values by maintaining high levels of occupancy and
lowering property operating costs by offering a wide range of property
management services. The property management services offered by the Company
consist of (i) building management services such as maintenance, landscaping,
security, energy management, owner's insurance, life safety, environmental risk
management and capital repairs; (ii) tenant relations services such as
promotional activities, processing tenant work orders and lease administration
services; (iii) interfacing with the Company's development and construction
services personnel in coordinating tenant finish; and (iv) financial management
services including financial reporting and analysis utilizing software systems
supported by the Company's in-house design and development capability for
customized requirements.
The Company expects that most of its new property management engagements
will result from property transfers and projects that the Company develops for
institutional investors. To the extent that institutional investors continue to
make direct investments in real estate, the Company believes that it will be in
an advantageous position to win new property management engagements due to its
existing relationships with large institutional investors and its ability to
provide single-source solutions for their multi-market and multi-functional
requirements.
The properties managed by the Company are typically served by locally based
teams of property managers and maintenance personnel supported by various
corporate level service functions, including technology support and purchasing.
Client accounts are typically managed at the Company's national office to assure
consistency of quality and to promote greater cross-selling of the Company's
services.
The Company typically receives monthly management fees for the property
management services it provides, based upon a specified percentage of the
monthly gross income generated from the property under management. In certain
cases, the Company's property management agreements entitle it to receive a
certain minimum fee based on the net rentable square footage or a percentage of
the expected full occupancy fee of the property. The amount of the management
fee varies depending upon local market conditions, the leasing engagement,
arrangements for expense reimbursements and specific services required.
Incentive fees are sometimes negotiated in turnaround or other unusual
circumstances. The Company also may be reimbursed for a portion of its
administrative and payroll costs directly attributed to the properties under
management.
A typical property management agreement of the Company provides for an
indefinite term, but permits the property owner or the Company to terminate the
agreement upon thirty days prior written notice. The Company believes that these
are customary termination provisions in the industry. The Company historically
has been successful in retaining property management agreements, but has lost
agreements in circumstances where a property has been sold and the new property
owner assumes direct responsibility for managing the property or retains one of
the Company's competitors to manage the property. On a portfolio basis, the
Company's current average length per property management assignment is
approximately six years.
BROKERAGE SERVICES
The Company has historically been an active provider of commercial brokerage
services, and in recent years its brokerage business has expanded significantly
from an already substantial base. Over the past five years the Company's
revenues from brokerage services have increased by over 75%, and in 1996
totalled $72.1 million, or 28.2% of the Company's total revenues. In 1995, the
Company was ranked as one of five top brokerage firms nationally by COMMERCIAL
PROPERTY NEWS, measured in terms of the number of transactions facilitated. In
1996, the Company facilitated 7,317 sales and lease transactions. The Company
currently employs 302 brokers, having added 156 brokerage professionals with an
average of approximately nine years of experience since the beginning of 1995.
50
<PAGE>
The following charts and table show the number of brokers employed by the
Company at year end and the Company's revenues from its brokerage services
business for each of the last five years:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REVENUES(1)
<S> <C>
1992 $40,540
1993 $47,299
1994 $48,652
1995 $61,960
1996 $72,095
Brokers
1992 125
1993 150
1994 146
1995 195
1996 235
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Brokers............................ 125 150 146 195 235
Revenues (000)(1).................. $ 40,540 $ 47,299 $ 48,652 $ 61,960 $ 72,095
</TABLE>
- ------------------------------
(1) Revenue is not a measure of profitability. Except with respect to
infrastructure management services (which were conducted through a separate
subsidiary), the Company did not accumulate costs by revenue type for the
years shown. Accordingly, a measure of profitability for brokerage services
cannot be shown for such periods. For information concerning earnings on a
Company-wide basis, see "Selected Consolidated Financial Data."
The Company has historically provided project leasing services (leasing
space in real estate owned by clients and managed by the Company) for the
properties in its property management portfolio. In 1993 the Company began to
expand its brokerage services beyond project leasing to include tenant
representation (representing clients seeking to acquire real estate through
lease or purchase), investment sales (representing clients buying or selling
income producing real estate), listings (representing clients disposing of
surplus space) and land sales (representing clients buying or selling unimproved
land).
The Company typically receives fees for brokerage services based on a
percentage of the value of the lease or sale transaction. Some transactions may
stipulate a fixed fee or include an incentive bonus component based on the
performance of the brokerage professional or client satisfaction. Although
transaction volume can be subject to economic conditions, brokerage fee
structures remain relatively constant through both economic upswings and
downturns.
Project leasing revenues are derived from the steady turnover of tenants in
the Company's property management and leasing portfolio of approximately 230
million square feet. Leases terms for these properties average four years,
resulting in approximately 57.5 million square feet of space "rolling" each
year, providing the Company a commission paid by the owner of the property for
renewing the existing tenant's lease or releasing the space to a new tenant. The
Company's tenant representation revenues are derived from the other side of the
transaction, representing the tenants whose leases are expiring. Listing
revenues generally increase in economic downswings as companies dispose of
surplus space, while investment sales and land revenues generally increase in
economic upswings as available capital drives the trading of income producing
properties and corporate demand for additional space drives the purchase of land
for new development.
The Company regards its brokerage force as an integral part of its delivery
system for the broad services the Company provides to its client base. Access to
a large network of experienced brokers is often a valuable asset when seeking
new property management, infrastructure management, development and construction
and retail services business. The presence of its brokers in on-site project
leasing offices can
51
<PAGE>
provide the Company with insights into its customers' non-brokerage real estate
needs and early opportunities to capture the client's real estate services
business. The sheer number of transactions in which its brokers are involved can
also be a source of information from which the Company can seek to identify
business opportunities in specific local or regional markets.
The Company actively engages its brokerage force in the execution of its
marketing strategy. Brokerage personnel often work in close concert with the
Company's "city leaders," who are the professionals with overall responsibility
for operations in all major national markets. Through this arrangement, key
personnel are kept abreast of national trends and of the full range of services
provided to customers in other areas in the United States and around the world.
The ongoing dialogue among these professionals serves to increase their level of
expertise, and is supplemented by other more formal education such as that
provided at "Trammell Crow University," which offers sales and motivational
training as well as direct exposure to personnel from the Company's other lines
of business. Moreover, the brokerage force is financially rewarded for
cross-selling efforts which result in new engagements for the Company, such as a
development project, the acquisition of a new infrastructure management account,
or assistance across geographic service lines which enables the Company to
acquire additional brokerage business. Brokerage personnel also earn commissions
and are eligible for profit sharing programs, participations and other forms of
incentive compensation. These incentives are designed to underscore the
Company's belief that the brokerage business is often a key point of entry for
new clients, and is thus integral to firmwide efforts to cross-sell a full range
of services.
Following the Offering, the Company intends to more aggressively recruit and
hire (either individually or through acquisitions) additional brokerage
professionals experienced primarily in the areas of investment sales and tenant
representation. The Company believes that the quality brand identification of
its name, the platform of a full range of services to offer clients, the ability
to learn and execute additional real estate services and the Company's
incentive-based compensation system which encourages ownership by Company
personnel create an environment conducive to attracting the most experienced and
capable brokerage professionals.
INFRASTRUCTURE MANAGEMENT SERVICES
The Company is a leading provider of infrastructure management services to
major corporations in the United States and Canada. According to COMMERCIAL
PROPERTY NEWS, in 1995 the Company was the largest provider of facilities
management services (the Company's primary infrastructure management product) in
terms of square feet of property managed. The Company has established multi-year
relationships with its infrastructure management services clients, often
providing dedicated personnel on-site and integrating its accounting and
management information systems with those of its clients. The Company's
infrastructure management revenues have grown from $7.1 million in 1992 to $50.8
million in 1996, representing 19.9% of the Company's total 1996 revenues. As of
September 30, 1997, the Company served 58 infrastructure management clients
utilizing 900 employees to service approximately 15,000 properties encompassing
over 85 million square feet.
52
<PAGE>
The following charts and table show the growth of the Company's
infrastructure management services business over the last five years in terms of
earnings before interest, taxes, depreciation and amortization, royalty and
consulting fees and profit sharing, revenues and net income:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REVENUES
<S> <C>
1992 $7,145
1993 $16,401
1994 $27,063
1995 $38,681
1996 $50,836
Net Income
1992 $41,000
1993 $343,000
1994 $391,000
1995 $441,000
1996 $1,620,000
</TABLE>
<TABLE>
<CAPTION>
($000) UNAUDITED
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues............................ $ 7,145 $ 16,401 $ 27,063 $ 38,681 $ 50,836
Net Income.......................... 41 343 391 441 1,620
</TABLE>
The goal of the Company's infrastructure management services business is to
align the facilities and support services of its clients with their operational
and strategic business objectives. Occupancy-related costs frequently represent
the largest corporate expense item after compensation and benefits. The Company
believes that organizations are increasingly outsourcing their infrastructure
management functions to reduce costs, improve profitability, and refocus
management and other resources on core competencies.
The Company administers infrastructure management services through its
wholly-owned subsidiary, Trammell Crow Corporate Services, Inc., which combines
a centralized administrative, marketing and leadership organization with
client-based execution arms. The infrastructure management services offered by
the Company consist of (i) strategic services, such as consulting, development,
properties portfolio management, real estate asset management, management of
accounting and information systems, and organizational and process strategies;
(ii) facility management (the day-to-day maintenance and repair of facilities);
(iii) facility planning and project management (such as construction, space
planning, site consolidations, facilities design, moves, adds, and changes, and
furniture, signage, and cabling); (iv) transaction services (such as
acquisitions, dispositions, project leasing, and subleasing, where, rather than
providing services on a transaction-by-transaction basis according to the
industry's traditional model, the Company seeks to manage a client's entire
firm-wide property acquisition and divestiture program); and (v) office services
(such as security, reprographics, mail, cafeteria, shipping and receiving, and
reception services, most often provided through a subcontractor).
The Company offers the following infrastructure management service delivery
options: (i) dedicated Company employees located at a client site; (ii) a team
of Company employees dedicated to a client but located off the client's site at
Company offices; and (iii) a flexible, nationwide network of Company personnel
providing the full menu of the Company's real estate services from the Company's
city offices. Most of the Company's infrastructure management engagements
provide for on-site presence of Company employees, which the Company believes
enhances client communication, provides focused personal service, protects the
proprietary information of the client and enables the Company to monitor client
satisfaction on an ongoing basis.
53
<PAGE>
The Company has developed expertise in providing infrastructure management
services to clients in the financial services, healthcare, oil and gas and
technology/communications industries. The growth, consolidation and regulatory
changes taking place in these industries have increased the importance of
infrastructure management to these corporations and have caused them to seek to
improve productivity by rationalizing facilities organization and eliminating
redundant assets. The Company believes that there is opportunity to grow by
targeting clients within these industries. For example, within the financial
services industry, the Company has grown from one client in 1993 to 15 clients
as of September 30, 1997, and from 3 million square feet under management in
1993 to approximately 49 million square feet as of September 30, 1997.
The Company also believes that it has an opportunity to achieve growth in
its infrastructure management services business by developing expertise in
additional industries. In an effort to expand into the higher education
industry, in October 1997 the Company entered into a non-binding letter of
intent with the University of Pennsylvania ("UPenn") to negotiate the terms of a
definitive agreement (the "UPenn Contract"), pursuant to which the Company would
become the exclusive provider of certain infrastructure management services for
certain of UPenn's properties and grounds that are anticipated to include at
least 10.0 million square feet of space. The services provided under the UPenn
Contract are anticipated to include management of operations, maintenance,
utilities, facilities planning and design, small renovation work,
grounds-keeping, owner representation for construction, and accounting and
financial reporting. The letter of intent anticipates that the Company will also
provide real estate portfolio and transaction management services, such as
property acquisitions, and that the Company will have an opportunity to bid for
the provision of additional services such as construction management, general
contracting and consulting. The letter of intent also contemplates that the term
of the UPenn Contract would extend for 10 years, that UPenn would pay the
Company base net fees of at least $5.25 million per year (subject to the terms
of the definitive agreement, including terms regarding savings to UPenn) and
that the Company would also receive additional variable fees for real estate
portfolio and transaction management services and other additional services
which may be provided under the agreement. If the UPenn Contract is entered
into, the Company will make an up-front payment to UPenn of $26 million and,
subject to certain conditions to be negotiated, an additional payment of $6
million. Certain employees of UPenn have sued UPenn and the Company for
allegedly violating provisions of the Employee Retirement Income Security Act
through their actions taken in connecting with the negotiation of the terms of
the UPenn Contract. See "Legal Proceedings." No assurance can be given that the
Company will be successful in negotiating the terms of the UPenn Contract or
that the UPenn Contract will be approved by the boards of directors of the
Company and the Board of Trustees of UPenn. Although consummation of the
Offering is not conditioned upon the Company entering into the UPenn Contract, a
portion of the proceeds of the Offering could be used by the Company to fund its
payment obligations under the terms of any such agreement.
The five largest customers for the Company's infrastructure management
services business, measured in 1996 revenues from such customers, were
Allegiance Healthcare, Baxter International, Exxon, NationsBank and The
Travelers Property and Casualty Company. These customers collectively represent
8.4% of the Company's total revenues in 1996. The Company believes that
significant growth opportunity exists within its existing customer base, as only
15 out of 58 existing customers receive three or more types of services from the
Company out of the five types of infrastructure management services offered.
The Company seeks to enter into multi-year infrastructure management
contracts with its clients. Most contracts are structured so the Company
receives a monthly base fee and annual incentives if certain agreed performance
targets are satisfied. Most contracts also provide for the reimbursement of
client-related personnel costs and associated overhead expenses. In many cases,
these revenue sources are augmented by variable commission-based revenues from
brokerage, facility planning and project management activities. The Company has
renewed all of its infrastructure management contracts that have come up for
renewal except one.
54
<PAGE>
DEVELOPMENT AND CONSTRUCTION SERVICES
Since 1991, the Company has focused its efforts in the commercial real
estate development business on providing development and construction services
to third party build-to-suit customers and investors in office, industrial and
retail projects. While the Company has decreased its economic exposure to the
cyclical nature of the real estate investment markets by shifting to a service
oriented approach, it has retained the capability to implement active and
sizeable development programs, primarily on behalf of its clients, but also for
its own account. Based upon information contained in the NATIONAL REAL ESTATE
INVESTOR'S 1997 Development Survey, in 1996 the Company was the fourth largest
commercial property developer in the United States, measured by square feet
under construction. In 1996, revenues from the Company's development and
construction business were $29.9 million (consisting of $22.7 million in service
revenues, $0.6 million in income from investments in unconsolidated subsidiaries
and $6.6 million in gain on disposition of real estate), representing 11.7% of
the total revenues for the Company. Since 1992, the Company has developed and
redeveloped approximately 33.6 million square feet of projects with aggregate
project costs of approximately $1.8 billion. In 1996, the Company started
approximately 12.4 million square feet of development projects with an estimated
aggregate cost of $626 million.
The following charts and table show the Company's square feet of development
projects started and revenues from its development and construction services
business for each of the past five years:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REVENUES(1)
<S> <C>
1992 $21,180
1993 $14,842
1994 $20,579
1995 $25,522
1996 $29,956
Square Feet of
Development Project Starts
1992 3,150
1993 2,829
1994 5,124
1995 10,083
1996 12,408
</TABLE>
<TABLE>
<CAPTION>
(000)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
<CAPTION>
1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Square Feet of Project Starts...... 3,150 2,829 5,124 10,083 12,408
Revenues(1)........................ $ 21,180 $ 14,842 $ 20,579 $ 25,522 $ 29,956
</TABLE>
- ------------------------------
(1) Revenue is not a measure of profitability. Except with respect to
infrastructure management services (which were conducted through a separate
subsidiary), the Company did not accumulate costs by revenue type for the
years shown. Accordingly, a measure of profitability for development and
construction services cannot be shown for such periods. For information
concerning earnings on a Company-wide basis, see "Selected Consolidated
Financial Data."
The Company provides its clients with services that are vital in all stages
of the development and construction process, including: (i) evaluating project
feasibility, budgeting, scheduling and cash flow analysis; (ii) site
identification, due diligence and acquisition; (iii) procurement of approvals
and permits, including zoning and other entitlements; (iv) coordination of
project design and engineering, (v) construction bidding and management and
tenant finish coordination; (vi) project close-out and user move coordination;
(vii) general contracting; and (viii) project finance advisory services.
55
<PAGE>
The Company's development and construction services engagements are
typically staffed with a local/ regional team which includes a senior company
executive in the role of project general manager and one or more specialists in
the areas of physical project development and construction. The Company
currently employs approximately 25 senior executives with an average of thirteen
years experience in all aspects of sourcing development projects and providing
general management and project finance advisory capabilities for those projects.
The Company also employs approximately 55 other individuals with an average of
more than 10 years experience who are responsible for various aspects of the
development process, including the execution of physical development and
construction management responsibilities. Following the Offering, the Company
intends to dedicate approximately 10 of these full-time employees to promote and
oversee its development and construction services business on a national basis
while continuing to leverage the expertise and contacts of the Company's local
and regional development professionals. This national team will focus on
enhancing the value of large scale development projects, mitigating development
and construction risk in the Company's portfolio of business and accessing the
capital markets to arrange for development programs/funds with institutional
investors.
The Company typically receives a fee for its development services that is
based on a negotiated percentage of a project's cost. Incentive bonuses may be
received for completing a project under budget and within certain critical time
deadlines. The Company has also been flexible in negotiating other incentive
compensation arrangements that allow the Company to participate in the
investment returns on projects it develops for its clients. The Company may make
a co-investment with its clients (typically no more than 5% of a project's full
construction and development cost), receive its pro rata return on its
investment in the project and also receive an incentive participation in the
project because of the Company's role in sourcing the development project and/or
executing a variety of services in the development process. The Company's
investments or co-investments in real estate projects may result in an ownership
interest substantially greater than the general 5% ownership guideline. To
facilitate this activity and to further mitigate risk, the Company established
two discretionary development and investment funds which, as of April 1996, had
raised $24.0 million, of which $17.1 million had been invested in projects with
an aggregate construction cost of approximately $201.0 million.
In October 1997, the Company executed a non-binding memorandum of
understanding (the "Kennedy MOU") with Kennedy Associates Real Estate Counsel,
Inc. ("Kennedy") regarding a development program for multi-tenant office and
business park development projects (the "Kennedy Development Program"). Under
the arrangement described in the Kennedy MOU, subject to certain conditions, the
Company and Kennedy would enter into a series of agreements pursuant to which
Kennedy would obtain a 100% ownership interest in the project and the Company
would agree to develop, market and manage the project in exchange for
development, marketing and management fees and development incentive fees. The
Kennedy MOU contemplates that the markets in which this development program
would initially focus would be suburban Philadelphia, northern Virginia,
Washington, DC, Baltimore, northern New Jersey, Pittsburgh, Chicago, Milwaukee,
Kansas City, Denver, Los Angeles, San Francisco, Seattle and Portland. The
Company has also executed a non-binding memorandum of understanding (the "TriNet
MOU") with TriNet Corporate Realty Trust, Inc. ("TriNet") regarding a
development program for office, research and development and industrial pre-sale
build-to-suit projects (the "TriNet Development Program"). Under the arrangement
described in the TriNet MOU, subject to certain conditions, a joint venture
entity owned by the Company and TriNet would enter into a land purchase
agreement for the project site and a lease agreement with the tenant who would
occupy the project site. The Company, TriNet and the joint venture entity would
then enter into a series of definitive agreements pursuant to which the joint
venture entity would take ownership of the project during construction and
obtain construction financing, and the Company would receive certain fees in
exchange for development services it renders in connection with the project and
would receive profits on the sale of the project by the joint venture entity to
TriNet.
56
<PAGE>
The Company has identified seven projects for possible inclusion in the
Kennedy Development Program, and the sites on which these projects would be
located are currently owned by, or under contract to, the Company. The aggregate
estimated acquisition and development costs for these projects is approximately
$144 million. In addition, the Company has identified eight projects located in
various markets in the United States and Canada for possible inclusion in the
TriNet Development Program, and the sites on which these projects would be
located are either owned by, or under contract to, the Company. The aggregate
estimated acquisition and development costs for these eight projects is $98
million. A portion of the proceeds of this Offering may be used by the Company
to pay the purchase price for certain of these fifteen sites (the "Development
Purchases"), and to pay costs incurred by the Company in performing
pre-development activities for these projects. If such expenses are paid by the
Company, the Company expects to be reimbursed for these expenses if the projects
are subsequently placed into the Kennedy Development Program or the TriNet
Development Program. Although the Company intends to limit its expenditures on
these items until it believes these projects will be included in these
development programs, there can be no assurance that Kennedy or TriNet, as
applicable, would find such projects suitable for their development programs and
that the Company would not have to bear these costs for its own account. Each of
the Kennedy MOU and the TriNet MOU is a non-binding memorandum of understanding,
and no binding obligation with respect to the Kennedy Development Program or the
TriNet Development Program will exist between the Company and Kennedy or TriNet,
respectively, until definitive agreements regarding these development programs
are entered into. No assurances can be given that such definitive agreements
will be entered into or that, if such agreements are entered into, the Kennedy
Development Program or the TriNet Development Program would be successful.
The market for development and construction services is cyclical and is
driven by various economic conditions. The Company believes that current market
conditions should increase the short and medium term demand for development
services offered by the Company. According to Torto-Wheaton Research, national
vacancy rates for suburban office, downtown office and industrial properties
have decreased 48.3%, 26.3% and 10.0% respectively. In addition, the demand for
commercial real estate properties in these markets has increased over the last
several years, driven mainly by the acquisition activities of buyers, including
real estate investment trusts and other investors. Finally, the current values
of development properties are often meeting and exceeding the replacement costs
for those properties, while construction costs remain relatively stable.
The Company's development activities generate business opportunities for the
Company's other service lines which will support the Company's earnings when
development and construction revenues decrease as a result of market conditions.
Because the Company provides development and construction services to third
parties, including clients who invest in build-to-suit projects, the Company
believes that the adverse effect on its revenues when speculative development
activities are curtailed in a market down cycle should be mitigated. In
addition, because the Company's overhead expenses for this business line are
relatively small (representing only 8.2% of the Company's total operating costs
and expenses in 1996), the Company believes that the adverse effect of a market
down cycle on its earnings should not be as material as it would be for other
firms whose development overhead expenses constitute a greater portion of their
cost structure. When development activity reaches a down cycle in the future,
the Company intends to use professionals from its development and construction
services business to pursue opportunistic property acquisitions with its
established capital partners.
RETAIL SERVICES
The Company's retail services business focuses on providing comprehensive
real estate services to major retailers and retail real estate owners. In 1996,
the Company formed a subsidiary, Trammell Crow Retail Services, Inc. ("TCRS"),
to consolidate the focus of the Company's retail services management group and
to take better advantage of market growth opportunities. The Company believes
that by providing its full array of real estate services through TCRS, it is
able to better serve its national retail
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customers (who demand specialized property and market knowledge) and compete
with other service providers whose sole focus is a retail customer base. In
furtherance of its goal to be the leading national retail real estate company,
in August 1997 the Company acquired the business of Doppelt & Company. Doppelt
has been in operation since 1981 and has specialized in supplementing or, in
some cases, replacing the real estate departments of retail companies by
providing tenant representation and lease disposition services to clients such
as OfficeMax, HomePlace, TJX and General Nutrition Centers. The Company's
revenues from retail services in 1996 were $2.4 million, representing 0.9% of
the Company's total revenues for 1996. After giving pro forma effect to the
Doppelt Acquisition as of January 1, 1996, the Company's revenues from its
retail service business in 1996 would have been $11.4 million.
The primary services provided to the Company's retail clients include
brokerage services, such as tenant representation for site acquisition and
surplus space dispositions, and development services, such as predevelopment
activities, project finance advisory services and construction oversight. The
Company also acquires, rehabilitates and sells certain retail properties which
the Company believes to be undervalued. In the future, the Company will seek to
combine the expertise of its retail business leaders with that of its
development services personnel to formulate programs for developing retail
assets, both for the Company's account and for the account of third parties,
including third parties in which the Company may own an equity interest.
As of September 30, 1997, the Company provided retail services to over 25
retail customers and has developed more than 17 build-to-suit projects through
TCRS and its subsidiaries. The 10 largest customers for the Company's retail
services business in terms of 1996 revenues, after giving pro forma effect to
the Doppelt Acquisition, were Best Buy, Michaels, General Nutrition Centers,
Home Depot, HomePlace, OfficeMax, PETsMART, Tandy, TJX and West Marine. These
customers, on a pro forma basis, collectively generated $9.1 million of the
Company's revenues in 1996. Although the Company is specifically focused on
expanding its retail client base, the Company also believes that there are
significant opportunities to provide additional services to its existing retail
clients. Of the 37 major national retail clients that have engaged the Company's
retail services business since 1993, 25 clients continue to use the Company for
the same services on additional retail projects. Another eight of these major
clients have added new services.
The Company delivers tenant representation services and disposition services
through TCRS utilizing a network of the Company's local brokers (including those
formerly employed by Doppelt & Company) and third-party providers. The Company
generates commission revenue from these services which are shared with brokers
in the local markets. The Company believes that the Doppelt Acquisition will
enhance its ability to recruit brokerage professionals, build its local retail
brokerage capabilities and capture a greater portion of these commission
revenues.
Development services are delivered through BTS, Inc., the Company's national
retail build-to-suit subsidiary. BTS, Inc. specializes in predevelopment
activities, including land acquisition and procurement of entitlements. For its
development services to third parties, the Company typically earns a base fee
plus an incentive fee that is paid out of the sale proceeds upon project
completion.
The Company intends to establish a fund to acquire freestanding retail
properties and resell those properties within an anticipated hold period of no
more than six months after their acquisition. The Company's goal will be to
generate revenue through this activity by collecting rental income during the
period that the asset is owned and by capturing a spread on the purchase and
sale of the properties. The Company also intends to make selective investments
in retail real estate projects for its own account. The Company believes that,
by providing real estate services to its national retail customers, it has
developed a proficiency in identifying retail investment opportunities and
formulating and implementing retail development programs.
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EMPLOYEES
As of September 30, 1997, the Company had approximately 3,060 employees.
Employees of the Company at certain properties located in the San Francisco,
California metropolitan market are currently represented by a labor union.
Management believes that its ongoing labor relations are good. The collective
bargaining agreement with employees with Tri-State Center I, Inc. and Tri-State
Center II, Inc., both affiliates of the Company, will expire on May 31, 1998,
and the collective bargaining agreement with employees of Itasca Center III,
L.P. and Urban Center XI, L.P., both affiliates of the Company, will expire on
May 31, 1998.
INSURANCE
The Company has the types of insurance coverage, including comprehensive
general liability and excess umbrella liability insurance, that it believes are
appropriate for a company in the lines of business in which it operates. The
Company's management will use its discretion in determining the amounts,
coverage limits and deductibility provisions of appropriate insurance coverage
on the Company's properties and operations at a reasonable cost and on suitable
terms. This might result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full value of the damages
suffered by the Company.
FACILITIES
The Company's executive offices are located at 2001 Ross Avenue, 3400
Trammell Crow Center, Dallas, Texas 75201 and consist of approximately 25,000
square feet of leased office space. The Company's telephone number at such
address is (214) 863-3000. The Company's lease at its executive offices will
expire on December 31, 1999.
TRADEMARKS
The trade name "Trammell Crow" is material to the Company's business. Prior
to the Offering, the Company licensed the use of all Trammell Crow Company
business and trade names from CFH, pursuant to a Royalty Agreement. Upon the
closing of the Offering, the Company will terminate the Royalty Agreement and
will enter into a License Agreement with respect to such business and trade
names. See "Certain Transactions--Royalty Agreement and License Agreement."
LEGAL PROCEEDINGS
On October 23, 1997, certain employees of UPenn, who also are beneficiaries
of pension and welfare benefits plans administered and provided by UPenn, sued
UPenn and the Company for alleged violations of the Employee Retirement Income
Security Act ("ERISA"). The employees allege that UPenn has agreed to terminate
them for the purpose of generating employee benefit cost savings. The employees
assert that the Company has conspired with UPenn to accomplish this purpose, and
that the UPenn Contract would intentionally interfere with the employees'
employment relationship with UPenn and their legitimate expectancy of continued
employment. The Company believes that it is an improper defendant in this
lawsuit and will aggressively seek to be dismissed from the lawsuit. There can
be no assurance that the Company will be able to obtain a dismissal from this
lawsuit, or if such dismissal is obtained, that the prosecution of this lawsuit
against UPenn will not have a material adverse effect on the Company's ability
to negotiate and enter into the UPenn Contract on terms favorable to the
Company. See "Infrastructure Management Services."
On October 24, 1997, a default judgment was entered against a Company
subsidiary, Trammell Crow SE, Inc. ("TC SE"), in a case styled BRANDON V.
TRAMMELL CROW SE, INC. in the United States District Court for the Southern
District of Florida, Miami Division (Case No. 96-3338). The case was an age
discrimination action brought in November 1996 by a former employee of TC SE
whose employment was terminated
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in April 1996. Judgment was rendered for approximately $400,000 plus interest.
While the Company intends to seek to set aside the judgment and contest the
case, there can be no assurance that it will succeed in this regard.
From time to time, the Company is involved in litigation incidental to its
business. In the Company's opinion, no additional litigation to which the
Company is currently a party, if decided adversely to the Company, is likely to
have a materially adverse effect on the Company's results of operation or
financial condition. See "--Infrastructure Management Services."
ENVIRONMENTAL LIABILITY
Various federal, state and local laws and regulations impose liability on
current or previous real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by hazardous or
toxic substances at the property. In the Company's role as a property manager,
it could be held liable as an operator for such costs. Such liability may be
imposed without regard to the legality of the original actions and without
regard to whether the Company knew of, or was responsible for, the presence of
such hazardous or toxic substances, and such liability may be joint and several
with other parties. If the liability is joint and several, the Company could be
responsible for payment of the full amount of the liability, whether or not any
other responsible party is also liable. Further, any failure by the Company to
disclose environmental issues could subject the Company to liability to a buyer
or lessee of the property. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it incurs
in connection with the contamination. The operator of a site also may be liable
under common law to third parties for damages and injuries resulting from
hazardous substances or environmental contamination at a site, including
liabilities relating to the presence of asbestos-containing materials. There can
be no assurance that any of such liabilities to which the Company or any of its
affiliates may become subject will not have a material adverse effect on the
Company's business and results of operations.
Some of the properties owned, operated, or managed by the Company are on,
adjacent to or near properties that have contained in the past, or currently
contain, underground and/or above-ground storage tanks used to store regulated
substances such as petroleum products or other hazardous or toxic substances.
Some of the properties owned, operated or managed by the Company are in the
vicinity of properties which are currently, or have been, subject to releases of
regulated substances and remediation activity, and the Company is currently
aware of several properties owned, operated or managed by the Company which may
be impacted by regulated substances which may have migrated from adjacent or
nearby properties or which may be within the borders of areas suspected to be
impacted by regional groundwater contamination. In addition, the Company is
aware of the presence or the potential presence of regulated substances at
several properties owned, operated or managed by it which may have resulted from
historical or ongoing soil or groundwater activities on those properties. Based
on the information available to date, the Company believes that the
environmental issues described above are being or have been appropriately
managed and will not have a material adverse effect on the Company.
There can be no assurance that environmental liabilities or claims will not
adversely affect the Company in the future.
GOVERNMENT REGULATION
The Company and its brokers, salespersons and, in some instances, property
managers are regulated by the states in which they do business. These
regulations include licensing procedures, prescribed fiduciary responsibilities
and anti-fraud prohibitions. The Company's activities are also subject to
various federal and state fair advertising, trade, housing and real estate
settlement laws and regulations and are affected by laws and regulations
relating to real estate and real estate finance and development. In
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particular, a number of states and localities have imposed environmental
controls and zoning restrictions on the development of real estate.
The Company is subject to laws governing its relationship with employees,
including minimum wage requirements, overtime, working conditions and work
permit requirements. The Company believes that it has the necessary permits and
approvals to operate each of its properties and their respective businesses.
Under the Americans with Disabilities Act of 1990, all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. While the Company believes that its properties in which it
holds an equity interest are substantially in compliance with these
requirements, a determination that the Company is not in compliance with the ADA
could result in the imposition of fines or an award of damages to private
litigants.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES
The following table sets forth certain information regarding the Board of
Directors and executive officers of the Company, and Director nominees including
their respective ages as of September 30, 1997.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---------------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
George L. Lippe................... 43 Chief Executive Officer, President and Director
H. Pryor Blackwell................ 36 Executive Vice President and Chief Operating Officer of Western
Operations
William F. Concannon.............. 42 President and Chief Executive Officer of Trammell Crow Corporate
Services, Inc. and Director Nominee
William C. Maddux................. 43 Executive Vice President and Chief Operating Officer of Eastern
Operations
Asuka Nakahara.................... 41 Executive Vice President and Chief Financial Officer
William Rothacker................. 46 President and Chief Executive Officer of Trammell Crow Retail Services,
Inc.
Robert E. Sulentic................ 41 Executive Vice President, National Director of Development and
Investment and Director Nominee
Harlan R. Crow.................... 48 Director
J. McDonald Williams.............. 56 Director
James R. Erwin.................... 53 Director
James D. Carreker................. 50 Director
</TABLE>
GEORGE L. LIPPE has been a director of the Company since its inception and
has served as President and Chief Executive Officer of the Company since January
1996. From 1995 to 1996, Mr. Lippe served as Executive Vice President of
Operations of the Company. From 1990 to date, Mr. Lippe served as President and
Chief Executive Officer of the Company's Midwest Region. Mr. Lippe has served in
various capacities with the Company since 1978.
H. PRYOR BLACKWELL has served as Executive Vice President and Chief
Operating Officer of the Company's Western Operations since July 1997 and
President and Chief Executive Officer of Trammell Crow Dallas/Fort Worth, Inc.
and Trammell Crow Dallas Industrial, Inc. since 1993. Mr. Blackwell has served
on the Board of Directors of the Predecessor Company since 1993 and as a member
of the Board of Directors served on the Operating Committee, Investment
Committee and Audit Committee of the Predecessor Company. From 1991 to 1993, Mr.
Blackwell served as President and Chief Executive Officer of Trammell Crow
Central Office Group, Inc. From 1987 to 1990, Mr. Blackwell served as the
Partner in charge of the Company's Downtown (Dallas) Office Division. Mr.
Blackwell served as the Company's Marketing Principal from 1986 to 1987 and
Leasing Agent from 1984 to 1986.
WILLIAM F. CONCANNON has been President and Chief Executive Officer of
Trammell Crow Corporate Services since July 1991. He has been with the Company
since April 1986. Mr. Concannon has served as a Member of the Board of Directors
of the Predecessor Company since 1991. He joined Trammell Crow as Vice President
of National Marketing in 1986 and later in 1990 became Director and Partner in
charge of Trammell Crow Corporate Services. In 1994 Mr. Concannon established
the Company's Canadian Corporate Services business under the name Primaris
Corporate Services, Ltd.
WILLIAM C. MADDUX has served as Executive Vice President and Chief
Operating Officer of the Company's Eastern Operations since July 1997. Since
1992, Mr. Maddux has served as the President of Trammell Crow MW, Inc., and has
had responsibility for overseeing the Company's operations in Illinois,
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Indiana, Michigan and Wisconsin since that time. Mr. Maddux served the Company
in various other capacities from 1985 to 1992, including Partner in charge of
the Company's Carolina's division from 1988 to 1992, Marketing Principal in
charge of the Company's Oklahoma City operations from 1987 to 1988 and a Leasing
Agent in the Company's Oklahoma City office from 1985 to 1987.
ASUKA NAKAHARA has served as Executive Vice President and Chief Financial
Officer of the Company since January 1996. During 1995, Mr. Nakahara served as
the Company's Executive Vice President in charge of National Programs. Mr.
Nakahara served as President and Chief Executive Officer of Trammell Crow
Northeast, Inc. from 1991 to 1995. Mr. Nakahara served as the Northeast Regional
Partner for the Company from 1987 to 1991. Mr. Nakahara served the Company in
various other capacities from 1980 to 1987, including Operating Partner in
charge of the Company's Philadelphia division from 1985 to 1987, Finance
Associate and Partner in Houston from 1983 to 1984, and leasing agent in Houston
from 1980 to 1983.
WILLIAM ROTHACKER has been President and Chief Executive Officer of
Trammell Crow Retail Services since its formation in December 1996. Since 1994,
Mr. Rothacker has been President of Trammell Crow Denver and has had
responsibility for overseeing the Company's operations in New Mexico and
Arizona. Mr. Rothacker has served on the Predecessor Company's Operating
Committee and as Chairman of its Retail Committee since 1994. Mr. Rothacker
served as Managing Director in charge of the Company's Denver operations from
1991 to 1994. From 1987 to 1991, Mr. Rothacker served as Partner in charge of
the Denver Division. Mr. Rothacker served as Partner in charge of the Denver
Retail division from 1983 to 1986 and as a Leasing Agent in Denver from 1980 to
1983.
ROBERT E. SULENTIC has served as the Company's Executive Vice President and
National Director of Development and Investment since July 1997 and President of
Trammell Crow NE, Inc. since 1995. Mr. Sulentic has served on the Predecessor
Company's Operating Committee and as Chairman of its Development Committee since
1994. From 1991 to 1994, Mr. Sulentic served as Managing Director in charge of
Trammell Crow Company's Philadelphia Division. From 1987 to 1990, Mr. Sulentic
served as the Partner in charge of the Company's New Jersey Division. Mr.
Sulentic served in Houston as a Marketing Director for the Company in 1986 and
1987 and as a Leasing Agent in 1984 and 1985.
HARLAN R. CROW has been a director of the Company since its inception. Mr.
Crow is the Chief Executive Officer of Trammell Crow Interests Company, d/b/a
Crow Family Holdings, a private investment company managing investments in a
variety of real estate-related and other businesses, a position he has held
since 1986. Mr. Crow currently serves as a Director of Homegate Hospitality,
Inc. and Wyndham Hotel Corporation. In any given year within the past five
years, Mr. Crow has indirectly owned interests in over 1,000 partnerships (or
affiliates of partnerships) or corporations. In the past five years, Mr. Crow
was a general partner in approximately 23, and an officer or director in
approximately 69, partnerships or corporations, or affiliates of such
partnerships or corporations, that filed for protection under federal bankruptcy
laws. In addition, in the past five years, Mr. Crow was an executive officer or
director in approximately 12 partnerships or corporations, or affiliates of such
partnerships or corporations, that were placed in receivership.
J. MCDONALD WILLIAMS has been a director of the Company since its inception
and has served as Chairman of the Board of Directors of the Predecessor Company
from August 1994 to the present. Mr. Williams served as President and Chief
Executive Officer of the Company from 1991 to 1994. From 1977 to 1991, Mr.
Williams served as Managing Partner of the Predecessor Company. From 1973 to
1977 Mr. Williams was Partner, Overseas Projects for the Company. Mr. Williams
is a member of the Board of Directors of A.H. Belo Corporation, Mitchell Energy
& Development Corporation and Blanks Color Imaging, Inc. In any given year
within the past five years, Mr. Williams has indirectly owned interests in over
1,000 partnerships (or affiliates of partnerships) or corporations. In the past
five years, Mr. Williams was a general partner in approximately 54, and an
officer or director in approximately 16, partnerships or corporations, or
affiliates of such partnerships or corporations, that filed for protection under
federal
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bankruptcy laws. In addition, in the past five years, Mr. Williams was a general
partner in approximately 14 partnerships or corporations, or affiliates of such
partnerships or corporations, that were placed in receivership.
JAMES R. ERWIN has agreed to serve as a director of the Company upon the
consummation of the Offering. Mr. Erwin has served as Vice Chairman and
Corporate Finance Executive--West of NationsBank Corp. since January 1994, and
was Executive Vice President, Manager of Operations and Technology for
NationsBank Corp. from October 1991 to January 1994.
JAMES D. CARREKER has agreed to serve as a director of the Company upon the
consummation of the Offering. Mr. Carreker has served as President and Chief
Executive Officer of Wyndham Hotel Corporation since May 1988 and as Chairman of
the Board of Wyndham Hotel Corporation since February 1996. He also served as
Chief Executive Officer of the Company from August 1994 to December 1995.
DIRECTORS
The Certificate of Incorporation in effect immediately after the closing of
the Offering will provide, among other things, for a Board of Directors divided
into three classes, designated Class I, Class II and Class III. Directors serve
for staggered terms of three years each, except that initially the Class I
Directors will serve until the Company's 1998 annual meeting of stockholders,
the Class II Directors until the 1999 annual meeting and the Class III Directors
until the 2000 annual meeting. As set forth in the Certificate of Incorporation,
the Class I Director is George L. Lippe, the Class II Director is Harlan R.
Crow, and the Class III Director is J. McDonald Williams. As soon as practicable
following the closing of the Offering, the Company will appoint Mr. Concannon,
Mr. Sulentic, Mr. Erwin, Mr. Carreker and two other individuals who are not
Company employees to serve on the board of directors.
COMMITTEES
The Board of Directors of the Company has established an Audit Committee and
a Compensation Committee.
The Audit Committee's functions include recommending to the Board of
Directors the engagement of the Company's independent public accountants,
reviewing with such accountants the plans for and the results and scope of their
auditing engagement and certain other matters relating to their services
provided to the Company, including the independence of such accountants.
The Compensation Committee, on behalf of the Board of Directors, reviews the
compensation of executive officers and administers the Company's incentive and
stock option plans.
DIRECTOR COMPENSATION
Prior to the Offering, the Company's directors had not received compensation
for their services as directors. After the closing of the Offering, the
Company's non-employee directors will be paid a retainer of $25,000 for their
service on the Board of Directors, and non-employee members of Board committees
are to be paid a fee of $1,000 ($2,000 for committee chairs) for each committee
meeting attended. In addition to the retainer, non-employee directors are
eligible to receive annual stock option grants under the Long-Term Incentive
Plan. See "Management--Long-Term Incentive Plan." In addition, all directors are
reimbursed for expenses incurred in connection with their attendance at Board of
Directors and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Compensation Committee of the Predecessor Company consisted
of Messrs. James Carreker, Harlan Crow, Bowen W. McCoy and J. McDonald Williams.
Messrs. Carreker, Crow and
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Williams were all members of the Board of Directors of the Predecessor Company
during their service on the Compensation Committee.
Prior to the Reincorporation Transactions, certain members of the Board of
Directors and director nominees, or their affiliates, entered into certain
transactions with the Company as described under the caption "Certain
Transactions" below.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the year ended
December 31, 1996, concerning the cash and non-cash compensation earned by, or
awarded to, the Chief Executive Officer of the Company and each of the other
four most highly compensated executive officers of the Company whose aggregate
remuneration for services rendered to the Company during the year ended December
31, 1996 exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
COMPENSATION
NAME AND -------------------- -------------------
PRINCIPAL POSITION SALARY($) BONUS($) LTIP PAYOUTS($)(1)
- ----------------------------------------------------------------------- --------- --------- -------------------
<S> <C> <C> <C>
George L. Lippe, CEO................................................... 350,000 175,000 778,290
H. Pryor Blackwell, Chief Operating Officer of Western Operations...... 210,000 99,750 474,295
Asuka Nakahara, CFO.................................................... 250,000 125,000 413,316
William F. Concannon, CEO of TCCS...................................... 210,000 105,000 502,762
William Rothacker, CEO of TCRS......................................... 190,000 90,000 --
</TABLE>
- ------------------------------
(1) Reflects distributions made from the 1995 Profit Sharing Plan in 1996 for
amounts earned in 1996 and prior years.
The following are the dollar amounts of increases to the Profit Sharing
Account (as hereinafter defined) for each of the Named Executive Officers under
the 1995 Profit Sharing Plan (as hereinafter defined) for the year ended
December 31, 1996, together with the number of interests in Business Units (as
hereinafter defined) and Projects (as hereinafter defined) on which such
increases are based: Mr. Lippe: $649,430, 32, 63; Mr. Blackwell: $267,754, 4,
10; Mr. Nakahara: $321,527, 32, 60; Mr. Concannon: $213,823, 32, 58; and Mr.
Rothacker: $429,761, 3, 9; respectively. Payouts of awards under the 1995 Profit
Sharing Plan are subject to certain restrictions. See "--1995 Profit Sharing
Plan."
LONG-TERM INCENTIVE PLAN
The description set forth below is a summary of the principal terms and
conditions of the Trammell Crow Company Long-Term Incentive Plan (the "Long-Term
Incentive Plan") and does not purport to be complete. The description is
qualified in its entirety by reference to the Long-Term Incentive Plan, which
has been filed as an exhibit to the Registration Statement.
OVERVIEW. The purpose of the Long-Term Incentive Plan is to provide an
incentive for employees, directors and certain consultants and advisors of the
Company to remain in the service to the Company, to extend to those persons the
opportunity to acquire a proprietary interest in the Company so that they will
apply their best efforts for the benefit of the Company and to aid the Company
in attracting able persons to enter the service of the Company. The Company may
grant awards under the Long-Term Incentive Plan to officers, directors,
employees and certain consultants and advisors of the Company or any subsidiary
of the Company (as used for the Long-Term Incentive Plan, a "Participant"). The
awards under the Long-Term Incentive Plan include (i) incentive stock options
("ISOs") qualified as such under the Internal Revenue Code of 1986, as amended
(the "Code"), (ii) stock options that do not qualify as incentive stock options,
(iii) stock appreciation rights ("SARs"), (iv) restricted stock awards, and (v)
performance units.
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SHARE AUTHORIZATION. The number of shares of Common Stock that may be
subject to outstanding awards under the Long-Term Incentive Plan is equal to
5,343,451 shares of Common Stock. The number of shares of Common Stock
authorized under the Long-Term Incentive Plan and the number of shares subject
to an award under the Long-Term Incentive Plan will be adjusted for stock
splits, stock dividends, recapitalizations, mergers and other changes affecting
the capital stock of the Company.
INITIAL AWARDS. Concurrent with the closing of the Offering, the Company
will grant options to acquire an aggregate of 2,493,610 shares of Common Stock
to certain employees. The exercise price for such stock options will be the
initial public offering price on the cover page of this Prospectus. The stock
option grants include grants to each of the executive officers of the Company of
the right to acquire 58,523 shares and a grant to Mr. Williams of the right to
acquire 40,966 shares. These options will vest ratably over a three-year period.
ADMINISTRATION. The Long-Term Incentive Plan is administered by the Board
of Directors; provided, however, that the Board of Directors may delegate any or
all of its duties to a committee of the Board of Directors (as used in this
description of the Long-Term Incentive Plan, the "Committee"). The Company
anticipates that the Compensation Committee will administer the Long-Term
Incentive Plan following the Offering. The Committee has broad discretion to
administer the Long-Term Incentive Plan, interpret its provisions, and adopt
policies for implementing the Long-Term Incentive Plan. This discretion includes
the ability to select the recipient of an award, determine the type and amount
of each award, establish the terms of each award, accelerate vesting or
exercisability of an award, extend the exercise period for an award, determine
whether performance conditions have been satisfied, permit the transfer of an
award to family trusts and other persons and otherwise modify or amend any award
under the Long-Term Incentive Plan.
STOCK OPTIONS. The Committee determines the exercise price of each option
granted under the Long-Term Incentive Plan. The exercise price for an ISO must
not be less than the fair market value of the Common Stock on the date of grant,
and the exercise price of non-qualified stock options must not be less than 85%
of the fair market value of the Common Stock on the date of grant. Stock options
may be exercised as the Committee determines, but not later than ten years from
the date of grant in the case of ISOs. At the discretion of the Committee,
holders may use shares of Common Stock to pay the exercise price, including
shares issuable upon exercise of the option.
SARS. A SAR may be awarded in connection with or separate from a stock
option. A SAR is the right to receive an amount in cash or Common Stock (or a
combination of cash and Common Stock) equal to the excess of the fair market
value of a share of the Common Stock on the date of exercise over the exercise
price specified in the agreement governing the SAR (for SARs not granted in
connection with a stock option) or the exercise price of the related stock
option (for SARs granted in connection with a stock option). A SAR granted in
connection with a stock option will require the holder, upon exercise, to
surrender the related stock option or portion thereof relating to the number of
shares for which the SAR is exercised. The surrendered stock option or portion
will then cease to be exercisable. Such a SAR is exercisable or transferable
only to the extent that the related stock option is exercisable or transferable.
A SAR granted independently of a stock option will be exercisable as the
Committee determines. The Committee may limit the amount payable upon exercise
of any SAR. SARs may be paid in cash or stock, as the Committee provides in the
agreement governing the SAR.
RESTRICTED STOCK AWARDS. A restricted stock award is a grant of shares of
Common Stock that are nontransferable or subject to risk of forfeiture until
specific conditions are met. The restrictions will lapse in accordance with a
schedule or other conditions as the Committee determines. During the restriction
period, the holder of a restricted stock award may, in the Committee's
discretion, have certain rights as a stockholder, including the right to vote
the stock and receive dividends and other distributions paid on that stock.
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PERFORMANCE UNITS. Performance units are performance-based awards payable
in cash, Common Stock, or a combination of both. The Committee may select any
performance measure or combination of measures as conditions for cash payments
or stock issuances under the Long-Term Incentive Plan.
ASSUMED OPTION PLAN
In connection with the Reincorporation Transactions, the Company has agreed
to assume, at the Effective Time, the Trammell Crow Company 1997 Stock Option
Plan (the "Assumed Option Plan" or the "1997 Plan"). The description set forth
below is a summary of the principal terms and conditions of the Assumed Option
Plan. The description is qualified in its entirety by reference to the Assumed
Option Plan, which has been filed as an exhibit to the Registration Statement.
ADMINISTRATION. The Assumed Option Plan is administered by the Board of
Directors; provided, however, that the Board of Directors may delegate any or
all of its duties under the Assumed Option Plan to a committee of the Board of
Directors or to any officer or committee of officers of the Company. The Company
anticipates that the Compensation Committee will administer the Assumed Option
Plan following the Offering.
ELIGIBILITY. Each employee of the Company or a subsidiary of the Company is
eligible to participate in the Assumed Option Plan. The Compensation Committee
has selected the persons, whom it identifies as having a direct and significant
effect on the performance of the Company or a subsidiary of the Company, to be
granted awards or options pursuant to the Assumed Option Plan (as used for the
Assumed Option Plan, the "Participants").
SHARE AUTHORIZATION. The maximum number of shares of the Predecessor
Company's common stock that may be subject to outstanding awards under the
Assumed Option Plan is 1,626. This number of shares and the number of shares
subject to an award under the Assumed Option Plan will be adjusted for stock
splits, stock dividends, recapitalizations, mergers and other changes affecting
the capital stock of the Predecessor Company, including the Reincorporation
Merger.
STOCK OPTIONS. Options granted under the Assumed Option Plan are
nonqualified stock options. A stock option will entitle the Participant to
purchase shares of Common Stock from the Company at the exercise price. The
exercise price may be paid in cash, with shares of Common Stock or with a
combination of cash and Common Stock. The options will expire within ten years
from the date of grant. In addition, the Compensation Committee may specify that
an option will terminate prior to the end of its stated term upon termination of
employment, disability or death. If the employment relationship is terminated
for any reason, any options that are not then vested will be forfeited.
INITIAL AWARDS AND ASSUMPTION OF AWARDS. On August 1, 1997, the Predecessor
Company granted to certain of its employees options to acquire an aggregate of
1,626 shares of its common stock, which constitutes all shares authorized under
the Assumed Option Plan. At the Effective Time, the Company will assume the
Predecessor Company's obligations with respect to all such options, and the
Company will thereafter be obligated to issue up to an aggregate of 2,423,801
shares of Common Stock at a price of $3.85 per share upon the exercise of such
options. All of such options will vest upon the closing of the Offering and will
become exercisable 30 days thereafter. Because the exercise price established
for each assumed option at the time it was granted is less than the initial
price to the public in the Offering, the Company expects to recognize a
non-cash, non-recurring charge to earnings of approximately $27.0 million in the
fourth quarter of its 1997 fiscal year. The Predecessor Company granted an
option to Mr. Concannon, a Named Executive Officer, which, following the closing
of the Offering, will represent the right to acquire 29,813 shares of Common
Stock. No option will be granted under the Assumed Option Plan following the
closing of the Offering.
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PROFIT SHARING PLAN
Concurrently with the consummation of the Offering, the Company will no
longer grant any future awards under its 1995 Profit Sharing Plan (the "Profit
Sharing Plan"). Set forth below is a general discussion of the terms of the
Profit Sharing Plan.
The basic accounting units for purposes of the Profit Sharing Plan are
Business Units and Projects. Business Units are designated based upon
recommendations by profit sharing unit leaders to the Chief Executive Officer
and are generally determined by geography or line-of-business. Similarly, a
Project represents a particular real estate project in which the Company owns an
equity interest. A Profit Sharing Unit generally consists of multiple Business
Units and Projects.
A profit sharing account ("Profit Sharing Account") is maintained for each
participant (for the purposes of this section, a "Participant") within a Profit
Sharing Unit. Each Participant's Profit Sharing Account is adjusted to reflect
the operational results of each constituent Business Unit in which the
Participant has been allocated a percentage economic interest (a "Business Unit
Percentage") and each constituent Project in which the Participant has been
allocated a percentage economic interest (a "Project Percentage"). The Profit
Sharing Accounts do not represent any current right to assets of the Company. In
a profitable year, each of a Participant's Profit Sharing Accounts is increased
by a fraction of the Earnings Before Profit Sharing ("EBPS") of the appropriate
Business Units and Projects. In an unprofitable year, EBPS of a given Business
Unit or Project may be negative, in which case each Participant's Profit Sharing
Account will decrease. In addition, various adjustments to Profit Sharing
Accounts may be made to reflect the profits intended to be shared with the
Participant. Prior to retirement, a Participant may receive distributions which
are deducted from his Profit Sharing Account balances. Distributions will
generally be limited to a portion of the current year's EBPS. Payment of these
distributions may also be limited by liquidity concerns of the Company,
potential negative Profit Sharing Accounts for individuals, and obligations to
pay retired Participants or former stockholders.
DISTRIBUTIONS BEFORE RETIREMENT. Participants have generally received two
kinds of distributions: (i) for each Project, distributions in proportion to
their Project Percentages ("Project Distributions"); and (ii) for each Profit
Sharing Unit, distributions in proportion to their Profit Sharing Account
balances ("Current Distributions"). Current Distributions may not exceed the
available cash of a Profit Sharing Unit after certain priority payments have
been made. Thus, a Participant in a profitable Business Unit may have limited
Current Distributions if current earnings or available cash is reduced by the
results of an unprofitable Business Unit in the same Profit Sharing Unit.
Similarly, Project Distributions generally may not exceed a set percentage of
the current earnings of the Project. Current Distributions or Project
Distributions will be made to a Participant only to the extent that the
Participant's Profit Sharing Account balance is positive after aggregating all
individual Business Units and Projects. Thus, all distributions made from a
positive Profit Sharing Unit will be offset against any Profit Sharing Unit in
which the Participant has a negative account balance if the Participant does not
have a positive net Profit Sharing Account balance. Finally, both Current
Distributions and Project Distributions may be limited by other factors,
including the overall solvency of the applicable Profit Sharing Unit.
RETIRED PARTICIPANTS. Upon termination of employment, death or disability,
a Participant, subject to certain vesting requirements, is entitled to receive
the amounts, subject to the payment restrictions under the Profit Sharing Plan,
then held in such Participant's Profit Sharing Account, which account is
converted into a retirement account (a "Retirement Account"). If a Retirement
Account is established, following the last day of the profit sharing period in
which a Participant's retirement occurs, the Participant will no longer have any
interest in any Business Unit but will continue to have existing Project
interests. A retired Participant may, subject to limitations, receive two types
of payments from his/her Retirement Account, (i) Basic Distributions and (ii)
Project Distributions, if retired before January 1, 1995. The Profit Sharing
Plan vests over a graduated period such that if a Participant retires before the
fifth anniversary of the December 31st first following the date on which he
first becomes a Participant, his/her Retirement
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Account and Project Percentage will be reduced as follows: to 1% if he/she
retires before the first anniversary, to 20% if he/she retires before the second
anniversary, to 40% if he/she retires before the third anniversary, to 60% if
he/she retires before the fourth anniversary; and to 80% if he/she retires
before the fifth anniversary.
Retired Participants will receive Basic Distributions equal to (a) the
amount of such Basic Distribution partially accelerated to 10% of such
participant's Retirement Balance as of his/her Retirement Date or (b) the Basic
Distribution otherwise distributable to such participant by reason of a
distribution by the applicable Profit Sharing Unit, whichever is greater,
subject to certain limitations. For participants who retire on or after January
1, 1996 (a "Post '95 Retired Participant"), upon the occurrence of the fifth
anniversary of the Retirement Date, no distributions will be made to other
Participants, except Retired Participants, in that Profit Sharing Unit until
such Retired Participant's Retirement Account is reduced to zero. If more than
one Post '95 Retired Participant has reached the fifth anniversary of his/her
Retirement Date, all such Post '95 Retired Participants will share
proportionately based upon their respective Retirement Account balances. With
respect to any participant who retired prior to January 1, 1996 (a "Pre '96
Retired Participant"), upon the seventh anniversary of his/her Retirement Date,
no Post '95 Retired Participant will receive any Basic Distribution until the
Pre '96 Retired Participant has received his/her balance in full or until the
Post '95 Retired Participant has reached the seventh anniversary of his
Retirement Date (whereupon such Post '95 Retired Participant shall be treated
the same as a Pre '96 Retired Participant), whichever shall first occur.
The accelerated Basic Distributions will be limited to the Available Cash of
the applicable Profit Sharing Unit and other limitations contained in the Profit
Sharing Plan, including a limit on Basic Distributions to Retired Participants
of 24% of Available Cash of the applicable Profit Sharing Unit. In computing
Available Cash, reserves must include anticipated royalty payments under the
Royalty Agreement and anticipated common dividends based on the most current
dividend policy of the Company. In the absence of such policy, reserves for
common dividends are established by the Chief Executive Officer in his sole
discretion. Further, the Chief Executive Officer may, in his sole discretion,
adjust the working capital reserves established by each Profit Sharing Unit in
the manner he deems appropriate.
TERMINATION OF FUTURE AWARDS. After the consummation of the Offering, the
Company will not grant any future awards under the Profit Sharing Plan. All
deferred and accrued earnings associated with the Profit Sharing Units and
Business Units under the Profit Sharing Plan will be paid to the current
Participants, and when all such amounts have been paid, the Company will have no
further obligation to Participants. With respect to Retired Participants, the
Company will continue to make Project Distributions until the completion of the
particular Project.
401(k) PLAN
The Company sponsors a retirement plan called the Trammell Crow Company
Retirement Savings Plan (the "401(k) Plan"). The total assets as of December 31,
1996, held by the 401(k) Plan were valued at approximately $43.1 million. The
trustees for the 401(k) Plan are Vince George and Asuka Nakahara. Employees
(including members of management) are eligible to make voluntary contributions
under the 401(k) Plan of up to 15% of their annual compensation, subject to the
applicable limitations of the Code. The Company is permitted to make a
discretionary contribution to the 401(k) Plan each fiscal quarter which will be
allocated among participants as a matching contribution based on their
contributions under the 401(k) Plan. The Company's policy is to match the lesser
of (i) 50% of all contributions up to 6% of an employee's contribution and (ii)
$4,500 per year. The 401(k) Plan permits employees to direct investments of
their accounts among a selection of mutual funds. The 401(k) Plan is intended to
qualify as a profit sharing plan under 401(a) and 401(k) of the Code.
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SERVICE PLUS PROGRAM
Since 1993, the Company has sponsored a stand-alone cash profit sharing
program (the "Service Plus Program") pursuant to which the Company makes cash
bonus payments to rank and file employees. The Company's Board of Directors
determines annually a target net income amount and a percentage of net income
that will be distributed to employees if the target net income is achieved. Net
income for purposes of the Service Plus Program is defined as net income before
royalty, consulting, profit sharing and taxes. Amounts distributed vary by
employee based solely on years of service with the Company. In 1996,
distributions under the Service Plus Program totaled $818,995. The Board has set
at 3% the percentage of net income to be distributed for each year that the
Service Plus Program has been in existence and has set at $35 million the target
net income for 1997.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases; or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
Prior to completion of the Offering, the Company intends to enter into
indemnification agreements with each of its executive officers and directors.
Pursuant to such agreements, the Company will, to the extent permitted by
applicable law, indemnify such persons against all expenses, judgments, fines
and penalties incurred in connection with the defense or settlement of any
actions brought against them by reason of the fact that they were directors or
officers of the Company or assumed certain responsibilities at the direction of
the Company.
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CERTAIN TRANSACTIONS
REINCORPORATION TRANSACTIONS
In connection with the Reincorporation Transactions, the current
stockholders of the Company will receive 27,799,246 shares of Common Stock,
constituting approximately 83.73% of the outstanding Common Stock after the
Offering. See "Principal Stockholders."
On August 1, 1997, the Predecessor Company granted to certain of its
employees options to acquire an aggregate of 1,626 shares of its common stock,
which constitutes all shares authorized under the Assumed Option Plan. At the
Effective Time, the Company will assume the Predecessor Company's obligations
with respect to all such options, and the Company will thereafter be obligated
to issue up to an aggregate of 2,423,801 shares of Common Stock at a price of
$3.85 per share upon the exercise of such options. All of such options will vest
upon the closing of the Offering and will become exercisable 30 days thereafter.
Because the exercise price established for each assumed option at the time it
was granted is less than the initial price to the public in the Offering, the
Company expects to recognize a non-cash, non-recurring charge to earnings of
approximately $27.0 million in the fourth quarter of its 1997 fiscal year. The
Predecessor Company granted an option to Mr. Concannon, a Named Executive
Officer, which, following the closing of the Offering, will represent the right
to acquire 29,812 shares of Common Stock. No option will be granted under the
Assumed Option Plan following the closing of the Offering.
Concurrent with the closing of the Offering, the Company granted options
under the Long-Term Incentive Plan to acquire an aggregate of 2,493,610 shares
of Common Stock to certain employees. The exercise price for such stock options
was the initial public offering price on the cover page of this Prospectus. The
stock option grants include grants to each of the executive officers of the
Company to acquire 58,523 shares and a grant to Mr. Williams to acquire 40,966
shares. The options will vest ratably over a three-year period.
ROYALTY AGREEMENT AND LICENSE AGREEMENT
Pursuant to a Royalty Agreement entered into between Mr. Trammell Crow, as
an individual, and the Company on January 1, 1991, as ultimately assigned to CFH
Trade-Names, L.P. ("CFH"), an affiliate of Crow Family Partnership, L.P., Mr.
Trammell Crow granted to the Company the exclusive right and license to use any
of the Trammell Crow Company business or trade names, or any acronym or
abbreviation thereof, in any business developing, acquiring, managing,
financing, owning or investing in real estate for office, industrial or retail
use in the United States or Canada. Payments under the Royalty Agreement were
approximately $2,172,000, $2,382,000 and $1,194,000 in 1996, 1995, and 1994,
respectively. The Royalty Agreement will be terminated immediately prior to the
closing of the Offering.
The Company and CFH have agreed that immediately prior to the closing of the
Offering and upon termination of the Royalty Agreement, they will enter into a
License Agreement. In September, 1997, prior to the assignment of the Royalty
Agreement, the Predecessor Company made a cash payment in an aggregate amount of
approximately $1,414,000 to Crow Family in partial satisfaction of accrued
royalty and consulting expenses. The Predecessor Company has agreed that, no
later than April 15, 1998, it will pay CFH and Crow Family all unpaid amounts
owed by the Company to CFH and Crow Family under the Royalty Agreement as of the
date immediately preceding the date of this Prospectus.
Pursuant to the terms of the License Agreement, and subject to certain
quality standards, the Company will be granted the right to use the name
"Trammell Crow" in any business in any region around the world; provided,
however, that the Company has agreed that it will not engage in the residential
real estate business under the name "Trammell Crow." The license granted
pursuant to the License Agreement will be perpetual, subject to the Company's
continued use and compliance with certain quality standards and termination as a
result of certain bankruptcy events.
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Under the terms of the License Agreement, CFH has reserved the right to use
the names "Crow Family Holdings" and "Crow Investment Trust" (and one approved
substitute for either of such names) and derivations thereof in any business
except the real estate services business. CFH is not required to change the name
of certain of its existing affiliates which currently use names that would
otherwise be prohibited under the License Agreement. However, CFH has agreed to
use its reasonable efforts to prevent any entities from engaging in any new
business activities without the entity changing its name to a permitted name
under the License Agreement. CFH has also agreed not to use the name "Crow" in
combination with the word "Company" or in combination with any word that
connotes a real estate service business, including "Development," "Brokerage,"
"Management," "Property Management," "Services," "Corporate Services,"
"Infrastructure Management," "Leasing" or "Tenant Representation." In addition,
CFH will not use "Crow" in the name of any entity that has securities registered
under the Securities Act or the Securities Exchange Act of 1934; provided,
however, that the names "Trammell Crow Residential Company," "Trammell Crow
Residential" and "TCR" may be used for any public entity pursuant to the terms
of applicable agreements among Trammell Crow Residential Company, CFH and, if
applicable, the Company. CFH can use the name "Crow" in the name of any
privately held entity that is not engaged in the real estate business if the
name also includes a descriptive word (E.G., "Crow Publishing"). CFH has agreed
to use its reasonable efforts to assure that other family members of Mr.
Trammell Crow will comply with the License Agreement as if they were parties to
the agreement. In addition, CFH has agreed to cause Trammell Crow International
to cease using the name "Trammell Crow" within three years after the date of the
License Agreement, and also to cease to use that name in any market within 12
months after the Company or any of its subsidiaries opens an office in that
market.
CONSULTING ARRANGEMENTS
In January 1991, the Company entered into consulting arrangements (the
"Consulting Arrangements") with Mr. Williams and an affiliate of Mr. Harlan
Crow. Mr. Crow's interest was subsequently assigned to Crow Family. Pursuant to
the Consulting Arrangements, Mr. Williams and Crow Family receive payments
computed by paying them a fixed percentage of earnings of each Project and
Business Unit. The Consulting Arrangements will be terminated as of the closing
of the Offering. Crow Family received payments of $271,000, $297,000 and
$149,000, for Consulting Arrangement fees accrued in 1996, 1995 and 1994,
respectively. Mr. Williams received payments of $221,141, $143,307 and $148,366,
for Consulting Arrangement fees accrued in 1996, 1995 and 1994, respectively.
The Predecessor Company has agreed that, no later than April 15, 1998, it will
pay Crow Family all unpaid amounts owed by the Predecessor Company to Crow
Family under its Consulting Arrangements. Mr. Williams will receive a payment of
$1,555,918 upon the termination of the Consulting Arrangements. See
"Reincorporation Transactions."
CROW INVESTMENT TRUST AND CERTAIN INVESTMENT FUNDS
Crow Realty Investors, L.P. d/b/a Crow Investment Trust is wholly owned by
Crow Family. Mr. Harlan Crow, a director of the Company, is the chief executive
officer of Crow Family, Inc., the general partner of Crow Family. Since its
inception in 1994, Crow Investment Trust has co-invested with the Company and
various of its subsidiaries in 15 projects in the areas of industrial
development, build-to-suit arrangements, land acquisitions and other real-estate
related projects.
Beginning in 1995, the Company, directly and through its subsidiary Trammell
Crow Capital Company, and certain senior employees of the Company and its
affiliates, through Trammell Crow Investment Fund 1995 L.P., a Delaware limited
partnership ("Fund I"), have co-invested on a side-by-side basis with Crow
Investment Trust and Mr. Williams in six and four real-estate related projects,
respectively. Trammell Crow Investments, Inc., the general partner of Fund I, is
a subsidiary of Trammell Crow Capital Company. The Company's contributions to
and distributions from these projects were approximately $265,000, $1,118,000;
and $1,993,000, $0 in 1996 and 1995, respectively. Crow Investment Trust and Mr.
Williams have co-invested and received distributions in the amounts of $275,000,
$5,138,000; and $6,249,000, $0 in
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1996 and 1995, respectively, with respect to these projects. The senior
employees of the Company invest in the projects indirectly as limited partners
in Fund I. The following reflects total investments and distributions related to
Fund I through December 31, 1996, for the executive officers of the Company: Mr.
Lippe, $150,000, $131,677; Mr. Nakahara, $25,000, $21,946; Mr. Maddux, $50,000,
$43,892; Mr. Sulentic, $25,000, $21,946; and Mr. Blackwell, $100,000, $87,785;
respectively. No additional capital contributions were made to Fund I during
1996 by the executive officers of the Company.
Beginning in February 1996, the Company, through its subsidiary Trammell
Crow Capital Company II, Inc., and certain directors and senior employees of the
Company and its affiliates have collectively invested in Trammell Crow
Investment Fund II, L.P., a Delaware limited partnership which makes investments
that emphasize real-estate related projects ("Fund II"). Trammell Crow
Investments II, Inc., the general partner of Fund II, is a subsidiary of
Trammell Crow Capital Company II, Inc. The senior employees of the Company
invest as limited partners through Trammell Crow Individual Investment Fund
1996, L.P. in Fund II. Through September 30, 1997, the Company made
contributions to Fund II of approximately $1,018,000 and received distributions
from Fund II of approximately $80,000. The following reflects total investments
and distributions related to Fund II through September 30, 1997, for the
executive officers of the Company: Mr. Lippe, $130,000, $29,324; Mr. Nakahara,
$65,000, $14,662; Mr. Maddux, $32,500, $7,331, Mr. Concannon, $32,500, $7,331;
Mr. Rothacker, $32,500, $7,331; Mr. Sulentic, $16,250, $3,665; and Mr.
Blackwell, $162,500, $36,655, respectively. In addition, an affiliate of Mr.
Williams, a director of the Company, made investments in Fund II of $487,500 and
received distributions of $109,964 through September 30, 1997.
Fund II currently invests in several related limited partnerships that are
all affiliates of Crow Family and are collectively referred to as the "DFW
Fund." Through September 30, 1997, the Company and Crow Investment Trust have
invested an aggregate of approximately $470,683 and $3,200,645, respectively, in
DFW Fund. The aggregate amount invested by Fund II in DFW Fund through September
30, 1997, is $470,683. An affiliate of Mr. Williams has invested $470,683 as of
September 30, 1997 in DFW Fund. DFW Fund has made no distributions. Through
September 30, 1997, an affiliate of Mr. Williams contributed approximately
$1,450,158 to projects in which DFW Fund has an interest. Through September 30,
1997, the Company and Crow Investment Trust contributed approximately $1,010,850
and $7,790,517, respectively, to projects in which DFW Fund had an interest. The
aggregate amount contributed by Fund II to projects in which DFW Fund had an
interest is $2,362,177 through September 30, 1997. The Company has also agreed
not to invest in certain investment opportunities in the Dallas/Fort Worth
metropolitan area without first offering the investment opportunity to the DFW
Fund.
Crow Investment Trust currently has a substantial ownership interest in TCC
Retail BTS Limited Partnership ("Retail BTS"), a Texas limited partnership which
has a wholly owned subsidiary of the Company as its general partner. Retail BTS
develops, owns and operates real estate projects leased to national retail
chains. Through September 30, 1997, Crow Investment Trust has invested an
aggregate of $374,000 in Retail BTS. Crow Investment Trust has received payments
of approximately $58,000, $105,000 and $35,000 in 1996, 1995 and 1994,
respectively.
CROW FAMILY
During 1996, 1995 and 1994, the Company received 9%, 11% and 14%,
respectively, of its total revenue from a commercial real estate asset base
principally owned by the partnerships, corporations and other entities or
individuals doing business as Trammell Crow Company prior to 1991. Crow Family
1991 Limited Partnership (an affiliate of Crow Family and Mr. Harlan Crow) and
Mr. Williams, a director of the Company, own significant interests in this
commercial asset base.
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CAPITALIZATION DEBT
In connection with its initial capitalization, the Predecessor Company
borrowed $9,020,000 from Mr. Williams and an affiliate of Crow Family. The notes
representing such indebtedness (the "Capitalization Notes") are unsecured and
bear interest at 10.5% per annum, and require principal payments equal to the
amount of cash available for debt repayment under a prescribed formula. In 1993,
Mr. Williams sold a portion of his interest in the Capitalization Notes to a
former shareholder. In 1994, Mr. Williams acquired all of the interests held by
the affiliate of Crow Family in the Capitalization Notes. The outstanding
borrowings under the Capitalization Notes totaled approximately $1,378,000,
$2,592,000 and $4,819,000 at December 31, 1996, 1995 and 1994, respectively. Any
remaining unpaid principal balance of the Capitalization Notes and accrued
interest thereon is due on October 1, 2006. Aggregate principal and interest
payments of approximately $1,496,000, $2,750,000 and $1,831,000 were made to Mr.
Williams during 1996, 1995 and 1994, respectively. The remaining balance under
the Capitalization Notes of approximately $650,000 will be paid to Mr. Williams
upon the closing of the Offering.
CATMONTU NOTES
In connection with the private placement of common stock of the Predecessor
Company in January 1993, Mr. Blackwell, Mr. Concannon, Mr. Lippe and Mr.
Nakahara, along with certain other stockholders of the Company borrowed funds
from an affiliate of the Company, as evidenced by individual promissory notes
(the "Catmontu Notes"). Each stockholder pledged his/her purchased Common Stock
as collateral for the Catmontu Notes. The Catmontu Notes bear interest at prime
plus 1 1/2% per annum, payable quarterly, and mature in 1998. As permitted under
the shareholders' agreement of the Predecessor Company and in connection with
the private placement of Common Stock in 1996, the Company repurchased the
shares securing the Catmontu Notes at book value. The original amount
outstanding under the Catmontu Notes for each of Mr. Blackwell, Mr. Concannon,
Mr. Lippe and Mr. Nakahara was $79,789, $408,780, $408,780 and $200,018,
respectively. Messrs. Blackwell, Concannon, Lippe and Nakahara received cash
payments of $81,426, $419,187, $419,187 and $204,122, respectively. These cash
payments reflect the payment of principal on the Catmontu Notes plus any
increase in the Company's earnings over the period. The largest aggregate amount
of debt outstanding on the Catmontu Notes was $3,418,241. All Catmontu Notes
were repaid in conjunction with the private placement on August 11, 1996.
PURCHASE NOTES
In connection with the private placement of common stock of the Predecessor
Company in August 1996, the Company financed a portion of the purchase price for
the common stock purchased by the Named Executive Officers along with certain
other employees. The individual notes evidencing the amount borrowed from the
Company to pay a portion of the purchase price for the acquired shares (the
"Purchase Notes"), bear interest at the prime rate of interest announced from
time to time by First Tennessee Bank, N.A, plus 0.5% per annum. Each Purchase
Note is payable in five annual installments of principal, plus accrued interest,
due on March 1 of each year, with the first such installment paid on March 1,
1997. Each Purchase Note is secured by a pledge agreement (the "Pledge
Agreement") between the employee and the Company, granting a security interest
in all Common Stock owned or acquired, directly or indirectly, by the employee.
Under the Purchase Notes, the employee has personal liability for the payment of
20% of the original principal balance and 20% of the accrued and unpaid interest
thereon. With the exception of these amounts and the employee's interest in any
collateral covered by the Pledge Agreement, the employee has no personal
liability for payment of any of the indebtedness evidenced by the respective
Purchase Note. The aggregate amount financed under the Purchase Notes was
$9,394,040. The aggregate amount of principal and interest outstanding as of
September 30, 1997, was approximately $7,404,000 Set forth below is the amount
initially borrowed and the outstanding balance as of September 30, 1997,
including principal plus accrued interest, for each of the Company's executive
officers. Mr. Blackwell, $283,407, $236,929; Mr. Concannon, $295,314, $246,882;
Mr. Lippe, $329,511, $275,471;
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Mr. Maddux, $68,986, $57,672; Mr. Nakahara, $132,842, $111,056; Mr. Rothacker,
$203,765, $170,348; and Mr. Sulentic, $179,430, $150,003.
TAX NOTES
In connection with the private placement of common stock of the Predecessor
Company in August 1996, the Company financed certain income tax liabilities of
the Named Executive Officers and other employees resulting from the application
of the employee's deferred compensation in his/her Profit Sharing Account to
purchase the common stock issued in the private placement. The notes
representing the resulting indebtedness bear interest at 5.88% (the "Tax
Notes"), but if the loan is not repaid by August 26, 1998, the interest rate
will increase to the prime rate of interest announced from time to time by Texas
Commerce Bank, N.A plus 0.5% per annum until paid. The term of the Tax Notes is
three years and 100% of the after-tax cash distributions to the debtor under the
1995 Profit Sharing Plan must be applied in payment of such notes until they are
paid in full, first to interest and then to principal. Each loan is fully
recourse to the employee and secured by the remaining deferred compensation
balance in his/her Profit Sharing Account. The aggregate amount financed under
the Tax Notes was $4,848,069. The aggregate amount of principal and interest
outstanding as of September 30, 1997 was approximately $1,046,116. Set forth
below is the amount initially borrowed and the outstanding balance as of
September 30, 1997, including principal plus accrued interest, for each of the
Company's executive officers. Mr. Blackwell, $190,399, $0; Mr. Concannon,
$74,893, $1,772; Mr. Lippe, $269,939, $112,564; Mr. Maddux, $147,959, $93,898;
Mr. Nakahara, $138,068, $32,526; Mr. Rothacker, $194,208, $73,586; and Mr.
Sulentic, $102,347, $8,106.
STOCKHOLDERS' AGREEMENT
Contemporaneously with the Reincorporation Transactions, the Company, Crow
Family, CFH and Mr. Williams will enter into a Stockholders Agreement pursuant
to which, among other things, (i) the Company will grant certain registration
rights to Crow Family, CFH and Mr. Williams with respect to the shares of Common
Stock to be issued to them in the Reincorporation Transactions, (ii) each of
Crow Family, CFH and the Company will agree not to solicit for employment,
without prior written notice to the chief executive officer of the other
company, the officer-level employees of the other for a period of five years,
(iii) Crow Family and CFH will agree to give the Company 15 days prior notice
before effecting any private sale of shares of Common Stock owned by it and (iv)
the Company will agree to nominate for election to its Board of Directors a
designee of Crow Family until such time as Crow Family's beneficial ownership of
shares of Common Stock declines below a certain threshold. The executive
officers of the Company will also be parties to the Stockholders' Agreement
solely for the purpose of agreeing to vote in favor of the Crow Family designee.
See "Description of Capital Stock--Stockholders Agreement."
DOPPELT STOCKHOLDERS AGREEMENT
TCRS and the Predecessor Company have entered into a stockholders agreement
with Doppelt and Mr. Doppelt (the "Doppelt Stockholders Agreement"). The Doppelt
Stockholders Agreement sets forth certain limitations on the rights of Doppelt
to transfer the Doppelt Shares. As long as Mr. Doppelt remains employed with the
Company, these transfer restrictions will lapse (i) with respect to 30% of these
shares on each of August 15, 1998, and August 15, 1999, (ii) with respect to 20%
of these shares on August 15, 2000, and (iii) with respect to 10% of these
shares on each of August 15, 2001, and August 15, 2002. Regardless of these
transfer restrictions, Doppelt is entitled to receive all dividend payments and
to exercise all voting and other ownership rights with respect to this stock.
The Doppelt Stockholders Agreement also provides that, in the event the Company
proposes to register any of the Company's Common Stock under the Securities Act,
Doppelt (or permitted transferees of Doppelt) will be entitled to include its
(or their) shares of Common Stock of the Company or common stock of TCRS in the
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registration, subject to certain limitations. See "Description of Capital
Stock--Doppelt Stockholders Agreement."
WYNDHAM HOTEL CORPORATION
Wyndham Hotel Corporation, an entity in which an affiliate of Crow Family
has a significant ownership interest ("Wyndham"), made payments in the amount of
approximately $1,150,000 and $387,000, in 1996 and 1995, respectively, for
contract labor (including related costs) provided by the Company to Wyndham for
management information services. James D. Carreker, a director nominee, serves
as President and Chief Executive Officer and as a director of Wyndham.
THE KINETIC GROUP
On January 1, 1997, the Company invested in The Kinetic Group Limited
Partnership (the "Kinetic Group"), a Texas limited partnership in which Wyndham
owns a substantial interest. The Kinetic Group operates as an independent
third-party contractor to provide certain management information services,
telecommunications, and computer hardware and software management and
maintenance services. Wyndham and the Company share equally in all profit
distributions of the Kinetic Group. Each of Wyndham and the Company have entered
into mangagement information system agreements for an initial term of five years
with the Kinetic Group to provide these services. The Company paid no services
fees in 1996. As of September 30, 1997, the Company has paid approximately
$3,101,000 in fees.
RELATIONSHIP WITH AFFILIATE OF DIRECTOR NOMINEE
James R. Erwin, a director nominee, is Vice Chairman and Corporate Finance
Executive--West for NationsBank Corp. and Vice Chairman and a director of
NationsBank of Texas, N.A. The Company is negotiating a $150 million master line
of credit with, and has obtained a committment letter in connection therewith
from, NationsBank of Texas, N.A. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
POLICY WITH RESPECT TO RELATED PARTY TRANSACTIONS
The Company has implemented a policy requiring any material transaction (or
series of related transactions) between the Company and related parties to be
approved by a majority of the disinterested directors, upon such Directors'
determination that the terms of the transaction are no less favorable to the
Company than those that could have been obtained from unrelated third parties.
The policy defines a material related party transaction (or series of related
transactions) as one involving a purchase, sale, lease or exchange of property
or assets or the making of any investment with a value to the Company in excess
of $1.0 million or a service agreement (or series of related agreements) with a
value in excess of $1.0 million in any fiscal year. There can be no assurance
that this policy will always successfully eliminate the influence of conflicts
of interest. See "Management--Directors."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership as of September 30, 1997, of the Company's Common Stock,
assuming the Doppelt Acquisition and the Reincorporation Transactions have
occurred, and as adjusted to give effect the sale of the Common Stock offered
hereby, by (i) each person known to the Company to be the beneficial owner of 5%
or more of the shares of Common Stock outstanding; (ii) each director and
director nominee; (iii) each Named Executive Officer; and (iv) directors and
executive officers of the Company as a group. Unless otherwise indicated, each
person has sole voting (subject to the terms of the Stockholders' Agreement) and
dispositive power over the shares indicated as owned by such person. Unless
otherwise indicated, all stockholders set forth below have the same principal
business address as the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES OWNED --------------------------
BEFORE THE BEFORE AFTER
NAME OFFERING OFFERING OFFERING
- -------------------------------------------------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Crow Family Partnership, L.P.............................................. 5,564,319 19.7% 16.8%
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
CFH Trade Names, L.P...................................................... 2,295,217 8.1 6.9
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
J. McDonald Williams...................................................... 1,509,499 5.4 4.5
George L. Lippe........................................................... 858,592 3.0 2.6
H. Pryor Blackwell........................................................ 716,984 2.5 2.2
William F. Concannon(1)................................................... 485,940 1.7 1.5
William C. Maddux......................................................... 386,068 1.4 1.2
Asuka Nakahara............................................................ 454,636 1.6 1.4
William Rothacker......................................................... 599,226 2.1 1.8
Robert E. Sulentic........................................................ 380,106 1.3 1.1
Harlan R. Crow(2)......................................................... 7,859,536 27.9 23.7
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
James D. Carreker......................................................... 298,117 1.1 0.9
James R. Erwin............................................................ -- -- --
Directors, director nominees and executive officers as a group
(9 persons)............................................................. 13,548,654 48.0% 40.8%
</TABLE>
- ------------------------
(1) Includes 456,127 shares held directly by Mr. Concannon and options to
acquire 29,813 shares granted under the Assumed Option Plan which vest upon
closing of the Offering and become exercisable within 30 days thereafter.
(2) Consist of shares held by Crow Family Partnership, L.P. and CFH
Trade-Names, L.P. Crow Family, Inc. is the general partner of both such
partnerships. Mr. Crow is a director of Crow Family, Inc. and trustee of
certain family trusts which hold a significant equity interest in such
partnerships. Mr. Crow disclaims beneficial ownership of all such shares
held by such partnerships.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary description is qualified in its entirety by reference
to the Company's Certificate of Incorporation, which is filed as an exhibit to
the Registration Statement. The authorized capital stock of the Company consists
of 100,000,000 shares of Common Stock, par value $0.01 per share, and 30,000,000
shares of Preferred Stock, par value $0.01 per share.
The authorized and unissued shares of Common Stock and Preferred Stock may
be used by the Company for various purposes, including possible future
acquisitions. The Company currently does not have any specific plans or
obligations to issue shares of Common Stock or Preferred Stock, other than (i)
the sale of the shares of Common Stock offered hereby; (ii) the shares of Common
Stock to be issued in connection with the Reincorporation Transactions; (iii)
the shares of Common Stock to be issued in connection with the Doppelt
Acquisition; and (iv) the issuance of shares of Common Stock under the Company's
benefit plans. See "Management--Long-Term Incentive Plan," "--Assumed Option
Plan" and "Certain Transactions."
COMMON STOCK
Prior to the completion of the Offering, but after giving effect to the
Reincorporation Transactions, the Company will have 28,199,246 shares of Common
Stock outstanding, which will be held by 116 stockholders of record.
The holders of shares of Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of common stockholders. There is
no provision in the Company's Certificate of Incorporation for cumulative voting
with respect to the election of directors. Accordingly, the holders of more than
50% of the total voting power of the Common Stock can, if they choose to do so,
elect all of the directors of the Company. Each share of Common Stock is
entitled to participate equally in dividends, when, as and if declared by the
Board of Directors, and in the distribution of assets in the event of
liquidation, dissolution or winding up of the Company, subject in all cases to
any prior rights of outstanding shares of Preferred Stock. The shares of Common
Stock have no preemptive or conversion rights, redemption rights or sinking fund
provisions and are not subject to calls, assessments or rights of redemption by
the Company. All shares of Common Stock outstanding upon the closing of this
Offering will be duly authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
Company's stockholders, to issue Preferred Stock from time to time in one or
more series and to fix, as to any such series, the voting rights, if any,
applicable to such series and such other designations, preferences and special
rights as the Board of Directors may determine, including dividend, conversion,
redemption and liquidation rights and preferences. Upon the closing of this
Offering, there will be no shares of Preferred Stock outstanding. The issuance
of shares of Preferred Stock under certain circumstances could have the effect
of delaying or preventing a change in control of the Company or other corporate
actions. See "--Anti-takeover Provisions."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the DGCL which
provides, with certain exceptions, that a Delaware corporation may not engage in
any of a broad range of business combinations, such as mergers, consolidations
and sales of assets, with a person or an affiliate or associate of such person
who is an "Interested Stockholder" (as defined below) for a period of three
years from the date that such person became an Interested Stockholder unless:
(i) the business combination or the transaction resulting
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in a person's becoming an Interested Stockholder is approved by the Board of
Directors of the Company before the person becomes an Interested Stockholder,
(ii) upon consummation of the transaction which results in the person becoming
an Interested Stockholder, the Interested Stockholder owned 85% or more of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding shares owned by persons who are both officers and directors of the
Company and shares held by certain employee stock ownership plans), or (iii) on
or after the date the person became an Interested Stockholder, the business
combination is approved by the Company's Board of Directors and by the holders
of at least 66 2/3% of the Company's outstanding voting stock, excluding shares
owned by the Interested Stockholder, at an annual or special meeting. An
"Interested Stockholder" is defined as any person, other than the Company and
any direct or indirect majority-owned subsidiaries of the Company, that is (i)
the owner of 15% or more of the outstanding voting stock of the Company or (ii)
an affiliate or associate of the Company and was the owner of 15% or more of the
outstanding voting stock of the Company at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an Interested Stockholder. This statute would not prohibit the
Company from entering into a business combination with any stockholder who would
otherwise have been deemed to become an "Interested Stockholder" as a result of
the Reincorporation Transactions.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases; or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
Prior to completion of the Offering, the Company intends to enter into
indemnification agreements with each of its executive officers and directors.
Pursuant to such agreements, the Company will, to the extent permitted by
applicable law, indemnify such persons against all expenses, judgments, fines
and penalties incurred in connection with the defense or settlement of any
actions brought against them by reason of the fact that they were directors or
officers of the Company or assumed certain responsibilities at the direction of
the Company.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, Delaware
law, the Assumed Option Plan and the Stockholders' Agreement (defined below)
summarized in the following paragraphs may have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in that stockholder's best interests, including attempts
that might result in a premium over the market price to be paid for the shares
held by stockholders.
CERTIFICATE OF INCORPORATION
Pursuant to the Certificate of Incorporation, the Board of Directors by
resolution may issue, subject to certain limitations, additional shares of
Common Stock or establish one or more classes or series of Preferred Stock
having the number of shares, designations, relative voting rights, dividend
rates, liquidation and other rights, preferences and limitations that the Board
of Directors fixes without stockholder approval. Any additional issuance of
Common Stock or designation of rights, preferences, privileges and limitations
with respect to Preferred Stock could have the effect of impeding or
discouraging the
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acquisition of control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of the Company's
management. Specifically, if, in the due exercise of its fiduciary obligations,
the Board of Directors were to determine that a takeover proposal was not in the
Company's best interest, such shares could be issued by the Board of Directors
without stockholder approval in one or more transactions that might prevent or
render more difficult or costly the completion of the proposed takeover
transaction by diluting the voting or other rights of the proposed acquiror or
insurgent stockholder group, by putting a substantial voting block in
institutional or other hands that might undertake to support the position of the
incumbent Board of Directors, by effecting an acquisition that might complicate
or preclude the takeover, or otherwise.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year.
The Board of Directors believes that a classified Board of Directors will
help to assure the continuity and stability of the Board of Directors and the
business strategies and policies of the Company as determined by the Board of
Directors, because the likelihood of continuity and stability in the composition
of the Company's Board of Directors and in the policies formulated by the Board
of Directors will be enhanced by staggered three-year terms.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company, even though such an attempt might be beneficial to the Company and
its stockholders. In addition, the classified board provision could delay
stockholders who do not agree with the policies of the Board of Directors from
removing a majority of the Board for two years. See "--Number of Directors;
Removal; Filling Vacancies."
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate of Incorporation provides that the number of members of the
Board of Directors shall be fixed from time to time by resolution adopted by a
majority of the Directors then in office. The Company will have three directors
prior to the Offering. Further, subject to the rights of the holders of any
series of Preferred Stock then outstanding, the Certificate of Incorporation
authorizes only a majority of the directors then in office to fill vacancies,
including newly created directorships. Accordingly, the Board of Directors could
prevent a stockholder from obtaining majority representation on the Board of
Directors by enlarging the Board of Directors and filling the new directorships
with its own nominees. The Certificate of Incorporation also provides that
directors of the Company may be removed only for cause and, even then, only by
the affirmative vote of holders of a majority of the outstanding shares of stock
eligible to vote in such matters.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The Certificate of Incorporation establishes an advance notice procedure for
the nomination, other than by or at the discretion of the Board of Directors or
a committee thereof, of candidates for election as director, as well as for
other stockholder proposals to be considered at an annual stockholders' meeting.
Notice of stockholder proposals and director nominations must be timely
given in writing to the secretary of the Company prior to the meeting at which
the matters are to be acted upon or the directors are to be elected. To be
timely, notice must be received at the principal offices of the Company not less
than 60, nor more than 90, days prior to the meeting of stockholders; provided,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the
earlier of
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(i) the day on which notice of the date of the meeting was mailed or (ii) the
day on which public disclosure was made.
The purpose of requiring advance notice is to afford the Board of Directors
an opportunity to consider the qualifications of the proposed nominees or the
merits of other stockholder proposals and, to the extent deemed necessary or
desirable by the Board of Directors, to inform stockholders about those matters.
SPECIAL MEETINGS OF STOCKHOLDERS
The Certificate of Incorporation provides that special meetings of the
stockholders of the Company may be called only by the Chairman of the Board of
Directors or a majority of the members of the Board of Directors. This provision
will make it more difficult for stockholders to take action opposed by the Board
of Directors.
STOCKHOLDERS' AGREEMENT
Contemporaneously with the Reincorporation Transaction (see "Reincorporation
Transactions"), the Company, Crow Family, CFH Trade-Names, L.P. and Mr. Williams
will enter into a Stockholders' Agreement, pursuant to which the Company will
agree, subject to certain limitations and under certain circumstances, to
register for sale shares of Common Stock that are held by the parties thereto
(collectively, the "Registrable Securities"). Of the 28,199,246 shares issued in
the Reincorporation Transactions, 9,369,189 will be Registrable Securities. The
Stockholders' Agreement provides that Crow Family and Mr. Williams may, from and
after the first anniversary of the Offering, require the Company upon written
notice to register for sale such Registrable Securities (a "Demand
Registration"), provided that the Company has no obligation to effect more than
six underwritten Demand Registrations and shall only be obligated to effect the
sixth underwritten Demand Registration if all remaining Registrable Securities
of Crow Family are to be registered and the total amount of Registrable
Securities to be included in any underwritten Demand Registration has a market
value of at least $25 million. The Company has no obligation to (i) effect an
underwritten Demand Registration within nine months (or file such Registration
Statement within seven months) after the effective date of the immediately
preceding Demand Registration or (ii) effect a shelf Demand Registration within
12 months (or file such Registration Statement within ten months) after such
effective date. In addition, the Company is only required to register a number
of shares of Common Stock for sale pursuant to a shelf Demand Registration that
is less than or equal to five times the amount limitation prescribed by Rule
144. The holders of Registrable Securities may request an unlimited number of
shelf Demand Registrations.
The Stockholders' Agreement also provides that, subject to certain
exceptions, in the event the Company proposes to file a registration statement
with respect to an offering of any class of equity securities, other than
certain types of registrations, the Company will offer the holders of
Registrable Securities the opportunity to register the number of Registrable
Securities they request to include (a "Piggyback Registration"), provided that
the amount of Registrable Securities requested to be registered may be limited
by the underwriters in an underwritten offering based on such underwriters'
determination that inclusion of the total amount of Registrable Securities
requested for registration exceeds the maximum amount that can be marketed at a
price reasonably related to the current market price of the Common Stock or
without materially and adversely affect the offering. The Company will generally
be required to pay all of the expenses of Demand Registrations and Piggyback
Registrations, other than underwriting discounts and commissions; provided,
however, that only 50% of the expenses of underwritten Demand Registrations will
be borne by the Company after the first three such Demand Registrations and all
road show expenses in connection with any Demand Registration will be borne by
the holders of Registrable Securities.
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Under the terms of the Stockholders' Agreement, the Company will grant Crow
Family the right to nominate a member of the Board of Directors. Mr. Harlan Crow
is Crow Family's initial nominee. Each executive officer of the Company will
agree to vote his shares of Common Stock in favor of the nominee of Crow Family.
Crow Family's right to nominate a director will terminate on the first date Crow
Family's beneficial ownership of Common Stock represents the lesser of (i) less
than 12.5% of the then outstanding Common Stock or (ii) less than 50% of the
shares of Common Stock owned on the date of execution of the agreement;
provided, however, that in no event will the Company be obligated to nominate a
Crow Family designee beyond the first date on which the beneficial ownership of
shares of Common Stock held by Crow Family represents less than 5% of all then
outstanding shares of such class. For purposes of the Stockholders' Agreement,
Crow Family's beneficial ownership of Common Stock is defined as both shares of
Common Stock owned by Crow Family and those owned by CFH Trade-Names, L.P. In
connection with any private sale of Common Stock by Crow Family, other than to
an affiliate, Crow Family will agree to give the Company 15 days notice prior to
effecting such sale.
Each of Crow Family and the Company has agreed, prior to the fifth
anniversary of the Stockholders' Agreement, not to solicit the other's
officer-level employees concerning potential employment without prior notice to
the other party. In addition, each of Crow Family and the Company has agreed not
to hire any employee that was improperly solicited until the earlier of (i) the
involuntary termination of such officer-level employee by his/her employer and
(ii) the first anniversary of the last incident of solicitation of such employee
in violation of the agreement.
DOPPELT STOCKHOLDERS AGREEMENT
Pursuant to the Doppelt Stockholders Agreement, Doppelt (or permitted
transferees of Doppelt) may not, with the exception of certain permitted
transfers, sell, pledge or otherwise dispose of Common Stock of the Company. As
long as Mr. Doppelt remains employed with the Company, these transfer
restrictions will lapse (i) with respect to 30% of these shares on each of
August 15 1998, and August 15, 1999, (ii) with respect to 20% of these shares on
August 15, 2000, and (iii) with respect to 10% of these shares on each of August
15, 2001, and August 15, 2002. These transfer restrictions will lapse in full if
(i) the Company terminates Mr. Doppelt's employment without cause, (ii) the
Company is sold or (iii) Mr. Doppelt's employment is terminated as a result of
his forced resignation, death or permanent disability. Regardless of these
transfer restrictions, Doppelt is entitled to receive all dividend payments and
to exercise all voting and other ownership rights with respect to this stock. In
addition, Mr. Doppelt may not, with the exception of permitted transfers, sell,
pledge or otherwise dispose of his shares of Doppelt & Company before August 15,
2001. The Doppelt Stockholders Agreement permits certain transfers to members of
Mr. Doppelt's family and limited transfers to employees of Doppelt pursuant to a
trust arrangement. The Doppelt Stockholders Agreement also provides that, in the
event the Company proposes to register any shares of Common Stock under the
Securities Act, Doppelt (or permitted transferees of Doppelt) will be entitled
to include its (or their) shares of Common Stock in the registration, subject to
certain limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have an aggregate of
33,199,246 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option). Of these shares, the 5,000,000 shares sold
in the Offering will be freely transferable without restriction or further
registration under the Securities Act, except for shares purchased by affiliates
of the Company in the Offering.
SALES OF RESTRICTED SHARES
The 28,199,246 shares of Common Stock held by existing stockholders that
were not purchased in the Offering were issued by the Company in connection with
the Reincorporation Transactions in reliance upon exemptions from the
registration requirements of the Securities Act and are thus treated as
"restricted" securities under Rule 144 promulgated under the Securities Act. In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including an affiliate of the Company, who has
beneficially owned restricted securities, within the meaning of Rule 144, for at
least one year is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 331,992 shares immediately after
the Offering) or (ii) the average weekly trading volume of the Common Stock on
the New York Stock Exchange during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the three months immediately preceding the sale is entitled to sell restricted
shares pursuant to Rule 144(k) without regard to the limitations described
above, provided that two years have expired since the later of the date on which
such restricted shares were acquired from the Company or the date they were
acquired from an affiliate of the Company.
LOCK-UP ARRANGEMENT
The Company and certain stockholders and option holders have agreed, subject
to certain exceptions, to enter into Lock-up Agreements for a period of 180 days
from the date of this Prospectus. Under the Lock-up Agreements, such
stockholders will not offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock (subject to certain exceptions) without the prior written
consent of Morgan Stanley & Co. Incorporated, one of the representatives of the
Underwriters. Upon the expiration of the Lock-up Agreements, those shares
subject to Lock-up Agreements will not, absent registration, be freely
tradeable, but will become eligible for sale under Rule 144 on various dates in
the future.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial numbers of shares in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital through a sale of its equity securities.
RULE 701
Rule 701 under the Securities Act provides that, beginning 90 days after the
effective date of the Registration Statement, shares of Common Stock acquired
upon the exercise of outstanding options may be resold by persons other than
affiliates, subject only to the manner of sale provisions of Rule 144, and by
affiliates subject to all provisions of Rule 144 except the one-year minimum
holding period.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock applicable to "Non-United States Holders." The Company has received an
opinion from Vinson & Elkins L.L.P., that, absent any change in the facts
material to the opinion, the discussion and legal conclusions set forth under
the caption "Certain U.S. Federal Tax Considerations for Non-U.S. Holders of
Common Stock" are accurate and complete in all material respects. Subject to the
discussion below under "Estate Tax," a "Non-United States Holder" is any
beneficial owner of Common Stock that, for United States federal income tax
purposes is a non-resident alien individual, a foreign corporation, a foreign
partnership or a foreign estate or trust as such terms are defined in the
Internal Revenue Code of 1986, as amended (the "Code"). This discussion is based
on the Code, existing, proposed and temporary regulations promulgated
thereunder, and administrative and judicial interpretations as of the date
thereof, all of which are subject to change either retroactively or
prospectively. This discussion does not address all aspects of United States
federal income and estate taxation that may be relevant to Non-United States
Holders in light of their particular circumstances and does not address any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction or the application of any particular tax treaty. PROSPECTIVE
INVESTORS WHO ARE NON-UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL INCOME AND OTHER
TAX CONSEQUENCES, AND THE NON-UNITED STATES TAX CONSEQUENCES, OF OWNING AND
DISPOSING OF COMMON STOCK.
DIVIDENDS
Subject to the discussion below, any dividend paid to a Non-United States
Holder generally will be subject to United States withholding tax either at a
rate of 30% of the gross amount of the dividend or such lower rate as may be
specified by any applicable tax treaty. For purposes of determining whether tax
is to be withheld at a 30% rate or at a reduced rate as specified by an
applicable tax treaty, under current United States Treasury Regulations the
Company ordinarily will presume that dividends paid to a holder with an address
in a foreign country are paid to a resident of such country absent knowledge
that such presumption is not warranted. Under such Regulations, dividends paid
to a holder with an address within the United States generally will be presumed
to be paid to a holder who is not a Non-United States Holder and will not be
subject to the 30% withholding tax, unless the Company has actual knowledge that
the holder is a Non-United States Holder. Under final United States Treasury
Regulations, effective January 1, 1999, however, a Non-United States Holder who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification and other requirements, which would include the
requirement that the Non-United States Holder file with the Company a Form W-8
which provides the holder's name and address.
Dividends received by a Non-United States Holder that are effectively
connected with a United States trade or business conducted by such Non-United
States Holder are exempt from withholding tax if the Non-United States holder
files a Form W-8 with the payor. However, such effectively connected dividends
are subject to regular United States income tax in the same manner as if the
Non-United States Holder were a United States person for federal income tax
purposes. Effectively connected dividends received by a corporate Non-United
States Holder may be subject to additional "branch profits tax" at a rate of 30%
(or such lower rate as may be specified by an applicable tax treaty) of such
corporate Non-United States Holder's effectively connected earnings and profits
for the taxable year, subject to certain adjustments.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the United
States Internal Revenue Service ("IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain realized upon the sale or other
disposition of Common Stock unless (i) such gain is effectively connected with a
United States trade or business of the Non-United States Holder; (ii) the
Non-United
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States Holder is an individual who holds the Common Stock as a capital asset, is
present in the United States for a period or periods aggregating 183 days or
more during the taxable year in which such sale or disposition occurs, and
certain other conditions are met; or (iii) the Company is or has been a "United
States real property holding corporation" for federal income tax purposes at any
time within the shorter of the five-year period preceding such disposition or
such holder's holding period and certain other conditions are met. The Company
has determined that it is not and has never been, and the Company does not
believe that it will become, a "United States real property holding corporation"
for federal income tax purposes. Non-United States Holders should consult
applicable tax treaties, which might result in United States federal income tax
treatment on the sale or other disposition of Common Stock different than as
described above.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the recipient. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Backup withholding will generally not apply to dividends paid to holders at
an address outside the United States (unless the Company has knowledge that the
holder is a United States person). Unless the Company has actual knowledge that
a holder is a Non-United States Holder, dividends paid to a holder at an address
within the United States may be subject to backup withholding at a rate of 31%
if the holder (i) is not a corporation or other "exempt recipient" as defined in
Treasury Regulations and (ii) fails to provide a correct taxpayer identification
number and other information to the Company.
Proceeds from the disposition of Common Stock by a Non-United States Holder
effected by or through a United States office of a broker will be subject to
information reporting and to backup withholding at a rate of 31% of the gross
proceeds unless such Non-United States Holder certifies under penalties of
perjury as to, among other things, its address and status as a Non-United States
Holder or otherwise establishes an exemption. Generally, United States
information reporting and backup withholding will not apply to a payment of
disposition proceeds if the transaction is effected outside the United States by
or through a non-United States office of a broker. However, if such broker is,
for United States federal income tax purposes, a United States person, a
"controlled foreign corporation," or a foreign person which derives 50% or more
of its gross income for certain periods from the conduct of a United States
trade or business, information reporting (but not backup withholding) will apply
unless (i) such broker has documentary evidence in its files that the holder is
a Non-United States Holder and certain other conditions are met, or (ii) the
holder otherwise establishes an exemption. Under final Treasury Regulations,
effective January 1, 1999, a Non-United States Holder generally would not be
subject to backup withholding if the beneficial owner certifies to such owner's
foreign status on a valid Form W-8 filed with the Company.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of United States
income taxes, a refund may be obtained, provided the required documents are
filed with the IRS.
ESTATE TAX
An individual Non-United States Holder who is treated as the owner of Common
Stock at the time of such individual's death or has made certain lifetime
transfers of an interest in Common Stock will be required to include the value
of such Common Stock in such individual's gross estate for United States federal
estate tax purposes and may be subject to United States federal estate tax,
unless an applicable tax treaty provides otherwise. For United States federal
estate tax purposes, a "Non-United States Holder" is an individual who is
neither a citizen nor a domiciliary of the United States. Whether an individual
is considered a "domiciliary" of the United States for estate tax purposes is
generally determined on the basis of all of the facts and circumstances.
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<PAGE>
UNDERWRITING
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below, for whom Morgan
Stanley & Co. Incorporated, BT Alex. Brown Incorporated, Goldman, Sachs & Co.
and BancAmerica Robertson Stephens are acting as U.S. Representatives, and the
International Underwriters named below, for whom Morgan Stanley & Co.
International Limited, BT Alex. Brown International, a division of Bankers Trust
International PLC, Goldman Sachs International and BancAmerica Robertson
Stephens are acting as International Representatives, have severally agreed to
purchase, and the Company has agreed to sell to them, severally, the respective
number of shares of Common Stock set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated............................................................
BT Alex. Brown Incorporated..................................................................
Goldman, Sachs & Co..........................................................................
BancAmerica Robertson Stephens...............................................................
-----------------
Subtotal...................................................................................
-----------------
International Underwriters:
Morgan Stanley & Co. International Limited...................................................
BT Alex. Brown International, a division of Bankers Trust International PLC..................
Goldman Sachs International..................................................................
BancAmerica Robertson Stephens...............................................................
-----------------
Subtotal...................................................................................
-----------------
Total....................................................................................
-----------------
-----------------
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriter's over-allotment option described below), if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer to sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision
86
<PAGE>
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of Shares as may be mutually agreed. The per share price of any Shares so
sold shall be the public offering price set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations
in 1995; (ii) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in relation
to the Shares in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the offering of the
Shares to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
of Japanese International Underwriters or dealers except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such
87
<PAGE>
dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other Underwriters or to certain dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
750,000 additional shares of Common Stock at the public offering price set forth
on the cover page hereof, less underwriting discounts and commissions. The U.S.
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding table
bears to the total number of shares of Common Stock set forth next to the names
of all U.S. Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
At the request of the Company, the U.S. Underwriters have reserved for sale,
at the initial public offering price, up to 5% of the shares to be sold and
offered hereby by the Company to certain eligible employees and persons having
business relationships with the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of the Offering will be
offered by the U.S. Underwriters to the general public on the same terms as the
other shares offered hereby.
Up to shares of Common Stock to be sold in the Offering may be sold by
the Company directly to employees in Canada at the offering price pursuant to a
directed share program (the "Program") established by the Company. If such
shares are sold in Canada pursuant to the Program, the Company will pay the
Underwriters an advisory fee which will be equal to the underwriting discount
and commission which would have been payable to the Underwriters had such shares
been sold by the Underwriters instead of directly by the Company under the
Program.
The Common Stock has been approved for listing on The New York Stock
Exchange, subject to notice of issuance, under the symbol "TCW."
Each of the Company and the directors, executive officers, and the
stockholders of the Company have agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of this Prospectus (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The restrictions described in this
paragraph do not apply to: (a) the sale of shares to the Underwriters; (b) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or a warrant or the conversion of a security outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing; (c)
transactions by any person other than the Company relating
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<PAGE>
to shares of Common Stock or other securities acquired in open market
transactions after the completion of the offering of the Shares; or (d) stock or
stock option issuance by the Company pursuant to existing employee benefit
plans; (e) the pledge of shares of Common Stock by certain employees and
directors to the Company's secured creditors as described in this Prospectus; or
(f) the transfer of shares of Common Stock by any shareholder to: (i) if the
transferor is an individual, a member of the immediate family of the transferor,
if any, or a trust whose sole beneficiaries are members of the immediate family
of the transferor, or a partnership whose sole partners are members of the
immediate family of the transferor; and (ii) if the transferor is a trust, any
member of the immediate family of the transferor that is the grantor or trustee
of the trust; provided, however, that the transferor shall first require any
transferee described in clause (f)(i) or (f)(ii) to execute a copy of a
"lock-up" letter agreeing to similar restrictions on transfer.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or stabilize the price
of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities and may
end any of these activities at any time.
Bankers Trust Company is the lead agent and a lender on the Company's
Existing Credit Facility. BT Alex. Brown Incorporated, one of the Underwriters,
has entered into a business combination with Bankers Trust Company.
As described under "Use of Proceeds," the Company intends to use the net
proceeds of the Offering to repay indebtedness under the Existing Credit
Facility. Accordingly, because more than 10% of the proceeds of the Offering,
not including underwriting compensation, will be received by entities who are
National Association of Securities Dealers, Inc. (the "NASD") members or who are
affiliated with NASD members who are participating in the Offering, the Offering
is being conducted in compliance with NASD Conduct Rule 2710(c)(8) ("Rule
2710(c)(8)").
In compliance with Rule 2710(c)(8), the initial public offering price can be
no higher than that recommended by a "qualified independent underwriter." Morgan
Stanley & Co. Incorporated is assuming the responsibilities of acting as
qualified independent underwriter and the initial offering price of the shares
of Common Stock offered hereby will not be higher than the initial public
offering price recommended by Morgan Stanley & Co. Incorporated. In connection
with the Offering, Morgan Stanley & Co. Incorporated in its role as "qualified
independent underwriter" has performed due diligence investigations and reviewed
and participated in the preparation of the Registration Statement of which this
Prospectus is a part. In addition, the Underwriters may not confirm sales to any
discretionary account without the prior written approval of the customer.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial price will be determined by negotiations among the Company, the U.S.
Representatives and Morgan Stanley & Co. Incorporated, as qualified independent
underwriter. Among the factors to be considered in determining the initial
public offering price will be the future prospects of the Company and its
industry in general, sales, earnings and certain other financial and operating
information of the Company in recent periods,
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and the price-earnings ratios, aggregate value-EBITDA ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Prospectus is subject
to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Vinson & Elkins L.L.P., Dallas, Texas. Certain legal
matters related to the offering will be passed upon for the Underwriters by
Shearman & Sterling, New York, New York.
EXPERTS
The balance sheet of the Company at August 21, 1997, the consolidated
financial statements and schedule of the Predecessor Company at December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, and the financial statements of Doppelt at and for the year ended December
31, 1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act with respect to the Common Stock being offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules filed
therewith. For further information about the Company and the securities offered
by this Prospectus, reference is made to the registration statement and to the
financial statements, schedules and exhibits filed therewith and considered a
part thereof. Statements contained in this Prospectus about the contents of any
contract or any other documents are not necessarily complete, and in each
instance, reference is made to the copy of the contract or document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference.
A copy of the registration statement may be inspected without charge and may
be obtained at prescribed rates from the Commission at the Public Reference
Section of the Commission, maintained by the Commission at its principal office
located at 450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional
Office located at Seven World Trade Center, New York, New York 10048, and the
Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The Commission also maintains a web
site that contains reports, proxy statements and other information regarding
registrants, including the Company, that file such information electronically
with the Commission. The address of the Commission's web site is
http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TRAMMELL CROW COMPANY, A DELAWARE CORPORATION
Balance Sheet
Report of Independent Auditors......................................................................... F-2
Balance Sheet as of August 21, 1997.................................................................... F-3
Notes to Balance Sheet................................................................................. F-4
TRAMMELL CROW COMPANY, A TEXAS CLOSE CORPORATION (PREDECESSOR COMPANY)
Consolidated Financial Statements
Report of Independent Auditors......................................................................... F-5
Consolidated Balance Sheets as of December 31, 1996 and 1995........................................... F-6
Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994................. F-7
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, and
1994.................................................................................................. F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994............. F-9
Notes to Consolidated Financial Statements............................................................. F-10
TRAMMELL CROW COMPANY, A TEXAS CLOSE CORPORATION (PREDECESSOR COMPANY)
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheet as of September 30, 1997.................................................... F-20
Consolidated Statements of Income for the Nine Months Ended September 30, 1997 and 1996................ F-21
Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 1997 and 1996... F-22
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996............ F-23
Notes to Consolidated Financial Statements............................................................. F-24
DOPPELT & COMPANY
Financial Statements
Report of Independent Auditors......................................................................... F-26
Balance Sheets as of December 31, 1996 and August 22, 1997 (unaudited)................................. F-27
Statements of Income and Retained Earnings for the Year Ended December 31, 1996 and the Period Ended
August 22, 1997 (unaudited)........................................................................... F-28
Statements of Cash Flows for the Year Ended December 31, 1996 and the Period Ended August 22, 1997
(unaudited)........................................................................................... F-29
Notes to Financial Statements.......................................................................... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Trammell Crow Company
We have audited the accompanying balance sheet of Trammell Crow Company, a
Delaware corporation, as of August 21, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Trammell Crow Company as of August
21, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
August 22, 1997
F-2
<PAGE>
TRAMMELL CROW COMPANY
BALANCE SHEET
AUGUST 21, 1997
<TABLE>
<S> <C>
Assets:
Cash.............................................................................. $ 1,000
---------
Total assets...................................................................... $ 1,000
---------
---------
Stockholders' equity
Preferred stock, $.01 par value; 30,000,000 shares authorized; none issued or
outstanding..................................................................... $ --
Common stock, $.01 par value; 100,000,000 shares authorized; 1,000 shares issued
and outstanding................................................................. 10
Additional paid-in capital........................................................ 990
---------
Total stockholders' equity........................................................ $ 1,000
---------
---------
</TABLE>
See accompanying notes.
F-3
<PAGE>
TRAMMELL CROW COMPANY
NOTES TO BALANCE SHEET
AUGUST 21, 1997
1. ORGANIZATION
Trammell Crow Company, a Delaware corporation (the "Company"), was
incorporated on August 21, 1997 to become the successor to Trammell Crow
Company, a Texas close corporation (the "Predecessor Company"). The Company is
authorized to issue 100,000,000 shares of common stock (par value--$.01 per
share). The Board of Directors of the Company also has the authority to issue
30,000,000 shares of preferred stock (par value--$.01 per share). The Company
intends to offer for sale common stock in an initial public offering. The
Company was capitalized with the issuance of 1,000 shares of common stock to
Crow Family Partnership, L.P. Each common stockholder is entitled to one vote
for each share held. The Company has had no operations since its incorporation.
INCOME TAXES
The Company was formed as a Subchapter C corporation and, as such, will be
subject to federal and any applicable state income taxes.
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Trammell Crow Company
We have audited the accompanying consolidated balance sheets of Trammell
Crow Company (a Texas close corporation) and Subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Trammell Crow Company and Subsidiaries at December 31, 1996 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, 1996, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
June 25, 1997
except for Note 17, as to which the date is November 2, 1997
F-5
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C>
Current assets
Cash and cash equivalents................................................................. $ 58,505 $ 40,155
Accounts receivable, net of allowance for doubtful accounts of $947 in 1996 and $782 in
1995.................................................................................... 31,380 24,623
Receivables from affiliates............................................................... 2,275 690
Notes and other receivables............................................................... 5,651 6,168
Deferred income taxes..................................................................... 88 426
Real estate held for sale................................................................. 71,122 20,274
--------- ---------
Total current assets.................................................................... 169,021 92,336
Furniture and equipment, net................................................................ 6,323 5,984
Deferred income taxes....................................................................... 7,796 9,060
Investments in unconsolidated subsidiaries.................................................. 3,831 2,340
Other assets................................................................................ 7,343 4,595
--------- ---------
$ 194,314 $ 114,315
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................................................... $ 3,433 $ 3,261
Accrued expenses.......................................................................... 45,121 40,735
Payables to affiliates.................................................................... 5,649 3,799
Income taxes payable...................................................................... 3,253 478
Current portion of long-term debt......................................................... 3,409 2,578
Notes payable on real estate held for sale................................................ 67,810 13,182
Other current liabilities................................................................. 1,023 683
--------- ---------
Total current liabilities............................................................... 129,698 64,716
Long-term debt, less current portion........................................................ 8,952 4,487
Deferred compensation....................................................................... 20,963 25,883
Other liabilities........................................................................... 405 4
--------- ---------
Total liabilities....................................................................... 160,018 95,090
Minority interest........................................................................... 3,294 3,932
Stockholders' equity
Class A Common Stock; 9% cumulative; $.01 par value; 3,366 shares authorized and issued... -- --
Class B Common Stock; 9% cumulative; $.01 par value; 2,244 shares authorized and 2,088
shares issued........................................................................... -- --
Class C Common Stock; 9% cumulative; $.01 par value; 4,197 shares authorized and 3,896
shares issued........................................................................... -- --
Class D Common Stock; 9% cumulative; $.01 par value; 390 shares authorized and issued..... -- --
Class E Common Stock; 9% cumulative; $.01 par value; 100,000 shares authorized and 9,634
and 0 shares issued in 1996 and 1995, respectively...................................... -- --
Paid-in capital........................................................................... 24,084 9,654
Retained earnings......................................................................... 16,312 7,199
Less: Stockholder loans................................................................... (9,394) --
Treasury stock....................................................................... -- (1,560)
--------- ---------
Total stockholders' equity.............................................................. 31,002 15,293
--------- ---------
$ 194,314 $ 114,315
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Property management services....................................... $ 90,179 $ 92,970 $ 99,609
Brokerage services................................................. 72,095 61,960 48,652
Infrastructure management services................................. 50,836 38,681 27,063
Development and construction services.............................. 22,732 20,382 12,792
Retail services.................................................... 2,393 1,510 1,966
---------- ---------- ----------
238,235 215,503 190,082
Income from investments in unconsolidated subsidiaries............. 594 114 3,141
Gain on disposition of real estate................................. 6,630 5,026 4,646
Other income....................................................... 9,996 6,559 3,039
---------- ---------- ----------
255,455 227,202 200,908
COSTS AND EXPENSES
Salaries, wages and benefits....................................... 137,794 130,248 115,330
Commissions........................................................ 27,119 23,730 20,788
General and administrative......................................... 41,421 40,671 35,282
Profit sharing..................................................... 20,094 15,893 16,562
Depreciation and amortization...................................... 3,196 3,841 2,874
Interest........................................................... 1,726 1,722 1,127
Royalty and consulting fees........................................ 3,959 2,443 2,679
Minority interest.................................................. 206 520 604
---------- ---------- ----------
235,515 219,068 195,246
---------- ---------- ----------
Income before income taxes........................................... 19,940 8,134 5,662
Income taxes......................................................... 7,826 3,793 2,636
---------- ---------- ----------
Income before extraordinary gain..................................... 12,114 4,341 3,026
Extraordinary gain from extinguishment of debt, net of income taxes
of $49............................................................. -- -- 782
---------- ---------- ----------
Net income........................................................... $ 12,114 $ 4,341 $ 3,808
---------- ---------- ----------
---------- ---------- ----------
Earnings per share:
Continuing operations.............................................. $ 922 $ 494 $ 343
Extraordinary gain................................................. -- -- 89
---------- ---------- ----------
$ 922 $ 494 $ 432
---------- ---------- ----------
---------- ---------- ----------
Dividends paid per share (all stock classes)......................... $ 333 $ 285 $ 187
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding........................... 13,142 8,783 8,822
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-7
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON SHARES(1)
---------------------- COMMON
TREASURY STOCK PAID-IN RETAINED TREASURY STOCKHOLDER
ISSUED (CLASS C) SUBSCRIBED CAPITAL EARNINGS STOCK LOANS TOTAL
--------- ----------- ----------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994......... 9,350 374 $ -- $ 9,293 $ 3,197 $ (511) $ -- $ 11,979
Net income....................... -- -- -- -- 3,808 -- -- 3,808
Dividends........................ -- -- -- -- (1,672) -- -- (1,672)
Subscription of Class D common
stock.......................... -- -- 361 -- -- -- -- 361
Purchase of common stock......... -- 374 -- -- -- (494) -- (494)
Sale of common stock............. -- (73) -- -- -- 91 -- 91
--------- ----------- ----- --------- --------- --------- ----------- ---------
Balance at December 31, 1994....... 9,350 675 361 9,293 5,333 (914) -- 14,073
Net income....................... -- -- -- -- 4,341 -- -- 4,341
Dividends........................ -- -- -- -- (2,475) -- -- (2,475)
Sale of Class D common stock
previously subscribed.......... 390 -- (361) 361 -- -- -- --
Purchase of common stock......... -- 774 -- -- -- (1,337) -- (1,337)
Sale of common stock............. -- (400) -- -- -- 691 -- 691
--------- ----------- ----- --------- --------- --------- ----------- ---------
Balance at December 31, 1995....... 9,740 1,049 -- 9,654 7,199 (1,560) -- 15,293
Net income....................... -- -- -- -- 12,114 -- -- 12,114
Dividends........................ -- -- -- -- (2,890) -- -- (2,890)
Purchase of common stock......... -- 2,481 -- -- -- (3,943) -- (3,943)
Sale of Class E common stock..... 9,634 (3,530) -- 14,430 (111) 5,503 (9,394) 10,428
--------- ----------- ----- --------- --------- --------- ----------- ---------
Balance at December 31,
1996............................. 19,374 -- $ -- $ 24,084 $ 16,312 $ -- $ (9,394) $ 31,002
--------- ----------- ----- --------- --------- --------- ----------- ---------
--------- ----------- ----- --------- --------- --------- ----------- ---------
</TABLE>
- ------------------------
(1) Common stock par value rounds to less than $1.
See accompanying notes.
F-8
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................................... $ 12,114 $ 4,341 $ 3,808
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 3,196 3,841 2,874
Minority interest........................................................... 206 520 604
Deferred income tax provision (benefit)..................................... 1,602 (2,040) (2,259)
Income from investments in unconsolidated subsidiaries...................... (594) (114) (3,141)
Gain on disposition of real estate.......................................... (6,630) (5,026) (4,646)
Extraordinary gain.......................................................... -- -- (831)
Expenditures for real estate held for sale.................................. (92,975) (37,641) (35,557)
Proceeds from sale of real estate........................................... 48,555 43,472 20,515
Proceeds from real estate notes payable..................................... 91,428 21,705 30,180
Payments on real estate notes payable....................................... (36,800) (31,438) (7,792)
Changes in operating assets and liabilities:
Accounts receivable....................................................... (6,757) (8,214) (3,052)
Receivables from affiliates............................................... (1,585) 1,466 1,782
Notes and other assets.................................................... (2,286) (2,228) (4,074)
Accounts payable and accrued expenses..................................... 4,558 17,277 8,542
Payables to affiliates.................................................... 1,850 1,203 397
Income taxes payable...................................................... 2,775 (454) 963
Deferred compensation..................................................... 5,750 4,416 6,807
Other liabilities......................................................... 741 (438) 787
---------- ---------- ----------
Net cash provided by operating activities..................................... 25,148 10,648 15,907
---------- ---------- ----------
INVESTING ACTIVITIES
Expenditures for furniture and equipment...................................... (3,277) (2,077) (5,691)
Acquisition of investments in unconsolidated subsidiaries..................... (2,305) (1,873) (281)
Distributions from investments in unconsolidated subsidiaries................. 1,408 170 3,577
Contributions from minority interest.......................................... 11 3,631 602
Cash distributions to minority interest....................................... (856) (497) (955)
---------- ---------- ----------
Net cash used in investing activities......................................... (5,019) (646) (2,748)
---------- ---------- ----------
FINANCING ACTIVITIES
Principal payments on debt.................................................... (4,538) (5,688) (2,852)
Proceeds from debt............................................................ 9,834 2,664 5,020
Purchase of common stock...................................................... (3,943) (1,010) (494)
Sale of stock................................................................. 15 1,052 91
Stock offering costs.......................................................... (257) -- --
Dividends paid................................................................ (2,890) (2,475) (1,672)
---------- ---------- ----------
Net cash provided by (used in) financing activities........................... (1,779) (5,457) 93
---------- ---------- ----------
Net increase in cash and cash equivalents..................................... 18,350 4,545 13,252
Cash and cash equivalents, beginning of year.................................. 40,155 35,610 22,358
---------- ---------- ----------
Cash and cash equivalents, end of year........................................ $ 58,505 $ 40,155 $ 35,610
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-9
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Trammell Crow Company (the Company) was incorporated as a Texas close
corporation in December 1990. The Company's principal lines of business include
property management, brokerage, infrastructure management, development and
construction and retail services, primarily in the United States, through 15
wholly-owned subsidiaries. A portion of the Company's business is conducted with
affiliates of the Company, as further described in Note 14.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries after elimination of
intercompany accounts and transactions. The Company's investments in 20% to 50%
owned subsidiaries in which it has the ability to exercise significant influence
over operating and financial policies are accounted for on the equity method.
Accordingly, the Company's share of the earnings of these subsidiaries is
included in consolidated net income. Investments in other subsidiaries are
carried at cost. These unconsolidated subsidiaries primarily own real estate
development projects.
REVENUE RECOGNITION
The Company recognizes fees from property management services and
infrastructure management services over the terms of the respective management
contracts. Most of the property management contracts are cancelable at will or
with 30 days' notice. The infrastructure management contracts generally range
from three to five years. Brokerage service revenue relating to leasing services
and the related expense are generally recognized half upon the execution of a
lease contract and remainder upon tenant occupancy. Sales brokerage revenue is
recognized upon closing. Development and construction services includes fees
from development and construction management projects and net construction
revenues, which are gross construction revenues net of subcontract costs. For
projects exceeding three months, fees are recognized using the
percentage-of-completion method. For contracts under three months, fees are
recognized upon completion of the contract. Gross construction revenues totaled
$46,034, $22,335 and $15,781 and subcontract costs totaled $41,123, $19,397 and
$13,767 in 1996, 1995 and 1994, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term, highly liquid
investments with maturities of 90 days or less when purchased.
F-10
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed using
the straight-line method over useful lives ranging from three to 10 years.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes result from temporary differences between the carrying amounts of
assets for financial reporting purposes and the amounts used for federal income
tax purposes, and are measured using the enacted tax rates and laws that will be
in effect when the differences reverse.
EARNINGS PER SHARE
Earnings per share are calculated by dividing net earnings applicable to
common stock by the weighted average shares of common stock outstanding during
the year.
CONCENTRATION OF CREDIT RISK
The Company provides services to owners of real estate assets primarily in
the United States. The Company performs credit evaluations of its customers and
generally does not require collateral. The risk associated with this
concentration is limited because of the large number of customers and their
geographic dispersion.
LONG-LIVED ASSETS
Long-lived assets are evaluated when indicators of impairment are present
and provisions for possible losses are recorded when undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for the years ended December 31, 1995 and 1994 to conform to the
presentation of the December 31, 1996 consolidated financial statements.
2. REAL ESTATE HELD FOR SALE
The Company provides build-to-suit services for its customers and also
develops projects for investment purposes. Therefore, the Company has ownership
of real estate until such projects are sold. Real
F-11
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. REAL ESTATE HELD FOR SALE (CONTINUED)
estate held for sale is carried at the lower of cost or fair value less selling
expenses. At December 31, real estate held for sale consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land.......................................................... $ 26,635 $ 6,928
Buildings and improvements.................................... 44,487 13,346
--------- ---------
$ 71,122 $ 20,274
--------- ---------
--------- ---------
</TABLE>
The estimated costs to complete the seventeen projects under construction at
December 31, 1996, total $22,300. Projects are expected to be completed and sold
within one year. At December 31, 1996, the Company had commitments for the sale
of all projects, except one which has an expected completion date of August
1997. Gains are recognized upon sale of the project.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Furniture and equipment, at cost.............................. $ 18,097 $ 14,988
Less: Accumulated depreciation................................ (11,774) (9,004)
--------- ---------
Furniture and equipment, net................................ $ 6,323 $ 5,984
--------- ---------
--------- ---------
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Profit sharing distributions.................................. $ 10,931 $ 11,399
Payroll and bonuses........................................... 10,191 9,117
Commissions................................................... 7,808 7,533
Construction payables......................................... 8,993 6,607
Interest...................................................... 473 268
Other......................................................... 6,725 5,811
--------- ---------
$ 45,121 $ 40,735
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Borrowings under a $7,750 line of credit with a bank; due March 2001;
bearing interest at 8.75%; interest payable quarterly; secured by
stockholder loans...................................................... $ 7,750 $ --
Note payable under a loan agreement with the majority stockholders; due
October 2006; bearing interest at 10.5%; interest payable annually;
principal payments are payable annually equal to Available Cash for
Debt Repayment, as defined.Principal payments of $1,214 and $2,227 were
made during 1996 and 1995, respectively................................ 1,378 2,592
Borrowings under revolving lines of credit with banks; expire in 1997;
bearing interest at rates ranging from prime plus .5% to prime plus 1%;
total executed amounts were $2,800 and $2,700 in 1996 and 1995,
respectively; secured by certain assets................................ 514 219
Notes payable under a loan agreement with a bank; bearing interest at
8.65%; interest and varying principal amounts are payable quarterly;
paid in full in December 1996.......................................... -- 464
Capital lease obligations primarily for furniture and equipment; with
maturity dates ranging from 1997 to 2002; bearing interest at various
rates ranging from 3.3% to 12% per annum in 1996 and 4.7% to 14% per
annum in 1995; secured by the underlying assets and certain accounts
receivable............................................................. 2,719 3,275
Notes payable with an affiliate; bearing interest at prime plus 1.5%
payable quarterly; paid in full in August 1996......................... -- 515
--------- ---------
Total long-term debt..................................................... 12,361 7,065
Less current portion of long-term debt................................... 3,409 2,578
--------- ---------
$ 8,952 $ 4,487
--------- ---------
--------- ---------
</TABLE>
The Company is subject to various covenants associated with the $7,750 line
of credit such as maintenance of minimum working capital and certain key
financial data. In addition, the Company may not pay dividends or profit sharing
distributions if a default on the line of credit exists, Net Operating Earnings
(net income before taxes and profit sharing expenses) is less than $25 million
in 1996 or $28 million thereafter, or net income is less than $5 million. At
December 31, 1996, the Company is in compliance with all debt covenants and is
not limited in its ability to make dividend payments or profit sharing
distributions.
F-13
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. LONG-TERM DEBT (CONTINUED)
Principal payments of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997..................................................................... $ 3,409
1998..................................................................... 2,347
1999..................................................................... 1,808
2000..................................................................... 1,705
2001..................................................................... 2,404
Thereafter............................................................... 688
---------
$ 12,361
---------
---------
</TABLE>
Based on current rates available to the Company for debt with similar terms,
there is not a significant difference between the carrying amounts of the
long-term debt and their fair values.
6. NOTES PAYABLE ON REAL ESTATE HELD FOR SALE
The Company had construction loans totaling $67,810 and $13,182 as of
December 31, 1996 and 1995, respectively. The notes mature by December 31, 1997,
and have interest rates ranging from prime plus 1% to LIBOR plus 2.25%.
Generally, interest only is payable monthly on construction loans, with all
unpaid principal and interest due at maturity. The unused commitments on
construction loans total $32,849 at December 31, 1996. Principal payments of
$15,746 are due on construction loans in 1997. The loans are secured by the
underlying real estate. Capitalized interest in 1996 and 1995 totaled $539 and
$777, respectively. At December 31, 1996, $15,426 of the $67,810 construction
loans are recourse to the Company.
Based on current rates available to the Company for debt with similar terms,
there is not a significant difference between the carrying amounts of the notes
payable on real estate held for sale and their fair values.
7. STOCKHOLDERS' EQUITY
All classes of common stock hold the same voting rights, except for voting
rights with respect to certain specific actions. Pursuant to the terms of the
Shareholders' Agreement, the transfer of shares is restricted and the Company
has options to buy back certain shares upon occurrence of a Buy-Sell Event, as
defined.
In 1996, the Shareholders' Agreement was amended to provide for a cumulative
special dividend with respect to the Company's interests in certain real estate
development projects. The dividends are payable annually in the amount of
2.874%, 1.608% and .3% of earnings before profit sharing, as defined, for the
certain projects to Class A, Class B and Class D stockholders, respectively, and
the rights to such dividends terminate upon sale of the certain projects.
In August 1996, the Company completed a private offering of 9,634 shares
Class E Common Stock pursuant to Regulation D under the Securities Act. These
shares were offered to Company employees and directors at $1,529 per share.
Employees elected to convert a total of $10,670 of their deferred compensation
balance as payment for the stock. The Company also provided financing of $9,394
to stockholders,
F-14
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. STOCKHOLDERS' EQUITY (CONTINUED)
which is reflected as a reduction of stockholders' equity. These stockholder
loans are to be repaid at prime plus .5% interest (8.75% at December 31, 1996).
Principal and interest are payable annually and notes mature in March of 2001.
In February 1997, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"),
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating earnings per share, the dilutive effect of stock options will be
excluded. Management believes that adoption of SFAS No. 128 will not have a
material effect on earnings per share.
8. INCOME TAXES
Components of the deferred income taxes are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Assets......................................................... $ 11,675 $ 9,642
Liabilities.................................................... (3,791) (156)
--------- ---------
$ 7,884 $ 9,486
--------- ---------
--------- ---------
Current........................................................ 88 426
Noncurrent..................................................... 7,796 9,060
--------- ---------
$ 7,884 $ 9,486
--------- ---------
--------- ---------
</TABLE>
The components of the net deferred tax asset is summarized below as December
31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets
Deferred compensation.......................................... $ 6,856 $ 8,803
Bad debts...................................................... 313 279
Depreciation................................................... 546 72
Other.......................................................... 332 488
--------- ---------
--------- ---------
Total deferred tax assets.................................... 8,047 9,642
Deferred tax liabilities
Other.......................................................... (163) (156)
--------- ---------
Net deferred tax asset........................................... $ 7,884 $ 9,486
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal............................................ $ 5,202 $ 4,893 $ 4,243
State.............................................. 1,022 940 701
--------- --------- ---------
6,224 5,833 4,944
Deferred federal..................................... 1,602 (2,040) (2,259)
--------- --------- ---------
$ 7,826 $ 3,793 $ 2,685
--------- --------- ---------
--------- --------- ---------
</TABLE>
The differences between the provisions for income taxes and the amounts
computed by applying the statutory federal income tax rates to income before
income taxes for the years ended December 31 are:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate applied to income become income taxes... $ 7,454 $ 3,355 $ 2,317
Increase in taxes resulting from non-deductible meals,
entertainment and other.............................. 372 438 368
--------- --------- ---------
$ 7,826 $ 3,793 $ 2,685
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. OPERATING LEASES
The Company has commitments under operating leases for office space and
office equipment. During the years ended December 31, 1996, 1995 and 1994, rent
expense was $7,814, $7,255 and $7,676, including $3,037, $2,987 and $1,725,
respectively, paid to affiliates of the Company.
Minimum future rentals under noncancelable operating lease commitments in
effect at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
AFFILIATE NONAFFILIATE TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
1997.............................................. $ 274 $ 3,960 $ 4,234
1998.............................................. 240 2,916 3,156
1999.............................................. 239 1,218 1,457
2000.............................................. 185 701 886
2001.............................................. 62 324 386
Thereafter........................................ -- 172 172
----------- ----------- ---------
$ 1,000 $ 9,291 $ 10,291
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
Rental amounts include fixed operating expense payments but do not include
increases for rate escalations.
F-16
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. EMPLOYEE BENEFIT PLANS
The Company's employees participate in a defined contribution savings plan,
which provides the opportunity for pretax contributions by employees. The
Company matches 50% of the employee's contributions up to 6% of the employee's
annual earnings or a maximum of $4.5 per annum. The Company's contribution
expense for 1996, 1995, and 1994 was $1,741, $2,154 and $1,759, respectively.
The Company has a profit sharing plan for key employees (the Profit Sharing
Plan). Each participant has a profit sharing account that is adjusted annually
for the participant's percentage of the earnings for a profit sharing unit, cash
distributions, tax rate changes, and other adjustments. Distributions to
participants are limited to Available Cash, as defined. Any difference between
the amount expensed and the amount paid to the participants is recorded as
deferred compensation. The Company's management board approved the percentage of
earnings available to profit sharing participants. Such percentages were
approximately 58%, 73% and 73% of earnings before profit sharing, as defined, in
1996, 1995 and 1994, respectively.
Effective January 1, 1993, the Company initiated the All Employee Cash
Profit Sharing Program whereby 3% of earnings, as defined, is paid as bonuses to
employees not participating in the key employee profit sharing plan. Expense
related to the program, which is included in salaries, wages and benefits, was
$1,205, $818 and $799 in 1996, 1995 and 1994, respectively.
11. GAIN ON DISPOSITION OF REAL ESTATE
During 1996, the Company sold sixteen real estate projects for an aggregate
sale price of $48,555, resulting in a gain on sale of $6,630. During 1995, the
Company sold nine real estate projects for an aggregate sale price of $43,472,
resulting in a gain on sale of $5,026. During 1994, the Company sold three real
estate projects for an aggregate sale price of $20,515, resulting in a gain on
sale of $4,646.
12. EXTRAORDINARY GAIN
The Company was relieved from obligations under certain notes payable to
affiliates and stockholders, resulting in a net gain of $782 in 1994.
13. ACQUISITIONS
In November 1994, Trammell Crow Corporate Services, Inc. (TCCS), a
subsidiary of the Company, and Trizec Properties Limited (Trizec) formed
Primaris Corporate Services, Ltd. (Primaris), to provide infrastructure
management services throughout Canada. On September 9, 1996, TCCS acquired the
remaining 50% of the stock of Primaris from Trizec for $372. The acquisition was
accounted for using the purchase method of accounting. The operations of
Primaris are included in the Company's operations from the date of acquisition.
During 1994, subsidiaries of the Company acquired several real estate
service companies. Acquisitions generally involved the purchase of assets and
management contracts, with the purchase price based on future earnings of the
acquired entity and payable as earned over periods ranging from one to three
years. Acquisitions have been recorded using the purchase method of accounting.
Operations of the acquired companies are included in the Company's operations
from the date of acquisition.
F-17
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. ACQUISITIONS (CONTINUED)
For one of the acquisitions, the Company paid $600 in addition to the
earnout, of which $150 was allocated to furniture and equipment, and the
remainder was allocated to the management contracts and included in other
assets. The unamortized portion of the management contracts and the furniture
and equipment were written off in 1995 (see Note 15).
14. RELATED PARTY TRANSACTIONS
In 1996, 1995 and 1994, the Company derived 9%, 11%, and 14%, respectively,
of its total revenues from services provided principally to the stockholders of
the Company. The fees received are comparable to those charged to unaffiliated
customers.
Under certain agreements, two significant stockholders receive royalty and
consulting fees totaling approximately 12% of Earnings Before Profit Sharing, as
defined. Accrued royalties and consulting fees at December 31, 1996 and 1995,
are included in payables to affiliates.
In conjunction with the issuance of stock, the Company issued tax loans to
the shareholders totaling $4,734 in order for the shareholders to pay the
incremental taxes related to the stock purchased. As of December 31, 1996,
approximately $1,620 is outstanding and recorded as notes and other receivables.
These notes bear interest at 5.9% and are due in August 1999; however, these
loans may be repaid earlier based on cash available for profit sharing
distributions.
15. COMMITMENTS AND CONTINGENCIES
In connection with the purchase of the Class C Common Stock, the
stockholders borrowed funds from an affiliate of the Company, as evidenced by
individual Promissory Notes (the Notes). Each stockholder pledged the common
stock purchased. In the event of default on a Note or a Company buyout of the
stock from the stockholder as outlined in the Stockholders' Agreement, the
Company is obligated to the affiliate, as outlined in a note purchase agreement,
to assume the Note at the then unpaid principal amount plus accrued interest
thereon. Upon assumption of a Note, the underlying common stock collateral would
be transferred to the Company. In 1995, certain notes totaling $3,515 were
assumed by the Company. These notes were paid in August 1996.
A subsidiary of the Company has executed an agreement in connection with
certain financial advisory services received from an affiliate of the Company,
whereby annual payments ranging from $50 to $220 will be paid until December
1998.
During 1994, the Company entered into a purchase contract to acquire a
retail leasing and property management company. The contract included contingent
consideration of up to $2.4 million based upon future earnings from operations,
as defined. As a result of poor 1995 and projected future operating performance,
the Company downsized the operating unit and estimates that no future payments
will be required under the terms of the purchase contract. The seller has filed
suit against the Company claiming damages of $3.0 million. The Company intends
to vigorously defend this action and management believes that resolution of this
matter will have no significant impact on the financial condition of the
Company.
At December 31, 1996, the Company has $9.4 million of performance and
completion guarantees outstanding.
F-18
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and its subsidiaries are defendants in other lawsuits that arose
in the normal course of business. In management's judgment, the ultimate
liability, if any, from such legal proceedings will not have a material effect
on the Company's financial position.
16. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized below for the three years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest paid............................................................. $ 1,520 $ 2,833 $ 1,901
Income taxes paid......................................................... 3,288 6,320 3,523
Profit sharing distributions paid......................................... 12,021 7,722 6,654
Non-cash activities for the three years ended December 31:
Forgiveness of debt................................................... $ -- $ -- $ 831
Assumption of stockholder loan........................................ -- 327 409
Write-off of pursuit costs and intangibles............................ -- 361 421
Conversion of deferred compensation balances to stock................. 10,670 -- --
Stockholder loans..................................................... 9,394 -- --
</TABLE>
17. SUBSEQUENT EVENTS
In April 1997, the Company declared and paid dividends totaling $8.2 million
to stockholders. These dividends included a dividend to all stockholders of all
stock classes of $430 per share and a special dividend of $51 per share to class
A, B and D stockholders.
In March 1997, the Company contributed real estate held for sale of $35.4
million and the related $35.4 million note payable to a partnership and received
a 16% limited partner interest.
Through June 25, 1997, the Company sold seven of the real estate projects
held for sale at December 31, 1996 for a total sales price of approximately
$37.8 million, recognizing a net gain of $1.3 million. Related notes payable
totaling $32.4 million were paid at the time of the sale.
On November 2, 1997 the Company settled claims asserted by certain former
employees arising out of the termination of the Company's Stock Appreciation
Rights Plan. In connection with the settlement, the Company will make cash
payments of approximately $0.1 million and agreed to pay an additional $3.9
million contingent upon completion of the Company's initial public offering.
Payment of the liability and interest at LIBOR plus 1% is due 6 months after the
closing of the initial public offering.
F-19
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................ $ 37,460
Accounts receivable, net of allowance for doubtful accounts of $603.............. 38,392
Receivables from affiliates...................................................... 1,334
Notes and other receivables...................................................... 7,161
Deferred income taxes............................................................ 84
Real estate held for sale........................................................ 57,696
---------
Total current assets........................................................... 142,127
Furniture and equipment, net....................................................... 6,143
Deferred income taxes.............................................................. 7,641
Investments in unconsolidated subsidiaries......................................... 7,079
Goodwill, net...................................................................... 26,659
Other assets....................................................................... 13,964
---------
$ 203,613
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................. $ 7,792
Accrued expenses................................................................. 33,579
Payables to affiliates........................................................... 1,989
Income taxes payable............................................................. 1,242
Short-term debt.................................................................. 30,000
Current portion of long-term debt................................................ 8,483
Notes payable on real estate held for sale....................................... 51,884
Other current liabilities........................................................ 423
---------
Total current liabilities...................................................... 135,392
Long-term debt, less current portion............................................... 2,980
Deferred compensation.............................................................. 26,806
Other liabilities.................................................................. 2,034
---------
Total liabilities.............................................................. 167,212
Minority interest.................................................................. 4,677
Stockholders' equity
Class A Common Stock; 9% cumulative; $.01 par value;
3,366 shares authorized and issued............................................. --
Class B Common Stock; 9% cumulative; $.01 par value;
2,244 shares authorized and 2,088 shares issued................................ --
Class C Common Stock; 9% cumulative; $.01 par value;
4,197 shares authorized and 3,896 shares issued................................ --
Class D Common Stock; 9% cumulative; $.01 par value;
390 shares authorized and issued............................................... --
Class E Common Stock; 9% cumulative; $.01 par value;
100,000 shares authorized and 9,634 shares issued.............................. --
Paid-in capital.................................................................. 24,084
Retained earnings................................................................ 16,966
Less: Stockholder loans.......................................................... (6,938)
Treasury stock............................................................... (2,388)
---------
Total stockholders' equity..................................................... 31,724
---------
$ 203,613
---------
---------
</TABLE>
See accompanying notes.
F-20
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
REVENUES
Property management services......................................................... $ 69,034 $ 68,628
Brokerage services................................................................... 61,692 49,143
Infrastructure management services................................................... 47,954 33,628
Development and construction services................................................ 23,483 13,487
Retail services...................................................................... 1,912 1,171
---------- ----------
204,075 166,057
Income from investments in unconsolidated subsidiaries............................... 1,467 386
Gain on disposition of real estate................................................... 1,566 4,787
Other income......................................................................... 6,131 4,981
---------- ----------
213,239 176,211
COSTS AND EXPENSES
Salaries, wages and benefits......................................................... 114,006 101,041
Commissions.......................................................................... 25,379 17,686
General and administrative........................................................... 33,779 27,473
Profit sharing....................................................................... 15,417 12,185
Depreciation and amortization........................................................ 3,274 2,137
Interest............................................................................. 3,336 1,094
Royalty and consulting fees.......................................................... 3,167 2,503
Minority interest.................................................................... 280 (374)
---------- ----------
198,638 163,745
---------- ----------
Income before income taxes............................................................. 14,601 12,466
Income taxes........................................................................... 5,747 4,824
---------- ----------
Net income............................................................................. $ 8,854 $ 7,642
---------- ----------
---------- ----------
Earnings per share..................................................................... $ 479 $ 691
---------- ----------
---------- ----------
Dividends paid per share (all stock classes)........................................... $ 430 $ 285
Dividends paid per share (class A, B, and D only)...................................... 51 --
---------- ----------
$ 481 $ 285
---------- ----------
---------- ----------
Weighted average common shares outstanding............................................. 18,500 11,065
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON SHARES(1)
-------------------------- PAID-IN RETAINED TREASURY STOCKHOLDER
ISSUED TREASURY CAPITAL EARNINGS STOCK LOANS TOTAL
----------- ------------- --------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ 19,374 -- $ 24,084 $ 16,312 -- $ (9,394) $ 31,002
Net income............................ -- -- -- 8,854 -- -- 8,854
Dividends............................. -- -- -- (8,200) -- -- (8,200)
Purchase of Class C common stock...... -- 194 -- -- (402) -- (402)
Purchase of Class D common stock...... -- 163 -- -- (730) -- (730)
Purchase of Class E common stock...... -- 606 -- -- (1,256) 2,456 1,200
----------- --- --------- ----------- ----------- ------------- ---------
Balance at September 30, 1997........... 19,374 963 $ 24,084 $ 16,966 $ (2,388) $ (6,938) $ 31,724
----------- --- --------- ----------- ----------- ------------- ---------
----------- --- --------- ----------- ----------- ------------- ---------
</TABLE>
- ------------------------------
(1) Common stock par value rounds to less than $1.
See accompanying notes.
F-22
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................. $ 8,854 $ 7,642
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................ 3,274 2,137
Minority interest........................................................................ 280 (374)
Deferred income tax provision............................................................ 159 1,164
Income from investments in unconsolidated subsidiaries................................... (1,467) (386)
Gain on disposition of real estate....................................................... (1,566) (4,787)
Expenditures for real estate held for sale............................................... (59,672) (39,751)
Proceeds from sale of real estate........................................................ 39,272 42,974
Proceeds from real estate notes payable.................................................. 56,860 33,990
Payments on real estate notes payable.................................................... (37,386) (27,732)
Changes in operating assets and liabilities:
Accounts receivable.................................................................... (4,962) (2,832)
Receivables from affiliates............................................................ 941 242
Notes and other assets................................................................. (6,805) (7,699)
Accounts payable and accrued expenses.................................................. (7,183) (18,384)
Payables to affiliates................................................................. (3,660) (1,711)
Income taxes payable................................................................... (2,011) 2,771
Deferred compensation.................................................................. 5,843 12,373
Other liabilities...................................................................... (971) 1,031
--------- ---------
Net cash provided by (used in) operating activities........................................ (10,200) 668
--------- ---------
INVESTING ACTIVITIES
Expenditures for furniture and equipment................................................... (2,470) (1,228)
Acquisition of Doppelt and Company......................................................... (22,658) --
Acquisition of investments in unconsolidated subsidiaries.................................. (4,163) (2,113)
Distributions from investments in unconsolidated subsidiaries.............................. 2,382 881
Contributions from minority interest....................................................... 2,009 --
Cash distributions to minority interest.................................................... (906) (342)
--------- ---------
Net cash (used in) investing activities.................................................... (25,806) (2,802)
--------- ---------
FINANCING ACTIVITIES
Principal payments on debt................................................................. (12,399) (3,011)
Proceeds from debt......................................................................... 34,372 8,606
Purchase of common stock................................................................... (730) (3,943)
Sale of stock.............................................................................. -- 15
Stock offering costs....................................................................... -- (257)
Payment of stock loans..................................................................... 1,918 --
Dividends paid............................................................................. (8,200) (2,890)
--------- ---------
Net cash provided by (used in) financing activities........................................ 14,961 (1,480)
--------- ---------
Net decrease in cash and cash equivalents.................................................. (21,045) (3,614)
Cash and cash equivalents, beginning of period............................................. 58,505 40,155
--------- ---------
Cash and cash equivalents, end of period................................................... $ 37,460 $ 36,541
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-23
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The consolidated interim financial statements included herein have been
prepared in accordance with the requirements for interim financial statements
and do not include all disclosures required under generally accepted accounting
principles for complete financial statements. Reference is made to the
consolidated financial statements for the year ended December 31, 1996, with
respect to significant accounting and financial reporting policies as well as
other pertinent information of Trammell Crow Company (the Company). In the
opinion of management, all adjustments and eliminations, consisting only of
recurring adjustments, necessary for a fair presentation of the financial
statements for the interim periods have been made. Interim results of operations
are not necessarily indicative of the results to be expected for the full year.
The Company has experienced and expects to continue to experience quarterly
variations in revenues and net income as a result of several factors, including
the timing of transactions, the commencement of new contracts, revenue mix and
the timing of additional selling, general and administrative expenses to support
new business activities. The Company's revenues tend to be lower in the first
three quarters of the year because its clients have demonstrated a tendency to
close transactions toward the end of the year, which causes the Company to earn
more of its revenue under transaction-oriented service contracts in the last
quarter of the year. In addition, an increasing percentage of the Company's
property management and infrastructure management contracts provide for
incentive payments if the Company achieves certain performance targets. Such
incentive payments are generally earned in the fourth quarter.
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries after elimination of
intercompany accounts and transactions. The Company's investments in 20% to 50%
owned subsidiaries in which it has the ability to exercise significant influence
over operating and financial policies are accounted for on the equity method.
Accordingly, the Company's share of the earnings of these subsidiaries is
included in consolidated net income. Investments in other subsidiaries are
carried at cost. These unconsolidated subsidiaries primarily own real estate
development projects.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
2. INCOME TAXES
The provision for income taxes has been included in the accompanying
financial statements based on an estimated annual effective tax rate. The
differences between the provisions for income taxes and amounts computed by
applying the statutory federal income tax rates to income are primarily a result
of state income taxes and non-deductible meals and entertainment expenditures.
3. REAL ESTATE HELD FOR SALE
During the nine months ended September 30, 1997, the Company sold eight real
estate projects for an aggregate sales price of $39.3 million, resulting in a
gain on disposition of $1.6 million. During the nine months ended September 30,
1996, the Company sold twelve real estate projects for an aggregate sales
F-24
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3. REAL ESTATE HELD FOR SALE (CONTINUED)
price of $43.0 million, resulting in a gain on disposition of $4.8 million. The
estimated costs to complete the seven projects under construction at September
30, 1997, total $30.1 million.
In March 1997, Company contributed real estate held for sale of $35.4
million and the related $35.4 million note payable to a partnership and received
a 16% limited partner interest.
As of September 30, 1997, $13.6 million of the $44.1 million construction
loans are recourse to the Company.
4. STOCKHOLDERS' EQUITY
In February 1997, the Financial Accounting Standards Boards issued a
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
No. 128"), which is required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new requirements
for calculating earnings per share, the dilutive effect of stock options will be
excluded. Management believes that adoption of SFAS No. 128 will not have a
material effect on earnings per share.
5. COMMITMENTS AND CONTINGENCIES
During 1994, the Company entered into a purchase contract to acquire a
retail leasing and property management company. The contract included contingent
consideration of up to $2.4 million based upon future earnings from operations,
as defined. As a result of poor 1995 and projected future operating performance,
the Company downsized the operating unit and estimates that no future payments
will be required under the terms of the purchase contract. The seller has filed
suit against the Company claiming damages of $3.0 million. The Company intends
to vigorously defend this action and management believes that resolution of this
matter will have no significant impact on the financial condition of the
Company.
The Company has outstanding performance and completion guarantees of $32.3
million as of September 30, 1997.
The Company and its subsidiaries are defendants in other lawsuits that arose
in the normal course of business. In management's judgment, the ultimate
liability, if any, from such legal proceedings will not have a material effect
on the Company's financial position.
6. SUBSEQUENT EVENT
On November 2, 1997 the Company settled claims asserted by certain former
employees arising out of the termination of the Company's Stock Appreciation
Rights Plan. In connection with the settlement, the Company will make cash
payments of approximately $0.1 million and agreed to pay an additional $3.9
million contingent upon completion of the Company's initial public offering.
Payment of the liability and interest at LIBOR plus 1% is due 6 months after the
closing of the initial public offering.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholder
Doppelt & Company
We have audited the accompanying balance sheet of Doppelt & Company as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
August 8, 1997,
except for Note 8, as to which
the date is August 15, 1997
F-26
<PAGE>
DOPPELT & COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 22,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash............................................................................................... $ 31,695 $ 420,061
Accounts receivable................................................................................ 2,263,961 1,615,223
Loans to shareholder............................................................................... 398,929 470,328
Other current assets............................................................................... 87,960 194,299
------------ -----------
Total current assets................................................................................. 2,782,545 2,699,911
Furniture and equipment, net......................................................................... 36,580 103,725
------------ -----------
$2,819,125 $ 2,803,636
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................................... $ 306,198 $ 676,277
Accrued expenses................................................................................... 300,499 748,078
Notes payable...................................................................................... 175,000 --
Deferred revenue................................................................................... 79,430 113,988
------------ -----------
Total liabilities.................................................................................... 861,127 1,538,343
Shareholders' equity
Common stock; $10 par value; 750 shares authorized and issued...................................... 7,500 7,500
Retained earnings.................................................................................. 1,950,498 1,257,793
------------ -----------
Total shareholders' equity........................................................................... 1,957,998 1,265,293
------------ -----------
$2,819,125 $ 2,803,636
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-27
<PAGE>
DOPPELT & COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 AUGUST 22, 1997
----------------- ----------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Commissions................................................................................ $8,992,464 $4,974,657
Interest income............................................................................ 35,661 29,842
----------------- ----------------
9,028,125 5,004,499
COSTS AND EXPENSES
Salaries, wages and benefits............................................................... 6,773,090 4,281,352
General and administrative................................................................. 1,842,454 1,231,972
Depreciation and amortization.............................................................. 30,674 18,826
----------------- ----------------
8,646,218 5,532,150
----------------- ----------------
NET INCOME (LOSS).......................................................................... 381,907 (527,651)
Retained earnings at beginning of period................................................... 1,871,927 1,950,498
Dividends paid............................................................................. (303,336) (165,054)
----------------- ----------------
Retained earnings at end of period......................................................... $1,950,498 $1,257,793
----------------- ----------------
----------------- ----------------
</TABLE>
See accompanying notes.
F-28
<PAGE>
DOPPELT & COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 AUGUST 22, 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................................................... $ 381,907 $(527,651)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization........................................................... 30,674 18,826
Changes in operating assets and liabilities
Accounts receivable................................................................... (387,813) 648,738
Other current assets.................................................................. (44,208) (106,339)
Accounts payable...................................................................... 81,701 370,079
Accrued expenses...................................................................... 66,221 447,579
Deferred revenue...................................................................... 66,890 34,558
----------------- -----------------
Net cash provided by operating activities................................................. 195,372 885,790
INVESTING ACTIVITY
Expenditures for furniture and equipment.................................................. (14,438) (85,971)
----------------- -----------------
Net cash used in investing activity....................................................... (14,438) (85,971)
FINANCING ACTIVITIES
Principal payments on debt................................................................ -- (175,000)
Proceeds from debt........................................................................ 175,000 --
Loans to shareholder...................................................................... (147,100) (71,399)
Dividends paid............................................................................ (303,336) (165,054)
----------------- -----------------
Net cash used in financing activities..................................................... (275,436) (411,453)
----------------- -----------------
Net (decrease) increase in cash........................................................... (94,502) 388,366
Cash at beginning of period............................................................... 126,197 31,695
----------------- -----------------
Cash at end of period..................................................................... $ 31,695 $ 420,061
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes.
F-29
<PAGE>
DOPPELT & COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND AUGUST 22, 1997
(INFORMATION AS TO AUGUST 22, 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Doppelt & Company (the "Company") was incorporated in 1981 and made an
election to become an S corporation in 1991. The Company provides tenant
representation and lease disposition services, including negotiation of lease
buyouts and subleasing of space, to retail companies in the United States.
INTERIM FINANCIAL STATEMENTS
The accompanying interim financial statements are unaudited, but reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of the Company's management, necessary to present fairly the financial
position as of August 22, 1997, and the results of operations and cash flows for
the period ended August 22, 1997. The results of the period ended August 22,
1997 are not necessarily indicative of results to be expected for the full year.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company primarily recognizes commission revenue related to tenant
representation services and the related expense half upon the execution of a
lease and remainder upon store opening for business. However, in a few
instances, the Company has entered into agreements with certain property owners,
whereby the commission revenue is earned entirely at store opening or over the
terms of the lease, typically 15 years. Lease disposition revenues are
recognized upon execution of a contract. Revenues are stated net of co-broker
expense. Co-broker expense was $1,253,549 in 1996 and $969,708 for the period
ended August 22, 1997.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is computed using
accelerated methods over useful lives ranging from five to 10 years.
INCOME TAXES
The Company is an S corporation for federal income tax purposes. Such taxes
are the obligation of the shareholder, therefore, no provision has been made for
federal income taxes in the accompanying financial statements.
CONCENTRATION OF CREDIT RISK
The Company provides services to retail companies in the United States. The
retail industry is highly competitive and the Company is dependent on the
continued growth of its customers and the retail
F-30
<PAGE>
DOPPELT & COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND AUGUST 22, 1997
(INFORMATION AS TO AUGUST 22, 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
industry as a whole. The Company earned approximately 71% of its revenues from
two customers in 1996 and 62% from the same two customers for the period ended
August 22, 1997.
SEASONALITY
The Company has experienced quarterly variations in revenues and net income
as a result of several factors, including the timing of transactions and the
commencement of new leases. The Company's revenues tend to be lower in the first
two quarters of the year because its clients have demonstrated a tendency to
open more store locations toward the end of the year which causes the Company to
earn a significant portion of its revenue in the last two quarters of the year.
2. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 22,
1996 1997
------------ -----------
<S> <C> <C>
Furniture and equipment, at cost.................................. $ 271,927 $ 357,898
Less: accumulated depreciation.................................. (235,347) (254,173)
------------ -----------
Furniture and equipment, net...................................... $ 36,580 $ 103,725
------------ -----------
------------ -----------
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 22,
1996 1997
------------ ----------
<S> <C> <C>
Accrued payroll and payroll taxes.................................. $ 160,789 $ 647,907
Consulting and financial advisory services payable................. 59,799 --
Other.............................................................. 79,911 100,171
------------ ----------
$ 300,499 $ 748,078
------------ ----------
------------ ----------
</TABLE>
The Company is obligated to pay 5% of Net Profit, as defined, under a
Consulting and Financial Advisory Agreement which expires on July 31, 1997.
Total expense related to this agreement was $172,689 for 1996 and $111,253 for
the period ended August 22, 1997.
4. NOTES PAYABLE
The Company has a $200,000 line of credit with Huntington National Bank.
Borrowings under the line of credit totaled $175,000 at December 31, 1996. The
line of credit is unsecured and bears interest at the Prime Rate, as defined,
plus 1%. Interest expense related to borrowings was zero for 1996 and
approximately $1,529 for the period ended August 22, 1997. The borrowings of
$175,000 were repaid by
F-31
<PAGE>
DOPPELT & COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND AUGUST 22, 1997
(INFORMATION AS TO AUGUST 22, 1997 IS UNAUDITED)
4. NOTES PAYABLE (CONTINUED)
February 1997, and there have been no additional borrowings during the period
ended August 22, 1997. The line of credit was renewed on May 5, 1997 for an
additional one-year term.
5. SHAREHOLDER LOANS
The Company has made loans to its sole shareholder for the purpose of
supporting the cash flow needs of an entity affiliated through common ownership.
The loans are payable on demand and accrue interest at the prime rate. Interest
income related to these loans was approximately $27,000 for 1996 and $23,572 for
the period ended August 22, 1997.
6. OPERATING LEASES
The Company has commitments under operating leases for office space and
office equipment. Rent expense was $104,149 and $79,844 in 1996 and the period
ended August 22, 1997, respectively. Minimum future rentals under noncancelable
operating lease commitments in effect at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 149,000
1998.............................................................. 161,000
1999.............................................................. 126,000
2000.............................................................. 126,000
2001.............................................................. 125,000
Thereafter........................................................ 104,000
---------
$ 791,000
---------
---------
</TABLE>
7. RELATED PARTY TRANSACTIONS
An affiliate of the Company provides air transportation services exclusively
on the Company's behalf. Costs related to these services were approximately
$130,000 and $73,752 in 1996 and the period ended August 22, 1997, respectively.
These amounts have not been paid and are included in accounts payable on the
balance sheet.
8. SUBSEQUENT EVENT/PENDING TRANSACTION
The sole shareholder of the Company entered into an Acquisition Agreement on
August 15, 1997 to sell all of the Company's assets, properties and rights of
every nature, other than the Excluded Assets, as defined, to an unrelated third
party.
F-32
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATE COVER PAGE]
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED NOVEMBER , 1997
5,000,000 SHARES
TRAMMELL CROW COMPANY
COMMON STOCK
-----------------
ALL OF THE 5,000,000 SHARES OF COMMON STOCK OFFERED HEREBY (THE "OFFERING") ARE
BEING OFFERED BY TRAMMELL CROW COMPANY (THE "COMPANY" OR "TRAMMELL CROW"). OF
THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND SHARES ARE BEING OFFERED INSIDE THE
UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITING."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK, AND NO ASSURANCE CAN BE GIVEN THAT AN ACTIVE TRADING MARKET FOR
THE COMMON STOCK WILL DEVELOP AFTER THE OFFERING. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE OF
COMMON STOCK WILL BE BETWEEN $14 AND $16. SEE "UNDERWRITING" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE. IN 1991, THE COMPANY'S REAL
ESTATE SERVICES BUSINESS WAS SEPARATED FROM THE COMMERCIAL REAL
ESTATE ASSET BASE OWNED BY THE COMPANY'S PREDECESSOR. THE
COMPANY CONTINUED TO OPERATE THE REAL ESTATE SERVICES
BUSINESS WHILE OWNERSHIP OF THE COMMERCIAL REAL ESTATE
ASSET BASE WAS SEGREGATED INTO A NUMBER OF SEPARATE
ENTITIES DISTINCT FROM THE COMPANY, WITH
INDEPENDENT MANAGEMENT AND OPERATIONS.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO NOTICE OF ISSUANCE, UNDER THE SYMBOL "TCW".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
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.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE................................. $ $ $
TOTAL(3).................................. $ $ $
</TABLE>
- ------------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY,
ESTIMATED AT $2,700,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
750,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC, LESS
UNDERWRITING DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION IN
FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS,
AND PROCEEDS TO THE COMPANY WILL BE $ , $ AND
$ , RESPECTIVELY. SEE "UNDERWRITING."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY SHEARMAN & STERLING, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT THE
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1997 AT THE OFFICES
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
---------------------
MORGAN STANLEY DEAN WITTER
BT ALEXQ BROWN INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
BANCAMERICA ROBERTSON STEPHENS
<PAGE>
, 1997.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the various expenses payable by the Company in
connection with the sale and distribution of the securities offered hereby,
other than underwriting discounts and commissions. All of the amounts shown are
estimated except the Commission filing fee, the NASD filing fee and the New York
Stock Exchange listing fee:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee........................... $ 27,879
NASD filing fee......................................................... 9,700
New York Stock Exchange listing fee..................................... 213,108
Printing expenses....................................................... 400,000
Legal fees and expenses................................................. 800,000
Consulting fees......................................................... 700,000
Accounting fees and expenses............................................ 350,000
Blue Sky fees and expenses.............................................. 10,000
Transfer agent's and registrar's fees................................... 5,000
Miscellaneous expenses.................................................. 184,313
---------
Total................................................................. $2,700,000
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment.
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL ("Section 145") permits indemnification of
directors, officers, agents and controlling persons of a corporation under
certain conditions and subject to certain limitations. Article Twelfth of the
Certificate of Incorporation of the Company provides that the Company shall
indemnify its officers and directors to the maximum extent allowed by the DGCL.
Pursuant to Section 145, the Company generally has the power to indemnify its
present and former directors and officers against expenses and liabilities
incurred by them in connection with any suit to which they are, or are
threatened to be made, a party by reason of their serving in those positions so
long as they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the registrant, and with respect to
any criminal action, so long as they had no reasonable cause to believe their
conduct was unlawful. With respect to suits by or in the right of the
registrant, however, indemnification is generally limited to attorneys' fees and
other expenses and is not available if the person is adjudged to be liable to
the registrant, unless the court determines that indemnification is appropriate.
The statute expressly provides that the power to indemnify authorized thereby is
not exclusive of any rights granted under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise. The registrant also has
the power to purchase and maintain insurance for its directors and officers. The
Company maintains officers' and directors' liability insurance which insures
against liabilities that officers and directors of the Company may incur in such
capacities. Additionally, Article Twelfth of the Certificate of Incorporation
provides that, in the event that an officer or director files suit against the
registrant seeking indemnification of liabilities or expenses incurred, the
burden will be on the registrant to prove that the indemnification would not be
permitted under the DGCL. The preceding discussion of the registrant's
Certificate of Incorporation and Section 145 of the DGCL is not intended to be
exhaustive and is qualified in its entirety by the Certificate of Incorporation
and Section 145 of the DGCL.
The Company intends to enter into indemnification agreements with the
Company's directors and officers. Pursuant to such agreements, the Company will,
to the extent permitted by applicable law, indemnify such persons against all
expenses, judgments, fines and penalties incurred in connection with the
II-1
<PAGE>
defense or settlement of any actions brought against them by reason of the fact
that they were directors or officers of the Company or assumed certain
responsibilities at the direction of the Company.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company for which indemnification is being sought nor
is the Company aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers, and by the Company of the Underwriters, for certain
liabilities arising under the Securities Act or otherwise.
15. RECENT SALES OF UNREGISTERED SECURITIES
On August 11, 1996, the Predecessor Company granted to certain employees or
directors of the Company and certain participants in the Trammell Crow Company
Stock Appreciation Rights Plan an option to subscribe for an aggregate of 3,530
shares of Class C Stock and 9,740 shares of Class E Stock. Each share of Class C
Stock and Class E Stock was offered at $1,525.29 per share for an aggregate
offering price of $20,240,598. The offered shares were offered for cash;
however, each offeree had the option to pay any portion of the purchase price
for his/her offered stock through a dollar-for-dollar reduction in the balance
in the offeree's deferred compensation account under the Profit Sharing Plan.
The Company financed a portion of the purchase price for the shares through
Purchase Notes. In addition, the Company financed certain income tax liabilities
resulting from any application of deferred compensation to the purchase of the
offered stock through Tax Notes. Such shares were sold without registration
under the Securities Act, in reliance on Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder.
On August 21, 1997, the Company was incorporated in Delaware and 1,000
shares of Common Stock were issued to Crow Family for $1,000 in cash. Such
shares were sold without registration under the Securities Act, in reliance on
Section 4(2) of the Securities Act.
On August 22, 1997, TCRS acquired the business of Doppelt and the Company
issued a convertible subordinated note to Doppelt which will be converted
immediately prior to the consummation of the Offering into 400,000 shares of
Common Stock at the initial public offering price. The note represents a portion
of the consideration paid in connection with the Doppelt Acquisition. The shares
of Common Stock to be issued to Doppelt upon Conversion of the note will be
issued without registration under the Securities Act, in reliance on Section
4(2) of the Securities Act.
Immediately prior to the closing of the Offering, pursuant to the terms of
the Merger Agreement, the Company will issue to the shareholders of the
Predecessor Company a number of shares of Common Stock representing 91.74% of
the number of Post-Merger Shares Outstanding (as defined in the Prospectus).
Such shares will be sold without registration under the Securities Act, in
reliance on Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder.
Immediately prior to the closing of the Offering, the Company will issue to
Crow Family a number of shares of Common Stock, representing 8.26% of the number
of Post-Merger Shares Outstanding. The shares will be issued in consideration of
the execution of the License Agreement. Such shares will be sold without
registration under the Securities Act, in reliance on Section 4(2) of the
Securities Act and Rule 506 promulgated thereunder.
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) EXHIBITS
<TABLE>
<C> <S>
1.1** Form of Underwriting Agreement
2.1* Agreement and Plan of Merger dated August 22, 1997, among the Company, the
Predecessor Company, TCC Merger Sub, Inc. and certain other parties
thereto.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
2.2** First Amendment to Agreement and Plan of Merger dated as of November 22,
1997
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Form of certificate for shares of Common Stock of the Company
5.1** Opinion of Vinson & Elkins L.L.P. relating to the Common Stock
8.1** Opinion of Vinson & Elkins L.L.P. relating to Certain U.S. Federal Tax
Considerations for Non-U.S. Holders of Common Stock
10.1* Credit Agreement dated August 18, 1997, among the Company, Bankers Trust
Company and the lenders listed therein
10.2** Form of License Agreement among the Company and CFH Trade-Names, L.P.
10.3* Form of Indemnification Agreement, with schedule of signatures
10.4* Predecessor Company's 1997 Stock Option Plan
10.5* Company's Long-Term Incentive Plan
10.6* Company's 1995 Profit Sharing Plan
10.7* Acquisition Agreement dated August 15, 1997, among the Company, TCRS,
Doppelt and Jeffrey J. Doppelt
10.8* Subordinated Promissory Note dated August 22, 1997, between the Company
and Doppelt
10.9* Stockholders' Agreement dated August 22, 1997, among TCRS, the Company,
Doppelt and Jeffrey J. Doppelt
10.10** Form of Stockholders' Agreement among the Company, Crow Family Partnership
L.P., CFH Trade-Names, L.P., J. McDonald Williams and certain other
signatories thereto
21.1* Subsidiaries of the Company
23.1** Consent of Ernst & Young LLP
23.2** Consent of Vinson & Elkins L.L.P. (included as part of Exhibit 5.1)
24.1* Power of Attorney (included on signature pages to Registration Statement
No. 333-34859 filed on September 3, 1997)
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
(b) SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
Report of Independent Auditors
Schedule III--Real Estate Investments and Accumulated Depreciation--Trammell
Crow Company, a Texas close corporation (Predecessor Company).
All other schedules have been intentionally omitted because they are either
not required or the information has been included in the Notes to the
Consolidated Financial Statements included as part of this Registration
Statement.
17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public
II-3
<PAGE>
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
The undersigned registrant hereby further undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 3 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas on the 19th day of November, 1997.
TRAMMELL CROW COMPANY
By: /s/ GEORGE L. LIPPE
-----------------------------------------
George L. Lippe
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Chief
/s/ GEORGE L. LIPPE Executive Officer
- ------------------------------ (Principal Executive November 19, 1997
George L. Lippe Officer); Director
Executive Vice President
/s/ ASUKA NAKAHARA* and Chief Financial
- ------------------------------ Officer (Principal November 19, 1997
Asuka Nakahara Financial Officer)
/s/ WILLIAM P. LEISER* Executive Vice President
- ------------------------------ and Treasurer (Principal November 19, 1997
William P. Leiser Accounting Officer)
/s/ HARLAN R. CROW*
- ------------------------------ Director November 19, 1997
Harlan R. Crow
/s/ J. MCDONALD WILLIAMS*
- ------------------------------ Director November 19, 1997
J. McDonald Williams
*By: /s/ GEORGE L. LIPPE
-------------------------
George L. Lippe
ATTORNEY-IN-FACT
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Trammell Crow Company
We have audited the consolidated financial statements of Trammell Crow
Company (a Texas close corporation) and Subsidiaries as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996, and
have issued our report thereon dated June 25, 1997 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
June 25, 1997
S-1
<PAGE>
TRAMMELL CROW COMPANY
SCHEDULE III -- REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
--------------------------------------
BUILDINGS FURNITURE, COSTS
RELATED AND FIXTURES & SUBSEQUENT
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS EQUIPMENT TO ACQUISITION
- ----------------------------------- ------------ ---------- ------------ ---------- --------------
RETAIL
<S> <C> <C> <C> <C> <C>
Salinas-Salinas, CA................ $ 2,638 $ 972 $-- $-- $ 1,901
Oxnard-Oxnard, CA.................. 2,842 1,413 -- -- 2,010
Torrance-Torrance, CA.............. 1,401 -- (A) -- -- 1,623
Cleveland-Cleveland, OH............ 1,208 618 -- -- 619
Flagstaff-Flagstaff, AZ............ 1,525 452 -- -- 1,465
Mobil-Laguna Niguel, CA............ -- 842 211 --
Dry-Wadsworth-Arvada, CO........... -- 473 495 -- 74
INDUSTRIAL
Bolingbrook-Bolingbrook, IL........ 4,249 1,406 -- -- 5,052
Andover-Andover, MA................ 291 -- --
Wood Dale-Chicago, IL.............. 5,141 4,034 301 -- 1,119
OFFICE/INDUSTRIAL
Texas Instruments-Austin, TX....... 35,400 14,250 21,150 --
OFFICE
TC High Ridge-Fairfax, VA.......... 11,523 1,884 5,819 -- 2,648
------------ ---------- ------------ ---------- -------
Total............................ $65,927(C) $26,635 $27,976 $-- $16,511
------------ ---------- ------------ ---------- -------
------------ ---------- ------------ ---------- -------
<CAPTION>
BALANCE
----------------------------------
BUILDINGS FURNITURE,
AND FIXTURES & DATE OF DATE DEPRECIABLE
DESCRIPTION LAND IMPROVEMENTS EQUIPMENT TOTAL CONSTRUCTION ACQUIRED LIVES(D)
- ----------------------------------- ------- ------------ ---------- ---------- ------------ -------- -----------
RETAIL
<S> <C> <C> <C> <C> <C> <C> <C>
Salinas-Salinas, CA................ $ 972 $ 1,901 $-- $ 2,873 1996 1996
Oxnard-Oxnard, CA.................. 1,413 2,010 -- 3,423 1996 1996
Torrance-Torrance, CA.............. -- 1,623 -- 1,623 1996 1996
Cleveland-Cleveland, OH............ 618 619 -- 1,237 1996 1996
Flagstaff-Flagstaff, AZ............ 452 1,465 -- 1,917 1996 1996
Mobil-Laguna Niguel, CA............ 842 211 -- 1,053 n/a 1996
Dry-Wadsworth-Arvada, CO........... 473 569 -- 1,042 1995 1995
INDUSTRIAL
Bolingbrook-Bolingbrook, IL........ 1,406 5,052 -- 6,458 1996 1995
Andover-Andover, MA................ 291 -- -- 291 n/a 1995
Wood Dale-Chicago, IL.............. 4,034 1,420 -- 5,454 1996 1996
OFFICE/INDUSTRIAL
Texas Instruments-Austin, TX....... 14,250 21,150 -- 35,400 1976 1996
OFFICE
TC High Ridge-Fairfax, VA.......... 1,884 8,467 -- 10,351 1996 1996
------- ------------ ---------- ----------
Total............................ $26,635 $44,487 $-- $71,122(B)
------- ------------ ---------- ----------
------- ------------ ---------- ----------
</TABLE>
- ------------------------
(A) Property is subject to a ground lease.
(B) The aggregate cost for Federal income tax purposes is approximately $71
million.
(C) Does not include $1.8 million note related to a property sold in 1996. The
loan was subsequently repaid on January 18, 1997.
(D) All real estate investments have been held for sale since acquisition and
are therefore not depreciated.
S-2
<PAGE>
TRAMMELL CROW COMPANY
NOTES TO SCHEDULE III -- REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Changes in real estate investments and accumulated depreciation for the
three years ended December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year................................................ $ 20,274 $ 20,215 $ 0
Additions and improvements................................................ 92,975 38,549 36,083
Sales and transfers....................................................... (42,127) (38,490) (15,868)
---------- ---------- ----------
Balance at end of year...................................................... $ 71,122 $ 20,274 $ 20,215
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
S-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
1.1** Form of Underwriting Agreement
2.1* Agreement and Plan of Merger dated August 22, 1997, among the Company, the
Predecessor Company, TCC Merger Sub, Inc. and certain other parties
thereto.
2.2** First Amendment to Agreement and Plan of Merger dated as of November 22,
1997
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Form of certificate for shares of Common Stock of the Company
5.1** Opinion of Vinson & Elkins L.L.P. relating to the Common Stock
8.1** Opinion of Vinson & Elkins L.L.P. relating to Certain U.S. Federal Tax
Considerations for Non-U.S. Holders of Common Stock
10.1* Credit Agreement dated August 18, 1997, among the Company, Bankers Trust
Company and the lenders listed therein
10.2** Form of License Agreement among the Company and CFH Trade-Names, L.P.
10.3* Form of Indemnification Agreement, with schedule of signatures
10.4* Predecessor Company's 1997 Stock Option Plan
10.5* Company's Long-Term Incentive Plan
10.6* Company's Profit Sharing Plan
10.7* Acquisition Agreement dated August 15, 1997, among the Company, TCRS,
Doppelt and Jeffrey J. Doppelt
10.8* Subordinated Promissory Note dated August 22, 1997, between the Company
and Doppelt
10.9* Stockholders' Agreement dated August 22, 1997, among TCRS, the Company,
Doppelt and Jeffrey J. Doppelt
10.10** Form of Stockholders' Agreement among the Company, Crow Family Partnership
L.P., CFH Trade-Names, L.P., J. McDonald Williams and certain other
signatories thereto
21.1* Subsidiaries of the Company
23.1** Consent of Ernst & Young LLP
23.2** Consent of Vinson & Elkins L.L.P. (included as part of Exhibit 5.1)
24.1* Power of Attorney (included on signature pages to Registration Statement
No. 333-34859 filed on September 3, 1997)
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
<PAGE>
5,000,000 Shares
TRAMMELL CROW COMPANY
Common Stock
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
November __, 1997
<PAGE>
November __, 1997
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Goldman, Sachs & Co.
BancAmerica Robertson Stephens
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
Goldman Sachs International
BancAmerica Robertson Stephens
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Madames:
Trammell Crow Company, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below),
5,000,000 shares of the common stock, par value $.01 per share, of the Company
(the "Firm Shares").
It is understood that, subject to the conditions hereinafter stated,
[________] Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and [________] Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), BT Alex. Brown Incorporated, Goldman, Sachs & Co. and BancAmerica
Robertson Stephens shall act as representatives (the "U.S. Representatives") of
the several U.S. Underwriters, and Morgan Stanley & Co. International Limited,
BT Alex. Brown International, a division of Bankers Trust International PLC,
Goldman Sachs International and BancAmerica Robertson Stephens shall act as
representatives (the "International Representatives") of the several
<PAGE>
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the "Underwriters."
The Company proposes to sell to the several U.S. Underwriters not more
than an additional 750,000 shares of the Company's common stock, par value $.01
per share (the "Additional Shares"), if and to the extent that the U.S.
Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of common stock granted to the
U.S. Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares." The shares of
common stock, par value $.01 per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement;" the U.S. prospectus and the
international prospectus in respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus." If the
Company has filed an abbreviated statement to register additional shares of
Common Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462
Registration Statement"), then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
The Company hereby confirms its appointment of Morgan Stanley as, and
Morgan Stanley hereby confirms its agreement with the Company to render services
as, a "qualified independent underwriter" within the meaning of Rule 2720 of the
National Association of Securities Dealers, Inc. (the "NASD") with respect to
the offering and sale of the Shares. The Public Offering Price (as defined in
Section 3 hereof) shall not be higher than the maximum price recommended by
Morgan Stanley acting as "qualified independent underwriter."
As part of the offering contemplated by this Agreement, Morgan Stanley
has agreed to reserve out of the Shares set forth opposite its name on
Schedule I to this Agreement up to 250,000 Shares, for sale to the Company's
employees, officers, directors
2
<PAGE>
and other parties associated with the Company (collectively, "Participants"), as
set forth in the Prospectus under the heading "Underwriting" (the "Directed
Share Program"). The Shares to be sold by Morgan Stanley pursuant to the
Directed Share Program (the "Directed Shares") will be sold by Morgan Stanley
pursuant to this Agreement at the Public Offering Price (as defined in Section 4
below). Any Directed Shares not orally confirmed for purchase by any
Participants by the end of the first business day after the date on which this
Agreement is executed will be offered to the public by Morgan Stanley as set
forth in the Prospectus.
The Company and Trammell Crow Company, a Texas close corporation
(the"Predecessor Company"), are collectively referred to herein as the
"Companies". For purposes of this Agreement, the term "subsidiary" shall have
the meaning set forth in Rule 1-02 of Regulation S-X and, as used herein and
unless otherwise indicated, shall refer to a subsidiary of the Company.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES. The Companies
represent and warrant to and agree with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the knowledge
of the Companies, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) Each of the Companies has been duly incorporated, is validly
existing as a corporation or in good standing under the laws of the
jurisdiction of its incorporation or organization, has the corporate power
and authority to own its property and to conduct its business as described
in the Prospectus and is duly
3
<PAGE>
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Companies and their subsidiaries, taken as a whole.
(d) Each "significant subsidiary" (as such term is defined in Rule
1-02 of Regulation S-X) of the Companies, including but not limited to the
subsidiaries listed on Schedule III to this Agreement (each a "Significant
Subsidiary" and, collectively, the "Significant Subsidiaries"), has been
duly incorporated or organized, is validly existing as a corporation or
partnership, as the case may be, in good standing under the laws of the
jurisdiction of its incorporation or organization, has all power and
authority to own its property and to conduct its business as described in
the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Companies and their subsidiaries,
taken as a whole; all of the issued shares of capital stock of each
Significant Subsidiary which is a corporation have been duly and validly
authorized and issued, are fully paid and non-assessable, all of the
partnership interests of each Significant Subsidiary which is a partnership
have been duly and validly authorized and issued, and all of the shares of
capital stock or partnership interests in any Significant Subsidiary
(except as set forth in the Registration Statement and the Prospectus) are
owned directly or indirectly by the Company or the Predecessor Company, as
the case may be, free and clear of all liens, encumbrances, equities or
claims.
(e) This Agreement has been duly authorized, executed and delivered
by the Companies.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The Shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued, delivered
and paid for in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
4
<PAGE>
(i) The financial statements (together with the related notes
thereto) of the Predecessor Company and Doppelt & Company ("Doppelt")
included in the Registration Statement present fairly the financial
position of the Predecessor Company and Doppelt, respectively, and each of
their respective subsidiaries as of the respective dates of such financial
statements, and the results of operations and cash flows of the Predecessor
Company and Doppelt, respectively, and each of their respective
subsidiaries for the respective periods covered thereby, all in conformity
with generally accepted accounting principles consistently applied
throughout the periods involved. The balance sheet (together with the
related notes thereto) of the Company included in the Registration
Statement presents fairly the financial position of the Company and its
subsidiaries as of the date of such balance sheet, in conformity with
generally accepted accounting principles consistently applied throughout
the period involved. The pro forma consolidated financial statements
included in the Prospectus have been prepared in accordance with Article 11
of Regulation S-X with respect to pro forma financial statements, have been
properly complied on the pro forma basis described therein, and, in the
opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate under the
circumstances.
(j) None of the Companies or any of their subsidiaries is in
violation of its certificate of incorporation or certificate of
partnership, as the case may be, or its by-laws or partnership agreement,
as the case may be, or, except as would not have a material adverse effect
on the Companies and their subsidiaries, taken as a whole, in default in
the performance or observance of any obligation, agreement. covenant or
condition contained in any agreement or other instrument binding upon the
Companies or any of their respective subsidiaries. The conduct of the
business of the Companies and their respective subsidiaries is and has been
in compliance with applicable foreign, federal, state and local laws and
regulations, except where the failure to be in compliance would not, singly
or in the aggregate, have a material adverse effect on the Companies and
their subsidiaries, taken as a whole.
(k) The execution and delivery by the Companies of, and the
performance by the Companies of their obligations under, this Agreement and
the consummation by the Companies of the Reincorporation Transactions (as
defined in the Prospectus under the caption "The Company") will not
contravene any provision of applicable law or the certificate of
incorporation, by-laws or other organizational documents of either of the
Companies or any of their Significant Subsidiaries, or any agreement or
other instrument binding upon any of the Companies or any of their
Significant Subsidiaries that is material to the Companies and their
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over any of the
Companies or their Significant Subsidiaries and no consent, approval,
authorization or order of, or qualification with, any governmental
5
<PAGE>
body or agency is required for the performance by the Companies of their
obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states or of any jurisdiction
outside the United States in connection with the offer and sale of the
Shares.
(l) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Companies and their subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(m) There are no legal or governmental proceedings pending or, to the
knowledge of the Companies, threatened to which any of the Companies or
their subsidiaries is a party or to which any of the properties of any of
the Companies or their subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(n) Each of the Company, the Predecessor Company and their respective
subsidiaries has all necessary consents, authorizations, approvals, orders,
certificates and permits of and from, and has made all declarations and
filings with, all federal, state, local and other governmental authorities,
all self-regulatory organizations and all courts and other tribunals, to
own, lease, license and use its properties and assets and to conduct its
business in the manner described in the Prospectus, except to the extent
that the failure to obtain or file would not have a material adverse effect
on the Companies and their subsidiaries, taken as a whole.
(o) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(p) Neither the Company nor the Predecessor Company is, and, after
giving effect to the Reincorporation Transactions, the offering and sale of
the Shares and the application of the proceeds thereof as described in the
Prospectus, the Company will not be, an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.
6
<PAGE>
(q) At the time the Registration Statement became effective, the
Shares were registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Shares have been authorized for listing
on the New York Stock Exchange, subject only to official notice of
issuance.
(r) The Companies and their subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety
(including occupational health and safety), the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Companies and their
subsidiaries, taken as a whole.
(s) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Companies and their subsidiaries, taken as a whole.
(t) There are no contracts, agreements or understandings between any
of the Companies and any person granting such person the right to require
the Company to file a registration statement under the Securities Act with
respect to any securities of the Company (except for (i) the Investment
Agreement, dated as of December 7, 1994, by and between the Predecessor
Company and J. McDonald Williams as successor to JCP Family Limited
Partnership, (ii) the Stockholders Agreement (as defined in the
Prospectus), and (iii) the Doppelt Stockholders Agreement (as defined in
the Prospectus)), and there are no contracts, agreements or understandings
between the Company or the Predecessor Company and any person granting such
person the right to require the Company or the Predecessor Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(u) Except as described in the Registration Statement and the
Prospectus, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Companies
and their subsidiaries have not incurred any material liability or
obligation or entered into any material transaction not in the ordinary
course of business; (2) the Company has not purchased any of its
7
<PAGE>
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (3) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Companies and their subsidiaries, except in each case as described in or
contemplated by the Prospectus.
(v) The Companies and their subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them in each case which is material to the
business of the Companies and their subsidiaries, taken as a whole, in each
case free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and proposed
to be made of such property by the Companies and their subsidiaries; and
any real property and buildings held under lease by any of the Companies or
their subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially
interfere with the use made of such property and buildings by the Companies
and their subsidiaries, in each case except as described in or contemplated
by the Prospectus.
(w) The Companies and their subsidiaries own, possess, have licensed
for use as described in the Registration Statement and the Prospectus, or
can acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names currently employed by them in connection with the business now
operated by them, and none of the Companies or their subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the Companies and their
subsidiaries, taken as a whole.
(x) The Companies and their Significant Subsidiaries have filed all
material foreign, federal and state income and franchise tax returns and
have paid all material taxes shown as due thereon, and there is no tax
deficiency that has been asserted against the Companies or their properties
or assets that would have a material adverse effect on the Companies and
their subsidiaries, taken as a whole.
(y) No material labor dispute with the employees of the Companies or
any of their subsidiaries exists, except as described in or contemplated by
the Prospectus, or, to the knowledge of the Companies, is imminent.
8
<PAGE>
(z) The Companies and each of their subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which they are engaged; none of the Companies or any such subsidiary has
been refused any insurance coverage sought or applied for; and neither the
Companies nor any such subsidiary has any reason to believe that they will
not be able to renew their existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue their business at a cost that would not have a
material adverse effect on the Companies and their subsidiaries, taken as a
whole.
(aa) Each of the Companies and their respective subsidiaries maintains
a system of internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (3) access to assets is permitted only in accordance
with management's general or specific authorization; and (4) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(bb) All offers, sales or other issuances of the Company's capital
stock prior to the date hereof were at all relevant times exempt from the
registration requirements of the Securities Act and were duly registered,
or the subject of an available exemption from registration, under
applicable state securities or Blue Sky laws.
(cc) Following the Reincorporation Transactions, as defined in and as
described in the Prospectus under the caption "The Company," neither the
Predecessor Company's ability to distribute any cash or property to the
Company, nor the Company's ability to receive any such distributions from
the Predecessor Company, will be impeded by any law or agreement.
(dd) There are no relationships or transactions between the Company,
the Predecessor Company or any of their respective subsidiaries, on the one
hand, and their respective affiliates, officers and directors or their
shareholders, customers or suppliers on the other hand which, although
required to be disclosed, are not disclosed or reflected in the Prospectus.
Furthermore, the Companies represent and warrant to Morgan Stanley
that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendment or supplements thereto will comply,
with any applicable laws or regulations of foreign jurisdictions in which the
Prospectus or any preliminary prospectus, as amended or supplemented, if
applicable, are distributed in connection with the Directed
9
<PAGE>
Share Program, (ii) no authorization, approval, consent, license, order,
registration or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is necessary
under the securities laws and regulations of foreign jurisdictions in which the
Directed Shares are offered outside the United States, and (iii) the Companies
have not offered, or caused the Underwriters to offer, Shares to any person
pursuant to the Directed Share Program with the specific intent to unlawfully
influence (a) a customer or supplier of the Company or the Predecessor Company
to alter the customer's or supplier's level or type of business with the
Company, or (b) a trade journalist or publication to write or publish favorable
information about the Company, the Predecessor Company or their products.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) set forth in Schedules I and
II hereto opposite its names at U.S.$_____ a Share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to [________]
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
but not earlier than the Closing Date nor later than ten business days after the
date of such notice. Additional Shares may be purchased as provided in Section
5 hereof solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each U.S. Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as the U.S. Representatives may determine) that bears the same
proportion to the total number of Additional Shares to be purchased as the
number of U.S. Firm Shares set forth in Schedule I hereto opposite the name of
such U.S. Underwriter bears to the total number of U.S. Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of
10
<PAGE>
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the sale of the Shares to the Underwriters hereunder, (B) the issuance by the
Company of shares of Common Stock upon the exercise of an option or a warrant or
the conversion of a security outstanding on the date of the Prospectus of which
the Underwriters have been advised in writing or (C) stock or stock option
issuances by the Company pursuant to employee benefit plans existing as of the
date of the Prospectus of which the Underwriters have been advised in writing.
3. TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
U.S.$________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$_______ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$________ a share, to any Underwriter or to certain other dealers.
4. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made
by wire transfer of immediately available funds to an account designated by the
Company against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 10:00 A.M., New York City time, on _________, 1997, or
at such other time on the same or such other date, not later than____________,
1997, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Company by wire
transfer of immediately available funds to an account designated by the Company
against delivery of such Additional Shares for the respective accounts of the
several Underwriters at 10:00 A.M., New York City time, on the date specified in
the notice described in Section 2 or at such other time on the same or on such
other date, in any event not later than _____________, 1997, as shall be
designated in writing by the U.S. Representatives. The time and date of such
payment are hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be
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delivered to you on the Closing Date or the Option Closing Date, as the case may
be, for the respective accounts of the several Underwriters, with any transfer
taxes payable in connection with the transfer of the Shares to the Underwriters
duly paid, against payment of the Purchase Price therefor.
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 5:30 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Companies'
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
reasonably likely to result in a change, in the condition, financial
or otherwise, or in the earnings, business or operations of the
Companies and their subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed on behalf of the Companies
by an executive officer of the Companies, (i) to the effect that the
representations and warranties of the Companies contained in this Agreement
are true and correct as of the Closing Date and that the Companies have
complied with all of the agreements and satisfied all of the conditions on
their part to be performed or satisfied hereunder on or before the Closing
Date, and (ii) setting forth all jurisdictions in which the conduct of the
Company's business or its ownership or leasing of property requires that
each of the Companies or their subsidiaries be qualified to transact
business, except to the extent
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that the failure to be so qualified would not have a material adverse
effect on the Companies, or their subsidiaries, taken as a whole.
(c) The Underwriters shall have received on the Closing Date an
opinion of Vinson & Elkins, outside counsel for the Companies, dated the
Closing Date, to the effect that:
(i) each of the Companies has been duly incorporated and is
validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the power and authority to own
its property and conduct its business as described in the Prospectus;
and each of the Companies is duly qualified to transact business and,
based solely upon such counsel's review of "good standing"
certificates of such states, is in good standing in each jurisdiction
set forth in the certificate provided pursuant to 5(b)(ii) hereto;
(ii) each Significant Subsidiary set forth on Schedule III to
this Agreement has been duly incorporated or organized and is validly
existing and in good standing under the laws of the jurisdiction of
its incorporation, has the power and authority to own its property and
to conduct its business as described in the Prospectus; and is
qualified to transact business and, based solely upon such counsel's
review of "good standing" certificates of such states, is in good
standing in each jurisdiction set forth in the certificate provided
pursuant to 5(b)(ii) hereto;
(iii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
(v) all of the outstanding partnership interests or issued
shares of capital stock of each Significant Subsidiary set forth on
Schedule III to this Agreement have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned directly
or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims, other than as described in the
Prospectus;
(vi) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
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(vii) this Agreement has been duly authorized, executed and
delivered by each of the Companies;
(viii) the execution and delivery by each of the Companies of,
and the performance by each of the Companies of its obligations under,
this Agreement and the consummation of the Reincorporation
Transactions described in the Prospectus under the caption "The
Company" will not contravene any provision of applicable law or the
certificate of incorporation or by-laws or other organizational
documents of the Companies or the Significant Subsidiaries set forth
on Schedule III to this Agreement or any agreement or other instrument
binding upon any of the Companies or their subsidiaries that is
material to the Companies and their subsidiaries, taken as a whole,
or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over any of the Companies or their respective subsidiaries, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Companies of their obligations under this Agreement, except such as
may be required by the securities or Blue Sky laws of the various
states or the securities laws of foreign jurisdictions in connection
with the offer and sale of the Shares by the Underwriters;
(ix) the statements (A) in the Prospectus under the captions "The
Company," "Management," "Description of Capital Stock" and
"Underwriting," and (B) in the Registration Statement in Items 14 and
15, insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to
therein;
(x) to such counsel's knowledge, and without having investigated
governmental records or court dockets, there are no legal or
governmental proceedings pending or threatened to which the Companies
or any of their subsidiaries is a party that are required to be
described in the Registration Statement or the Prospectus and are not
so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) neither the Company nor the Predecessor Company is and,
after giving effect to the Reincorporation Transactions, the offering
and sale of the Shares and the application of the proceeds thereof as
described in the
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Prospectus, the Company will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended; and
(xii) the Registration Statement, as of its effective date,
and the Prospectus, as of its date, appeared on their face to be
appropriately responsive in all material respects to the requirements
of the Securities Act and the rules and regulations promulgated
thereunder, except that, in each case, such counsel need not express
any opinion as to the financial statements, schedules and other
financial or statistical data included therein or excluded therefrom
or the exhibits to the Registration Statement, and such counsel need
not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and
the Prospectus (other than to the extent specified in paragraphs (iii)
and (ix) above).
In addition, such counsel shall state (i) that they have
participated in conferences with officers and other representatives of the
Companies, representatives of the Underwriters and their counsel at which
the contents of the Registration Statement and the Prospectus and related
matters were discussed and (ii) although they have not verified and are not
passing upon the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus, on the basis of
the foregoing (relying as to materiality to a large extent upon the
opinions of officers and other representatives of the Companies), that no
fact has come to their attention that cause them to believe that (a) the
Registration Statement, as of the time it became effective under the Act,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or (b) the Prospectus, was as of its
date and as of the date of the Closing, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading (expressing no view, belief or comment
with respect to the form, accuracy, completeness or fairness of the
financial statements, notes or schedules thereto or other financial data or
information included in the Registration Statement or the Prospectus).
(d) The Underwriters shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in subparagraphs (vi),
(vii), (ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriting") and (xii) of paragraph
(c) above, as well as a statement covering the matters referred to in the
last unnumbered subparagraph of paragraph (c) above.
With respect to subparagraph (xii) of paragraph (c) above, Vinson &
Elkins and Shearman & Sterling may state that their opinion and belief are
based upon their
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participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified.
The opinion of Vinson & Elkins described in paragraph (c) above, shall
be rendered to the Underwriters at the request of the Company and shall so
state therein.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, letters dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young, independent public accountants with respect to the
Company, the Predecessor Company and their respective subsidiaries, and
with respect to Doppelt, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus; provided that
the letters delivered on the Closing Date shall use a "cut-off date" not
earlier than the date hereof.
(f) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and each of the shareholders and between you
and each of the officers listed under the caption "Management" in the
Prospectus and each of the directors of the Company relating to sales and
certain other dispositions of shares of Common Stock or certain other
securities, delivered to you on or before the date hereof, shall be in full
force and effect on the Closing Date.
(g) The Reincorporation Transactions (as defined in the Prospectus
under the caption "The Company") shall have been consummated in the manner
set forth in the Prospectus.
(h) The Common Stock shall have been registered under the Exchange
Act, and the Shares shall have been approved for listing on the New York
Stock Exchange, subject only to official notice of issuance.
(i) The Replacement Facility described in the Prospectus shall have
been executed and delivered by the parties thereto and shall be in full
force and effect, subject only to the closing of the sale of the Firm
Shares to the Underwriters, the payment in full of the Existing Credit
Facility (as defined in the Prospectus) and the pledge to NationsBank of
certain collateral currently pledged to secure the Existing Credit
Facility.
(j) The Underwriters shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
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(k) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the
due authorization and sale of the Additional Shares and other matters
related to the sale of the Additional Shares.
6. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, eight (8) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
paragraph (c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
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(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the
twelve-month period ending December 31, 1998 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) To use the net proceeds received by it from the sale of the
Shares in the manner specified in the Prospectus under "Use of Proceeds."
(g) That in connection with the Directed Share Program, the Companies
will ensure that the Directed Shares will be restricted to the extent (i)
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date of
the effectiveness of the Registration Statement and (ii) the Company is
advised by Morgan Stanley of the Participants which will need to be so
restricted. The Companies will direct the transfer agent to place stop
transfer restrictions upon such securities for such period of time.
(h) To pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
Furthermore, the Companies covenant with Morgan Stanley that the
Company will, and the Predecessor Company will cause the Company to, comply with
all applicable securities and other applicable laws, rules and regulations in
each foreign jurisdiction in which the Directed Shares are offered by the
Company in connection with the Directed Share Program.
7. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Companies agree
to pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Companies' counsel and the Companies' accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or Legal Investment
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memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of the
Shares for offer and sale under state securities laws as provided in Section
6(d) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky or Legal Investment memorandum, (iv) all filing
fees and the reasonable fees and disbursements of counsel to the Underwriters
incurred in connection with the review and qualification of the offering of the
Shares by the NASD and all filing fees and the reasonable fees and disbursements
of counsel to Morgan Stanley in its capacity as "qualified independent
underwriter," (v) all fees and expenses in connection with the preparation and
filing of the registration statement on Form 8-A relating to the Common Stock
and all costs and expenses incident to listing the Shares on the New York Stock
Exchange, (vi) the cost of printing certificates representing the Shares, (vii)
the costs and charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Companies relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the production
of road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of the
Companies, travel and lodging expenses of the representatives and officers of
the Companies and any such consultants, and the cost of any aircraft chartered
in connection with the road show, (ix) all expenses in connection with any offer
and sale of the Shares outside of the United States, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection with offers and sales outside of the United States, and (x) all other
costs and expenses incident to the performance of the obligations of the
Companies hereunder for which provision is not otherwise made in this Section.
It is understood, however, that except as provided in this Section, Section
6(h), Section 8 entitled "Indemnity and Contribution", and the last paragraph of
Section 10 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
8. INDEMNITY AND CONTRIBUTION. (a) The Company and the Predecessor
Company agree to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, from and against any and
all losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any
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such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; PROVIDED, HOWEVER,
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Companies shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such failure
is the result of noncompliance by the Companies with Section 6(a) hereof.
(b) The Company and the Predecessor Company agree to indemnify and
hold harmless Morgan Stanley and each person, if any, who controls Morgan
Stanley within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act ("Morgan Stanley Entities"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in the prospectus wrapper
material prepared by or with the consent and participation of the Companies for
distribution in foreign jurisdictions in connection with the Directed Share
Program attached to the Prospectus or any preliminary prospectus, or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, when considered in
conjunction with the Prospectus or any applicable preliminary prospectus, not
misleading; (ii) caused by the failure of any Participant to pay for and accept
delivery of the Shares which, immediately following the effectiveness of the
Registration Statement, were subject to a properly confirmed agreement to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program, provided that, neither the Company nor the Predecessor
Company shall be responsible under this subparagraph (iii) for any losses,
claim, damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
Morgan Stanley Entities.
The Company and the Predecessor Company also agree to indemnify and
hold harmless the Morgan Stanley Entities from and against any and all losses,
claims, damages, liabilities and judgments incurred as a result of Morgan
Stanley's participation as a "qualified independent underwriter" within the
meaning of Rule 2720 of the National Association of Securities Dealers' Conduct
Rules in connection with the offering of the Shares, except for any losses,
claims, damages, liabilities, and judgments resulting from Morgan Stanley's, or
such controlling person's, willful misconduct.
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(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Companies, the directors of the Company, the officers of
the Company who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Underwriter, but only with reference to
information relating to such Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b) or (c) of this Section
8, such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying
party shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for all such indemnified parties and
that all such fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by Morgan Stanley in the case of
parties indemnified pursuant to Sections 8(a) and 8(b), and by the Company in
the case of parties indemnified pursuant to Section 8(c). Notwithstanding
anything contained herein to the contrary, if indemnity may be sought
pursuant to paragraph (b) of this Section 8 in respect of such action or
proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for (x) the reasonable fees
and expenses of not more than one separate firm (in addition to any local
counsel) for Morgan Stanley for the defense of any losses, claims, damages
and liabilities arising out of the Directed Share Program, and all persons,
if any, who control Morgan Stanley within the meaning of either Section 15 of
the Act of Section 20 of the Exchange Act and (y) the reasonable fees and
expenses of not more than one separate firm (in addition to any local
counsel) for Morgan Stanley in its capacity as a "qualified independent
underwriter" and all persons, if any, who control Morgan Stanley within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act.
The
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indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second, third and fifth sentences of this paragraph, the indemnifying
party agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into more
than 30 days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in paragraph (a),
(b) or (c) of this Section 8 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Companies on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Companies on the one
hand and of the Underwriters on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Companies on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Companies on the one
hand and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Companies or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute
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pursuant to this Section 8 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.
(f) The Companies and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (e) of this Section 8.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 8 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of the
Companies contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, or the Companies, their respective officers or directors or any
person controlling either of the Companies and (iii) acceptance of and payment
for any of the Shares.
9. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
23
<PAGE>
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 10 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on
the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the
24
<PAGE>
Underwriters or such Underwriters as have so terminated this Agreement with
respect to themselves, severally, for all out-of-pocket expenses (including the
fees and disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering contemplated
hereunder.
11. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
13. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
25
<PAGE>
Very truly yours,
TRAMMELL CROW COMPANY, a Delaware corporation
By:
-------------------------------------------
Name:
Title:
TRAMMELL CROW COMPANY, a Texas close corporation
By:
--------------------------------------------
Name:
Title:
26
<PAGE>
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Goldman, Sachs & Co.
BancAmerica Robertson Stephens
Acting severally on behalf
of themselves and the
several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co. Incorporated
By
---------------------------------------
Name:
Title:
Morgan Stanley & Co. International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
Goldman Sachs International
BancAmerica Robertson Stephens
Acting severally on behalf
of themselves and the
several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. International Limited
By
---------------------------------------
Name:
Title:
27
<PAGE>
SCHEDULE I
U.S. UNDERWRITERS
Number of
Firm Shares
Underwriter To be Purchased
--------------- ----------------
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Goldman, Sachs & Co.
BancAmerica Robertson Stephens
[NAMES OF OTHER UNDERWRITERS]
-------------
Total U.S. Firm Shares
-------------
-------------
<PAGE>
SCHEDULE II
INTERNATIONAL UNDERWRITERS
Number of
Firm Shares
Underwriter To be Purchased
------------- -------------------
Morgan Stanley & Co. International
Limited
BT Alex. Brown International, a division of
Bankers Trust International PLC
Goldman Sachs International
BancAmerica Robertson Stephens
[NAMES OF OTHER UNDERWRITERS]
------------
Total International Firm Shares
------------
------------
<PAGE>
SCHEDULE III
IDENTIFIED SIGNIFICANT SUBSIDIARIES OF THE COMPANIES
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
___________, 1997
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Goldman, Sachs & Co.
BancAmerica Robertson Stephens
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
Goldman Sachs International
BancAmerica Robertson Stephens
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Madames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley"), Morgan Stanley & Co. International Limited ("MSIL"), BT
Alex. Brown Incorporated, BT Alex. Brown International, a division of Bankers
Trust International PLC, Goldman, Sachs & Co., Goldman Sachs International and
BancAmerica Robertson Stephens (collectively, the "Underwriters") propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") with
Trammell Crow Company, a Delaware corporation (the "Company") and Trammell Crow
Company, a Texas close corporation (the "Predecessor Company"), providing for
the public offering (the "Public Offering") by the several Underwriters, of
5,000,000 (plus 750,000 shares subject to the Underwriters' over-allotment
option) shares (the "Shares") of the common stock, par value $.01 per share, of
the Company (the "Common Stock").
<PAGE>
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, the undersigned will not, during the
period commencing on the date hereof and ending 180 days after the date of the
final prospectus relating to the Public Offering (the "Prospectus"), (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (provided that such shares or securities are
either now owned by the undersigned or are hereafter acquired prior to or in
connection with the Public Offering), or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (a) the exercise of an option or a warrant or the conversion
of a security outstanding on the date of the Prospectus of which the
Underwriters have been advised in writing (b) stock or stock option issuances by
the Company pursuant to existing employee benefit plans, (c) the pledge of
shares of Common Stock by certain employees and directors to the Company's
secured creditors as described in the Prospectus; (d) transactions relating to
shares of Common Stock or other securities acquired in open market transactions
after the completion of the Public Offering; or (e) the transfer of shares of
Common Stock by the undersigned to the following: (i) if the undersigned is an
individual, a member of the immediate family of the undersigned, if any, or a
trust whose sole beneficiaries are members of the immediate family of the
undersigned, or a partnership whose sole partners are members of the immediate
family of the undersigned; and (ii) if the undersigned is a trust, any member of
the immediate family of the undersigned that is the grantor or trustee of the
trust; provided, however, that the undersigned shall first require any
transferee described in clause (d)(i) or (d)(ii) to execute a copy of this
letter prior to such transfer. In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, the undersigned will not, during the period commencing on the date
hereof and ending 180 days after the date of the Prospectus, make any demand for
or exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
----------------------------
(Name)
----------------------------
(Address)
A-2
<PAGE>
PRIVILEGED AND CONFIDENTIAL
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
MADE BY AND AMONG
TRAMMELL CROW COMPANY,
a Texas close corporation,
TRAMMELL CROW COMPANY,
a Delaware corporation
TCC MERGER SUB, INC.,
a Delaware corporation,
CROW FAMILY PARTNERSHIP, L.P.,
CFH TRADE-NAMES, L.P.,
a Texas limited partnership,
and
J. MCDONALD WILLIAMS
TO BE EFFECTIVE AS OF
NOVEMBER 20, 1997
<PAGE>
PRIVILEGED AND CONFIDENTIAL
FIRST AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of November 20, 1997, is made by and among Trammell Crow Company,
a Texas close corporation ("Texas TCC"), Trammell Crow Company, a Delaware
corporation ("Delaware TCC"), TCC Merger Sub, Inc., a Delaware corporation and
wholly-owned subsidiary of Delaware TCC ("Merger Sub"), Crow Family Partnership,
L.P. ("Crow Family"), CFH TRADE-NAMES, L.P., a Texas limited partnership
("CFH"), and J. McDonald Williams. Texas TCC and Merger Sub are hereinafter
collectively referred to as the "Constituent Corporations."
PRELIMINARY STATEMENTS
A. Delaware TCC, Crow Family, J. McDonald Williams and the Constituent
Corporations are parties (the "Parties") to an Agreement and Plan of Merger (the
"Agreement") dated August 22, 1997, in which the Parties have outlined the
manner in which Merger Sub will be merged with and into Texas TCC, with Texas
TCC being the surviving corporation (the "Merger"). All capitalized terms used
but not otherwise defined in this Amendment shall have the meanings ascribed to
them in the Agreement.
B. Exhibit F to the Agreement is a Form of Trade Name License Agreement
(the "License Agreement") pursuant to which the owner of the Trademarks (as
defined in the License Agreement), or its designee, is to grant Delaware TCC
certain rights to use the Trademarks.
C. Crow Family and CFH are parties to an Assignment of Trademarks and
Tradenames Agreement (the "Tradenames Agreement") dated November ___, 1997, in
which Crow Family, as the owner of the Trademarks, has assigned licensing rights
in the Trademarks to CFH (the "Assignment").
D. In order to reflect the effect that the Assignment will have on the
transactions contemplated in the Agreement, the Parties have agreed to amend the
Agreement in the manner described below.
AGREEMENTS
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth hereinafter and in the Agreement,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Section 4.2 shall be amended and restated in its entirety to read as
follows:
<PAGE>
PRIVILEGED AND CONFIDENTIAL
4.2 STOCKHOLDERS AGREEMENT. Upon the terms and subject to the
conditions set forth herein, Delaware TCC, Crow Family, CFH and J. McDonald
Williams hereby covenant and agree with each other that at Closing they
shall execute, deliver and enter into a Stockholders Agreement
substantially in the form attached hereto as EXHIBIT C (the "Stockholders
Agreement").
2. Section 4.3 shall be amended and restated in its entirety to read as
follows:
4.3 CROW FAMILY TERMINATION AGREEMENT. Upon the terms and subject to
the conditions set forth herein, Texas TCC, CFH and Crow Family hereby
covenant and agree with each other that at the Closing they shall execute,
deliver and enter into a Termination and Release Agreement substantially in
the form attached hereto as EXHIBIT D (the "Crow Family Termination
Agreement").
3. Section 4.5 of the Agreement shall be amended and restated in its
entirety to read as follow:
4.5 MATTERS RELATING TO TRADE NAME LICENSE. CFH and Delaware TCC
hereby covenant and agree with each other and with Texas TCC that, upon the
terms and subject to the conditions set forth herein and pursuant to
Section 351 of the Code, at the Closing and immediately prior to the
Effective Time:
(a) ISSUANCE OF TRADE NAME SHARES. Delaware TCC shall issue to
CFH or its designee, and CFH or its designee shall acquire from Delaware
TCC, the Trade Name Shares, free and clear of all liens, security
interests, claims, rights of another and encumbrances of any kind or
character. At the Closing, Delaware TCC shall deliver to CFH or its
designee a share certificate representing the total number of Trade Name
Shares to be acquired by CFH or such designee hereunder, executed by a
duly-authorized officer of Delaware.
(b) TRADE NAME LICENSE AGREEMENT. In consideration for the
issuance of the Trade Name Shares at Closing, CFH hereby covenants and
agrees with Delaware TCC and Texas TCC that at the Closing, CFH shall, or
CFH shall cause its designee to, transfer certain intangible property to
Delaware TCC by executing, delivering and entering into a Trade Name
License Agreement with Delaware TCC in substantially the form attached
hereto as EXHIBIT F (the "Trade Name License Agreement").
4. The name "Crow Family" at the beginning of the fourth line of Section
4.8 shall be deleted and the name "CFH" shall be substituted in its place.
5. The form of Stockholders Agreement attached to this Amendment as
EXHIBIT C, shall for all purposes be substituted as EXHIBIT C to the Agreement.
<PAGE>
PRIVILEGED AND CONFIDENTIAL
6. The form of Crow Family Termination Agreement attached to this
Amendment as EXHIBIT D shall for all purposes be substituted as EXHIBIT D to the
Agreement.
7. The form of Trade Name License Agreement attached to this Amendment as
EXHIBIT F shall for all purposes be substituted as EXHIBIT F to the Agreement.
8. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be one and the same instrument, and shall become
effective when one or more counterparts have been signed by each of the parties.
9. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAW RULES THEREOF.
10. The section headings contained in this Amendment are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Amendment.
11. Except as amended hereby, the terms and provisions of the Agreement
shall remain in full force and effect and are hereby in all respects ratified
and confirmed by the parties hereto.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
PRIVILEGED AND CONFIDENTIAL
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered by
the parties hereto or by their duly-authorized officers on the date first
hereinabove written.
TRAMMELL CROW COMPANY,
a Texas close corporation
By: /s/ Richard Coe
-------------------------------------
Name: Richard Coe
-----------------------------------
Title: Executive Vice President
----------------------------------
TRAMMELL CROW COMPANY,
a Delaware corporation
By: /s/ William P. Leiser
-------------------------------------
Name: William P. Leiser
-----------------------------------
Title:
----------------------------------
TCC MERGER SUB, INC.,
a Delaware corporation
By: /s/ William P. Leiser
-------------------------------------
Name: William P. Leiser
-----------------------------------
Title:
----------------------------------
CROW FAMILY PARTNERSHIP, L.P.,
By: Crow Family, Inc., its general partner
By: /s/ M. Kevin Bryant
-------------------------------------
Name: M. Kevin Bryant
-----------------------------------
Title: Vice President
----------------------------------
/s/ J. McDonald Williams
----------------------------------------
J. MCDONALD WILLIAMS
CFH TRADE-NAMES, L.P.
a Texas limited partnership
By: /s/ M. Kevin Bryant
-------------------------------------
Name: M. Kevin Bryant
-----------------------------------
Title: Vice President
----------------------------------
<PAGE>
PRIVILEGED AND CONFIDENTIAL
EXHIBIT C
FORM
OF
STOCKHOLDERS AGREEMENT
<PAGE>
PRIVILEGED AND CONFIDENTIAL
EXHIBIT D
FORM
OF
CROW FAMILY TERMINATION AGREEMENT
<PAGE>
PRIVILEGED AND CONFIDENTIAL
EXHIBIT F
FORM
OF
TRADE NAME LICENSE AGREEMENT
<PAGE>
(214) 220-7700 (214) 999-7700
November 17, 1997
Trammell Crow Company
2001 Ross Avenue
Dallas, Texas 75201
Ladies and Gentlemen:
We have acted as counsel for Trammell Crow Company, a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-1 (No. 333-34859) (as may hereafter be
amended, the "Registration Statement"), which has been filed by the Company
with the Securities and Exchange Commission for the purpose of registering
under the Securities Act of 1933 (the "1933 Act") and the rules and
regulations thereunder the sale of up to 5,750,000 shares (the "Shares") of
the Company's Common Stock, $.01 par value per share ("Common Stock"). The
Shares will be offered and sold (the "Offering") pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into between the
Company, Morgan Stanley & Co. Incorporated, BT Alex Brown International,
Goldman, Sachs & Co., and Robertson, Stephens & Co. Incorporated (the "U.S.
Underwriters"), and each of Morgan Stanley & Co. International Limited,
Bankers Trust International PLC, Goldman Sachs International, and Robertson,
Stephens & Company (the "International Underwriters" and collectively with
the U.S. Underwriters, the "Underwriters").
We are rendering this opinion as of the time the Registration Statement
becomes effective in accordance with Section 8(a) of the 1933 Act.
Before rendering the opinion hereinafter set forth, we examined, among
other things, the proposed form of Underwriting Agreement, the Registration
Statement, the Company's Certificate of Incorporation, the Company's Bylaws,
resolutions of the Company's Board of Directors, and originals or photostatic
or certified copies of all those corporate records of the Company and of all
those agreements, communications and other instruments, certificates of
public officials, certificates of corporate officials and such other
documents as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth. As to factual matters, information with
respect to which is in the possession of the Company relevant to the opinions
herein stated, we have relied without investigation, to the extent we deem
such reliance proper, upon certificates or representations made by its duly
authorized representative.
<PAGE>
Trammell Crow Company
November 17, 1997
Page 2
Based upon the foregoing assumptions, and subject to the qualifications
set forth hereinafter, we are of the opinion that, when (i) the Registration
Statement becomes effective under the 1933 Act, (ii) the final terms of the
Underwriting Agreement and the Offering have been approved by the Board of
Directors (or a duly constituted committee thereof), (iii) the Underwriting
Agreement has been duly executed and delivered by each of the parties thereto
and (iv) the Shares have been issued and delivered in accordance with the
terms of the Underwriting Agreement (including the receipt by the Company of
the consideration for the Shares described therein), the Shares will be
validly issued, fully paid and non-assessable.
The opinion expressed above is subject to the following assumptions,
exceptions and qualifications:
(a) We have assumed that (i) all information contained in all documents
reviewed by us is true and correct, (ii) all signatures on all documents
reviewed by us are genuine, (iii) all documents submitted to us as originals are
true and complete, (iv) all documents submitted to us as copies are true and
complete copies of the originals thereof, (v) each natural person signing any
document reviewed by us had the legal capacity to do so, (vi) each natural
person signing in a representative capacity any document reviewed by us had
authority to sign in such capacity, and (vii) the laws of any jurisdiction other
than Texas that govern any of the documents reviewed by us (other than the
Company's certificate of incorporation and bylaws) do not modify the terms that
appear in any such document.
(b) The opinion expressed in this letter is limited to the laws of the
State of Texas, the General Corporation Law of the State of Delaware, and the
federal laws of the United States of America. We are not admitted to the
practice of law in the State of Delaware.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement and the references to us under the heading "Legal
Matters" in the prospectus that forms a part of the Registration Statement.
We also consent to the incorporation by reference of this consent into any
subsequent registration statement filed pursuant to Rule 462(b) under the
1933 Act in connection with the Offering. In giving this consent, we do not
hereby admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
We express no opinion as to any matter other than as expressly set forth
above, and no opinion is to or may be inferred or implied herefrom. This
opinion is given as of the date hereof, and we undertake no, and hereby
disclaim any, obligation to advise the Company or anyone else of any change
in any matter set forth herein.
Very truly yours,
/s/ Vinson & Elkins L.L.P.
<PAGE>
EXHIBIT 8.1
FORM OF LEGAL OPINION OF VINSON & ELKINS L.L.P.
November 19, 1997
Trammell Crow Company
2001 Ross Avenue
Dallas, Texas 75201
Gentlemen:
We participated in the preparation of Registration Statement No. 333-34859
on Form S-1 originally filed with the Securities and Exchange Commission by
Trammel Crow Company (the "Company") on September 3, 1997, with respect to the
sale of common shares of the Company (the "Registration Statement"), including
the discussion set forth in the Registration Statement under the heading
"Certain U.S. Federal Tax Considerations for Non-U.S. Holders of Common Stock."
The discussion and the legal conclusions with respect to United States federal
income tax matters set forth therein reflect our opinion, and we believe they
are accurate and complete in all material respects.
Our opinion is rendered as of the time the Registration Statement is
declared effective and is based and conditioned upon the initial and continuing
accuracy of the facts and assumptions set forth in the Registration Statement.
Our opinion is also based upon provisions of the United States Internal Revenue
Code of 1986, as amended, regulations promulgated or proposed thereunder and
interpretations thereof by the Internal Revenue Service and the courts, all as
of the date of the Registration Statement, all of which are subject to change
with prospective or retroactive effect, and our opinion could be adversely
affected or rendered obsolete by any such change.
We hereby consent to the use of our name in the Registration Statement and
to the filing of this opinion as part of the Registration Statement. This
consent does not constitute an admission that we are "experts" within the
meaning of such term as used in the United States Securities Act of 1933.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE>
LICENSE AGREEMENT
This Agreement is entered into by and between CFH TRADE-NAMES, L.P., a Texas
limited partnership ("LICENSOR"), a Texas Limited Partnership, and Trammell Crow
Company, a Delaware corporation ("LICENSEE"), and is effective as of the ____
day of November, 1997.
RECITALS
WHEREAS, Licensor is the owner of the Trademarks, including all designs,
logos and artwork connected therewith, as described more fully herein, and
desires to license exclusively and in perpetuity, subject to certain
exclusions, the Trademarks including such designs, logos and artwork to
Licensee on the terms and conditions set forth herein;
WHEREAS, Licensee wishes to use the Trademarks upon and in connection with
the providing of various services as more fully specified herein;
WHEREAS, the Trademarks constitute valuable rights owned and used by the
Licensor in conducting its business and designating the origin or sponsorship of
the various services provided by Licensor;
WHEREAS, Licensor desires to protect the integrity of the Trademarks, and to
preserve its rights to the Trademarks so as to avoid consumer confusion and to
facilitate differentiation of its trademarked services from those of its
competitors; and
WHEREAS, Licensee and Licensor agree that certain restrictions on
Licensee's use of the licensed Trademarks are necessary to ensure that
Licensor's Trademarks as well as certain related trademarks of Licensor not
licensed to Licensee hereunder are not diluted nor subjected to disrepute in
the course of Licensee's use of the licensed Trademarks, and that Licensor's
rights in the Trademarks and ownership of the Trademarks are preserved.
NOW, THEREFORE, in consideration of the above and for other good and
valuable consideration, the sufficiency of such is herein acknowledged, the
parties agree as follows:
1
<PAGE>
AGREEMENT
1. DEFINITIONS
"AFFILIATED ENTITY" or any grammatical variations thereof shall mean any
corporation or other entity in which a party has an ownership interest of at
least eighty percent (80%) or as to which the party's relationship is such that
the party directly or indirectly Controls the person, corporation or other
entity or is Controlled by the same person, corporation or entity that controls
a party.
"CONTROL" or any grammatical variations thereof shall mean either the
ownership, directly or indirectly, of more than 50% of the voting securities
of a corporation or other entity or the power to direct the management or
policies of such corporation or other entity whether by operation of law, by
contract, or otherwise.
"INITIAL PUBLIC OFFERING" means the initial public offering of shares of
common stock by Licensee.
"PERMITTED ASSIGNEE" means (i) as to Licensee, an Affiliated Entity or any
person, partnership, corporation, or other entity which may acquire all or
substantially all of Licensee's assets or business or with or into which
Licensee may be liquidated, consolidated, merged or otherwise combined; (ii) as
to Licensor, any constituent member of Crow Family (as defined in EXHIBIT D) or
any person, partnership, corporation, or other entity which is or becomes an
Affiliated Entity or which may acquire all or not less than 67% of the net
equity value of the Commercial Real Estate Business (as defined in EXHIBIT D) of
the Crow Family, and (iii) as to either Licensor or Licensee, any person,
partnership, corporation or other entity if written consent to the assignment of
its rights has been given by Licensor.
"RESTRICTIONS" means those limitations and restrictions imposed on
Licensor's use of the Trademarks and certain trademarks not licensed to
Licensee hereunder as specifically specified in EXHIBIT D attached hereto.
"ROYALTY AGREEMENT" means the Royalty Agreement entered into between Mr.
Trammell Crow and Trammell Crow Company, a Texas corporation ("Texas TCC"), on
January 1, 1991, as ultimately assigned to Licensor, together with any and all
consents and waivers granted in connection therewith.
"SERVICES" means the various goods, services and products specified in
EXHIBIT B, attached hereto.
"STANDARDS AND QUALITY" shall mean the quality and performance of the
Services, as specified in EXHIBIT C, attached hereto.
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"TRADEMARKS" mean trademarks, trade names, service marks and designs,
logos, and artwork specified in EXHIBIT A, attached hereto.
2. GRANT OF LICENSE AND CONSIDERATION
2.1 Licensor grants to Licensee, subject to the terms and conditions
herein set forth the exclusive, perpetual, royalty-free right and license to
use worldwide and without any territorial limitations the Trademarks, by
reproduction or other means, in connection with the providing of the Services.
All rights not expressly granted to Licensee hereunder with respect to the
Trademarks and all other trademarks owned by Licensor are reserved to Licensor.
2.2 Licensee acknowledges that the rights granted to and obligations
assumed by Texas TCC under the Royalty Agreement have terminated effective
with the date of this Agreement and that certain entities, as more fully set
forth in EXHIBIT D, have been authorized and will continue to be authorized to
use names incorporating "Crow" or "Trammell Crow" or variations thereon
subject to the Restrictions contained in EXHIBIT D. Except as expressly
permitted pursuant to the Restrictions, after September 1, 1997, Licensor has
not and will not license or otherwise authorize any entity to utilize any of
the Trademarks or any other names raising a likelihood of confusion therewith
for the Services, provided any use of the Trademarks or other names that does
not violate the terms of EXHIBIT D, shall be deemed not to be confusingly
similar.
2.3 Subject to the terms and conditions herein set forth, the license
granted to the Licensee hereunder will include the right of the Licensee to
grant sublicenses to use the Trademarks for the Services. For each such
sublicensee, Licensee must either (i) Control the sublicensee or (ii) by law,
contract or otherwise be able to terminate the sublicensee's right to use the
Trademarks should the sublicensee fail to adhere to the Standards and Quality
or the other applicable terms and conditions hereof.
2.4 In consideration for Licensor's transfer of a perpetual, exclusive
and royalty-free right and license to use the Trademarks subject to the terms
and conditions of this Agreement, Licensee is issuing to Licensor concurrently
with the effectiveness hereof _______ shares of common stock of Licensee,
receipt of which is hereby acknowledged.
3. TERM
The term of this Agreement shall be perpetual, unless sooner terminated in
accordance with Section 13.
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4. RIGHTS IN THE TRADEMARKS
4.1 Licensee covenants and agrees not to file any trademark application for
registration of any of the Trademarks or any marks similar thereto. Licensee
acknowledges that Licensor is the sole and exclusive owner of the Trademarks.
Licensee shall not at any time do or suffer to be done any act or thing which
will in any way impair the rights of Licensor in and to the Trademarks. It is
understood that Licensee shall not acquire and shall not claim any title to the
Trademarks adverse to Licensor by virtue of the license granted to Licensee or
through Licensee's use of the Trademarks, it being the intention of the parties
that all use of the Trademarks by Licensee, and the goodwill associated
therewith, shall at all times inure to the benefit of Licensor.
4.2 Licensor herein covenants and agrees to promptly use reasonable
efforts at its own expense to obtain a federal trademark registration from the
United States Patent and Trademark Office for the trademark "Trammell Crow"
for the real estate and construction business. Licensee acknowledges and
agrees that Licensor has the right to obtain a federal trademark registration
with respect to the name "Crow," and other variations thereon, the use of
which shall be deemed not to be confusingly similar to "Trammell Crow" when
such use does not violate EXHIBIT D.
4.3 Licensee shall cooperate with Licensor, at Licensor's request, to
make and to pursue the preparation and recording, if necessary, of any and all
documents, instruments and affidavits necessary to maintain the Trademarks on
the applicable trademark registers and to prosecute any additional
registrations of the Trademarks Licensor deems reasonably appropriate. Both
Parties shall use reasonable efforts and commercially reasonable judgment in
applying to written materials on which the Trademarks appear appropriate
notices of any trademark rights in and to the Trademarks.
5. COVENANTS.
5.1 Licensee agrees and covenants that:
(a) It will make commercially reasonable efforts to comply with all
applicable laws, regulations, ordinances and other requirements
involving the use of the Trademarks and the conduct of
Licensee's business in connection therewith; and
(b) It will use the Trademarks in a manner designed to protect and
enhance the value of the Trademarks and the goodwill therein and
will ensure that it and its sublicensees provide Services that
meet the Standards and Quality.
5.2 Licensor agrees and covenants that Licensor will use the Trademarks in
a manner designed to protect and enhance the value of the Trademarks and the
goodwill therein and will ensure that it will, and will include in any license
with any other licensee of the Trademarks that such licensee will, provide
goods, products and services that meet the Standards and Quality.
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5.3 Licensor and Licensee agree and covenant that for federal and state
income tax purposes, the transfer of property under this Agreement constitutes
part of a series of transfers of property to Licensee in exchange for stock in
Licensee in a transaction described in Section 351 of the Internal Revenue
Code of 1986, as amended, and agree and covenant to make all tax filings in a
manner consistent with this Section 5.3.
6. QUALITY AND APPROVAL
Licensee shall use the Trademarks only so long as the Services meet with
the Standards and Quality approved by the Licensor, as reflected in EXHIBIT C.
Licensee recognizes that the manner in which Licensee uses the license herein
granted could have a significant effect on the quality image of Licensor's
Trademarks. Licensee promises to maintain the same quality in the Services
provided under the Trademarks as reflected in EXHIBIT C and as may thereafter
be proposed by Licensee and approved in writing by Licensor.
7. INFRINGEMENT OF THE TRADEMARKS
7.1 The parties agree to notify each other promptly of any material acts
of infringement or unfair competition involving the Trademarks or a claim by a
third party that the use of the Trademarks by the parties, their affiliates or
sublicensees infringes the rights of a third party or constitutes unfair
competition.
7.2 Licensee shall have the initial right to take steps to prevent or
terminate (i) any use by a third party of the Trademarks or a confusingly
similar service mark or name in any manner likely to cause confusion and not
expressly permitted by this Agreement or (ii) acts of unfair competition which
adversely affect the Trademarks or the Licensee's rights thereto (collectively
"INFRINGEMENT OF THE TRADEMARKS"), promptly upon receipt of notice from the
Licensor or upon becoming aware of the Infringement of the Trademarks. Any
action taken by Licensee shall be at Licensee's sole expense.
7.3 In the event that Licensee commences a proceeding or any other form
of action to prevent or terminate Infringement of the Trademark, if so
requested by Licensee, Licensor will cooperate fully, at Licensee's expense,
to whatever extent Licensee reasonably deems necessary or appropriate to
prosecute such action or proceeding, including but not limited to being named
as a party to and providing evidence in the action or proceeding.
7.4 Where Licensee fails to prosecute or terminate Infringement of the
Trademarks by third parties, where Licensee fails to take adequate steps to
protect the value of and goodwill associated with the Trademarks, or if
Licensor in its own discretion decides that it would be in Licensor's best
interests to become involved in any litigation or other action being taken by
Licensee with respect to protection of or Infringement of the Trademarks,
Licensor may take
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whatever action it deems appropriate or desirable, including without
limitation, the initiation of legal proceedings or the joining in legal
proceedings initiated by Licensee. Any such actions taken by Licensor will be
conducted at Licensor's expenses.
7.5 In the event that Licensor commences a proceeding or any other form
of action to prevent or terminate Infringement of the Trademark, if so
requested by Licensor, Licensee will cooperate fully, at Licensor's expense,
to whatever extent Licensor reasonably deems necessary or appropriate to
prosecute such action or proceeding, including but not limited to being named
as a party to and providing evidence in the action or proceeding.
7.6 If any amount is awarded with respect to any suit or action brought by
Licensor or Licensee under this Article, the amount of such award shall first be
proportionately allocated between Licensor and Licensee in reimbursement of the
out-of-pocket costs and expenses incurred by Licensor and Licensee in the suit
or action, and the remainder shall be apportioned between Licensor and Licensee
pursuant to their mutual agreement as to their respective damages.
7.7 In addition to obtaining the registration contemplated by Section 4.2,
Licensee at its sole expense may require Licensor to make application for
further protection of the Trademarks or any portion thereof by state, federal or
foreign registration. In any such event, Licensor agrees to cooperate, at
Licensee's expense, with Licensee in the securing promptly of such registration.
8. EXCLUSIVITY AND NON-EXCLUSIVITY
8.1 Licensee shall have no right to use any of the Trademarks other than as
specifically stated in this Agreement, and Licensor expressly reserves the right
to use, and to license others to use, all rights in and to the Trademarks not
expressly granted to Licensee herein; provided, however, that Licensor's right
to use the Trademarks shall be subject to the Restrictions provided for in
EXHIBIT D.
8.2 Licensor shall (A) enter into licensing agreements with Crow Family
Holdings and Crow Investment Trust (defined in EXHIBIT D) and (B) use reasonable
efforts to enter into such additional licensing or other agreements or
provisions with Affiliated Entities and, to the extent it has a contractual
right to do so, other parties, as may be reasonably required to effect the
various provisions listed in EXHIBIT D with respect to the use of certain of the
Trademarks; such to be effective only upon and at the completion of the Initial
Public Offering of the Licensee.
9. REPRESENTATIONS AND WARRANTIES
9.1 Licensor represents and warrants that:
(a) Licensor has full power and authority to enter into this
Agreement, to grant the rights granted herein, and to perform
its obligations hereunder, and to do
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so will not violate or conflict with any material term or
provision of any agreement, instrument, statute, rule,
regulation, order or decree to which Licensor is a party or by
which it is bound, except as expressly disclosed to Licensee.
(b) With the exception of the restrictions permitted pursuant to
EXHIBIT D, there are no liens, encumbrances or restrictions that
relate to the Trademarks (whether written, oral, or implied) not
expressly disclosed to the Licensee or known to Licensee which
conflict with the rights granted to Licensee hereunder.
(c) Except as set forth on EXHIBIT D or otherwise expressly
disclosed to Licensee by Crow Family or known to Licensee,
Licensor has no knowledge of any third party who has registered,
has applied to register, is using, is authorized to use or
asserts a right to use the Trademarks, and except as permitted
by EXHIBIT D, has not granted any written licenses to use the
Trademarks.
9.2 Licensee represents and warrants that Licensee has the full power and
authority to enter into this Agreement and to perform its obligations hereunder,
and to do so will not violate or conflict with any material term or provision of
its charter or bylaws or of any agreement, instrument, statute, rule,
regulation, order or decree to which it is a party or by which it is bound.
10. INDEMNITY
LICENSEE ACKNOWLEDGES AND AGREES THAT IT WILL HAVE NO CLAIM AGAINST
LICENSOR OR ITS PREDECESSORS AND INTERESTS FOR ANY DAMAGE TO PROPERTY OR
INJURY TO PERSONS ARISING OUT OF THE OPERATION OF LICENSEE'S BUSINESS.
LICENSEE AGREES TO INDEMNIFY, HOLD HARMLESS AND DEFEND LICENSOR, ITS
PREDECESSORS AND INTERESTS, OR THE PARTNERS, OFFICERS, EMPLOYEES, AGENTS AND
OTHER REPRESENTATIVES OF SAME, FROM AND AGAINST ANY AND ALL SUITS, DEMANDS, OR
CLAIMS AND ALL COSTS, LOSSES, LIABILITIES, EXPENSES, SETTLEMENTS (WHETHER
VOLUNTARY OR OTHERWISE) AND JUDGMENTS INCURRED IN CONNECTION THEREWITH,
INCLUDING ATTORNEY'S FEES AND COURT COSTS (SUCH FEES AND COURT COSTS EITHER
HAVING BEEN INCURRED IN DEFENSE OF SUCH CLAIMS, DEMANDS OR SUITS OR OTHERWISE),
INCLUDING WITHOUT LIMITATION ALL CLAIMS, DEMANDS AND SUITS FOR DAMAGES OR
INJURIES, INCLUDING DEATH, TO ANY AND ALL PERSONS OR PROPERTY, WHETHER REAL OR
ASSERTED AND WHETHER ARISING IN EQUITY, AT COMMON LAW, OR BY STATUTE, INCLUDING
THE TEXAS DECEPTIVE TRADE PRACTICES ACT OR SIMILAR STATUTE OF OTHER
JURISDICTIONS, OR UNDER THE LAW OF CONTRACTS, TORTS
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(INCLUDING WITHOUT LIMITATION, NEGLIGENCE AND STRICT LIABILITY WITHOUT REGARD
TO FAULT) OR PROPERTY, OF EVERY KIND OR CHARACTER, AND WHETHER OR NOT DUE IN
WHOLE OR IN PART TO LICENSOR'S SOLE OR CONCURRENT NEGLIGENCE OR OTHER FAULT,
BREACH OF CONTRACT OR WARRANTY, VIOLATION OF THE TEXAS DECEPTIVE TRADE
PRACTICES ACT, OR STRICT LIABILITY WITHOUT REGARD TO FAULT, BASED UPON, IN
CONNECTION WITH, RESULTING FROM OR ARISING OUT OF THE BREACH OF THIS AGREEMENT
BY LICENSEE (OR THE CORRESPONDING PROVISIONS OF ANY SUBLICENSE BY ANY
SUBLICENSEE) OR THE PROVIDING BY LICENSEE OR ANY SUBLICENSEE OF GOODS OR
SERVICES UNDER TRADEMARKS LICENSED PURSUANT TO THIS AGREEMENT.
LICENSOR SHALL DEFEND, INDEMNIFY AND HOLD LICENSEE AND ITS PARTNERS,
OFFICERS, EMPLOYEES, AGENTS AND OTHER REPRESENTATIVES HARMLESS FROM AND
AGAINST ANY AND ALL SUITS, DEMANDS, OR CLAIMS AND ALL COSTS, LOSSES,
LIABILITIES, EXPENSES, SETTLEMENTS (WHETHER VOLUNTARY OR OTHERWISE) AND
JUDGMENTS INCURRED IN CONNECTION THEREWITH, INCLUDING ATTORNEY'S FEES AND
COURT COSTS (SUCH FEES AND COURT COSTS EITHER HAVING BEEN INCURRED IN DEFENSE
OF SUCH CLAIMS, DEMANDS OR SUITS OR OTHERWISE), INCLUDING WITHOUT LIMITATION
ALL CLAIMS, DEMANDS AND SUITS FOR DAMAGES OR INJURIES, INCLUDING DEATH, TO
ANY AND ALL PERSONS OR PROPERTY, WHETHER REAL OR ASSERTED AND WHETHER ARISING
IN EQUITY, AT COMMON LAW, OR BY STATUTE, INCLUDING THE TEXAS DECEPTIVE TRADE
PRACTICES ACT OR SIMILAR STATUTE OF OTHER JURISDICTIONS, OR UNDER THE LAW OF
CONTRACTS, TORTS (INCLUDING WITHOUT LIMITATION, NEGLIGENCE AND STRICT
LIABILITY WITHOUT REGARD TO FAULT) OR PROPERTY, OF EVERY KIND OR CHARACTER,
AND WHETHER OR NOT DUE IN WHOLE OR IN PART TO LICENSEE'S SOLE OR CONCURRENT
NEGLIGENCE OR OTHER FAULT, BREACH OF CONTRACT OR WARRANTY, VIOLATION OF THE
TEXAS DECEPTIVE TRADE PRACTICES ACT, OR STRICT LIABILITY WITHOUT REGARD TO
FAULT, BASED UPON, IN CONNECTION WITH, RESULTING FROM OR ARISING OUT OF ANY
BREACH BY LICENSOR OF THIS AGREEMENT.
LICENSEE'S AND LICENSOR'S RESPECTIVE CONTRACTUAL OBLIGATIONS OF
INDEMNIFICATION SHALL EXTEND TO ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION
ALLEGING ACTS OF NEGLIGENCE, FAULT, OR CONTRIBUTORY NEGLIGENCE ON THE PART OF
THE INDEMNIFIED PARTY; PROVIDED, HOWEVER, A PARTY'S RESPECTIVE CONTRACTUAL
OBLIGATION OF INDEMNIFICATION HEREUNDER SHALL NOT EXTEND TO ANY CONSEQUENCES
ADJUDICATED TO HAVE BEEN A RESULT OF THE OTHER PARTY'S NEGLIGENCE, ERROR,
BREACH OF CONTRACT OR OMISSIONS. TO THE EXTENT THAT BOTH PARTIES ARE
ADJUDICATED TO BE JOINTLY AT FAULT OR RESPONSIBLE, EACH SHALL INDEMNIFY AND
HOLD THE
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OTHER HARMLESS FROM ALL LIABILITY ATTRIBUTABLE TO THEIR OWN RESPECTIVE
NEGLIGENCE OR OTHER FAULT.
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11. INSURANCE
Licensor and Licensee agree to deliver to each other on or before the
effectiveness of this Agreement and to maintain for so long as the Trademarks
are being used by Licensee and for a period of three years thereafter,
endorsements from their respective insurance companies, naming Licensor or
Licensee, as the case may be, and their respective partners, officers,
employees, agents and other representatives as named insureds, as their
interests may appear, on all general liability insurance policies covering
the respective parties. Licensor and Licensee shall each bear their own
costs in maintaining the insurance policies.
12. REMEDIES
The parties recognize the unique and special nature and value of the use
of the Trademarks and agree that it is extremely difficult and impractical to
ascertain the extent of the detriment to Licensor which would be caused in
the event of any use of the Trademarks contrary to the terms of this
Agreement. The parties further acknowledge that Licensor will have no
adequate remedy at law in the event Licensee uses the Trademarks in any way
not permitted hereunder, and that Licensor, through the use of the
Arbitration provisions contained in Section 16, shall be entitled to
equitable relief by way of temporary and permanent injunction, and such other
and further relief at law or equity as any arbitrator or court of competent
jurisdiction may deem just and proper, in addition to any and all other
remedies provided for herein. Such relief, however, shall not extend, except
as a result of the termination of this Agreement, to any equitable or other
relief that would prevent Licensee from using or continuing to use the
Trademarks as licensed hereunder in accordance herewith.
13. TERMINATION
13.1 In respect of any breach or noncompliance with the provisions of
this Agreement, any party may seek any remedy permitted at law or in equity,
including without limitation damages or the specific performance of any
obligation, but excluding, except as provided for in this Article 13,
termination of this Agreement.
13.2 In the event that Licensee materially breaches Licensee's
obligation to maintain the Standards and Quality and such breach materially
and adversely affects the value of the Trademarks, Licensor shall give notice
of said breach in writing to Licensee. Licensee shall have (A) sixty (60)
days in which to initiate the cure or correction of any breach and (B)
provided such cure or correction is commenced in such sixty (60) day period
and thereafter diligently pursued, a period not to exceed one hundred and
eighty (180) days from the date of Licensor's notice of said breach in which
to complete the cure or correction of said breach and, failing such, Licensor
may terminate this Agreement. As part of its correction efforts, Licensee
will not be required to restore to Licensor any loss in reputation the names
or Trademarks may have incurred prior to such correction. Such termination,
if disputed by Licensee, shall be effective only upon a final resolution of
an arbitration
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proceeding wherein it is determined that Licensee had materially breached
Licensee's obligation to maintain the Standards and Quality and such breach
materially and adversely affected the value of the Trademarks.
13.3 In the event that Licensee shall file or permit to be filed any
petition under the bankruptcy or insolvency laws of any jurisdiction and such
proceedings result in a total liquidation of Licensee, Licensor shall have
the right to terminate this Agreement upon written notice to Licensee and
payment to Licensee (or any successor) of the then fair market value of the
license granted hereunder.
13.4 In the event that Licensee and all sublicensees cease to use all
of the Trademarks for a consecutive period of 12 months, Licensor shall have
the right to terminate this Agreement upon written notice to Licensee and
payment to Licensee of the then fair market value of the license granted
hereunder.
13.5 In the event of any termination of this Agreement:
(a) The provisions of Sections 10, 11 and 12 shall survive such
termination;
(b) Licensor and Licensee shall keep in full force and effect the
insurance required by Section 11 following such termination as
required therein; and
(c) Licensee, its Permitted Assigns and its sublicensees shall
immediately cease any and all use of the Trademarks in any manner
whatsoever and all rights granted to Licensee hereunder shall
immediately revert to Licensor, provided that sublicensees that
are primarily single or limited purpose entities or joint
ventures (but expressly excluding without limitation, any
operating company), may continue to use the Trademarks subject
to all of the provisions herein provided so long as the scope
of the sublicensees business remains the same as it was on the
date of the termination of this Agreement.
(d) The Restrictions contained in EXHIBIT D shall be deemed
terminated on the date this Agreement terminates, provided that
for a ten (10) year period subsequent to such date, neither
Licensor nor any of its licensees shall have the right to use
the name/trademarks "Trammell Crow Company" or "Trammell Crow"
in association with or as the name/trademark of any business,
except to the extent permitted by EXHIBIT D prior to such
termination. If, however, all sublicensees cease to use any
of the trademarks, such ten (10) year period shall be shortened
to a period of two (2) years and three hundred and sixty four
(364) days after the date of the last use of any of the
Trademarks by a sublicensee, it being the express intent of the
parties not to abandon the Trademarks.
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14. NOTICES
14.1 All notices and other communications required or permitted under this
Agreement will be in writing and will be (i) sent by electronic facsimile
transmission, or by hand delivery and (ii) mailed by certified mail, return
receipt requested, in each case to the address or facsimile number as provided
below. Any party may, by giving notice to the other party in accordance with
this paragraph, change the address or facsimile number at which it is to receive
notices or other communications hereunder.
14.2 Notices provided for herein shall be considered effectively given
two business days after sent by certified mail or when actually received by
facsimile transmission or hand delivery, in the case of Licensor, to
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: General Counsel
and in the case of Licensee, to
3400 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Legal Group
with copies of such notices sent to the Chief Executive Officer and Chief
Financial Officer at such addresses or numbers.
15. ASSIGNMENT
EITHER PARTY MAY ONLY ASSIGN ITS RIGHTS HEREUNDER TO A PERMITTED
ASSIGNEE UPON WRITTEN NOTICE TO THE OTHER PARTY. EXCEPT FOR THE FOREGOING,
NO ASSIGNMENT OF THIS AGREEMENT IS PERMITTED BY LICENSOR OR LICENSEE.
NOTHING HEREIN CONTAINED SHALL PRECLUDE THE ASSIGNMENT BY LICENSOR OF ANY
TRADEMARKS OR OTHER INTELLECTUAL PROPERTY RIGHTS NOT GRANTED TO LICENSEE
HEREUNDER. IN THE CASE OF ANY ASSIGNMENT, THE ASSIGNEE MUST PROVIDE A
WRITTEN STATEMENT OF ITS INTENT TO AND AGREEMENT TO BE BOUND BY ALL OF THE
TERMS OF THIS AGREEMENT. IN THE CASE OF ANY SUBLICENSE, SUBLICENSEES SHALL
AGREE TO BE BOUND BY ALL THE TERMS OF THIS AGREEMENT. ALL SUBLICENSEES OF
LICENSEE SHALL BE BOUND BY ANY ASSIGNMENT MADE PURSUANT TO THIS SECTION 15.
IN NO EVENT, HOWEVER, SHALL ANY SUBLICENSEE BE ENTITLED TO ENFORCE THE
PROVISIONS OF EXHIBIT D HERETO WHICH SHALL BE FOR THE SOLE AND EXPRESS
BENEFIT OF LICENSOR AND LICENSEE AND THEIR
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RESPECTIVE PERMITTED ASSIGNEES AND SHALL BE ENFORCEABLE ONLY BY LICENSOR AND
LICENSEE AND THEIR RESPECTIVE PERMITTED ASSIGNEES.
16. ARBITRATION
The parties hereby agree to resolve by binding arbitration any and all
claims, demands, actions, disputes, controversies, damages, losses,
liabilities, judgments, payments of interest, penalties, enforcement of
settlement agreements, deficiencies, any and all demands not yet matured into
one of the foregoing, and other matters in question arising out of or
relating to this Agreement, the alleged breach thereof, or in any way
relating to the subject matter of this Agreement (all of which are referred
to as "CLAIMS"), even though some or all of such Claims allegedly are
extra-contractual in nature and even though some or all of such Claims sound
in contract, tort or otherwise, at law or in equity, in accordance with
Commercial Arbitration Rules (the Supplementary Procedures for Large, Complex
Disputes, if applicable) of the American Arbitration Association (the "AAA")
in effect at the time of the Claims, as modified by the procedures set forth
in EXHIBIT E hereto. Licensor and Licensee hereby acknowledge and agree that
this Agreement and the obligations to be performed hereunder constitute
interstate commerce. THE ARBITRATORS SHALL HAVE NO AUTHORITY TO AWARD
CONSEQUENTIAL DAMAGES OR PUNITIVE DAMAGES UNDER ANY CIRCUMSTANCES (WHETHER IT
BE EXEMPLARY DAMAGES, TREBLE DAMAGES, OR ANY OTHER PENALTY OR PUNITIVE TYPE
OF DAMAGES) REGARDLESS OF WHETHER SUCH DAMAGES MAY BE AVAILABLE UNDER STATE
LAW; THE PARTIES HEREBY AGREEING THAT NEITHER PARTY HERETO SHALL BE LIABLE
FOR CONSEQUENTIAL DAMAGES OR PUNITIVE DAMAGES IN CONNECTION WITH ANY SUCH
CLAIMS.
17. BINDING EFFECT
This Agreement will inure to the benefit of and be binding upon the
parties, their successors and their Permitted Assignees.
18. SEVERABILITY
If any provision of this Agreement is held to be invalid, illegal, or
unenforceable, in whole or part, such invalidity will not affect any
otherwise valid provision, and all other valid provisions will remain in full
force and effect.
19. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which will be deemed an original, and all of which together will constitute
one document.
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20. TITLES
The titles and headings preceding the text of the paragraphs and
subparagraphs of this Agreement have been inserted solely for convenience of
reference and do not constitute a part of this Agreement or affect its
meaning, interpretation or effect.
21. WAIVER
The failure of either party hereto to insist in any one or more
instances upon performance of any terms or conditions of this Agreement will
not be construed as a waiver of future performance of any such term,
covenant, or condition and the obligations of any party with respect to such
term, covenant or condition will continue in full force and effect and either
party may, within the time provided by applicable law, enforce any or all of
such rights.
22. OTHER AGREEMENTS
This Agreement constitutes the entire agreement among the parties
regarding the matters subject to this Agreement, and any prior understandings,
agreements, or representations among the parties are superseded to the extent
they relate to the subject matter of this Agreement.
23. MODIFICATION
Except as otherwise provided herein, this Agreement cannot be amended or
modified except by subsequent written agreement between the Licensee and
Licensor which specifically mentions this Agreement.
24. GOVERNING LAW AND JURISDICTION
This Agreement will be construed and enforced in accordance with the
laws of the State of Texas, excluding and without giving effect to the
principles of conflict of laws. Subject to Section 16 hereof, the parties
consent to the jurisdiction of any court in Dallas County, Texas for any
action commenced by a party arising out of matters related to this Agreement.
The parties further agree and acknowledge that this Agreement is performable
in Dallas County, Texas, and hereby waive the right to commence any action
arising out of matters related to this Agreement in any court outside Dallas
County, Texas, except an action ancillary to an arbitration pursuant to
Article 16 or to enforce or implement any arbitration award or decree under
Article 16.
25. INDEPENDENT CONTRACTORS; NO JOINT VENTURE
It is agreed and understood that Licensee is an independent contractor
and not an agent or employee of Licensor. Nothing contained herein shall be
deemed to create a partnership or joint venture between the parties, and
neither party hereto shall have the right or authority to bind the
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other. This Agreement is intended to affect only the names and marks that the
parties use in conducting their respective businesses, but not to otherwise
affect the scope of each party's permissible activities.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their authorized representatives on the dates indicated below.
LICENSOR: LICENSEE:
CFH TRADE-NAMES, L.P. TRAMMELL CROW COMPANY
By: By:
---------------------------- -------------------------------
Name: Name:
-------------------------- -----------------------------
Title: Title:
------------------------- ----------------------------
Dated: Dated:
------------------------- ---------------------------
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EXHIBIT A
LICENSED TRADEMARKS, TRADE NAMES, DESIGNS
LOGOS AND ARTWORK
1. "Trademarks" means (i) "Trammell Crow," "Trammell Crow Company," "Trammell
Crow Commercial Company," and "Trammell Crow Ventures" and (ii) any other name
or mark the use of which is hereafter licensed by Licensor in writing to
Licensee if such use conforms to the terms of that license; provided, however,
that Licensee shall be permitted to adopt any of the foregoing Trademarks, or an
acronym or abbreviation thereof, or a trade name containing, or any design, logo
or artwork incorporating, any of the Trademarks whether singly or in combination
with other such names or marks not licensed hereunder with a geographical
designation or abbreviation thereof, and/or including without limitation, such
phrases as "Advisory Services," "Corporate Services," "Development," "Real
Estate Services" or product types as "Office," "Industrial," or "Retail" (it
being understood that such phrases or marks are not purported to be licensed
hereunder). "Trademarks" specifically does not mean or include the name or mark
"Crow," whether alone or embedded in any other name or mark, except following
the name "Trammell." Notwithstanding the foregoing (i) the name and mark "Crow"
may be used on a non-exclusive basis by Licensee without the word "Trammell"
solely in internal corporate communications and legal documentation but not in
sales, marketing or other materials voluntarily made publicly available or to
third parties, and (ii) the definition of "Trademarks" does not mean or include
the use of any of the names or marks listed in (i) or (ii) above in combination
with the words "International," "Residential" or "Interests" or the acronym
"TCR" or "TCI."
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EXHIBIT B
SERVICES
"Services" shall mean and include any and all activities, goods, products and
services in any and all areas of business except for the "Residential Real
Estate Business."
"Residential Real Estate Business" means the business of ownership, acquisition,
construction, development, management and brokerage of residential facilities,
rental housing and for sale housing and the provision of services to users of
residential real estate services including owners, investors, buyers, sellers,
landlords, tenants, brokers, advisors and financial institutions. (Thus, for
example, Licensee may not engage in the Residential Real Estate Business under
the name "Trammell Crow" or under any of the other Trademarks. Should Licensee
elect to engage in the Residential Real Estate Business under another name,
i.e., a name that is not one of the Trademarks or a name confusingly similar
thereto, Licensee would be permitted to describe in Licensee's SEC filings and
communications with the financial and investment community that Licensee is
engaged in such business under that other name.)
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EXHIBIT C
STANDARDS AND QUALITY
Licensee hereby acknowledges the standards, quality, style and image represented
by, and of services rendered under, the Trademarks.
For purposes of this Agreement, "Standards and Quality" specifically shall mean
the type and quality of performance of services and the type and quality of
goods and products that meet the standards of services and goods and products
historically set by Mr. Trammell Crow or Texas TCC for their respective
Affiliated Entities.
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EXHIBIT D
RESTRICTIONS
1. Definitions (solely with respect to this EXHIBIT D):
1.1 "Crow Family" means and includes Trammell Crow Interests Company, a Texas
corporation, d/b/a Crow Family Holdings; Crow Realty Investors, L.P., a Texas
limited partnership, d/b/a Crow Investment Trust; any subsidiary of Crow Family
Holdings or Crow Investment Trust or any other entity directly or indirectly
controlling, controlled by, or under common control with Crow Family Holdings or
Crow Investment Trust, including but not limited to Trammell Crow International
and Crow Agricultural; and the lineal descendants (and trusts for the benefit
thereof) of Trammell Crow and Margaret Crow who are, or become, parties to the
Crow Family Holdings Governance Agreement dated July __, 1997.
1.2 "Real Estate Service Business" means the business or businesses of
providing comprehensive real property management, project leasing, brokerage
facilities and infrastructure management, development and construction, and
retail services to all users of commercial real estate services including real
estate owners and investors, buyers and sellers of real estate, tenants, real
estate brokers and financial institutions, including but not limited to,
overseeing building operations and tenants, space planning and relocation
coordination, facility design, development and construction, general
contracting, tenant representation, real estate investment sales and general
brokerage services; provided that Real Estate Service Business shall not include
the performance or provision of any such services incident to a material
investment in or sponsorship of an investment fund or other entity (but
expressly excluding any such services to any third party) that does not have any
class of equity securities registered under Section 12 of the Securities
Exchange Act.
1.3 "Commercial Real Estate Business" means any business or businesses of
developing, acquiring, managing, financing, owning or investing in real estate
(including, but not limited to, office, industrial, or retail) whether conducted
directly or indirectly, or through subsidiaries, joint ventures, partnerships or
other arrangements.
2. Restrictions on the Licensor's use of the Trademarks and certain marks
related thereto:
2.1 Licensor shall provide the applicable constituents of Crow Family and its
successors and assigns with the right to use the names/trademarks "Crow Family
Holdings" and "Crow Investment Trust" and their acronyms and any and all
designs, logos and artwork connected therewith, in any context, except in a Real
Estate Service Business. Names of businesses including these permitted
names/trademarks may also include real estate-related words that do not connote
a Real Estate Service Business (e.g. "Crow Family Holdings Realty Partners"
would be permitted, but "Crow
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Family Holdings - Management Services" would not be permitted), but these
other words must not interrupt the string of words in the permitted
name/trademark (e.g. "Crow Family Holdings - Industrial" would be permitted,
but "Crow Family Industrial Holdings" would not be permitted).
2.2 Subject to paragraphs 2.4 and 2.6 below, any right to use the
name/trademark "Crow" granted by Licensor to Crow Family specifically shall not
include the right to use the name/trademark "Crow" in association with or as the
name/trademark of any Real Estate Service Business or Commercial Real Estate
Business (or in a tag line associated with such name/trademark) in (A) any
combination with the word "Company" or (B) any combination with any word or
phrase that connotes a "Real Estate Service Business," including but not limited
to terms or phrases "Development," "Brokerage," "Management," "Property
Management," "Services," "Corporate Services," "Infrastructure Management,"
"Leasing" or "Tenant Representation," except that nothing herein shall prevent
the use of the name "Crow" in conjunction with a first name other than
"Trammell," provided such first name is not deceptively similar to or would
likely be confused with the name "Trammell," e.g. "Tram L. or T. Crow").
2.3 In conjunction with paragraph 2.1 above, Licensor shall grant Crow Family
and its successors and assigns the right to pick another permitted
name/trademark, including the name/trademark "Crow" (for use for the same
services and in the same manner permitted under paragraph 2.1) which
name/trademark will be selected on or before September 1, 1998 and will be
subject to the written approval of Licensee (which approval shall not be
unreasonably withheld), but if Crow Family exercises such right, then Crow
Family shall be required to cease, subject to the exceptions listed below, the
use of one of the two original names/trademarks within (A) six months after
commencing use of the new name/trademark or (B) September 1, 1998, whichever
shall first occur. The names and trademarks "Crow Family," "Crow Investments"
and "Crow Holdings" and any other permutation of the words in the two initially
approved names and trademarks are hereby pre-approved by Licensee. As a
specific exception to its general obligation to cease using the old
name/trademark, if Crow Family elects to change one of its names/trademarks
pursuant to this paragraph, Licensor shall not require Crow Family to change the
names/trademarks of any entity existing as of the effective date of such change,
so long as (i) the scope of such entity's business is not in any material way
expanded beyond that in which it was engaged as of the effective date of the
change or (ii) such entity is as of such date and thereafter remains dormant. A
material expansion of the scope of an entity's business will include Crow
Family's agreement or authorization to increase the capitalization of an entity
beyond its then current contractual capitalization limits in order to acquire
additional business opportunities, but funding up to such limits and funding
beyond such limits for operating or repair and replacement requirements or for
capital improvements ancillary to existing improvements shall be deemed not to
be a material expansion. As a further exception to the general obligation to
cease using the old name/trademark, the Crow Family and its successors and
assigns may be allowed by the Licensor to continue to use the old name in
internal corporate communications and legal documents (including private
placement disclosure statements and any agency or government reporting
requirements or statements), and as otherwise required by
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law; however, in no event will such continued use be allowed in any marketing
materials or other like items. The old name may also be used after the
words "formerly known as" for a period not to exceed one year or such longer
period as may be required by law.
2.4 Subject to the terms of this Section 2.4, Licensee hereby acknowledges
and agrees that in addition to the entities doing business under the name
"Crow Family Holdings," "Crow Investment Trust," and other entities permitted
to conduct business using certain of the Trademarks pursuant to the terms of
this EXHIBIT D, certain existing entities that are or have been affiliates of
or otherwise related to Crow Family have in the past, currently are and may
in the future continue to conduct business through entities using one or more
of the Trademarks or the name "Crow" in a manner inconsistent with the terms
of this Agreement. These entities (collectively, the "NON-CONFORMING USERS")
include, by way of example only, the partnerships and corporations commonly
known as the "Existing Asset Base" or "Trammell Crow Commercial Company,"
"Crow-Wright," and "Crow-Foody," but shall exclude Crow Family Holdings and
Crow Investment Trust, which are otherwise permitted herein. The licenses to
be granted by Licensor to Crow Family consistent with the terms hereof shall
include the agreement of Crow Family (to the extent the members of Crow
Family are party thereto) not to cause, consent or agree to or otherwise
cooperate with, and, to the extent Crow Family has contractual authority to
do so, to use reasonable efforts to prevent (but without being required to
incur any obligations or liability or initiate legal action to do so) any
Non-Conforming Users from expanding the scope of its business beyond that
existing as of September 1, 1997, in any material way, or from otherwise
violating the terms of this Agreement in any manner not expressly authorized
herein.
2.5 Licensor will not license or otherwise authorize the name/trademark "Crow"
to be used in the name/trademark (or any associated tag line) of any publicly
held entity having equity securities registered under Section 12 of the
Securities Exchange Act from and after the date the entity first files a
registration statement under the Securities Act or the Securities Exchange Act.
(As an exception to the preceding limitation, Licensor or other Crow Family
entities licensed by Licensor may indicate in their respective SEC filings and
in communications with the financial and investment community their affiliations
with Licensor or Crow Family and may indicate their former names; and the
names/trademarks "Trammell Crow Residential Company," "Trammell Crow
Residential" and "TCR" may be used for any public entity, pursuant to the terms
of applicable agreements among Trammell Crow Residential Company, Crow Family
and, if applicable, Licensee, pertaining to name/trademark use by TCR.
2.6 Subject to paragraph 2.5 above, Licensor shall (to the extent applicable)
grant Crow Family the right to use the name/trademark "Crow" (as opposed to one
of the longer, approved names/trademarks described in paragraphs 2.1 and 2.3
above) in the name of any business that is not primarily engaged in an aspect of
the real estate business (including without limitation, the Commercial Real
Estate Business and the Real Estate Service Business, together with hotels,
service centers and marts) so long as the name/trademark of such business also
includes a word that is
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descriptive of its business (e.g., "Crow Publishing"), provided that the
foregoing shall not preclude the ownership, operation and management of real
estate which is incidental to any such business.
2.7 If Crow Family should enter any Real Estate Services Business, whether
directly or through a strategic alliance with another (non-Licensee) service
provider, Licensor may not grant any license to or authorize Crow Family to use
the name/trademark "Crow" in the name (or associated tag line) or as the
trademark of such business.
2.8 Certain individual family members of Crow Family (broadly defined to
include family members who are not parties to the Crow Family Holding Governance
Agreement) and their respective trusts will not be parties (in their individual
or beneficiary capacities) to and, as a result, may not be bound by the various
license agreements or other provisions with respect to the name/trademark issues
contemplated or required herein. Accordingly, the licenses to be granted by
Licensor to Crow Family consistent with the terms hereof shall include the
agreement of Crow Family (to the extent the members of Crow Family are parties
thereto), upon the written request of Licensee, to use reasonable efforts to
cause or prevent, to the extent Crow Family is entitled under the terms of any
contract or agreement to do so, these other family members or their trusts from
violating any of the agreements and restrictions referenced herein [assuming
they were directly bound by one or more of them. Further, as a part of its
grant to the Crow Family of rights to use certain of the Trademarks, Licensor
shall include the agreement of Crow Family (to the extent the members of Crow
Family are parties thereto) to provide such assistance, at Licensee's expense,
as may reasonably be necessary to obtain a state, federal or foreign trademark
registration on the mark "Trammell Crow" and on such other names/trademarks as
Licensee may reasonably request in accordance with the Agreement.
2.9 Licensor will obligate Trammell Crow International to cease all use of the
name and trademark "Trammell Crow" (and any names or marks confusingly similar
thereto) within three (3) years after the date of this Agreement. Licensor (and
the Crow Family) will further obligate Trammell Crow International to cease all
use of the name and trademark "Trammell Crow" (and any names or marks
confusingly similar thereto) in any given city within twelve (12) months
following written notice to Licensor by Licensee that Licensee (or one of its
subsidiaries) has opened an office in that city. For the purpose of the
foregoing, "Crow Family Holdings" and "Crow Investment Trust," and any
replacement name selected by Crow Family pursuant to Section 2.3, and the
acronyms of those names shall be deemed not to be confusingly similar.
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EXHIBIT E
ARBITRATION PROCEDURES
DEMAND FOR ARBITRATION. Arbitration shall be commenced by a written
demand for arbitration, describing in reasonable detail the dispute and the
amount and nature of the relief sought (the "Notice and Demand for
Arbitration"), given by one party (the "claimant") to the other (the
"respondent") and to the office of the AAA in Dallas, Texas. If the relief
sought in the arbitration is a determination as to whether (i) the Licensee
has materially breached Licensee's obligation to maintain the Standards and
Quality, (ii) such breach materially and adversely affected the value of the
Trademarks, and (iii) Licensee failed thereafter upon notice to correct such
breach in the time provided in the Agreement and thus the Agreement may be
terminated in accordance with Section 13 of the Agreement, then such
arbitration shall proceed in accordance with paragraph (B) below
("TERMINATION ARBITRATION"). Otherwise, the arbitration shall be pursuant to
paragraph (A) below.
(A) NON-TERMINATION ARBITRATION
(1) NUMBER AND SELECTION OF ARBITRATORS. The arbitration shall be
conducted by a single arbitrator except that, if the amount in controversy
exceeds $1,000,000 or involves equitable relief (other than termination),
either party may require, by notice given to the other, that the matter be
heard by a panel of three arbitrators. If the claimant elects to require
three arbitrators, the election must be set forth in the Notice and Demand
for Arbitration. If the respondent elects to require three arbitrators,
notice of the election must be provided to the claimant and the AAA within
seven days from the date the Notice and Demand for Arbitration is given. If
neither party so elects in the manner and within the time set forth above,
the matter shall be heard by a single arbitrator. If there is to be a single
arbitrator, the arbitrator shall be selected pursuant to the Commercial
Arbitration Rules of the AAA. If there are to be three arbitrators, each
party shall have ten days from the date the Notice and Demand for Arbitration
is given to select an arbitrator and notify the AAA and the other party of
the selection. The party-appointed arbitrators shall then select the third
arbitrator, who shall act as chairperson of the panel. If the
party-appointed arbitrators fail to agree upon a third arbitrator within 20
days from the date the Notice and Demand for Arbitration is given, the third
arbitrator shall be selected by the AAA. Any neutral arbitrator, whether
appointed by the AAA or by the party-appointed arbitrators, shall be licensed
to practice law in the State of Texas, in good standing with the State Bar of
Texas, and shall have not less than 15 years of experience as an attorney or
judge. In addition, the neutral arbitrator shall have experience with
complex business disputes.
(2) LOCATION OF ARBITRATION. The arbitration shall be conducted in
Dallas, Texas, at the office of the AAA or such other location agreed upon by
the parties.
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(3) DISCOVERY. Discovery shall be conducted in accordance with the
Texas Rules of Civil Procedure, except that:
(i) depositions shall not be allowed except that either party may have
three depositions in addition to depositions of experts, provided
that no deposition shall exceed four hours and all depositions must
be completed within 50 days from the date the Notice and Demand for
Arbitration is given.
(ii) there shall be no requests for admissions,
(iii) each party shall be limited to no more than 15 interrogatories,
including subparts,
(iv) each party shall be limited to no more than two document requests,
including subparts, and
(v) document discovery shall be limited to documents directly relevant
to the matter in dispute. All privileges under state and federal
law, including attorney-client, work product, and party
communication privileges, shall be preserved and protected. All
experts engaged by a party must be disclosed to the other party
within 15 days from the date the Notice and Demand for Arbitration
is given. All discovery requests must by served within 20 days
from the date the Notice and Demand for Arbitration is given. A
party shall not be required to respond to discovery requests served
on the party after that deadline.
(4) TIMING OF ARBITRATION. The arbitration hearing shall be scheduled
to be held no later than 60 days after the date the Notice and Demand for
Arbitration is given. The arbitration hearing shall be conducted in one day.
The claimant shall be allowed four hours for presentation of the claimant's
case and any rebuttal to the respondent's presentation; the respondent shall
be allowed four hours for its response to the claimant's initial presentation.
(5) THE ARBITRATORS' AWARD. The decision of the arbitrator, or a
majority of the arbitrators, shall be reduced to writing and shall be
delivered to the parties no later than 15 days following the arbitration
hearing. Each party shall bear the party's own attorneys' fees and other
costs and expenses incurred in connection with the arbitration, including
without limitation the fees and expenses of the arbitrator to be appointed by
such party in the case of a three-arbitrator panel. The parties shall share
the other arbitrator's fees and any fees charged by the AAA equally.
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(B) TERMINATION ARBITRATION
The parties agree that the following principles and conditions will be
applicable to all aspects of any Termination Arbitration:
(1) Whenever such a controversy or dispute arises between the parties, as
to whether (i) the Licensee has materially breached Licensee's
obligation to maintain the Standards and Quality, (ii) such breach
materially and adversely affected the value of the Trademarks, and
(iii) Licensee failed thereafter upon notice to correct such breach
within the time provided in the Agreement and thus the Agreement may
be terminated in accordance with Section 13, either party may invoke
arbitration pursuant to this paragraph (B) by giving the other party
written notice in writing demanding that the controversy be
submitted to arbitration.
(2) Upon receipt of the written notice specified herein, the dispute or
controversy will first be referred to a panel of "inside"
arbitrators consisting of four people with authority to bind their
respective party (two from Licensee and two from Licensor). This
panel then will endeavor to resolve the dispute or controversy. If
the panel cannot resolve the dispute or controversy in thirty (30)
days, the matter shall be referred to "outside" arbitrators by
either party giving the other a written notice stating that the
dispute or controversy is to be submitted to outside arbitrators.
(3) In the sixty (60) days following the date that the written notice of
Paragraph (2) is given, the parties shall endeavor to select three
independent arbitrators (that is, arbitrators having no substantial
economic or other material relationship with either party). If the
parties cannot mutually agree on the three arbitrators within such
time period, then each party will (within sixty (60) days) select
one independent arbitrator and notify the AAA and the other party of
the selection. Within 21 days after the second of such notices, the
two party-appointed arbitrators shall select the third independent
arbitrator, who shall act as the chairperson of the panel. If the
party-appointed arbitrators fail to agree upon a third arbitrator
within the 21 day period, the third arbitrator shall be selected by
the AAA. Any neutral arbitrator, whether appointed by the AAA or by
the party-appointed arbitrators, shall be licensed to practice law
in the State of Texas, in good standing with the State Bar of Texas,
and shall have not less than 15 years of experience as an attorney
or judge. In addition, the neutral arbitrator shall have experience
with complex business disputes.
(4) Each arbitrator must agree in writing prior to his or her acceptance as
an arbitrator to abide by the terms and conditions of this Agreement,
including, particularly his or
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her agreement to apply the principles of law specified by the
parties in Paragraph (7) below and to reach a decision as to the
arbitration proceeding.
(5) Discovery of evidence shall be conducted by the parties in accordance
with the general principles embodied in the Federal Rules of Civil
Procedure and/or the Texas Rules of Civil Procedure. All privileges
under state and federal law, including attorney-client, work product,
and party communication privileges, shall be preserved and protected.
To the extent that it is necessary, either party may apply to the
United States District Court for the Northern District of Texas,
Dallas Division, for assistance in obtaining discovery of evidence
and for presentation to the arbitrators.
(6) The arbitration shall be held in Dallas, Texas at the offices of AAA or
such other location agreed upon by the parties. Prior to
testifying, whether directly in the presence of the arbitrators or
through depositions, each witness will be sworn to tell the truth,
subject to the perjury laws of the State of Texas. The arbitration
will be conducted as a case would be presented to a trial court
without a jury, that is, the arbitrators in their discretion may
hear any type of evidence, including hearsay evidence, recognizing
that deficiencies in the technical admissibility of the evidence
(such as, documents are not properly authenticated or the testimony
is hearsay) are to be taken into account in the weight to be
afforded such evidence.
(7) In reaching their decision, the arbitrators shall apply the legal
principles to which the parties have agreed herein (such as, the
limitations of remedies and the provisions concerning comparative
responsibility), their common sense, the provisions of the Federal
Arbitration Act, the provisions of the Commercial Arbitration Rules
of the American Arbitration Association then applying, and such
other principles of law generally prevailing in commerce throughout
the United States which are consistent with the provisions of the
Agreement. The arbitrators shall not under any circumstances apply
to the dispute or controversy any aspects of the Texas Deceptive
Trade Practices Act or any other such legislation which effects
significant changes in the common law of this country (such as,
eliminating the equitable doctrine of substantial performance or
imposing treble damages). Both parties agree have agreed to waive
any rights they may have to punitive damages and the arbitrators may
not under any circumstances award any punitive damages. The cost of
the arbitration of disputes as provided in this Article shall be
borne equally by both parties and the parties shall bear their own
respective attorney's fees and costs incurred in arbitration.
(8) Either party may apply to either the United States District Court for
the Northern District of Texas, Dallas Division or to the state
courts sitting in Dallas County to enforce any portion of this
arbitration agreement (as provided in 8 U.S.C. Section 3) or to enter
judgment upon the award (as provided in 8 U.S.C. Section 9). Each
party agrees that
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this arbitration agreement and the decision and the award of the
arbitrators shall be treated as an absolute and final bar to any
suit instituted in any federal, state or local court relating to
such dispute or controversy, except an action ancillary to an
arbitration pursuant hereto or to enforce or implement an
arbitration award or decree hereunder.
(9) It is agreed that during the time of the arbitration process, the
parties shall meet and endeavor, subject to the principles and
conditions stated in the preceding paragraphs, subject to the
provisions of the Federal Arbitration Act, and subject to the
Commercial Arbitration Rules of the AAA as modified herein, to
formulate a written agreement governing as many of the other aspects
of the arbitration proceeding as can be resolved or agreed upon. In
particular, the parties shall endeavor to reach agreement as to the
specific legal principles that the arbitrators shall apply to
resolve the dispute and to stipulate to as many of the facts as
possible. The parties shall also endeavor to frame as narrowly as
possible the issues in the dispute or controversy which are to be
submitted to the arbitrators for resolution. It is the intent of
the parties that the narrowly framed issues shall be submitted in
such a fashion that the arbitrators can answer the issues
affirmatively or negatively or fill in blanks without assigning
reasons for the decision.
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SCHEDULE 1
EAB ENTITIES OR ANY OTHER ENTITIES
<PAGE>
STOCKHOLDERS' AGREEMENT
DATED AS OF _________ ___, 1997
AMONG
TRAMMELL CROW COMPANY,
A DELAWARE CORPORATION,
AND
THE OTHER PARTIES LISTED ON THE SIGNATURE PAGES HERETO
<PAGE>
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement"), is made and entered into
as of ___________, 1997, by and among Trammell Crow Company, a Delaware
corporation (the "Company"), Crow Family Partnership, L.P. ("Crow Family"), CFH
TRADE-NAMES, L.P., a Texas limited partnership ("CFH," and together with Crow
Family, "Crow"), J. McDonald Williams ("Williams") and the other parties listed
on the signature pages hereto (the "Management Stockholders").
RECITALS
WHEREAS, following the merger of Trammell Crow Company, a Texas close
corporation, with and into TCC Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company, both Crow and Williams will be owners of
shares of Common Stock, $.01 par value, of the Company ("Common Stock");
WHEREAS, the Company, Crow and Williams desire to enter into this Agreement
to reflect certain understandings they have reached with respect to (i) the
registration under the Securities Act of 1933 (the "Securities Act") of shares
of Common Stock owned by Crow, Williams and their assignees, (ii) notice with
respect to certain private transfers of shares of Common Stock owned by Crow and
Williams, (iii) the non-solicitation by each of the Company and Crow of the
other's officer-level employees and (iv) the nomination for election to the
Company's Board of Directors of a nominee of Crow, and the Management
Stockholders wish to enter into this Agreement to reflect their agreement to
vote in favor of such nominee;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I - REGISTRATION RIGHTS
1.1 DEFINITIONS. For purposes of this Agreement, the following terms have
the following meanings when used herein with initial capital letters:
ADVICE: As defined in Section 1.5 hereof.
BLACKOUT PERIOD: As defined in Section 1.5 hereof.
CROW: As defined in the Recitals hereof.
COMMON STOCK: As defined in the Recitals hereof.
DEMAND NOTICE: As defined in Section 1.2 hereof.
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DEMAND REGISTRATION: As defined in Section 1.2 hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934.
LOSSES: As defined in Section 1.7 thereof.
MANAGEMENT STOCKHOLDERS: As defined in the Recitals hereof.
NASDAQ: As defined in Section 1.5(l) hereof.
NOTICE: As defined in Section 1.2(b) hereof.
PIGGYBACK REGISTRATION: As defined in Section 1.3 hereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including without limitation a prospectus that discloses information previously
omitted from a prospectus filed as part of an effective registration statement
in reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
REGISTRABLE SECURITIES: The Shares, together with (a) other shares of
Common Stock held by Crow, Williams or their respective successors and assigns
that are "restricted securities" (as such term is defined in Rule 144) and (b)
other shares of Common Stock issuable upon conversion, exercise or exchange of
other securities of the Company sold by the Company in a private transaction to
Crow, Williams or any of their affiliates that are controlled by or under common
control with Crow or Williams, from the respective original issuance thereof
until, in the case of any such share of Common Stock, (i) it is effectively
registered under the Securities Act and disposed of in accordance with the
Registration Statement covering it, (ii) it is saleable by the holder thereof
pursuant to Rule 144(k), or (iii) it is distributed to the public by the holder
thereof pursuant to Rule 144; provided, however, that any shares of Common Stock
held by assignees of Crow that would otherwise be Registrable Securities shall
cease to be Registrable Securities immediately upon the effectiveness of the
Registration Statement filed on account of the sixth Underwritten Demand
Registration effected hereunder if not included in such Registration Statement.
A share of Common Stock shall not be deemed to be saleable by the holder thereof
pursuant to Rule 144(k) while one or more of its affiliates is a director of the
Company.
REGISTRATION EXPENSES: As defined in Section 1.6 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
under the Securities Act that covers any of the Registrable Securities pursuant
to the provisions of this Agreement, including the related Prospectus, all
amendments and supplements to such registration
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statement (including post-effective amendments), all exhibits and all
material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
RULE 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: As defined in the Recitals hereof.
SHARES: All shares of Common Stock acquired by Crow or Williams
pursuant to any of the transactions contemplated by the Agreement and Plan of
Merger dated as of August 22, 1997, as amended, and any shares of Common Stock
acquired by either Crow or Williams prior to the consummation of such
transactions.
SHELF DEMAND REGISTRATION: As defined in Section 1.2(a) hereof.
SPECIAL COUNSEL: In connection with any registration of Registrable
Securities effected (or sought to be effected) hereunder, one counsel chosen by
the holders of a majority of such Registrable Securities.
UNDERWRITTEN DEMAND REGISTRATION. As defined in Section 1.2(a)
hereof.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
WILLIAMS: As defined in the Recitals hereof.
1.2 DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. At any time and from time to time
one or more holders of Registrable Securities will have the right, by written
notice delivered to the Company (a "Demand Notice"), to require the Company
to register ( a "Demand Registration") Registrable Securities under and in
accordance with the provisions of the Securities Act; PROVIDED, HOWEVER, that
(i) the Company shall have no obligation to file a Registration Statement on
account of any Demand Registration prior to the first anniversary of the
effectiveness of the Company's registration statement under the Securities
Act with respect to the Common Stock, (ii) the Company shall have no
obligation to effect more than six Demand Registrations hereunder with
respect to underwritten offerings (each, an "Underwritten Demand
Registration") and shall be obligated to effect the sixth Underwritten Demand
Registration hereunder only if it registers for sale at least all remaining
Registrable Securities of Crow, (iii) no such Underwritten Demand
Registration with respect to an underwritten offering may be required unless
the total amount of Registrable Securities to be included in such Demand
Registration has a market value of least $25,000,000 (calculated based on the
closing sale price of such securities on the principal securities exchange on
which such securities
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are listed on the business day immediately preceding the date of the Demand
Notice) as of the time a Demand Notice is given, (iv) the Company shall not be
obligated to register for sale pursuant to any Demand Registration that is
not an Underwritten Demand Registration (a "Shelf Demand Registration") a
number of Registrable Securities that exceeds the product of (A) five multiplied
by (B) the maximum amount limitation prescribed by paragraph (e) (or successor
provision) of Rule 144 as of the time the Demand Notice is given and (v) the
Company shall have no obligation to (A) cause to be declared effective an
Underwritten Demand Registration within nine months (or file such Registration
Statement within seven months) after the effective date of the Registration
Statement filed on account of the immediately preceding Demand Registration
or (B) cause to be declared effective a Registration Statement relating to a
Shelf Demand Registration within 12 months (or file such Registration
Statement within ten months) after such effective date. Subject to the
foregoing, there shall be no limit on the number of Shelf Demand
Registrations that may be required pursuant to this Agreement. For purposes
of clause (ii) above, a Demand Registration shall be deemed to have been
effected if a Registration Statement has been filed on account of such Demand
Registration and thereafter either the holders of Registrable Securities
included therein elect not to pursue such Demand Registration or such
Registration Statement is declared effective; provided that a Registration
Statement that has not become effective shall not count against the number
provided in clause (ii) above if the request therefor is withdrawn pursuant
to Section 1.2(d).
(b) FILING AND EFFECTIVENESS. Subject to Section 1.2(a) hereof,
the Company will use all reasonable efforts to file a Registration Statement
relating to any Demand Registration within 60 calendar days of the date on
which the Demand Notice is given and will use all reasonable efforts to cause
the same to be declared effective by the SEC as soon as possible, but in any
event within 120 calendar days of the date on which the holders of
Registrable Securities first give the Demand Notice required by Section
1.2(a) hereof with respect to such Demand Registration.
All requests made pursuant to this Section 1.2 will specify the number of
Registrable Securities to be registered and will also specify the intended
methods of disposition thereof.
Nothing in this Article I shall prevent any holder of Registrable
Securities from giving a Demand Notice pursuant to this Section 1.2 while any
Registration Statement is in effect or during the period of any postponement
pursuant to Section 1.2(b) or any Blackout Period.
The Company will keep the Registration Statement filed in respect of any
Shelf Demand Registration effective for a period of six months from the date on
which the SEC declares such Registration Statement effective (subject to
extension pursuant to Section 1.5 hereof) or such shorter period that will
terminate when all Registrable Securities covered by such Registration Statement
have been sold pursuant to such Registration Statement.
Within ten calendar days after receipt of such Demand Notice, the Company
will serve written notice thereof (the "Notice") to all other holders of
Registrable Securities and will, subject to the provisions of Section 1.2(c)
hereof, include in such registration all Registrable Securities with respect to
which the Company receives written requests for inclusion therein within 20
calendar days after the receipt of the Notice by the applicable holder. Subject
to clause (iii) in the proviso in
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Section 1.2(a), the holders of Registrable Securities will be permitted to
withdraw in good faith all or part of the Registrable Securities from a
Demand Registration at any time prior to the effective date of such Demand
Registration, in which event the Company will promptly amend or, if
applicable, withdraw the related Registration Statement.
(c) PRIORITY ON DEMAND REGISTRATION. If Registrable Securities are
to be registered pursuant to a Demand Registration, the Company shall provide
written notice to the other holders of Registrable Securities and will permit
all such holders who request to be included in the Demand Registration to
include any and all Registrable Securities held by such holders in such
Demand Registration. Notwithstanding the foregoing, in the case of an
Underwritten Demand Registration, if the managing underwriter or underwriters
of the underwritten offering to which such Underwritten Demand Registration
relates advise the holders of Registrable Securities that, in its or their
opinion, the total amount of Registrable Securities that such holders intend
to sell pursuant to such Underwritten Demand Registration exceeds the maximum
amount that can be marketed (i) at a price reasonably related to the current
market price of the Common Stock or (ii) without materially and adversely
affecting such offering, then the number of Registrable Securities to be sold
pursuant to such Demand Registration will, if necessary, be reduced and there
will be included in such underwritten offering the number of Registrable
Securities that, in the opinion of such managing underwriter or underwriters,
can be sold at a price reasonably related to the current market price of the
Common Stock and without materially and adversely affecting the success of
such offering. Any reduction in Registrable Securities will be allocated PRO
RATA among the holders of Registrable Securities on the basis of the amount
of Registrable Securities requested to be included therein by each such
holder. Any holders of Common Stock that are not Registrable Securities who
are entitled to include their shares in a Demand Registration pursuant to
"piggyback" rights granted by the Company in compliance with Section 1.3(c)
shall have their shares excluded from the Demand Registration before any
Registrable Securities are excluded pursuant to this Section 1.2(c).
(d) POSTPONEMENT OF DEMAND REGISTRATION. The Company will be
entitled to postpone the filing or the effectiveness of any Demand
Registration for a reasonable period of time, if the Company determines, in
the good faith exercise of the business judgment of its Board of Directors
after consultation with counsel, that such registration and offering could
materially interfere during such period with BONA FIDE financing plans of the
Company or would require disclosure during such period of information, that
if disclosed prematurely, could materially and adversely affect the Company;
PROVIDED, HOWEVER, that the duration of all periods of Demand Registration
postponement pursuant to this Section 1.2(d), together with the duration of
all Blackout Periods referenced in the last paragraph of Section 1.5 hereof,
shall not exceed 180 days during any 12-month period; and provided further,
however, that the postponement of the filing period, pursuant to this Section
1.2(d), of any Underwritten Demand Registration and the first Shelf Demand
Registration effected hereunder shall not exceed 90 days. If the Company
postpones the filing of a Registration Statement, it will promptly notify the
holders of Registrable Securities in writing when the events or circumstances
permitting such postponement have ended. If the Company postpones the filing
or effectiveness of a Registration Statement, the holders of Registrable
Securities may elect to withdraw their request for such registration, and in
the case of an
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Underwritten Demand Registration, such registration shall not be counted as
one of the Underwritten Demand Registrations.
1.3 PIGGYBACK REGISTRATION.
(a) RIGHT TO PIGGYBACK. If at any time the Company proposes to file a
registration statement under the Securities Act with respect to an offering,
whether or not for its account, of any class of equity securities, or securities
convertible into, exchangeable for or exercisable for a class of equity
securities of the Company (other than a registration statement (i) on Form S-4,
S-8 or any successor form thereto, (ii) filed in connection with an exchange
offer solely to the Company's existing stockholders or (iii) filed solely in
connection with an offering made solely to employees of the Company), then
the Company will give written notice of such proposed filing to the holders
of Registrable Securities at least 30 calendar days before the anticipated
filing date. Such notice will offer such holders the opportunity to register
such amount of Registrable Securities as each such holder may request (a
"Piggyback Registration"). Subject to Section 1.3(b) hereof, the Company
will include in each such Piggyback Registration all Registrable Securities
with respect to which the Company has received written requests for inclusion
therein. The holders of Registrable Securities will be permitted to withdraw
all or part of the Registrable Securities from a Piggyback Registration at
any time prior to the effective date of such Piggyback Registration.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. The Company will cause
the managing underwriter or underwriters of a proposed underwritten offering
on behalf of the Company or others who have demanded such registration to
permit holders of Registrable Securities requested to be included in the
registration for such offering to include therein all such Registrable
Securities requested to be so included on the same terms and conditions as
any securities of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering
deliver an opinion to the holders of Registrable Securities to the effect
that the total amount of securities which such holders and the Company or
others who demanded such registration propose to include in such offering
exceeds the maximum amount that can be marketed (i) at a price reasonably
related to the current market price of the Common Stock or (ii) without
materially and adversely affecting such offering, then the amount of
securities to be included therein for the account of holders of Registrable
Securities (allocated PRO RATA among such holders on the basis of the
Registrable Securities requested to be included therein by each such holder)
and other holders of Common Stock holding "piggyback" registration rights
that are PARI PASSU with those of the holders of Registrable Securities
granted in compliance with Section 1.3(c) will be reduced (pro rata among all
such holders and to zero if necessary) to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters. The managing underwriter or
underwriters, applying the same standard, may also (i) exclude entirely from
such offering all Registrable Securities proposed to be included in such
offering to the extent the Registrable Securities are not of the same class
as securities of the Company included in such offering or (ii) exclude entirely
from such offering (notwithstanding the last sentence of Section 1.3(a)
above) any Registrable Securities as to which powers of attorney and/or
custody arrangements reasonably satisfactory to such managing underwriter or
underwriters and the Company are not established in a time frame reasonably
satisfactory to such parties.
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(c) REGISTRATION OF SECURITIES OTHER THAN REGISTRABLE SECURITIES.
Without the written consent of the holders of 90% of the then-outstanding
Registrable Securities, the Company will not grant to any person the right
(whether demand or piggyback) to request the Company to register any
securities of the Company under the Securities Act; PROVIDED, HOWEVER, that (i)
without the consent of the holders of Registrable Securities, the Company may
grant pursuant to a separate agreement to any person piggyback registration
rights on a PARI PASSU basis with those granted to the holders of Registrable
Securities pursuant to Section 1.3 hereof and (ii) with the consent of the
holders of 66 2/3% of the then-outstanding Registrable Securities, the Company
may grant pursuant to a separate agreement to any person demand registration
rights to request the Company to register any securities of the Company under
the Securities Act that are not more favorable to such person than the rights
of a holder of Registrable Securities under this Agreement.
1.4 RESTRICTIONS ON SALE BY HOLDERS OF REGISTRABLE SECURITIES. Each
holder of Registrable Securities agrees (a) if such holder is so requested
(pursuant to a timely written notice) by the managing underwriter or
underwriters of an underwritten offering of shares of Common Stock or
securities of any class that are convertible into or exchangeable or
exercisable for shares of Common Stock, not to effect any public sale or
distribution of any of the Company's securities of such class (except as part
of such underwritten offering), including a sale pursuant to Rule 144, during
the 10-calendar day period prior to, and during the 90-calendar day period
beginning on, the closing date of such underwritten offering and (b) if
requested, to execute a letter agreement to such effect for the benefit of
the underwriters.
1.5 REGISTRATION PROCEDURES. In connection with the Company's
registration obligations pursuant to Sections 1.2 and 1.3 hereof, the Company
will effect such registrations to permit the sale of such Registrable
Securities in accordance with the intended method or methods of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible,
in each case, to the extent applicable:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the holders thereof
in accordance with the intended method or methods of distribution thereof,
and cause each such Registration Statement to become effective and remain
effective as provided herein; PROVIDED, HOWEVER, that before filing a
Registration Statement or Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be
incorporated thereby by reference), the Company will furnish to the holders
of the Registrable Securities covered by such Registration Statement, the
Special Counsel and the managing underwriters, if any, copies of all such
documents proposed to be filed, which documents will be subject to the review
of such holders, the Special Counsel and such underwriters, and the Company
will not file any such Registration Statement or amendment thereto or any
Prospectus or any supplement thereto (including such documents which, upon
filing, would be incorporated or deemed to be incorporated by reference
therein) to which the holders of a majority of the Registrable Securities
covered by such Registration Statement, the Special Counsel or the managing
underwriter, if any, shall reasonably object on a timely basis.
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(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary
to keep such Registration Statement continuously effective for the applicable
period specified in Section 1.2; cause the related Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 (or any similar provisions then in effect)
under the Securities Act; and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
Registration Statement as so amended or to such Prospectus as so supplemented.
(c) Notify the selling holders of Registrable Securities, the
Special Counsel and the managing underwriters, if any, promptly, and (if
requested by any such person) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
or any other federal or state governmental authority for an amendment or
supplement to a Registration Statement or related Prospectus or for additional
information, (iii) of the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time the representations and warranties of the Company
contained in any agreement contemplated by Section 1.5(n) hereof (including
any underwriting agreement) cease to be true and correct, (v) of the receipt
by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose, (vi) of the occurrence of any event which
makes any statement made in such Registration Statement or related Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or which requires the making of any changes in
a Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and, in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (vii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of
any suspension of the qualification (or exemption from qualification) of any
of the Registrable Securities for sale in any jurisdiction, at the earliest
possible moment.
(e) If requested by the managing underwriters, if any, or the
holders of a majority of the Registrable Securities being registered, (i)
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such holder agree
should be included therein as may be required by applicable law, and (ii)
make all required
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filings of such Prospectus supplement or such post-effective amendment as
soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; PROVIDED, HOWEVER, that the Company will not be required to take
any actions under this Section 1.5(e) that are not, in the opinion of counsel
for the Company, in compliance with the applicable laws.
(f) Furnish to each selling holder of Registrable Securities, the
Special Counsel and each managing underwriter, if any, without charge, at
least one conformed copy of the Registration Statement and any post-effective
amendment thereto, including financial statements (but excluding schedules,
all documents incorporated or deemed to be incorporated therein by reference
and all exhibits, unless requested in writing by such holder, counsel or
underwriter).
(g) Deliver to each selling holder of Registrable Securities, the
Special Counsel and the underwriters, if any, without charge, as many copies
of the Prospectus or Prospectuses relating to such Registrable Securities
(including each preliminary prospectus) and any amendment or supplement
thereto as such persons may reasonably request; and the Company hereby
consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling holders of Registrable Securities and the
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
register or qualify and cooperate with the selling holders of Registrable
Securities, the underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and
sale under the securities or blue sky laws of such jurisdictions within the
United States as any seller or underwriter reasonably requests in writing; use
all reasonable efforts to keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration Statement
is required to be kept effective and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdiction of the
Registrable Securities covered by the applicable Registration Statement;
PROVIDED, HOWEVER, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction in which it is not then so
qualified or (ii) take any action that would subject it to any general service
of process in any such jurisdiction in which it is not then so subject.
(i) Cooperate with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters, if any, shall request
at least two business days prior to any sale of Registrable Securities to the
underwriters.
(j) Use all reasonable efforts to cause the Registrable Securities
covered by the applicable Registration Statements to be registered with or
approved by such other governmental agencies or authorities within the United
States except as may be required solely as a consequence of the nature of
such selling holder's business, in which case the Company will cooperate in
all
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reasonable respects with the filing of such Registration Statement and the
granting of such approvals as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities.
(k) Upon the occurrence of any event contemplated by Section
1.5(c)(vi) or 1.5(c)(vii) hereof, prepare a supplement or post-effective
amendment to each Registration Statement or a supplement to the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(l) Use all reasonable efforts to cause all Registrable Securities
covered by such Registration Statement to be (i) listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed or, if no similar securities issued by the Company are then so listed,
on the New York Stock Exchange or another national securities exchange if the
securities qualify to be so listed or (ii) authorized to be quoted on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or the National Market System of NASDAQ if the securities qualify
to be so quoted; in each case, if requested by the holders of a majority of
the Registrable Securities covered by such Registration Statement or the
managing underwriters, if any.
(m) Prior to the effective date of the first Demand Registration or
the first Piggyback Registration, whichever shall occur first, (i) engage an
appropriate transfer agent and provide the transfer agent with printed
certificates for the Registrable Securities in a form eligible for deposit
with The Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Securities.
(n) Enter into such agreements (including, in the event of an
underwritten offering, an underwriting agreement in form, scope and substance
as is customary in underwritten offerings) and take all such other actions in
connection therewith (including those requested by the holders of a majority
of the Registrable Securities being sold or, in the event of an underwritten
offering, those requested by the managing underwriters) to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration, (i) make
such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
Company and its subsidiaries, the Registration Statement, Prospectus and
documents incorporated by reference or deemed incorporated by reference, if
any, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the holders
of a majority of the Registrable Securities being sold) addressed to such
selling holder of Registrable Securities and each of the underwriters, if
any, covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested
by such holders and
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underwriters, including without limitation the matters referred to in Section
1.5(n)(i) hereof; (iii) use its best efforts to obtain "comfort" letters and
updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be,
included in the Registration Statement), addressed to each selling holder of
Registrable Securities and each of the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"comfort" letters in connection with underwritten offerings; and (iv) deliver
such documents and certificates as may be requested by the holders of a
majority of the Registrable Securities being sold, the Special Counsel and
the managing underwriters, if any, to evidence the continued validity of the
representations and warranties of the Company and its subsidiaries made
pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or similar agreement
entered into by the Company. The foregoing actions will be taken in
connection with each closing under such underwriting or similar agreement as
and to the extent required thereunder.
(o) Make available for inspection by a representative of the
holders of Registrable Securities being sold, any underwriter participating
in any disposition of Registrable Securities, and any attorney or accountant
retained by such selling holders or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company
and its subsidiaries to supply all information reasonably requested by any
such representative, underwriter, attorney or accountant in connection with
such Registration Statement; PROVIDED, HOWEVER, that any records, information
or documents that are designated by the Company in writing as confidential at
the time of delivery of such records, information or documents will be kept
confidential by such persons unless (i) such records, information or
documents are in the public domain or otherwise publicly available, (ii)
disclosure of such records, information or documents is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities, or (iii) disclosure of such records, information or documents,
in the opinion of counsel to such person, is otherwise required by law
(including, without limitation, pursuant to the requirements of the
Securities Act).
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its security holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no
later than 45 calendar days after the end of any 12-month period (or 90
calendar days after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
underwritten offering, and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company, after the effective date of a Registration Statement, which
statements shall cover said 12-month period.
(q) In connection with an offering pursuant to an Underwritten
Demand Registration, cause appropriate members of its management to cooperate
and participate on a customary basis in the underwriters' "road show"
conferences related to such offering; PROVIDED,
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HOWEVER, that (i) such obligation to cooperate and participate shall be
limited to such offerings, if any, in which the total amount of Registrable
Securities included therein has a market value of at least $50,000,000
(calculated based on the closing sale price of such securities on the
principal securities exchange on which such securities are listed on the
business day immediately preceding the date of the Demand Notice), (ii) such
obligation to cooperate and participate shall be limited to three such road
shows in total, (iii) the Company shall not be obligated to participate in
any road show for more than five business days and (iv) the Company shall not
be obligated to participate in more than one such road show in any twelve
month period.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such Registrable Securities as the Company may,
from time to time, reasonably request in writing and the Company may exclude
from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
Each holder of Registrable Securities will be deemed to have agreed by
virtue of its acquisition of such Registrable Securities that, upon receipt
of any notice from the Company of the occurrence of any event of the kind
described in Section 1.5(c)(ii), 1.5(c)(iii), 1.5(c)(v), 1.5(c)(vi) or
1.5(c)(vii) hereof, such holder will forthwith discontinue disposition of
such Registrable Securities covered by such Registration Statement or
Prospectus until such holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 1.5(k) hereof, or until it is
advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus. In the event the Company shall
give any such notice, the time period prescribed in the third paragraph of
Section 1.2(b) hereof will be extended by the number of days during the time
period (each, a "Blackout Period") from and including the date of the giving
of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement shall have received (v) the
copies of the supplemented or amended Prospectus contemplated by Section 5(k)
or (vi) the Advice. The duration of any Blackout Periods, together with the
duration of all periods of Demand Registration postponement pursuant to
Section 1.2(d) hereof, shall not exceed 180 days during any 12-month period.
1.6 REGISTRATION EXPENSES. (a) All fees and expenses incident to the
performance of or compliance with Article I of this Agreement by the Company,
whether or not any of the Registration Statements are filed or become
effective, are referred to herein as "Registration Expenses." Registration
Expenses will include, without limitation, (i) all registration and filing
fees (including without limitation fees and expenses (A) with respect to
filings required to be made with the National Association of Securities
Dealers, Inc. and (B) of compliance with securities or "blue sky" laws
(including without limitation fees and disbursements of counsel for the
underwriters or selling holders in connection with "blue sky" qualifications
of the Registrable Securities and determination of the eligibility of the
Registrable Securities for investment under the laws of such jurisdictions as
the managing underwriters, if any, or holders of a majority of the
Registrable Securities being sold may designate)), (ii) printing expenses
(including without limitation expenses of printing certificates for
Registrable Securities in a form eligible for deposit with The Depository
Trust Company and of
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<PAGE>
printing prospectuses if the printing of prospectuses is requested by the
holders of a majority of the Registrable Securities included in any
Registration Statement), (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company; (v) reasonable fees
and disbursements of the Special Counsel for the sellers of the Registrable
Securities, (vi) fees and disbursements of all independent certified public
accountants referred to in Section 1.5(n)(iii) hereof (including the expenses
of any special audit and "comfort" letters required by or incident to such
performance), (vii) any fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to Section 3 of Schedule E to the Bylaws of the National Association
of Securities Dealers, Inc., (viii) Securities Act liability insurance if the
Company so desires such insurance, (ix) fees and expenses incurred in
connection with the listing of the securities to be registered on any
securities exchange on which similar securities issued by the Company are
then listed, (x) all travel and other expenses of participation in
underwriters' road shows in connection with Piggyback Registrations (to the
extent not borne by the underwriters) and (xi) fees and expenses of all other
persons retained by the Company. Registration Expenses shall not include the
Company's internal expenses (including without limitation all salaries and
expenses of its officers and employees performing legal or accounting duties)
and the expense of any annual audit, nor shall Registration Expenses include
any travel or other expenses of road shows in connection with Demand
Registrations or any underwriting discount or selling commission with respect
to any sale of Registrable Securities pursuant to this Agreement.
(b) The Company shall bear all Registration Expenses incurred in
connection with the first three Underwritten Demand Registrations effected
(or sought to be effected) hereunder and all Shelf Demand Registrations and
all Piggyback Registrations effected (or sought to be effected) hereunder.
Registration Expenses relating to any subsequent Underwritten Demand
Registration shall be borne 50% by the Company and 50% by the holders of the
Registrable Securities included (or, if the Registration Statement is not
filed, sought to be included) therein, pro rata based on the number of
Registrable Securities of each such holder included (or, if the Registration
Statement is not filed, sought to be included) therein. All travel and other
expenses of participation in underwriters' road shows in connection with any
Demand Registration shall be borne by the holders of the Registrable
Securities included (or sought to be included) in the related Registration
Statement, pro rata on the basis described in the immediately preceding
sentence, and any underwriting discount or selling commission with respect to
any sale of Registrable Securities pursuant to this Agreement shall be borne
by the holders of the Registrable Securities selling such securities. In
connection with any Demand Registration for which a portion of the
Registration Expenses or road show expenses are to be borne by holders of
Registrable Securities, the Company may require that such holders' portion of
the Registration Expenses or road show expenses, or both (in any amount or
amounts reasonably estimated by the Company), be advanced from time to time
by such holders to the Company. All Registration Expenses incurred in
connection with any Piggyback Registration and all of the Company's internal
expenses and the expense of any annual audit shall be borne by the Company.
1.7 INDEMNIFICATION.
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(a) INDEMNIFICATION BY THE COMPANY. The Company will, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each holder of Registrable Securities registered pursuant
to this Agreement, the officers, directors and agents and employees of each
of them, each person who controls such holder (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of any such controlling person, from and
against all losses, claims, damages, liabilities, costs (including without
limitation the costs of investigation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are based solely upon information
furnished in writing to the Company by such holder expressly for use therein;
PROVIDED, HOWEVER, that the Company will not be liable to any holder of
Registrable Securities to the extent that any such Losses arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if either (i) (A) such
holder failed to send or deliver a copy of the Prospectus with or prior to
the delivery of written confirmation of the sale of such holder of a
Registrable Security to the person asserting the claim from which such Losses
arise and (B) the Prospectus would have completely corrected such untrue
statement or alleged untrue statement or such omission or alleged omission;
or (ii) such untrue statement or alleged untrue statement, omission or
alleged omission is completely corrected in an amendment or supplement to the
Prospectus previously furnished by or on behalf of the Company with copies of
the Prospectus as so amended or supplemented, and such holder thereafter
fails to deliver such Prospectus as so amended or supplemented prior to or
concurrently with the sale of a Registrable Security to the person asserting
the claim from which such Losses arise.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In
connection with any Registration Statement in which a holder of Registrable
Securities is participating, such holder of Registrable Securities will
furnish to the Company in writing such information as the Company reasonably
requests for use in connection with any Registration Statement or Prospectus
and will indemnify, to the fullest extent permitted by law, the Company, its
directors and officers, agents and employees, each person who controls the
Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), and the directors, officers, agents or employees of
such controlling persons, from and against all Losses arising out of or based
upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or arising out of or based
upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in
any information so furnished in writing by such holder to the Company
expressly for use in such Registration Statement or Prospectus and was relied
upon by the Company in the preparation of such Registration Statement,
Prospectus or preliminary prospectus. In no event will the liability of any
selling holder of Registrable Securities hereunder be greater in amount than
the dollar amount of the proceeds (net of payment of all
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expenses) received by such holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any person shall
become entitled to indemnity hereunder (an "indemnified party"), such
indemnified party shall give prompt notice to the party from which such
indemnity is sought (the "indemnifying party") of any claim or of the
commencement of any action or proceeding with respect to which such
indemnified party seeks indemnification or contribution pursuant hereto;
PROVIDED, HOWEVER, that the failure to so notify the indemnifying party will
not relieve the indemnifying party from any obligation or liability except to
the extent that the indemnifying party has been prejudiced materially by such
failure. All fees and expenses (including any fees and expenses incurred in
connection with investigating or preparing to defend such action or
proceeding) will be paid to the indemnified party, as incurred, within five
calendar days of written notice thereof to the indemnifying party (regardless
of whether it is ultimately determined that an indemnified party is not
entitled to indemnification hereunder). The indemnifying party will not
consent to entry of any judgment or enter into any settlement or otherwise
seek to terminate any action or proceeding in which any indemnified party is
or could be a party and as to which indemnification or contribution could be
sought by such indemnified party under this Section 1.7, unless such
judgment, settlement or other termination includes as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of
a release, in form and substance satisfactory to the indemnified party, from
all liability in respect of such claim or litigation for which such
indemnified party would be entitled to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 1.7 is unavailable to an indemnified party under Section 1.7(a) or
1.7(b) hereof in respect of any Losses or is insufficient to hold such
indemnified party harmless, then each applicable indemnifying party, in lieu
of indemnifying such indemnified party, will, jointly and severally,
contribute to the amount paid or payable by such indemnified party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the indemnifying party or indemnifying parties, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party or indemnifying parties, on the one hand, and such
indemnified party, on the other hand, will be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
of a material fact, has been taken or made by, or related to information
supplied by, such indemnifying party or indemnified party, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such action, statement or omission. The amount paid or payable by
a party as a result of any Losses will be deemed to include any legal or
other fees or expenses incurred by such party in connection with any action
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 1.7(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
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paragraph. Notwithstanding the provisions of this Section 1.7(d), an
indemnifying party that is a selling holder of Registrable Securities will
not be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities sold by such indemnifying
party and distributed to the public were offered to the public exceed the
amount of any damages which such indemnifying party has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of the
Company hereunder will be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 1.7
will survive so long as Registrable Securities remain outstanding,
notwithstanding any transfer of the Registrable Securities by any holder
thereof or any termination of this Agreement.
1.8 RULE 144. The Company will use its best efforts to file the reports
required to be filed by it under the Securities Act and the Exchange Act, and
will cooperate with any holder of Registrable Securities (including without
limitation by making such representations as any such holder may reasonably
request), all to the extent required from time to time to enable such holder
to sell Registrable Securities without registration under the Securities Act
within the limitations of the exemptions provided by Rule 144. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
filing requirements. Notwithstanding the foregoing, nothing in this Section
1.8 will be deemed to require the Company to register any of its securities
under any section of the Exchange Act.
1.9 UNDERWRITTEN REGISTRATIONS. If any of the Registrable Securities
covered by any Demand Registration are to be sold in an underwritten
offering, the managing underwriter(s) for the offering will be selected by
the holders of a majority of the Registrable Securities included in the
Demand Notice; PROVIDED, that each of such managing underwriters shall be
reasonably satisfactory to the Company. If any Piggyback Registration is an
underwritten offering, the Company will have the right to select the managing
underwriter(s) for the offering.
1.10 MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not, as of the
date hereof, and will not, on or after the date hereof, enter into any
agreement with respect to its securities which is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of Article I of this
Agreement, including the provisions of this sentence may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of the holders of 90% of the then-outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof
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with respect to a matter that relates exclusively to the rights of holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other holders of Registrable Securities may be given by holders of
at least 66 2/3% of the Registrable Securities being sold by such holders;
PROVIDED, HOWEVER, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(c) OWNER OF REGISTRABLE SECURITIES. The Company will maintain, or
will cause its registrar and transfer agent to maintain, a stock book with
respect to the Common Stock, in which all transfers of Registrable Securities
of which the Company has received notice will be recorded. The Company may
deem and treat the person in whose name Registrable Securities are registered
in the stock book of the Company as the owner thereof for all purposes,
including without limitation the giving of notices under this Agreement.
(d) SUCCESSORS OR ASSIGNS. The provisions of this Article I will
inure to the benefit of and be binding upon the successors and assigns of each
of Crow, Williams and the Company (including any pledgee acquiring securities
by foreclosure) and will inure to the benefit of each other holder of any
Registrable Securities. Notwithstanding the foregoing, no transferee will
have any of the rights granted under this Agreement (e) until such transferee
shall have acknowledged its rights and obligations hereunder by a signed
written statement of such transferee's acceptance of such rights and
obligations, (f) if the transferor notifies the Company in writing on or prior
to such transfer that the transferee shall not have such rights, or (g) if
such transferee was not a party to this Agreement on the date hereof (or an
affiliate of a party hereto) and acquired Registrable Securities in
open-market purchases or pursuant to an underwritten public offering.
ARTICLE II - PRIOR NOTICE OF PRIVATE SALE
2.1 PRIOR NOTICE. Neither Crow nor any of its affiliates controlled by
or under common control with Crow shall sell, except to such an affiliate,
any shares of Common Stock owned beneficially or of record by it in a private
transaction, whether effected with or without registration, or enter into any
binding agreement to effect any such sale prior to the 15th day following the
receipt by the Company of written notice in the form described below, nor
shall Crow or any such affiliate sell any of such shares in a private
transaction or enter into any binding agreement to effect any such sale after
the 135th day following the receipt by the Company of such notice (without
first giving to the Company another notice pursuant to this Section 2.1).
Each notice required by this Section 2.1 shall state that Crow or its
affiliate, as applicable, is considering the sale of shares of Common Stock
beneficially owned by it in a private transaction and, to the extent then
known and not subject to any non-disclosure obligation, shall identify the
number of such shares it is considering selling and the identity of the
prospective purchaser(s). All such notices shall be kept confidential by the
Company.
2.2 LEGEND. Each stock certificate representing shares of Common Stock
owned beneficially or of record by Crow or any of its affiliates will bear
the following legend:
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IN ACCORDANCE WITH A STOCKHOLDERS' AGREEMENT DATED AS OF
______________, 1997, BY AND AMONG THE ISSUER AND CERTAIN OF ITS
STOCKHOLDERS, NONE OF THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE SOLD IN A PRIVATE TRANSACTION, WHETHER EFFECTED WITH OR
WITHOUT REGISTRATION, UNLESS WRITTEN NOTICE IN ACCORDANCE WITH
SUCH AGREEMENT IS GIVEN TO THE ISSUER AT LEAST 15 DAYS PRIOR TO
THE EARLIER OF EITHER SUCH SALE OR ANY BINDING AGREEMENT TO
EFFECT ANY SUCH SALE, NOR MAY ANY SUCH SALE BE EFFECTED OR SUCH
AGREEMENT MADE MORE THAN 135 DAYS AFTER THE GIVING OF SUCH NOTICE
(WITHOUT FIRST GIVING ANOTHER NOTICE).
The Company shall remove such legend (or cause it to be removed) from the
stock certificates representing any shares of Common Stock to be sold in any
public transaction or to be sold in any private transaction in accordance
with Section 2.1 or take such other action as may be required (with respect
to such legend) to effect such transaction in accordance with Section 2.1.
2.3 AMENDMENT. The provisions of this Article II shall be amended only
by an instrument in writing executed by both the Company and Crow.
ARTICLE III - NON-SOLICITATION OF OFFICER EMPLOYEES
WITHOUT PRIOR NOTICE
3.1 NON-SOLICITATION. Crow covenants that, prior to the fifth
anniversary of the date of this Agreement, neither it nor any affiliated
entity controlled by or under common control with Crow (a "Crow Affiliate")
shall, directly or indirectly, (a) initiate discussions with any
officer-level employee of the Company or any of its affiliates (a "Company
Employee") concerning potential employment of such Company Employee by Crow
or any Crow Affiliate or (b) discuss with any Company Employee any terms of
employment if the Company Employee initiates any such discussions, in either
case without first giving notice to the Company's chief executive officer or,
in his absence, any executive vice president (unless such Company Employee
shall be the Company's chief executive officer, in which case such notice
shall be given to another top level executive of the Company). The Company
covenants that, prior to the fifth anniversary of this Agreement, neither it
nor any affiliated entity controlled by or under common control with the
Company (a "Company Affiliate") shall, directly or indirectly, (i) initiate
discussions with any officer-level employee of Crow or any of its affiliates
(a "Crow Employee") concerning potential employment of such Crow Employee by
the Company or any Company Affiliate or (ii) discuss with any Crow Employee
any terms of employment if the Crow Employee initiates any such discussions,
in either case without first giving notice to Crow's chief executive officer
or, in his absence, any executive vice president (unless such Crow Employee
shall be Crow's chief executive officer, in which case such notice shall be
given to another top level executive of Crow).
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3.2 PROHIBITION AGAINST HIRING IMPROPERLY SOLICITED EMPLOYEES. Crow
covenants that if notice is not given in accordance with the foregoing
requirements with respect to a Company Employee, neither it nor any Crow
Affiliate shall engage or hire such Company Employee until the earlier of (a)
the involuntary termination of such Company Employee's employment by his/her
employer and (b) the first anniversary of the last incident in violation of
the foregoing requirements with respect to such Crow Employee (it being
understood that each recommencement of discussions in violation of the
foregoing requirements without the giving of notice and each continuation of
discussions without such notice having been given will be a new violation of
the foregoing requirements). The Company covenants that if notice is not
given in accordance with the foregoing requirements with respect to a Crow
Employee, neither it nor any Company Affiliate shall engage or hire such Crow
Employee until the earlier of (a) the involuntary termination of such Crow
Employee's employment by his/her employer and (b) the first anniversary of
the last incident in violation of the foregoing requirements with respect to
such Company Employee (it being understood that each recommencement of
discussions in violation of the foregoing requirements without the giving of
notice and each continuation of discussions without such notice having been
given will be a new violation of the foregoing requirements).
ARTICLE IV - NOMINATION OF CROW DIRECTOR;
VOTING AGREEMENT
4.1 NOMINATION. The Company agrees to nominate for election to its
Board of Directors a nominee of Crow (the "Crow Nominee") such that at all
times, if requested by Crow, the Company's Board of Directors contains one
Crow Nominee. The Crow Nominee shall be designated by the Chief Executive
Officer or Board of Directors (or the body effectively serving as such Board)
of Crow Family Holdings, subject to the approval of such designee by the
Company, which approval shall not be unreasonably withheld. Harlan R. Crow
shall be the initial Crow Nominee. If the Crow Nominee should resign from
the Company's Board of Directors or if the Crow Nominee should die or
otherwise be removed from office, the Company shall nominate and use its best
efforts to cause the resulting vacancy to be filled with another Crow Nominee
similarly designated.
4.2 VOTING AGREEMENT. Each of the Management Stockholders, by his
execution of this Agreement, agrees to use his best efforts to cause the Crow
Nominee to be elected or appointed in any and all elections or appointments
of directors of the Company, including, without limitation, voting all shares
of Common Stock over which he then exercises voting control in favor of the
Crow Nominee in connection with any election of Company directors.
Notwithstanding the immediately preceding sentence, no Management Stockholder
who is a director of the Company will be required to cause the election of
any Crow Nominee through action as such director if the Board of Directors of
the Company determines in good faith, based as to legal matters on the advice
of independent counsel, that the election or appointment of such Crow Nominee
would be inconsistent with the fiduciary duty owed by such Board to all of
the stockholders of the Company; provided that the foregoing shall not
detract from the right of Crow to nominate another Crow Nominee for such
position.
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4.3 NONASSIGNABILITY. The rights of Crow under this Article IV shall
not be assignable.
4.4 AMENDMENT. The provisions of this Article IV shall be amended only
by an instrument in writing executed by both the Company and Crow; provided
that no Management Stockholder shall be bound by any such amendment to which
he has not consented.
4.5 TERMINATION. The provisions of this Article IV shall terminate and
be of no further force and effect on the first date on which the beneficial
ownership of shares of Common Stock by Crow and its affiliates represents
less than the lesser of (a) 12.5% of all then outstanding shares of such class
and (b) 50% of the shares of Common Stock beneficially owned by Crow and its
affiliates as of the date of execution of this Agreement; provided, however,
that in no event shall the provisions of this Article IV survive beyond the
first date on which the beneficial ownership of shares of Common Stock by
Crow and its affiliates represents less than 5% of all then outstanding
shares of such class.
ARTICLE V - MISCELLANEOUS
5.1 NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing and will be deemed to be given
(a) when made, if made by hand delivery, (b) upon confirmation, if made by
telecopier, or (c) one business day after being deposited with a reputable
next-day courier, to the parties as follows:
(i) if to the Company, initially at:
2001 Ross Avenue
3400 Trammell Crow Center
Dallas, Texas 75201
Attention: Chief Financial Officer
Telecopier Number: (214) 863-3125
with a copy to:
Vinson & Elkins L.L.P.
2001 Ross Avenue
3700 Trammell Crow Center
Dallas, Texas 75201
Attention: Derek R. McClain
Telecopier Number: (214) 220-7716
and thereafter at such other address or addresses, notice of which is given
to the other parties hereto and the holders of Registrable Securities in
accordance with the provisions of this Section 5.1;
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(ii) if to Crow, initially at:
2001 Ross Avenue
3200 Trammell Crow Center
Dallas, Texas 75201
Attention: General Counsel
Telecopier Number: (214) 863-4012
with a copy to:
Gibson, Dunn & Crutcher LLP
1717 Main Street
Dallas, Texas 75201-7390
Attention: Irwin F. Sentilles, III
Telecopier Number: (214) 698-3400
and thereafter at such other address or addresses, notice of which is given
to the Company in accordance with the provisions of this Section 5.1; and
(iii) if to any holder of Registrable Securities, at the most
current address given by such holder to the Company in accordance with the
provisions of this Section 5.1.
5.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed will be deemed to be an original and all of which
taken together will constitute one and the same instrument.
5.3 HEADINGS. The headings in this Agreement are for convenience of
reference only and will not limit or otherwise affect the meaning hereof.
5.4 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
5.5 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein will remain in full force and effect and will
in no way be affected, impaired or invalidated, and the parties hereto will
use their best efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to
be in the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any
of such which may be hereafter declared invalid, void or unenforceable.
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5.6 REMEDIES. In the event of a breach by any party to this Agreement
of its obligations hereunder, the other parties hereto, in addition to being
entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to injunctive relief in respect of their rights
under this Agreement. Each of the parties hereto agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a
breach by it or him of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for injunctive relief in
respect of such breach, it or he will waive the defense that a remedy at law
would be adequate.
5.7 ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the matters addressed herein by the Company with respect to the
Registrable Securities. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such matters.
5.8 ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, will
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
5.9 INDEPENDENT AGREEMENTS. The parties acknowledge that the respective
agreements contained in Articles I, II, III and IV hereof are to be construed
as independent agreements of the respective parties bound thereby and
benefiting therefrom. In no event shall any party be relieved of any
obligation to perform an agreement under one Article to which it is bound as
a result of a breach or alleged breach by any other party of an agreement
under any other Article.
5.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto and their respective successors and assigns and will inure to
the benefit of the parties hereto and, except as otherwise provided herein,
their respective successors, assigns, heirs, executors and personal
representatives; provided that none of the Management Stockholders shall have
any rights or obligations under Articles I, II or III.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
TRAMMELL CROW COMPANY
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
CROW FAMILY PARTNERSHIP, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
CFH TRADE-NAMES, L.P.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
---------------------------------------
J. McDonald Williams
---------------------------------------
H. Pryor Blackwell
---------------------------------------
William F. Concannon
<PAGE>
---------------------------------------
George L. Lippe
---------------------------------------
William C. Maddux
---------------------------------------
Asuka Nakahara
---------------------------------------
William Rothacker
---------------------------------------
Robert E. Sulentic
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data," and to the use of our reports dated June
25, 1997 (except for Note 17, as to which the date is November 2, 1997), August
8, 1997 (except for Note 8, as to which the date is August 15, 1997), and August
22, 1997, in Amendment No. 3 to the Registration Statement (Form S-1 No.
333-34859) and the related Prospectus of Trammell Crow Company for the
registration of 5,000,000 shares of its common stock.
ERNST & YOUNG LLP
Dallas, Texas
November 14, 1997
