<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997
REGISTRATION NO. 333-34859
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TRAMMELL CROW COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 53121 75-2721454
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
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.................. $86,250,000 $26,137
</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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 , 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 OWNERSHIP OF THE COMPANY'S
REAL ESTATE SERVICES BUSINESS WAS SEPARATED FROM
OWNERSHIP OF THE COMMERCIAL REAL ESTATE ASSET
BASE OWNED BY THE COMPANY'S PREDECESSOR.
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL " ".
------------------------
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 $2,000,000.
(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 ALEX. 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, and logos of some of the Company's major clients (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: Dairy Mart, the
Principal Financial Group, frontier, NOVA Gas Transmission, AEW, West Marine,
Fleet, AMB, HOMEPLACE, The Home Depot, UNITEDhealthcare, KeyCorp, ARCHON Group,
IBM, MOBIL, Allegis, BEST BUY, Baxter, Travelers Property Casualty, EXXON,
Sovereign Bank, Bank1One, Microsoft, Meridian Industrial Trust, OfficeMax,
INVESCO, CIGNA Investment Management, NationsBank, BLOCKBUSTER VIDEO, PETsMART,
UNION PLANTERS BANK, Allegiance, Kendall Healthcare Products, KI, Sweet Paper,
Cabot Partners, Kennedy Associates Real Estate Counsel, Inc., Marshalls,
Michaels, TJMaxx and RadioShack.
The following asterisk note appears in black italicized lettering in 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 following remark appears in white lettering in the lower righthand
corner of the page, after the list of political subdivisions: "Trammell Crow
International is an entity with which the Company has an informal working
relationship, but in which the Company has no ownership interest."
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..................................... 61
Certain Transactions........................... 69
Principal Stockholders......................... 75
Description of Capital Stock................... 76
Shares Eligible for Future Sale................ 81
Certain U.S. Federal Tax Considerations for
Non-U.S. Holders of Common Stock............. 82
Underwriting................................... 85
Legal Matters.................................. 88
Experts........................................ 89
Additional Information......................... 89
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. 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 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 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. For the year ending December 31, 1996, the Company's total revenues
were $255.5 million, and its EBITDA, as adjusted, was $48.9 million. These
results represented increases of 12.4% 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
4
<PAGE>
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 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. 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
5
<PAGE>
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 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. In 1996, the Company
managed 210 million square feet of commercial property, and its 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
6
<PAGE>
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 250 brokers, having added 104
brokerage professionals with an average of approximately nine years of
experience since the beginning of 1995.
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
June 30, 1997, the Company served 53 infrastructure management clients utilizing
800 employees to service approximately 13,000 properties encompassing over 70
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 1996 Development Survey, in 1995 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.
RETAIL SERVICES
Retail services is the Company's newest business, and is poised for
increased growth following the acquisition of a leading service provider. 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
7
<PAGE>
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 June 30, 1997, these 15
customers have awarded 43 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 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.
8
<PAGE>
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.........................
</TABLE>
- ------------------------
(1) Excludes an aggregate of: (i) 2,423,760 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------ --------------------
1996 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 $ 44,498 $ 43,842
Brokerage services............... 40,540 47,299 48,652 61,960 72,095 72,095 27,925 36,918
Infrastructure management
services....................... 7,145 16,401 27,063 38,681 50,836 50,836 21,384 29,559
Development and construction
services....................... 18,468 14,377 12,792 20,382 22,732 22,732 10,066 14,082
Retail services.................. -- 1,306 1,966 1,510 2,393 11,385 706 495
Income from unconsolidated
subsidiaries................... -- 465 3,141 114 594 594 155 1,226
Gain on disposition of real
estate......................... 2,712 -- 4,646 5,026 6,630 6,630 3,130 1,696
Other............................ 1,090 3,759 3,039 6,559 9,996 9,937 2,832 3,624
--------- --------- --------- --------- --------- ----------- --------- ---------
Total revenues................... 174,059 174,561 200,908 227,202 255,455 264,388 110,696 131,442
Salaries, wages and benefits..... 102,258 106,606 115,330 130,248 137,794 141,609 65,740 72,049
Commissions...................... 14,606 15,856 20,788 23,730 27,119 27,119 9,751 15,457
General and administrative....... 36,506 35,365 35,282 40,671 41,421 43,963 17,989 23,450
Profit sharing................... 11,086 8,292 16,562 15,893 20,094 692 6,936 7,418
Other............................ 4,711 4,255 7,284 8,526 9,087 5,356 3,748 6,042
--------- --------- --------- --------- --------- ----------- --------- ---------
Operating costs and expenses..... 169,167 170,374 195,246 219,068 235,515 218,739 104,164 124,416
--------- --------- --------- --------- --------- ----------- --------- ---------
Income before income taxes....... 4,892 4,187 5,662 8,134 19,940 45,649 6,532 7,026
Income taxes..................... 2,513 1,854 2,636 3,793 7,826 17,809 2,564 2,740
--------- --------- --------- --------- --------- ----------- --------- ---------
Income before extraordinary
gain........................... 2,379 2,333 3,026 4,341 12,114 27,840 3,968 4,286
Extraordinary gain............... 500 188 782 -- -- -- -- --
--------- --------- --------- --------- --------- ----------- --------- ---------
Net income....................... $ 2,879 $ 2,521 $ 3,808 $ 4,341 $ 12,114 $ 27,840 $ 3,968 $ 4,286
--------- --------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- --------- ----------- --------- ---------
Pro forma as adjusted earnings
per share (2).................. $ 1.13
-----------
-----------
OTHER DATA:
EBITDA(3), as adjusted........... $ 21,112 $ 16,969 $ 29,687 $ 32,033 $ 48,915 $ 51,491 $ 17,071 $ 19,403
Cash provided by (used in)
operating activities........... (6,342) 7,556 15,907 10,648 25,148 39,817 (5,878) (12,274)
Cash provided by (used in)
investing activities........... 2,499 (1,974) (2,748) (646) (5,019) (5,033) (1,001) (396)
Cash provided by (used in)
financing activities........... (6,699) (4,412) 93 (5,457) (1,779) (2,054) (4,357) (7,160)
<CAPTION>
1997 PRO
FORMA AS
ADJUSTED(1)
-----------
<S> <C>
STATEMENT OF INCOME DATA:
Property management services..... $ 43,842
Brokerage services............... 36,918
Infrastructure management
services....................... 29,559
Development and construction
services....................... 14,082
Retail services.................. 4,384
Income from unconsolidated
subsidiaries................... 1,226
Gain on disposition of real
estate......................... 1,696
Other............................ 3,528
-----------
Total revenues................... 135,235
Salaries, wages and benefits..... 74,062
Commissions...................... 15,457
General and administrative....... 24,746
Profit sharing................... 49
Other............................ 4,458
-----------
Operating costs and expenses..... 118,772
-----------
Income before income taxes....... 16,463
Income taxes..................... 6,421
-----------
Income before extraordinary
gain........................... 10,042
Extraordinary gain............... --
-----------
Net income....................... $ 10,042
-----------
-----------
Pro forma as adjusted earnings
per share (2).................. $ 0.31
-----------
-----------
OTHER DATA:
EBITDA(3), as adjusted........... $ 20,614
Cash provided by (used in)
operating activities........... 18,192
Cash provided by (used in)
investing activities........... (405)
Cash provided by (used in)
financing activities........... (7,551)
</TABLE>
<TABLE>
<CAPTION>
JUNE 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 $ 38,675 $ 49,817
Total assets...................................... 53,162 55,774 99,867 114,315 194,314 140,502 182,987
Long-term debt.................................... 10,851 8,425 9,762 7,065 12,361 13,585 3,794
Notes payable on real estate held for sale........ -- -- 22,914 13,182 67,810 32,551 32,551
Deferred compensation............................. 10,450 14,661 21,468 25,883 20,963 28,381 13,270
Total liabilities................................. 40,818 43,767 85,516 95,090 160,018 107,968 85,085
Minority interest................................. 127 27 278 3,932 3,294 5,378 5,378
Stockholders' equity.............................. 12,217 11,980 14,074 15,293 31,002 27,156 92,524
</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 32,903,689 and
24,714,620 weighted average shares of Common Stock outstanding at June 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 2,423,760 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 Doppelt Acquisition, 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 June 30, 1997. 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.
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
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."
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
13
<PAGE>
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 Crow Family
Partnership, L.P., an affiliate of Crow Investment Trust ("Crow Family"), have
agreed to enter into a License Agreement, pursuant to which, subject to certain
quality standards and other limitations, the Company will be granted the
perpetual right to use the name "Trammell Crow" throughout the world. 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 Crow Family 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 Crow Family 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."
ASSERTED CLAIMS RELATING TO STOCK APPRECIATION RIGHTS
Certain former employees of the Company have asserted claims against the
Company arising out of the termination of the Predecessor Company's Stock
Appreciation Rights Plan. While the Company believes that the stock appreciation
rights held by these former employees have been effectively terminated and
intends to contest vigorously their allegations to the contrary, there can be no
assurance that the Company will prevail in any litigation that may ensue. If the
Company is unsuccessful in the defense of this matter, the resulting payments
could have a material adverse effect on the Company, its financial condition and
results of operations. See "Business--Legal Proceedings."
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
14
<PAGE>
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."
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. 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
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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."
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 2,423,760 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."
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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.
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."
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
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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."
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.
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 $13.14 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
Company has made application to list the Common Stock 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
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the Company and the representatives of the Underwriters based on the factors
described under "Underwriting."
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 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.
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"), and J. McDonald Williams,
immediately prior to the closing of the Offering, 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 Crow Family 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 Crow Family 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 2,423,760 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 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, 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 Crow Family all unpaid amounts
owed by the Company to 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 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 $28.8 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 $25.0 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 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.
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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 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."
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USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $67.8 million ($78.2 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 $6.7 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 $22.5 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 $6.7 million of the net proceeds from the Offering will be
used to reduce certain indebtedness of the Company. Of the $6.7 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 $1.3 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 June 30,
1997, as adjusted to give pro forma effect to the Doppelt Acquisition and the
Reincorporation Transactions as if such transactions had occurred on June 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 JUNE 30, 1997
----------------------------
COMPANY
PRO FORMA,
COMPANY PRO AS
FORMA(1) ADJUSTED(2)
------------- -------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Total debt(3).................................................................... $ 42,610 $ 3,794
------------- -------------
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..................................................... 21,696 122,399
Retained earnings.............................................................. 4,016 (22,991)
Less: Stockholder loans........................................................ (6,938) (6,938)
------------- -------------
Total stockholders' equity................................................... 18,774 92,524
------------- -------------
Total capitalization......................................................... $ 61,384 $ 96,318
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) Giving pro forma effect to the Doppelt Acquisition and the Reincorporation
Transactions as if such transactions had occurred on June 30, 1997. See the
pro forma financial statements and notes thereto contained elsewhere in this
Prospectus.
(2) Giving pro forma effect to the Doppelt Acquisition, the Reincorporation
Transactions and the Offering at an assumed initial public offering price of
$15 per share as if such transactions had occurred on June 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, 2,423,760 shares of
Common Stock (approximately 6.8% of the shares outstanding following the
Offering, assuming the exercise of such options). 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 $32,551 at June 30,
1997.
25
<PAGE>
DILUTION
As of June 30, 1997, the net tangible book value of the Company, giving pro
forma effect to the Doppelt Acquisition and the Reincorporation Transactions,
was approximately negative $11.8 million, or negative $0.42 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 $67.8 million in estimated net proceeds to be received by the Company
therefrom, the pro forma net tangible book value of the Company as of June 30,
1997, would have been $61.9 million, or $1.86 per share of Common Stock. This
represents an immediate increase in net tangible book value of $2.28 per share
to existing stockholders and an immediate dilution in net tangible book value of
$13.14 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 June 30, 1997:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $ 15.00
Pro forma net tangible book value per share before the Offering... $ (0.42)
Increase in pro forma net tangible book value per share
attributable to purchase by new stockholders in the Offering.... 2.28
---------
Pro forma net tangible book value per share after the Offering...... 1.86
---------
Dilution in net tangible book value per share to new stockholders... $ 13.14
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of June 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% $ 25,712,000 25.5% $ 0.91
New stockholders in the Offering........... 5,000,000 15.1% 75,000,000 74.5 15.00
------------ ----- -------------- -----
Total.................................... 33,199,246 100.0% $ 100,712,000 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</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 2,423,760 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 June 30, 1997, and for the six months ended June 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 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 $ 44,498 $ 43,842
Brokerage services...................... 40,540 47,299 48,652 61,960 72,095 72,095 27,925 36,918
Infrastructure management services...... 7,145 16,401 27,063 38,681 50,836 50,836 21,384 29,559
Development and construction services... 18,468 14,377 12,792 20,382 22,732 22,732 10,066 14,082
Retail services......................... -- 1,306 1,966 1,510 2,393 11,385 706 495
Income from unconsolidated
subsidiaries.......................... -- 465 3,141 114 594 594 155 1,226
Gain on disposition of real estate...... 2,712 -- 4,646 5,026 6,630 6,630 3,130 1,696
Other................................... 1,090 3,759 3,039 6,559 9,996 9,937 2,832 3,624
--------- --------- --------- --------- --------- ----------- --------- ---------
Total revenues.......................... 174,059 174,561 200,908 227,202 255,455 264,388 110,696 131,442
Salaries, wages and benefits............ 102,258 106,606 115,330 130,248 137,794 141,609 65,740 72,049
Commissions............................. 14,606 15,856 20,788 23,730 27,119 27,119 9,751 15,457
General and administrative.............. 36,506 35,365 35,282 40,671 41,421 43,963 17,989 23,450
Profit sharing.......................... 11,086 8,292 16,562 15,893 20,094 692 6,936 7,418
Other................................... 4,711 4,255 7,284 8,526 9,087 5,356 3,748 6,042
--------- --------- --------- --------- --------- ----------- --------- ---------
Operating costs and expenses............ 169,167 170,374 195,246 219,068 235,515 218,739 104,164 124,416
--------- --------- --------- --------- --------- ----------- --------- ---------
Income before income taxes.............. 4,892 4,187 5,662 8,134 19,940 45,649 6,532 7,026
Income taxes............................ 2,513 1,854 2,636 3,793 7,826 17,809 2,564 2,740
--------- --------- --------- --------- --------- ----------- --------- ---------
Income before extraordinary gain........ 2,379 2,333 3,026 4,341 12,114 27,840 3,968 4,286
Extraordinary gain...................... 500 188 782 -- -- -- -- --
--------- --------- --------- --------- --------- ----------- --------- ---------
Net income.............................. $ 2,879 $ 2,521 $ 3,808 $ 4,341 $ 12,114 $ 27,840 $ 3,968 $ 4,286
--------- --------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- --------- ----------- --------- ---------
Pro forma as adjusted earnings
per share (2)......................... $ 1.13
-----------
-----------
OTHER DATA:
EBITDA, as adjusted(3).................. $ 21,112 $ 16,969 $ 29,687 $ 32,033 $ 48,915 $ 51,491 $ 17,071 $ 19,403
Cash provided by (used in) operating
activities............................ (6,342) 7,556 15,907 10,648 25,148 39,817 (5,878) (12,274)
Cash provided by (used in) investing
activities............................ 2,499 (1,974) (2,748) (646) (5,019) (5,033) (1,001) (396)
Cash provided by (used in) financing
activities............................ (6,699) (4,412) 93 (5,457) (1,779) (2,054) (4,357) (7,160)
<CAPTION>
PRO FORMA
AS
ADJUSTED(1)
-----------
<S> <C>
STATEMENT OF INCOME DATA:
Property management services............ $ 43,842
Brokerage services...................... 36,918
Infrastructure management services...... 29,559
Development and construction services... 14,082
Retail services......................... 4,384
Income from unconsolidated
subsidiaries.......................... 1,226
Gain on disposition of real estate...... 1,696
Other................................... 3,528
-----------
Total revenues.......................... 135,235
Salaries, wages and benefits............ 74,062
Commissions............................. 15,457
General and administrative.............. 24,746
Profit sharing.......................... 49
Other................................... 4,458
-----------
Operating costs and expenses............ 118,772
-----------
Income before income taxes.............. 16,463
Income taxes............................ 6,421
-----------
Income before extraordinary gain........ 10,042
Extraordinary gain...................... --
-----------
Net income.............................. $ 10,042
-----------
-----------
Pro forma as adjusted earnings
per share (2)......................... $ 0.31
-----------
-----------
OTHER DATA:
EBITDA, as adjusted(3).................. $ 20,614
Cash provided by (used in) operating
activities............................ 18,192
Cash provided by (used in) investing
activities............................ (405)
Cash provided by (used in) financing
activities............................ (7,551)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
JUNE 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 $ 38,675 $ 49,817
Total assets....................................... 53,162 55,774 99,867 114,315 194,314 140,502 182,987
Long-term debt..................................... 10,851 8,425 9,762 7,065 12,361 13,585 3,794
Notes payable on real estate held for sale......... -- -- 22,914 13,182 67,810 32,551 32,551
Deferred compensation.............................. 10,450 14,661 21,468 25,883 20,963 28,381 13,270
Total liabilities.................................. 40,818 43,767 85,516 95,090 160,018 107,968 85,085
Minority interest.................................. 127 27 278 3,932 3,294 5,378 5,378
Stockholders' equity............................... 12,217 11,980 14,074 15,293 31,002 27,156 92,524
</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 32,903,689 and
24,714,620 weighted average shares of Common Stock outstanding at June 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 2,423,760 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 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 Doppelt Acquisition, 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 June 30, 1997. 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 Doppelt
Acquisition, the Reincorporation Transactions and the Offering had occurred on
June 30, 1997, and reflects the Predecessor Company at historical values and 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 June 30, 1997, and for the year ended December
31, 1996 and the six months ended June 30, 1997, had the Company completed the
Doppelt Acquisition, 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>
JUNE 30, 1997
----------------------------------------------------------------------------------
HISTORICAL COMPANY PRO
------------------------ ACQUISITION AND FORMA COMPANY PRO
PREDECESSOR REINCORPORATION BEFORE OFFERING FORMA, AS
COMPANY DOPPELT ADJUSTMENTS OFFERING ADJUSTMENTS ADJUSTED
----------- ----------- --------------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 38,675 $ 530 $ 30,000(A) $ 20,242 $ 67,750(I) $ 49,817
(22,658)(B) (30,000)(J)
(11,974)(D) (3,803)(K)
(6,975)(E) (1,556)(L)
(6,826)(F) (2,816)(M)
(530)(C)
Accounts receivable, net.................. 27,080 2,050 29,130 29,130
Receivables from affiliates............... 1,216 468 (468)(C) 1,216 1,216
Notes and other receivables............... 7,697 90 (740)(D) 7,021 (8)(K) 7,013
(26)(C)
Deferred income taxes..................... 96 -- 96 96
Real estate held for sale................. 36,577 -- 36,577 36,577
----------- ----------- ----------- -----------
Total current assets.................... 111,341 3,138 94,282 123,849
Furniture and equipment, net................ 5,861 33 5,894 5,894
Deferred income taxes....................... 7,475 -- 7,475 7,475
Investments in unconsolidated
subsidiaries.............................. 5,936 -- 5,936 5,936
Other assets................................ 9,889 -- 29,944(B) 39,833 39,833
----------- ----------- ----------- -----------
Total assets............................ $ 140,502 $ 3,171 $ 153,420 $ 182,987
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 7,134 $ 533 (187)(C) $ 7,480 $ 7,480
Accrued expenses.......................... 21,740 1,117 (166)(C) 22,691 22,691
Payables to affiliates.................... 1,765 -- (1,414)(D) 1,907 (1,556)(L) 351
1,556(G)
Income taxes payable...................... 1,673 -- 1,673 1,673
Current portion of long-term debt......... 4,170 -- (698)(E) 33,472 (1,289)(M) 2,183
30,000(A) (30,000)(J)
Notes payable on real estate held for
sale.................................... 32,551 -- 32,551 32,551
Other current liabilities................. 445 136 581 581
----------- ----------- ----------- -----------
Total current liabilities............... 69,478 1,786 100,355 67,510
Long-term debt, less current portion........ 9,415 -- (6,277)(E) 9,138 (6,000)(N) 1,611
6,000(B) (1,527)(M)
Deferred compensation....................... 28,381 -- (11,300)(D) 17,081 (3,811)(K) 13,270
Other liabilities........................... 694 -- 2,000(B) 2,694 2,694
----------- ----------- ----------- -----------
Total liabilities....................... 107,968 1,786 129,268 85,085
Minority interest........................... 5,378 -- 5,378 5,378
Stockholders' equity:
Common Stock.............................. -- 8 (8)(C) -- 50(I) 54
4(N)
Paid-in capital........................... 24,084 -- (2,388)(H) 21,696 67,700(I) 122,399
5,996(N)
27,007(O)
Retained earnings......................... 12,398 1,377 (1,377)(C) 4,016 (27,007)(O) (22,991)
(6,826)(F)
(1,556)(G)
Less: Stockholder loans................... (6,938) (6,938) (6,938)
Treasury stock....................... (2,388) -- 2,388(H) -- --
----------- ----------- ----------- -----------
Total stockholders' equity.............. 27,156 1,385 18,774 92,524
----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity................................ $ 140,502 $ 3,171 $ 153,420 $ 182,987
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(A) Reflects the borrowing under the Existing Credit Facility on August 22,
1997. This credit facility matures at the earlier of completion of the
Offering or February 1998, and carries interest at an Adjusted Euro-dollar
Rate of 6.6% at September 25, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "The Company-- Recent Developments."
30
<PAGE>
(B) Reflects the acquisition of Doppelt for a purchase price of $30,658.
Consideration for this purchase consisted of cash in the amount of $22,658,
of which $2,000 relates to an employment agreement, a promissory note for
$6,000 and a liability of $2,000 for a right to receive future commissions.
The purchase price was allocated to net assets acquired of $714, an
intangible asset of $2,000 related to the employment agreement and $27,944
of goodwill.
(C) Represents adjustments to the historical balance sheet of Doppelt for assets
not acquired and liabilities not assumed.
(D) Reflects the payment of accrued royalty and consulting expense ($1,414) and
deferred compensation payable ($11,300) partially offset by a reduction of
loans receivable ($740).
(E) Reflects the payment of the outstanding balance of the credit facility with
First Tennessee Bank. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
(F) Reflects the declaration and payment of dividends.
(G) Reflects the accrual of the payment related to the termination of consulting
agreements with affiliates of the Company .
(H) Reflects the retirement of treasury shares in connection with the
Reincorporation Transactions.
(I) Reflects the sale of 5,000,000 shares of Common Stock in the Offering
($75,000) net of expenses of the Offering ($7,250).
(J) 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."
(K) Reflects a payment of the retired Profit Sharing Plan participants' deferred
compensation balances ($3,811) partially offset by a reduction of loans
receivable ($8).
(L) Reflects termination payment relating to the consulting agreements with
affiliates of the Company.
(M) Reflects the assumed repayment of capitalization notes, lines of credit and
other notes payable.
(N) Reflects the conversion of a note payable to Mr. Doppelt into 400,000 shares
of Common Stock.
(O) 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, 2,423,760 shares of Common
Stock (approximately 6.8% of the shares outstanding following the Offering,
assuming the exercise of such options).
31
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------------------
HISTORICAL
------------------------ ACQUISITION AND COMPANY PRO
PREDECESSOR REINCORPORATION COMPANY PRO OFFERING FORMA, AS
COMPANY DOPPELT ADJUSTMENTS FORMA ADJUSTMENTS ADJUSTED
----------- ----------- --------------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Property management services.............. $ 43,842 $ -- $ 43,842 $ 43,842
Brokerage services........................ 36,918 -- 36,918 36,918
Infrastructure management services........ 29,559 -- 29,559 29,559
Development and construction services..... 14,082 -- 14,082 14,082
Retail services........................... 495 3,889 4,384 4,384
----------- ----------- ----------- -----------
124,896 3,889 128,785 128,785
Income from investments in unconsolidated
subsidiaries............................ 1,226 -- 1,226 1,226
Gain on disposition of real estate........ 1,696 -- 1,696 1,696
Other income.............................. 3,624 23 $ (101)(A) 3,528 3,528
(18)(B)
----------- ----------- ----------- -----------
131,442 3,912 135,235 135,235
COSTS AND EXPENSES:
Salaries, wages, benefits................. 72,049 3,361 (1,548)(C) 74,062 74,062
200(D)
Commissions............................... 15,457 -- 15,457 15,457
General and administrative................ 23,450 946 24,396 $ 350(I) 24,746
Profit sharing............................ 7,418 -- (7,369)(G) 49 49
Depreciation and amortization............. 2,049 13 466(E) 2,528 2,528
Interest.................................. 2,113 -- (276)(F) 1,741 (167)(J) 1,574
(96)(G)
Royalty and consulting fees............... 1,524 -- (1,524)(G) -- --
Minority interest......................... 356 -- 356 356
----------- ----------- ----------- -----------
124,416 4,320 118,589 118,772
----------- ----------- ----------- -----------
Income before income taxes................ 7,026 (408) 16,646 16,463
Income taxes.............................. 2,740 -- 3,752(H) 6,492 (71)(I) 6,421
----------- ----------- ----------- -----------
Net income................................ $ 4,286 $ (408) $ 10,154 $ 10,042
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Pro forma as adjusted earnings per
share................................... $ 0.31
-----------
-----------
Weighted average common shares
outstanding............................. 32,903,689
-----------
-----------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------------
HISTORICAL
------------------------ ACQUISITION AND COMPANY PRO
PREDECESSOR REINCORPORATION COMPANY PRO OFFERING FORMA, AS
COMPANY DOPPELT ADJUSTMENTS FORMA ADJUSTMENTS ADJUSTED
----------- ----------- --------------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <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)(K) 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. 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 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 49.0% of total revenues to 60.7% 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 $28.8 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
$25.0 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 36.1% 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 SIX MONTHS ENDED JUNE 30, 1997
On a pro forma basis the Company's total revenue for the six months ended
June 30, 1997, was $135.2 million, compared to actual historical revenue of
$131.4 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 six months ended June 30, 1997,
was $16.5 million, compared to the actual historical income before income taxes
of $7.0 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 six months ended June 30, 1997, was $10.0
million, as compared to the actual historical net income of $4.3 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
also 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
also 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 the Company's 1997
fiscal year 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. This adjustment was not recorded in the pro forma statement of income
as it is a non-recurring expense.
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 six month periods ended June 30, 1996 and 1997, as
a percent of revenue for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Property management services.............................. 49.6% 40.9% 35.3% 40.2% 33.3%
Brokerage services........................................ 24.2% 27.3% 28.2% 25.2% 28.1%
Infrastructure management services........................ 13.5% 17.0% 19.9% 19.3% 22.5%
Development and construction services..................... 6.4% 9.0% 8.9% 9.1% 10.7%
Retail services........................................... 1.0% 0.7% 0.9% 0.6% 0.4%
Income from unconsolidated subsidiaries................... 1.6% 0.1% 0.2% 0.1% 0.9%
Gain on sale of real estate............................... 2.3% 2.2% 2.6% 2.8% 1.3%
Other..................................................... 1.4% 2.8% 4.0% 2.7% 2.8%
----- ----- ----- ----- -----
Total revenues.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries, wages & benefits................................ 57.4% 57.3% 53.9% 59.4% 54.8%
Commissions............................................... 10.4% 10.4% 10.6% 8.8% 11.8%
General and administrative................................ 17.6% 17.9% 16.2% 16.3% 17.8%
Profit sharing............................................ 8.2% 7.0% 7.9% 6.3% 5.6%
Other..................................................... 3.6% 3.8% 3.6% 3.3% 4.6%
----- ----- ----- ----- -----
Total operating costs and expenses...................... 97.2% 96.4% 92.2% 94.1% 94.6%
----- ----- ----- ----- -----
Income before income taxes................................ 2.8% 3.6% 7.8% 5.9% 5.4%
Income taxes.............................................. 1.3% 1.7% 3.1% 2.3% 2.1%
----- ----- ----- ----- -----
Income before extraordinary items......................... 1.5% 1.9% 4.7% 3.6% 3.3%
Extraordinary gain, net of taxes.......................... 0.4% -- -- -- --
----- ----- ----- ----- -----
Net income................................................ 1.9% 1.9% 4.7% 3.6% 3.3%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
CONSOLIDATED RESULTS
TOTAL REVENUE. The Company's total revenue grew $20.7 million, or 18.7%, to
$131.4 million for the six months ended June 30, 1997 from $110.7 million for
the six months ended June 30, 1996. This increase was primarily attributable to
revenue growth in the brokerage and the infrastructure management businesses.
OPERATING COSTS & EXPENSES. The Company's operating costs and expenses
increased by $20.2 million, or 19.4%, to $124.4 million for the six months ended
June 30, 1997 from $104.2 million for the six months ended June 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 six months ended June 30,
1997 due to increased expenditures associated with the Company's technological
support systems. As a percentage of total revenue, operating costs and expenses
increased to 94.6% for the six months ended June 30, 1997 from 94.1% for the six
months ended June 30, 1996, primarily as a result of the increases in general
and administrative expenses and commissions caused by the timing of certain
development transactions.
38
<PAGE>
INCOME BEFORE INCOME TAXES. Based on the factors noted above, the Company's
income before income taxes increased $0.5 million, or 7.7%, to $7.0 million for
the six months ended June 30, 1997 from $6.5 million for the six months ended
June 30, 1996.
NET INCOME. Net income increased $0.3 million, or 7.5%, to $4.3 million for
the six months ended June 30, 1997 from $4.0 million for the six months ended
June 30, 1996. As a percent of total revenue, net income decreased to 3.3% for
the six months ended June 30, 1997 from 3.6% for the prior year period.
BUSINESS LINE OPERATING RESULTS
PROPERTY MANAGEMENT SERVICES. Property management services revenue, which
represented 33.3% of the Company's total revenue for the six months ended June
30, 1997, remained relatively constant at $43.8 million for the six months ended
June 30, 1997 as compared to $44.5 million for the prior year period. That
slight decrease was primarily due to the net reduction in square feet of
property management assignments, offset by increased revenues from the clients
on whom the Company's national customer initiative has focused.
BROKERAGE SERVICES. Brokerage services revenue, which represented 28.1% of
the Company's total revenue for the six months ended June 30, 1997, increased
$9.0 million, or 32.2%, to $36.9 million for the six months ended June 30, 1997
from $27.9 million for the six months ended June 30, 1996. This revenue growth
resulted from an increase in the aggregate number of brokers over the previous
year.
INFRASTRUCTURE MANAGEMENT SERVICES. Infrastructure management services
revenue, which represented 22.5% of total revenues for the period ended June 30,
1997, increased $8.2 million, or 38.3%, to $29.6 million for the six months
ended June 30, 1997 from $21.4 million for the six months ended June 30, 1996.
The revenue growth resulted primarily from the addition of new customers. These
new customers include, but are not limited to, Dairy Mart Convenience Stores,
Inc., 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 SERVICES. 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 12.9% of the Company's
total revenue for the six months ended June 30, 1997, increased $3.6 million, or
26.9%, to $17.0 million from $13.4 million for the six months ended June 30,
1996. This revenue growth was primarily due to a $2.8 million increase in
development fees from $10.1 million for the six months ended June 30, 1996 to
$12.9 million for the six months ended June 30, 1997 as well as approximately
$1.1 million in rental income in 1997 related to operations of a real estate
held for sale project. These increases were offset by a $1.4 million decrease in
gain on disposition of real estate from $3.1 million for the six months ended
June 30, 1996 to $1.7 million for the six months ended June 30, 1997. Income
from unconsolidated subsidiaries increased $1.0 million, or 500%, to $1.2
million for the six months ended June 30, 1997, from $0.2 million for the six
months ended June 30, 1996, due to the effect from the timing of development
transactions.
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 primarily due to revenue
growth in the Company's infrastructure management service and brokerage service
businesses.
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
39
<PAGE>
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.
BUSINESS LINE OPERATING RESULTS
PROPERTY MANAGEMENT SERVICES. 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. 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.
BROKERAGE SERVICES. 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. 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 and Sovereign. Additionally, there
was expansion of services provided to existing customers including Exxon, Baxter
International and United Healthcare. 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 SERVICES. 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 17.6%, 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 $2.0 million, or 69.0%, to $4.9 million in 1996 from
$2.9 million in 1995, a decrease in development fees of $0.4 million, or 4.1%,
to $9.3 million in 1996 from $9.7 million in 1995 and an increase in gain on
sale of real estate of $1.6 million, or 32.0%, to $6.6 million in 1996 from $5.0
million in 1995. Income from unconsolidated subsidiaries increased $0.5 million
or 500%, 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.
40
<PAGE>
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, primarily due to revenue
growth in the Company's infrastructure management service, brokerage service and
development and construction service businesses.
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 4.2%, 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 increased to 89.4% in 1995 from
88.9% in 1994, primarily as a result of the increase in general and
administrative expenses.
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
increased to 1.9% in 1995 from 2.0% in 1994.
BUSINESS LINE OPERATING RESULTS
PROPERTY MANAGEMENT SERVICES. 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 was primarily due to the net reduction in square feet of property
management assignments.
BROKERAGE SERVICES. 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.
INFRASTRUCTURE MANAGEMENT SERVICES. 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, McDonalds and Union Planters,
as well as the expansion of the services provided to certain infrastructure
management clients, including Exxon.
DEVELOPMENT AND CONSTRUCTION SERVICES. 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 11.3% of the Company's 1995
total revenue, increased $4.9 million, or 23.8%, to $25.5 million in 1995 from
$20.6 million in 1994. This revenue growth was primarily due to a $5.0 million
increase in development fees from $4.7 million in 1994 to $9.7 million in 1995
and an increase in construction management services fees of $1.6 million to $8.2
million in 1995 from $6.6 million in 1994. Additionally, gain on sale of real
estate increased $0.4 million, or 8.7%, 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.
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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 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 $12.3 million for the six
months ended June 30, 1997, compared to $5.9 million for the same period in
1996. The primary reasons for this change are an increase in real estate held
for sale and an increase in notes receivable from certain officers and directors
received in connection with a private placement of common stock in August 1996.
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.
42
<PAGE>
Net cash flow used in investing activities totaled $0.4 million for the six
months ended June 30, 1997 compared to $1.0 million for the same period in 1996.
This change is primarily attributable to distributions from unconsolidated
subsidiaries and contributions from minority interest, offset by additional
capital expenditures for technology related fixed assets. 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.
Net cash flow used in financing activities totaled $7.2 million for the six
months ended June 30, 1997 compared to $4.4 million for the same period in 1996.
The reasons for this change are due to an increase in dividend payments. Net
cash flows used (provided) in 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 .005%) 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 $30.0 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
and approximately $22.7 million was used to make certain cash payments in
connection with the Doppelt Acquisition. 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 the terms of a $150 million master line
of credit (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. There can be no assurance that the
Replacement Facility can be obtained or, if obtained, that it will be in the
anticipated amount.
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
43
<PAGE>
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 number of separate
entities distinct from the Company, with independent management and operations.
For the year ending December 31, 1996, the Company's total revenues were $255.5
million, and its EBITDA, as adjusted, was $48.9 million. These results
represented increases of 12.4% 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."
45
<PAGE>
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. 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.
46
<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.
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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 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 June 30, 1997, these 15
customers have awarded 43 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.
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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 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. In 1996, the Company
managed 210 million square feet of commercial property, and its 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 Company's revenues from its property
management business and the total square feet managed by the Company at year end
for each of the last five years:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REVENUES
<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>
Revenues............... $ 104,104 $ 90,954 $ 99,609 $ 92,970 $ 90,179
Square Feet............ 222,867 215,025 207,020 212,499 210,102
</TABLE>
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 5 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 250 brokers, having added 104 brokerage professionals with an
average of approximately nine years of experience since the beginning of 1995.
The following charts and table show the Company's revenues from its
brokerage services business and the number of brokers employed by the Company at
year end for each of the last five years:
50
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REVENUES
<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>
- ------------------------------------------------------------------------------------
Revenues (000)............... $ 40,540 $ 47,299 $ 48,652 $ 61,960 $ 72,095
Brokers...................... 125 150 146 195 235
</TABLE>
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 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
51
<PAGE>
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
June 30, 1997, the Company served 53 infrastructure management clients utilizing
800 employees to service approximately 13,000 properties encompassing over 72
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
revenues and earnings before interest, taxes, depreciation and amortization,
royalty and consulting fees and profit sharing:
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
EBITDA, as adjusted
1992 151
1993 2,639
1994 3,136
1995 3,717
1996 8,429
</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
EBITDA, as adjusted........... 151 2,639 3,136 3,717 8,429
</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 14 clients
as of June 30, 1997, and from 3 million square feet under management in 1993 to
approximately 40 million square feet as of June 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. 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
14 out of 53 existing customers receive three or more types of services from the
Company out of the 5 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.
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
54
<PAGE>
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 1996 Development Survey, in 1995 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 revenues from its
development and construction services business and the square feet of
development projects started for each of the past five years:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REVENUES
<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>
Revenues..................... $ 21,180 $ 14,842 $ 20,579 $ 25,522 $ 29,956
Square Feet of Project
Starts..................... 3,150 2,829 5,124 10,083 12,408
</TABLE>
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.
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
55
<PAGE>
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.
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
56
<PAGE>
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
Retail services is the Company's newest business, and is poised for
increased growth following the acquisition of a leading service provider. 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.
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
57
<PAGE>
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 July 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, Fretter, 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.
EMPLOYEES
As of July 31, 1997, the Company had approximately 2,900 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,
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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 Crow Family, 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
Certain former employees of the Company have asserted claims against the
Company arising out of the termination of a stock appreciation rights plan.
Effective August 1, 1993, the Predecessor Company adopted the Trammell Crow
Company Stock Appreciation Rights Plan (the "SAR Plan") and began to grant stock
appreciation rights ("SARs") thereunder to various employees. Pursuant to the
SAR Plan, upon consummation of an initial public offering of shares of the
Predecessor Company's common stock (or of stock, such as the Company's Common
Stock, into which the Predecessor Company's common stock had been converted),
the holders of outstanding SARs were to be entitled to receive their
proportionate share of an amount (the "Aggregate Amount") that is approximately
equal to the amount by which the value of the Predecessor Company's Class C
Common Stock upon consummation of an initial public offering exceeds the book
value of such stock. In August 1996, the Predecessor Company took action to
terminate the SAR Plan. In the Company's view, the termination of the SAR Plan
resulted in the termination of all outstanding SARs on the first anniversary of
the SAR Plan termination. Certain former employees of the Predecessor Company
who held SARs have indicated to the Company that, in the event this Offering is
consummated, they intend to make claims against the Company to be paid their
proportionate share of the Aggregate Amount. They have indicated that their
claims are based on an interpretation of the SAR Plan that differs from the
interpretation of the Company. The Company believes that its interpretation of
the SAR Plan is the proper one and intends to contest vigorously the potential
claimants' allegations. If the Company were unsuccessful in the defense of this
matter, however, the resulting payments could have a material adverse effect on
the Company, its financial condition and results of operations.
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.
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
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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. See "Business--Environmental Liability."
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 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, 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.............. 41 President and Chief Executive Officer of Trammell Crow Corporate
Services, Inc.
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 and National Director of Development and
Investment
Harlan R. Crow.................... 47 Director
J. McDonald Williams.............. 56 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, 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.
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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, officer or director in approximately 100 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 a general partner, executive officer or director in approximately
14 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, officer or director in
approximately 70 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. Williams was a general partner,
executive officer or director in approximately 14 partnerships or corporations,
or affiliates of such partnerships or corporations, that were placed in
receivership.
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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. The Company will
appoint six additional directors as soon as practicable following the closing of
the Offering, and at least five of the nine directors in office at the closing
of the Offering will not be employees of the Company.
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 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, 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 $100,000 (the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
COMPENSATION
NAME AND -------------------- -------------------
PRINCIPAL POSITION SALARY($) 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.
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
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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.
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
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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 2,423,760
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.
1995 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 "1995
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 1995 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
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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 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
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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 1995
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.
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 2,423,760 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
Crow Family Partnership, L.P. on January 3, 1994, 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 Crow Family 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. Prior to the termination of the Royalty
Agreement and Consulting Arrangements, the Predecessor Company intends to make
cash payments in an aggregate amount of approximately $1,524,000 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
Crow Family all unpaid amounts owed by the Company to 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, Crow Family 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. Crow Family 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,
Crow Family 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. Crow Family 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, Crow Family 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," "Tramell 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, the Company. Crow
Family 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"). Crow Family 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, Crow Family 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
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have co-invested and received distributions in the amounts of $275,000,
$5,138,000; and $6,249,000, $0 in 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. The Company's contributions to Fund II were approximately
$880,000 in 1996. The Company has received no distributions from Fund II. The
following reflects total investments and distributions related to Fund II
through July 31, 1997, for the executive officers of the Company: Mr. Lippe,
$110,000, $29,324; Mr. Nakahara, $55,000, $14,662; Mr. Maddux, $27,500, $7,331,
Mr. Concannon, $27,500, $7,331; Mr. Rothacker, $27,500, $7,331; Mr. Sulentic,
$13,750, $3,665; and Mr. Blackwell, $137,500, $36,655, respectively. In
addition, Mr. Williams, a director of the Company, made investments in Fund II
of $412,500 and received distributions of $109,964 through July 31, 1997. No
additional capital contributions have been made in Fund II as of June 30, 1997
by the executive officers and directors of the Company.
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 July 31, 1997, the Company and Crow Investment Trust have
invested an aggregate of approximately $1,187,070 and $636,037, respectively, in
DFW Fund. The aggregate amount invested by Fund II in DFW Fund through July 31,
1997, is $480,000. An affiliate of Mr. Williams has invested $89,471 as of
December 31, 1996 in DFW Fund. DFW Fund has made no distributions. Through June
30, 1997, an affiliate of Mr. Williams contributed approximately $700,000 to
projects in which DFW Fund has an interest. 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 July 31, 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
June 30, 1997, was approximately $7,107,000 Set forth below is the amount
initially borrowed and the outstanding balance as of June 30, 1997, including
principal plus accrued interest, for each of the Company's executive officers.
Mr. Blackwell, $283,407, $233,490; Mr. Concannon, $295,314, $243,299; Mr. Lippe,
$329,511, $271,474; Mr. Maddux,
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$68,986, $56,835; Mr. Nakahara, $132,842, $109,442; Mr. Rothacker, $203,765,
$167,876; and Mr. Sulentic, $179,430, $147,826.
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 June 30, 1997 was approximately $1,776,000. Set forth below is
the amount initially borrowed and the outstanding balance as of June 30, 1997,
including principal plus accrued interest, for each of the Company's executive
officers. Mr. Blackwell, $190,399, $0; Mr. Concannon, $74,893, $1,713; Mr.
Lippe, $269,939, $138,876; Mr. Maddux, $147,959, $90,750; Mr. Nakahara,
$138,068, $41,528; Mr. Rothacker, $194,208, $194,208; and Mr. Sulentic,
$102,347, $7,834.
STOCKHOLDERS' AGREEMENT
Contemporaneously with the Reincorporation Transactions, the Company, Crow
Family 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 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 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 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
registration, subject to certain limitations. See "Description of Capital
Stock--Doppelt Stockholders Agreement."
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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.
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 June 30, 1997, the Company has paid approximately $2,067,000
in fees.
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; (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
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Crow Family Partnership, L.P.............................................. 7,857,991 27.9% 23.7%
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
J. McDonald Williams...................................................... 1,511,198 5.4 4.6
George L. Lippe........................................................... 858,601 3.0 2.6
H. Pryor Blackwell........................................................ 716,991 2.6 2.2
William F. Concannon(1)................................................... 485,943 1.7 1.5
William C. Maddux......................................................... 386,072 1.4 1.2
Asuka Nakahara............................................................ 454,641 1.6 1.3
William Rothacker......................................................... 599,232 2.1 1.7
Robert E. Sulentic........................................................ 380,109 1.3 1.1
Harlan R. Crow(2)......................................................... 7,857,991 27.9 23.7
3200 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Directors and executive officers as a group (9 persons)................... 13,250,778 47.0% 39.9%
</TABLE>
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(1) Includes 456,131 shares held directly by Mr. Concannon and options
exercisable within 60 days after August 22, 1997, to acquire 29,812 shares
granted under the Assumed Option Plan.
(2) Consist of shares held by Crow Family Partnership, L.P., of which Crow
Family, Inc. is the general partner. Mr. Crow is a director of Crow Family,
Inc. and trustee of certain family trusts which hold a significant equity
interest in such entity. Mr. Crow disclaims beneficial ownership of all
such shares held by such partnership.
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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 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. 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 or any securities convertible into, or exercisable or
exchangeable for shares of Common Stock 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." 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 a
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.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, could effect the United States
taxation of dividends on Common Stock paid to a Non-United States Holder. The
Proposed Regulations are generally proposed to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules. It
cannot be predicted at this time whether the Proposed Regulations will be
adopted as proposed or what modifications, if any, may be made to them. The
discussion below is not intended to include a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
may have if adopted.
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.
The Proposed Regulations would provide for certain presumptions (which
differ from those described above) upon which the Company may generally rely to
determine whether, in the absence of certain documentation, a holder should be
treated as a Non-United States Holder for purposes of the 30% withholding tax
described above. The presumptions would not apply for purposes of granting a
reduced rate of withholding under a treaty. Under the Proposed Regulations, to
obtain a reduced rate of withholding under a treaty a Non-United States Holder
would generally be required to provide an Internal Revenue Service Form W-8
certifying such Non-United States Holder's entitlement to benefits under a
treaty. The Proposed Regulations also would provide special rules to determine
whether, for purposes of determining the applicability of a tax treaty and for
purposes of the 30% withholding tax described above, dividends paid to a
Non-United States Holder that is an entity should be treated as paid to the
entity or those holding an interest in that entity.
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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. 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. A Non-United States Holder may claim exemption from
withholding under the effectively connected income exception by filing Internal
Revenue Service Form 4224 (Exemption From Withholding of Tax on Income
Effectively Connected With the Conduct of a Trade or Business in the United
States) each year with the Company or its paying agent prior to the payment of
the dividends for such year. The Proposed Regulations would replace Form 4224
with Form W-8. 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, 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 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 holder. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
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 is not an "exempt
recipient" as defined in Treasury Regulations (which includes corporations) and
fails to provide a correct taxpayer identification number and other information
to the Company. 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).
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
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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.
The Proposed Regulations would, if adopted, alter the aforegoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions and other rules under which Non-United States Holders may
be subject to backup withholding in the absence of required certifications and
would modify the definition of an "exempt recipient" in the case of a
corporation.
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.
84
<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
85
<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
86
<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
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.
The Company has applied to have the Common Stock approved for listing on The
New York Stock Exchange under the symbol " ."
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 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.
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
87
<PAGE>
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, and the price-earnings ratios,
price-sales 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.
88
<PAGE>
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.
89
<PAGE>
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 June 30, 1997......................................................... F-20
Consolidated Statements of Income for the Six Months Ended June 30, 1997 and 1996...................... F-21
Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 1997 and 1996......... F-22
Consolidated Statements of Cash Flows for the Six Months Ended June 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 June 30, 1997 (unaudited)................................... F-27
Statements of Income and Retained Earnings for the Year Ended December 31, 1996 and the Six Months
Ended June 30, 1997 (unaudited)....................................................................... F-28
Statements of Cash Flows for the Year Ended December 31, 1996 and the Six Months Ended June 30, 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.
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 August 25, 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 as well as limitations on payment of dividends and profit sharing
distributions. At December 31, 1996, the Company is in compliance with all debt
covenants.
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. 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 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 in which the
Company has 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.
Beginning on August 25, 1997 certain former employees have asserted claims
against the Company arising out of the termination of the Company's Stock
Appreciation Rights (SAR) Plan. The SAR Plan provided key employees
participation in stockholder gains realized upon occurrence of a future capital
event such as an initial public offering. While the Company believes that the
stock apprecation rights held by these former employees have been effectively
terminated and intends to contest vigorously their allegations to the contrary,
there can be no assurance that the Company will prevail in any litigation that
may ensue. If the Company is unsuccessful in the defense of this matter,
payments required upon occurrence of a capital event such as an initial public
offering could have a material adverse effect on the Company, its financial
condition and results of operations.
F-19
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents................................................... $ 38,675
Accounts receivable, net of allowance for doubtful accounts of $556......... 27,080
Receivables from affiliates................................................. 1,216
Notes and other receivables................................................. 7,697
Deferred income taxes....................................................... 96
Real estate held for sale................................................... 36,577
---------
Total current assets...................................................... 111,341
Furniture and equipment, net.................................................. 5,861
Deferred income taxes......................................................... 7,475
Investments in unconsolidated subsidiaries.................................... 5,936
Other assets.................................................................. 9,889
---------
$ 140,502
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................................................ $ 5,025
Accrued expenses............................................................ 23,849
Payables to affiliates...................................................... 1,765
Income taxes payable........................................................ 1,673
Current portion of long-term debt........................................... 4,170
Notes payable on real estate held for sale.................................. 32,551
Other current liabilities................................................... 445
---------
Total current liabilities................................................. 69,478
Long-term debt, less current portion.......................................... 9,415
Deferred compensation......................................................... 28,381
Other liabilities............................................................. 694
---------
Total liabilities......................................................... 107,968
Minority interest............................................................. 5,378
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........................................................... 12,398
Less: Stockholder loans..................................................... (6,938)
Treasury stock............................................................ (2,388)
---------
Total stockholders' equity.................................................... 27,156
---------
$ 140,502
---------
---------
</TABLE>
See accompanying notes.
F-20
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
REVENUES
Property management services......................................................... $ 43,842 $ 44,498
Brokerage services................................................................... 36,918 27,925
Infrastructure management services................................................... 29,559 21,384
Development and construction services................................................ 14,082 10,066
Retail services...................................................................... 495 706
---------- ----------
124,896 104,579
Income from investments in unconsolidated subsidiaries............................... 1,226 155
Gain on disposition of real estate................................................... 1,696 3,130
Other income......................................................................... 3,624 2,832
---------- ----------
131,442 110,696
COSTS AND EXPENSES
Salaries, wages and benefits......................................................... 72,049 65,740
Commissions.......................................................................... 15,457 9,751
General and administrative........................................................... 23,450 17,989
Profit sharing....................................................................... 7,418 6,936
Depreciation and amortization........................................................ 2,049 1,380
Interest............................................................................. 2,113 798
Royalty and consulting fees.......................................................... 1,524 1,425
Minority interest.................................................................... 356 145
---------- ----------
124,416 104,164
---------- ----------
Income before income taxes............................................................. 7,026 6,532
Income taxes........................................................................... 2,740 2,564
---------- ----------
Net income............................................................................. $ 4,286 $ 3,968
---------- ----------
---------- ----------
Earnings per share..................................................................... $ 231 $ 457
---------- ----------
---------- ----------
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............................................. 18,544 8,691
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 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............................ -- -- -- 4,286 -- -- 4,286
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 June 30, 1997................ 19,374 963 $ 24,084 $ 12,398 $ (2,388) $ (6,938) $ 27,156
----------- --- --------- ----------- ----------- ------------- ---------
----------- --- --------- ----------- ----------- ------------- ---------
</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>
SIX MONTHS ENDED JUNE
30,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................ $ 4,286 $ 3,969
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization........................................................... 2,049 1,380
Minority interest....................................................................... 356 145
Deferred income tax provision........................................................... 313 1,133
Income from investments in unconsolidated subsidiaries.................................. (1,226) (155)
Gain on disposition of real estate...................................................... (1,696) (3,130)
Expenditures for real estate held for sale.............................................. (38,534) (24,332)
Proceeds from sale of real estate....................................................... 39,272 34,781
Proceeds from real estate notes payable................................................. 32,544 20,513
Payments on real estate notes payable................................................... (32,403) (24,479)
Changes in operating assets and liabilities:
Accounts receivable................................................................... 4,300 1,272
Receivables from affiliates........................................................... 1,059 320
Notes and other assets................................................................ (4,579) 305
Accounts payable and accrued expenses................................................. (19,680) (23,016)
Payable to affiliates................................................................. (3,884) (2,043)
Income taxes payable.................................................................. (1,580) 871
Deferred compensation................................................................. 7,418 6,404
Other liabilities..................................................................... (289) 184
---------- ----------
Net cash used in operating activities..................................................... (12,274) (5,878)
---------- ----------
INVESTING ACTIVITIES
Expenditures for furniture and equipment.................................................. (1,245) (570)
Acquisition of investments in unconsolidated subsidiaries................................. (3,875) (943)
Distributions from investments in unconsolidated subsidiaries............................. 2,996 555
Contributions from minority interest...................................................... 2,632 511
Cash distributions to minority interest................................................... (904) (554)
---------- ----------
Net cash used in investing activities..................................................... (396) (1,001)
---------- ----------
FINANCING ACTIVITIES
Principal payments on debt................................................................ (4,224) (1,628)
Proceeds from debt........................................................................ 4,076 161
Purchase of common stock.................................................................. (730) --
Payment of stock loans.................................................................... 1,918 --
Dividends paid............................................................................ (8,200) (2,890)
---------- ----------
Net cash used in financing activities..................................................... (7,160) (4,357)
---------- ----------
Net decrease in cash and cash equivalents................................................. (19,830) (11,236)
Cash and cash equivalents, beginning of period............................................ 58,505 40,155
---------- ----------
Cash and cash equivalents, end of period.................................................. $ 38,675 $ 28,919
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-23
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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.
F-24
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3. REAL ESTATE HELD FOR SALE
During the six months ended June 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 $1.7 million. During the six months ended June 30, 1996,
the Company sold eleven real estate projects for an aggregate sales price of
$34.8 million, resulting in a gain on disposition of $3.1 million. The estimated
costs to complete the four projects under construction at June 30, 1997, total
$13.3 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 in which the
Company has a 16% limited partner interest.
As of June 30, 1997, $9.8 million of the $32.6 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 $24.2
million as of June 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
Beginning on August 25, 1997 certain former employees have asserted claims
against the Company arising out of the termination of the Company's Stock
Appreciation Rights (SAR) Plan. The SAR Plan provided key employees
participation in stockholder gains realized upon occurrence of a future capital
event such as an initial public offering. While the Company believes that the
stock appreciation rights held by these former employees have been effectively
terminated and intends to contest vigorously their allegations to the contrary,
there can be no assurance that the Company will prevail in any litigation that
may ensue. If the Company is unsuccessful in the defense of this matter,
payments required upon occurrence of a capital event such as an initial public
offering could have a material adverse effect on the Company, its financial
condition and results of operations.
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, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash............................................................................................... $ 31,695 $ 530,430
Accounts receivable................................................................................ 2,263,961 2,050,481
Loans to shareholder............................................................................... 398,929 450,327
Other current assets............................................................................... 87,960 107,122
------------ -----------
Total current assets................................................................................. 2,782,545 3,138,360
Furniture and equipment, net......................................................................... 36,580 32,281
------------ -----------
$2,819,125 $ 3,170,641
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................................... $ 306,198 $ 533,096
Accrued expenses................................................................................... 300,499 1,117,116
Notes payable...................................................................................... 175,000 --
Deferred revenue................................................................................... 79,430 135,677
------------ -----------
Total liabilities.................................................................................... 861,127 1,785,889
Shareholders' equity
Common stock; $10 par value; 750 shares authorized and issued...................................... 7,500 7,500
Retained earnings.................................................................................. 1,950,498 1,377,252
------------ -----------
Total shareholders' equity........................................................................... 1,957,998 1,384,752
------------ -----------
$2,819,125 $ 3,170,641
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-27
<PAGE>
DOPPELT & COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Commissions................................................................................ $8,992,464 $3,888,731
Interest income............................................................................ 35,661 22,914
----------------- ----------------
9,028,125 3,911,645
COSTS AND EXPENSES
Salaries, wages and benefits............................................................... 6,773,090 3,361,239
General and administrative................................................................. 1,842,454 945,246
Depreciation and amortization.............................................................. 30,674 13,352
----------------- ----------------
8,646,218 4,319,837
----------------- ----------------
NET INCOME (LOSS).......................................................................... 381,907 (408,192)
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 $1,377,252
----------------- ----------------
----------------- ----------------
</TABLE>
See accompanying notes.
F-28
<PAGE>
DOPPELT & COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................................................... $ 381,907 $(408,192)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization........................................................... 30,674 13,352
Changes in operating assets and liabilities
Accounts receivable................................................................... (387,813) 213,480
Other current assets.................................................................. (44,208) (19,162)
Accounts payable...................................................................... 81,701 226,898
Accrued expenses...................................................................... 66,221 816,617
Deferred revenue...................................................................... 66,890 56,247
----------------- -----------------
Net cash provided by operating activities................................................. 195,372 899,240
INVESTING ACTIVITY
Expenditures for furniture and equipment.................................................. (14,438) (9,053)
----------------- -----------------
Net cash used in investing activity....................................................... (14,438) (9,053)
FINANCING ACTIVITIES
Principal payments on debt................................................................ -- (175,000)
Proceeds from debt........................................................................ 175,000 --
Loans to shareholder...................................................................... (147,100) (51,398)
Dividends paid............................................................................ (303,336) (165,054)
----------------- -----------------
Net cash used in financing activities..................................................... (275,436) (391,452)
----------------- -----------------
Net (decrease) increase in cash........................................................... (94,502) 498,735
Cash at beginning of period............................................................... 126,197 31,695
----------------- -----------------
Cash at end of period..................................................................... $ 31,695 $ 530,430
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes.
F-29
<PAGE>
DOPPELT & COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND JUNE 30, 1997
(INFORMATION AS TO JUNE 30, 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 June 30, 1997, and the results of operations and cash flows for
the six months ended June 30, 1997. The results of the six months ended June 30,
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 $712,508 for the six
months ended June 30, 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 JUNE 30, 1997
(INFORMATION AS TO JUNE 30, 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 66% from the same two customers for the six months
ended June 30, 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, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Furniture and equipment, at cost.................................. $ 271,927 $ 280,980
Less: accumulated depreciation.................................. (235,347) (248,699)
------------ -----------
Furniture and equipment, net...................................... $ 36,580 $ 32,281
------------ -----------
------------ -----------
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
Accrued payroll and payroll taxes................................ $ 160,789 $ 743,431
Consulting and financial advisory services payable............... 59,799 166,215
Other............................................................ 79,911 207,470
------------ ------------
$ 300,499 $ 1,117,116
------------ ------------
------------ ------------
</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 $106,416 for
the six months ended June 30, 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 six months ended June 30, 1997. The borrowings of
$175,000 were repaid by
F-31
<PAGE>
DOPPELT & COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND JUNE 30, 1997
(INFORMATION AS TO JUNE 30, 1997 IS UNAUDITED)
4. NOTES PAYABLE (CONTINUED)
February 1997, and there have been no additional borrowings during the six
months ended June 30, 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 $18,000 for
the six months ended June 30, 1997.
6. OPERATING LEASES
The Company has commitments under operating leases for office space and
office equipment. Rent expense was $104,149 and $57,685 in 1996 and the six
months ended June 30, 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 $57,000 in 1996 and the six months ended June 30, 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 , 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 OWNERSHIP OF THE
COMPANY'S REAL ESTATE SERVICES BUSINESS WAS SEPARATED FROM
OWNERSHIP OF THE COMMERCIAL REAL ESTATE ASSET BASE OWNED BY
THE COMPANY'S PREDECESSOR.
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL " ".
------------------------
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 $2,000,000.
(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 ALEX. BROWN INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
BANCAMERICA ROBERTSON STEPHENS
, 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.............................. $ 26,137
NASD filing fee............................................................ *
New York Stock Exchange listing fee........................................ *
Printing expenses.......................................................... *
Legal fees and expenses.................................................... *
Accounting fees and expenses............................................... *
Blue Sky fees and expenses................................................. *
Transfer agent's and registrar's fees...................................... *
Miscellaneous expenses..................................................... *
---------
Total.................................................................... *
---------
---------
</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>
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
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, Crow Family Partnership L.P.
and certain other signatories thereto
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., 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.
*** To be filed by amendment.
(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 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
II-3
<PAGE>
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. 1 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 22nd day of October, 1997.
<TABLE>
<S> <C> <C>
TRAMMELL CROW COMPANY
By: /s/ GEORGE L. LIPPE
-----------------------------------------
George L. Lippe
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act, this Amendment No. 1 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 October 22, 1997
George L. Lippe Officer); Director
Executive Vice President
/s/ ASUKA NAKAHARA* and Chief Financial
- ------------------------------ Officer (Principal October 22, 1997
Asuka Nakahara Financial Officer)
/s/ WILLIAM P. LEISER* Executive Vice President
- ------------------------------ and Treasurer (Principal October 22, 1997
William P. Leiser Accounting Officer)
/s/ HARLAN R. CROW*
- ------------------------------ Director October 22, 1997
Harlan R. Crow
/s/ J. MCDONALD WILLIAMS*
- ------------------------------ Director October 22, 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
-------------------------------------
FURNITURE, COSTS
BUILDINGS FIXTURES SUBSEQUENT
RELATED AND & TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS EQUIPMENT ACQUISITION
- ---------------------------------------- ------------ ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
RETAIL
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
---------------------------------
FURNITURE,
BUILDINGS FIXTURES
AND & DATE OF DATE DEPRECIABLE
DESCRIPTION LAND IMPROVEMENTS EQUIPMENT TOTAL CONSTRUCTION ACQUIRED LIVES(D)
- ---------------------------------------- ------- ------------ --------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL
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.
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
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, Crow Family Partnership L.P.
and certain other signatories thereto
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., 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.
*** To be filed by amendment.
<PAGE>
TEMPORARY CERTIFICATE:EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE
WHEN READY FOR DELIVERY.
COMMON COMMON
NUMBER SHARES
TRAMMELL CROW COMPANY
PAR VALUE $.01 PAR VALUE $.01
THIS CERTIFICATE TRANSFERABLE IN CUSIP 89288R 10 6
DALLAS, TX AND NEW YORK, NY SEE REVERSE FOR
CERTAIN DEFINITIONS
TRAMMELL CROW COMPANY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS
CERTIFIES
THAT
IS THE
OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF
TRAMMEL CROW COMPANY TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER
HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS
CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE AND THE SHARES REPRESENTED
HEREBY ARE ISSUED UNDER AND SHALL BE SUBJECT TO ALL OF THE PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE CORPORATION AND ANY AMENDMENTS
THERETO, COPIES OF WHICH ARE ON FILE WITH THE CORPORATION AND THE TRANSFER
AGENT, TO ALL OF WHICH THE HOLDER BY ACCEPTANCE HEREOF, ASSENTS. THIS
CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED AND REGISTERED BY THE TRANSFER
AGENT AND REGISTRAR. WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE
FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
CERTIFICATE OF STOCK
/s/ George L. Lippe TRAMMELL CROW COMPANY
CORPORATE Dated:
PRESIDENT AND CHIEF SEAL
EXECUTIVE OFFICER 1997 COUNTERSIGNED
DELAWARE AND REGISTERED:
* CHASEMELLON
SHAREHOLDER
SERVICES, L.L.C.
TRANSFER AGENT
AND REGISTRAR
BY
/s/ William P. Leiser
SECRETARY AND TREASURER
AUTHORIZED SIGNATURE
<PAGE>
[LOGO]
TRAMMELL CROW COMPANY
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF
THE CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST SHOULD BE MADE TO THE CORPORATION OR
TO THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
UNIF GIFT MIN ACT --
TENCOM -- as tenants in common ________ Custodian ______
TENENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,____________________
NOTICE: X__________________________________________
THE SIGNATURE(S) TO THIS (SIGNATURE)
ASSIGNMENT MUST CORRE-
SPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTER-
ATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER. X__________________________________________
(SIGNATURE)
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM). PURSUANT TO
SEC. RULE 17A-d-15
-------------------------------------------
SIGNATURE(S) GUARANTEED BY:
<PAGE>
TRAMMELL CROW COMPANY
1997 STOCK OPTION PLAN
SCOPE AND PURPOSE OF PLAN
Trammell Crow Company, a Texas corporation (the "CORPORATION"), has adopted
this 1997 Stock Option Plan (the "PLAN") to provide for the granting of
Nonstatutory Options to certain Key Employees.
The purpose of the Plan is to provide an equity ownership opportunity for
certain Key Employees commensurate with their positions with the Corporation and
its Subsidiaries and to provide an incentive for such Key Employees to remain in
the service of the Corporation or its Subsidiaries.
SECTION 1. DEFINITIONS
1.1 "Award" means the grant of an Option to a Holder pursuant to the
terms, conditions, and limitations that the Committee may establish in order to
fulfill the objectives of the Plan.
1.2 "Award Agreement" means the written document or agreement delivered to
Holder evidencing the terms, conditions, and limitations of an Award that the
Corporation granted to that Holder.
1.3 "Board of Directors" means the board of directors of the Corporation.
1.4 "Business Day" means any day other than a Saturday, a Sunday, or a day
on which banking institutions in the State of Texas are authorized or obligated
by law or executive order to close.
1.5 "Change in Control" means the occurrence of any of the following
events:
(i) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Corporation or an acquisition of assets of another corporation (a "BUSINESS
COMBINATION"), in each case, unless, following such Business Combination, all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one or
more subsidiaries); or
(ii) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Committee" means any committee or subcommittee appointed pursuant to
Section 3 by the Board of Directors to administer this Plan.
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1.8 "Corporation" means Trammell Crow Company, a Texas corporation, or its
successor pursuant to any provision of this Plan.
1.9 "Date of Grant" has the meaning given it in Paragraph 4.3.
1.10 "Eligible Individuals" shall have the same meaning as Key Employees.
1.11 "Employee" means any employee of the Corporation or of any of its
Subsidiaries, including officers and directors of the Corporation who are also
employees of the Corporation or of any of its Subsidiaries.
1.12 "Exchange Act" means the Securities Exchange Act of 1934.
1.13 "Exercise Notice" has the meaning given it in Paragraph 5.5.
1.14 "Exercise Price" has the meaning given it in Paragraph 5.4.
1.15 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities exchange
at the date of determining the Fair Market Value, then the last reported
sale price, regular way, on the composite tape of that exchange on the last
Business Day before the date in question or, if no such sale takes place on
that Business Day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to unlisted
trading privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subparagraph 1.15(a) and if
sales prices for shares of Stock of the same class in the over-the-counter
market are reported by NASDAQ National Market System at the date of
determining the Fair Market Value, then the last reported sales price so
reported on the last Business Day before the date in question or, if no
such sale takes place on that Business Day, the average of the high bid and
low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subparagraph 1.15(a) and
sales prices for shares of Stock of the same class are not reported by the
NASDAQ National Market System (or a similar system then in use) as provided
in Subparagraph 1.15(b), and if bid and asked prices for shares of Stock of
the same class in the over-the-counter market are reported by NASDAQ (or,
if not so reported, by the National Quotation Bureau Incorporated) at the
date of determining the Fair Market Value, then the average of the high bid
and low asked prices on the last Business Day before the date in question;
or
(d) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subparagraph 1.15(a) and
sales prices or bid and asked prices therefor are not reported by NASDAQ
(or the National Quotation Bureau Incorporated) as provided in
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Subparagraph 1.15(b) or Subparagraph 1.15(c) at the date of determining
the Fair Market Value, then the value determined in good faith by the
Committee, which determination shall be conclusive for all purposes (in
such circumstances, the Committee may, but shall not be required to,
rely on an independent appraisal of the Corporation or the Stock in
making its determination of Fair Market Value); or
(e) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.15(a) or sales
prices or bid and asked prices therefor are reported by NASDAQ (or the
National Quotation Bureau Incorporated) as provided in Subparagraph 1.15(b)
or Subparagraph 1.15(c) at the date of determining the Fair Market Value,
but the volume of trading is so low that the Board of Directors determines
in good faith that such prices are not indicative of the fair value of the
Stock, then the value determined in good faith by the Committee, which
determination shall be conclusive for all purposes notwithstanding the
provisions of Subparagraphs 1.15(a), (b), or (c).
For purposes of the redemption provided for in Subparagraph 6.3(d)(v), Fair
Market Value shall have the meaning and shall be determined as provided above;
PROVIDED, HOWEVER, that the Committee, with respect to any such redemption,
shall have the right to determine that the Fair Market Value for purposes of the
redemption should be an amount measured by the value of the shares of stock,
other securities, cash or property otherwise being received by holders of shares
of Stock in connection with the Restructure, and upon that determination the
Committee shall have the power and authority to determine Fair Market Value for
purposes of the redemption based upon the value of such shares of stock, other
securities, cash or property. Any such determination by the Committee shall be
conclusive for all purposes.
1.16 "Holder" means an Eligible Individual to whom an Award has been
granted.
1.17 "Incentive Option" means an incentive stock option as defined under
Section 422 of the Code and regulations thereunder.
1.18 "Initial Public Offering" shall mean the sale by the Corporation of
shares of its common stock to the public in a firm commitment underwriting
registered pursuant to the Securities Act.
1.19 "Key Employee" means any Employee whom the Committee identifies as
having a direct and significant effect on the performance of the Corporation or
any of its Subsidiaries.
1.20 "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotations, Inc.
1.21 "Nonstatutory Option" means a stock option that does not satisfy the
requirements of Section 422 of the Code or that is designated at the Date of
Grant or in the applicable Option Agreement to be an option other than an
Incentive Option.
1.22 "Non-Surviving Event" means an event of Restructure as described in
either subparagraph (b) or (c) of Paragraph 1.27.
1.23 "Option Agreement" means an Award Agreement for an Option.
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1.24 "Option" means a Nonstatutory Option granted pursuant to the Plan.
1.25 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a limited liability company, a partnership, a trust or other
entity. A Person, together with that Person's affiliates and associates (as
those terms are defined in Rule 12b-2 under the Exchange Act for purposes of
this definition only), and any Persons acting as a partnership, limited
partnership, joint venture, association, syndicate or other group (whether or
not formally organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to any
express agreement), for the purpose of acquiring, holding, voting or disposing
of securities of the Corporation with that Person, shall be deemed a single
"Person."
1.26 "Plan" means the Trammell Crow Company 1997 Stock Option Plan, as it
may be amended from time to time.
1.27 "Restructure" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any Person,
whether effected as a single transaction or a series of related
transactions, with the Corporation remaining the continuing or surviving
entity of that merger or consolidation and the Stock remaining outstanding
and not changed into or exchanged for stock or other securities of any
other Person or of the Corporation, cash, or other property;
(b) The merger or consolidation of the Corporation with any Person,
whether effected as a single transaction or a series of related
transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger or consolidation or (ii) the Corporation
remaining the continuing or surviving entity of that merger or
consolidation but all or a part of the outstanding shares of Stock are
changed into or exchanged for stock or other securities of any other Person
or the Corporation, cash, or other property; or
(c) The transfer, directly or indirectly, of all or substantially all
of the assets of the Corporation (whether by sale, merger, consolidation,
liquidation or otherwise) to any Person whether effected as a single
transaction or a series of related transactions.
1.28 "Securities Act" means the Securities Act of 1933.
1.29 "Stock" means the authorized Class E common stock, par value $.01 per
share, as described in the Corporation's Certificate of Incorporation, or any
other securities that are substituted for the Stock as provided in Section 6.
1.30 "Subsidiary" means, with respect to any Person, any corporation,
limited partnership, limited liability company, or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by that Person.
1.31 "Total Shares" has the meaning given it in Paragraph 6.2.
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1.32 "Voting Securities" means any securities that are entitled to vote
generally in the election of directors, in the admission of general partners, or
in the selection of any other similar governing body.
SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 MAXIMUM NUMBER OF SHARES. Subject to the provisions of Section 6 of
the Plan, the aggregate number of shares of Stock that the Corporation may have
subject to outstanding Awards at one time under the Plan shall not exceed 1,626.
2.2 DETERMINATION OF AVAILABLE SHARES. In computing the total number of
shares of Stock subject to outstanding Awards at one time under the Plan, the
Committee shall count the number of shares of Stock subject to issuance upon
exercise or settlement of outstanding Options and the number of shares of Stock
that have been issued upon prior exercise or settlement of Awards.
2.3 RESTORATION OF UNUSED AND SURRENDERED SHARES. If Stock subject to any
Award is not issued or transferred, or ceases to be issuable or transferable for
any reason, including (but not exclusively) because an Award is forfeited,
terminated, expires unexercised, or is exchanged for other Awards, the shares of
Stock that were subject to that Award shall no longer be charged against the
number of available shares and, subject to Section 8.1, shall again be available
for issue, transfer, or exercise pursuant to Awards under the Plan to the extent
of such forfeiture, termination, expiration, or other cessation of its
subjection to an Award.
2.4 DESCRIPTION OF SHARES. The shares to be delivered under the Plan
shall be made available from (a) authorized but unissued shares of Stock, (b)
Stock held in the treasury of the Corporation, or (c) previously issued shares
of Stock reacquired by the Corporation, including shares purchased on the open
market, in each situation as the Board of Directors or the Committee may
determine from time to time at its sole option.
2.5 REGISTRATION AND LISTING OF SHARES. From time to time, the Board of
Directors and appropriate officers of the Corporation shall be and are
authorized to take whatever actions are necessary to file required documents
with governmental authorities, stock exchanges, and other appropriate Persons to
make shares of Stock available for issuance pursuant to Awards.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 COMMITTEE. The Board of Directors shall administer the Plan with
respect to all Eligible Individuals or may delegate all or part of its duties
under this Plan to the Committee or to any officer or committee of officers of
the Corporation, subject in each case to such conditions and limitations as the
Board of Directors may establish. The number of persons that shall constitute
the Committee shall be determined from time to time by a majority of all the
members of the Board of Directors. Except for references in Paragraphs 3.1,
3.2, and 3.3 and unless the context otherwise requires, references herein to the
Committee shall also refer to the Board of Directors as administrator of the
Plan for Eligible Individuals or to the appropriate delegate of the Committee or
the Board of Directors.
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3.2 DURATION, REMOVAL, ETC. The members of the Committee shall serve at
the pleasure of the Board of Directors, which shall have the power, at any time
and from time to time, to remove members from or add members to the Committee.
Removal from the Committee may be with or without cause. The Board of
Directors, and not the remaining members of the Committee, shall have the power
and authority to fill vacancies on the Committee, however caused.
3.3 MEETINGS AND ACTIONS OF COMMITTEE. The Board of Directors shall
designate which of the Committee members shall be the chairman of the
Committee. If the Board of Directors fails to designate a Committee chairman,
the members of the Committee shall elect one of the Committee members as
chairman, who shall act as chairman until he ceases to be a member of the
Committee or until the Board of Directors elects a new chairman. The
Committee shall hold its meetings at those times and places as the chairman
of the Committee may determine. At all meetings of the Committee, a quorum
for the transaction of business shall be required, and a quorum shall be
deemed present if at least a majority of the members of the Committee are
present. At any meeting of the Committee, each member shall have one vote.
All decisions and determinations of the Committee shall be made by the
majority vote or majority decision of all of its members present at a meeting
at which a quorum is present; provided, however, that any decision or
determination reduced to writing and signed by all of the members of the
Committee shall be as fully effective as if it had been made at a meeting
that was duly called and held. The Committee may make any rules and
regulations as it may deem advisable for the conduct of its business that are
not inconsistent with the provisions of the Plan, the Certificate of
Incorporation or the by-laws of the Corporation.
3.4 COMMITTEE'S POWERS. Subject to the express provisions of the Plan and
any applicable law with which the Corporation intends the Plan to comply, the
Committee shall have the authority, in its sole and absolute discretion, (a) to
adopt, amend, and rescind administrative and interpretive rules and regulations
relating to the Plan, including without limitation to adopt and observe such
procedures concerning the counting of Awards against the Plan as it may deem
appropriate from time to time; (b) to determine the Eligible Individuals to
whom, and the time or times at which, Awards shall be granted; (c) to determine
the number of shares of Stock that shall be the subject of each Award; (d) to
determine the terms and provisions of each Award Agreement (which need not be
identical), including provisions defining or otherwise relating to (i) the term
and the period or periods and extent of exercisability of the Options, (ii) the
extent to which the transferability of shares of Stock issued or transferred
pursuant to any Award is restricted, (iii) the effect of termination of
employment on the Award, and (iv) the effect of approved leaves of absence
(consistent with any applicable regulations of the Internal Revenue Service);
(e) to accelerate, pursuant to Section 6, the time of exercisability of any
Option that has been granted; (f) to construe the respective Award Agreements
and the Plan; (g) to make determinations of the Fair Market Value of the Stock
pursuant to the Plan; (h) to delegate its duties under the Plan to such agents
as it may appoint from time to time, subject to the second sentence of Section
3.1; and (i) to make all other determinations, perform all other acts, and
exercise all other powers and authority necessary or advisable for administering
the Plan, including the delegation of those ministerial acts and
responsibilities as the Committee deems appropriate. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in the Plan, in
any Award, or in any Award Agreement in the manner and to the extent it deems
necessary or desirable to carry the Plan into effect, and the Committee shall be
the sole and final judge of that necessity or desirability. The determinations
of the Committee on the matters referred to in this Paragraph 3.4 shall be final
and conclusive. The Committee shall not have the power to appoint members of
the Committee or to terminate, modify, or amend the Plan. Those powers are
vested in the Board of Directors.
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3.5 TRANSFERABILITY OF AWARDS. Notwithstanding any limitation on a
Holder's right to transfer an Award, the Committee may (in its sole discretion)
permit a Holder to transfer an Award, or may cause the Corporation to grant an
Award that otherwise would be granted to an Eligible Individual, in any of the
following circumstances: (a) pursuant to a qualified domestic relations order
or (b) to the spouse of the Eligible Individual or to any of the parents,
children and grandchildren of the Eligible Individual or spouse or to a trust
whose sole beneficiaries are one or more such persons. If the Committee
determines to allow such transfers or issuances of Awards, any Holder or
Eligible Individual desiring such transfers or issuances shall make application
therefor in the manner and time that the Committee specifies and shall comply
with such other requirements as the Committee may require to assure compliance
with all applicable laws, including securities laws, and to assure fulfillment
of the purposes of this Plan. The Committee shall not authorize any such
transfer or issuance if it may not be made in compliance with all applicable
federal, state and foreign securities laws. The granting of permission for such
an issuance or transfer shall not obligate the Corporation to register the
shares of Stock to be issued under the applicable Award.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBLE INDIVIDUALS. Awards may be granted pursuant to the Plan only
to persons who are Eligible Individuals at the time of the grant thereof.
4.2 GRANT OF AWARDS. Subject to the express provisions of the Plan, the
Committee shall determine which Eligible Individuals shall be granted Awards
from time to time. In making grants, the Committee shall take into
consideration the position or positions of the potential Holder with the
Corporation and its Subsidiaries, the contribution the potential Holder has made
or may make to the success of the Corporation or its Subsidiaries and such other
considerations as the Board of Directors may from time to time specify. The
Committee shall also determine the number of shares subject to each of the
Awards and shall authorize and cause the Corporation to grant Awards in
accordance with those determinations.
4.3 DATE OF GRANT. The date on which an Award is granted (the "DATE OF
GRANT") shall be the date specified by the Committee as the effective date or
date of grant of an Award or, if the Committee does not so specify, shall be the
date effective as of which the Committee adopts the resolution approving the
offer of an Award to an individual, including the specification of the number
(or method of determining the number) of shares of Stock, even though certain
terms of the Award Agreement may not be determined at that time and even though
the Award Agreement may not be executed or delivered until a later time. In no
event shall a Holder gain any rights in addition to those specified by the
Committee in its grant, regardless of the time that may pass between the grant
of the Award and the actual execution or delivery of the Award Agreement by the
Corporation or the Holder. The Committee may invalidate an Award at any time
before the Award Agreement is signed by the Holder (if signature is required) or
is delivered to the Holder (if signature is not required), and such Award shall
be treated as never having been granted.
4.4 AWARD AGREEMENTS. Each Award granted under the Plan shall be
evidenced by an Award Agreement that incorporates those terms that the Committee
shall deem necessary or desirable. More than one Award may be granted under the
Plan to the same Eligible Individual and be outstanding concurrently.
4.5 NO RIGHT TO AWARD. The adoption of the Plan shall not be deemed to
give any Person a right to be granted an Award.
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SECTION 5. TERMS AND CONDITIONS OF OPTIONS
All Options granted under the Plan shall comply with, and the related
Option Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 5 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Sections 6 and 7.
5.1 NUMBER OF SHARES. Each Option Agreement shall state the total number
of shares of Stock to which it relates.
5.2 VESTING; EXERCISABILITY. Each Option Agreement shall state the time,
periods or other conditions on which the right to exercise the Option or a
portion thereof shall vest, the time, periods or other conditions on which
vested Options shall be exercisable and the number (or method of determining the
number) of shares of Stock for which the right to exercise the Option shall
vest, or such vested Option shall become exercisable, at each such time, period
or satisfaction of condition.
5.3 EXPIRATION OF OPTIONS. Options may be exercised during the term
determined by the Committee and set forth in the Option Agreement; PROVIDED that
no Option shall be exercised after the expiration of a period of ten years
commencing on the Date of Grant of such Option.
5.4 EXERCISE PRICE. Each Option Agreement shall state the exercise
price per share of Stock (the "EXERCISE PRICE"). The Exercise Price shall not
be less than the greater of (a) the par value per share of the Stock or (b) 100%
of the Fair Market Value per share of the Stock on the Date of Grant of the
Option.
5.5 METHOD OF EXERCISE. Each Option shall be exercisable only by written,
recorded electronic or other notice of exercise in the manner specified by the
Committee from time to time (the "EXERCISE NOTICE") delivered to the Corporation
or to the Person designated by the Committee during the term of the Option,
which notice shall (a) state the number of shares of Stock with respect to which
the Option is being exercised, (b) be signed or otherwise given by the Holder of
the Option or by the person authorized to exercise the Option in the event of
the Holder's death or disability, (c) be accompanied by the Exercise Price for
all shares of Stock for which the Option is exercised, unless provision for the
payment of the Exercise Price has been made pursuant to Paragraph 5.6 or 5.7 or
in another manner permitted by law and approved in advance by the Committee, and
(d) include such other information, instruments, and documents as may be
required to satisfy any other condition to exercise contained in the Option
Agreement. The Option shall not be deemed to have been exercised unless all of
the requirements of the preceding provisions of this Paragraph 5.5 have been
satisfied.
5.6 MEDIUM AND TIME OF PAYMENT. The Exercise Price of an Option shall be
payable in full upon the exercise of the Option (a) in cash or by an equivalent
means (such as that specified in Paragraph 5.7) acceptable to the Committee, (b)
on the Committee's prior consent, with shares of Stock owned by the Holder
(including shares received upon exercise of the Option) and having a Fair Market
Value at least equal to the aggregate Exercise Price payable in connection with
such exercise, or (c) by any combination of clauses (a) and (b). If the
Committee chooses to accept shares of Stock in payment of all or any portion of
the Exercise Price, then (for purposes of payment of the Exercise Price) those
shares of Stock shall be
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deemed to have a cash value equal to their aggregate Fair Market Value
determined as of the date of the delivery of the Exercise Notice.
5.7 PAYMENT WITH SALE PROCEEDS. In addition, at the request of the Holder
and to the extent permitted by applicable law, the Committee may (but shall not
be required to) approve arrangements with a brokerage firm under which that
brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised (either as a loan to the Holder or
from the proceeds of the sale of Stock issued pursuant to that exercise of the
Option), and the Corporation shall promptly cause the exercised shares to be
delivered to the brokerage firm. Such transactions shall be effected in
accordance with the procedures that the Committee may establish from time to
time.
5.8 PAYMENT OF TAXES. The Committee may, in its discretion, require a
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation), at the time of the exercise
of an Option, the amount that the Committee deems necessary to satisfy the
Corporation's or its Subsidiary's current or future obligation to withhold
federal, state or local income or other taxes that the Holder incurs by
exercising an Option. Upon the exercise of an Option requiring tax withholding,
a Holder may (a) direct the Corporation to withhold from the shares of Stock to
be issued to the Holder the number of shares necessary to satisfy the
Corporation's obligation to withhold taxes, that determination to be based on
the shares' Fair Market Value as of the date on which tax withholding is to be
made; (b) deliver to the Corporation sufficient shares of Stock (based upon the
Fair Market Value at date of withholding) to satisfy the Corporation's tax
withholding obligations, based on the shares' Fair Market Value as of the date
of exercise; or (c) deliver sufficient cash to the Corporation to satisfy its
tax withholding obligations. Holders who elect to use such a stock withholding
feature must make the election at the time and in the manner that the Committee
prescribes. The Committee may, at its sole option, deny any Holder's request to
satisfy withholding obligations through Stock instead of cash. In the event the
Committee subsequently determines that the aggregate Fair Market Value (as
determined above) of any shares of Stock withheld as payment of any tax
withholding obligation is insufficient to discharge that tax withholding
obligation, then the Holder shall pay to the Corporation, immediately upon the
Committee's request, the amount of that deficiency.
5.9 NO FRACTIONAL SHARES. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock, the
Corporation shall pay to the Holder an amount in cash equal to the same fraction
(as the fractional Stock) of the Fair Market Value of a share of Stock
determined as of the date of the applicable Exercise Notice.
5.10 MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the
terms and conditions of and within the limitations of the Plan and any
applicable law, and any consent required by the last sentence of this Paragraph
5.10, the Committee may (a) modify, extend or renew outstanding Options granted
under the Plan and (b) accept the surrender of Options outstanding hereunder (to
the extent not previously exercised) and authorize the granting of new Options
in substitution for outstanding Options (to the extent not previously
exercised). Nevertheless, without the consent of the Holder, the Committee may
not modify any outstanding Option so as to materially increase the obligations
of a Holder under any Option theretofore granted hereunder to that Holder
thereunder.
5.11 OTHER AGREEMENT PROVISIONS. The Option Agreements authorized
under the Plan shall contain such provisions in addition to those required by
the Plan (including, without limitation, restrictions
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or the removal of restrictions upon the exercise of the Option and the
retention or transfer of shares thereby acquired) as the Committee may deem
advisable. Each Option Agreement shall identify the Option evidenced thereby
as a Nonstatutory Option.
SECTION 6. ADJUSTMENT PROVISIONS
6.1 ADJUSTMENT OF AWARDS AND AUTHORIZED STOCK. The terms of an Award, the
number of shares of Stock authorized pursuant to Paragraph 2.1 for issuance
under the Plan shall be subject to adjustment, from time to time, in accordance
with the following provisions:
(a) If at any time or from time to time, the Corporation shall
subdivide as a whole (by reclassification, by a Stock split, by the
issuance of a distribution on Stock payable in Stock or otherwise) the
number of shares of Stock then outstanding into a greater number of shares
of Stock, then (i) the maximum number of shares of Stock available for the
Plan as provided in Paragraph 2.1 shall be increased proportionately, and
the kind of shares or other securities available for the Plan shall be
appropriately adjusted, (ii) the number of shares of Stock (or other kind
of shares or securities) that may be acquired under any Award shall be
increased proportionately, and (iii) the price (including Exercise Price)
for each share of Stock (or other kind of shares or unit of other
securities) subject to then outstanding Awards shall be reduced
proportionately, without changing the aggregate purchase price as to which
outstanding Awards remain exercisable.
(b) If at any time or from time to time the Corporation shall
consolidate as a whole (by reclassification, reverse Stock split, or
otherwise) the number of shares of Stock then outstanding into a lesser
number of shares of Stock, (i) the maximum number of shares of Stock
available for the Plan as provided in Paragraph 2.1 shall be decreased
proportionately, and the kind of shares or other securities available for
the Plan shall be appropriately adjusted, (ii) the number of shares of
Stock (or other kind of shares or securities) that may be acquired under
any Award shall be decreased proportionately, and (iii) the price
(including Exercise Price) for each share of Stock (or other kind of shares
or unit of other securities) subject to then outstanding Awards shall be
increased proportionately, without changing the aggregate purchase price as
to which outstanding Awards remain exercisable.
(c) Whenever the number of shares of Stock subject to outstanding
Awards and the price for each share of Stock subject to outstanding Awards
are required to be adjusted as provided in this Paragraph 6.1, the
Committee shall promptly prepare a notice setting forth, in reasonable
detail, the event requiring adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the change in price and
the number of shares of Stock, other securities, cash or property
purchasable subject to each Award after giving effect to the adjustments.
The Committee shall promptly give each Holder such a notice.
(d) Adjustments under Paragraph 6.1(a) and (b) shall be made by the
Committee, and its determination as to what adjustments shall be made and
the extent thereof shall be final, binding and conclusive. No fractional
interest shall be issued under the Plan on account of any such adjustments.
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6.2 CHANGES IN CONTROL. Upon the occurrence of a Change in Control, all
outstanding Options shall immediately become fully vested and exercisable in
full, including that portion of any Option that pursuant to the terms and
provisions of the applicable Award Agreement had not yet become exercisable (the
total number of shares of Stock as to which an Option is exercisable upon the
occurrence of a Change in Control is referred to herein as the "TOTAL SHARES").
If a Change in Control involves a Restructure or occurs in connection with a
series of related transactions involving a Restructure and if such Restructure
is in the form of a Non-Surviving Event and as a part of such Restructure shares
of stock, other securities, cash or property shall be issuable or deliverable in
exchange for Stock, then the Holder of an Award shall be entitled to purchase or
receive (in lieu of the Total Shares that the Holder would otherwise be entitled
to purchase or receive) the number of shares of stock, other securities, cash or
property to which that number of Total Shares would have been entitled in
connection with such Restructure at an aggregate exercise price equal to the
Exercise Price that would have been payable if that number of Total Shares had
been purchased on the exercise of the Option immediately before the consummation
of the Restructure. Nothing in this Paragraph 6.2 shall impose on a Holder the
obligation to exercise any Award immediately before or upon the Change of
Control, nor shall the Holder forfeit the right to exercise the Award during the
remainder of the original term of the Award because of a Change in Control or
because the Holder's employment is terminated for any reason following a Change
in Control.
6.3 RESTRUCTURE AND NO CHANGE IN CONTROL. In the event a Restructure
should occur at any time while there is any outstanding Award hereunder and that
Restructure does not occur in connection with a Change in Control or in
connection with a series of related transactions involving a Change in Control,
then:
(a) no outstanding Options shall immediately become fully vested and
exercisable in full merely because of the occurrence of the Restructure;
(b) at the option of the Committee, the Corporation may (but shall
not be required to) take any one or more of the following actions:
(i) accelerate in whole or in part the time of the vesting and
exercisability of any one or more of the outstanding Options so as to
provide that those Options shall be exercisable before, upon, or after
the consummation of the Restructure;
(ii) if the Restructure is in the form of a Non-Surviving Event,
cause the surviving entity to assume in whole or in part any one or
more of the outstanding Awards upon such terms and provisions as the
Committee deems desirable; or
(iii) redeem in whole or in part any one or more of the
outstanding Awards (whether or not then exercisable) in consideration
of a cash payment, as such payment may be reduced for tax withholding
obligations as contemplated in the Section governing the particular
form of Award, in an amount equal to, for Options, the excess of (1)
the Fair Market Value, determined as of a date immediately preceding
the consummation of the Restructure, of the aggregate number of shares
of Stock subject to the Award and as to which the Award is being
redeemed over (2) the Exercise Price for that number of shares of
Stock;
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The Corporation shall promptly notify each Holder of any election or action
taken by the Corporation under this Paragraph 6.3. In the event of any election
or action taken by the Corporation pursuant to this Paragraph 6.3 that requires
the amendment or cancellation of any Award Agreement as may be specified in any
notice to the Holder thereof, that Holder shall promptly deliver that Award
Agreement to the Corporation in order for that amendment or cancellation to be
implemented by the Corporation and the Committee. The failure of the Holder to
deliver any such Award Agreement to the Corporation as provided in the preceding
sentence shall not in any manner effect the validity or enforceability of any
action taken by the Corporation and the Committee under this Paragraph 6.3,
including, without limitation, any redemption of an Award as of the consummation
of a Restructure. Any cash payment to be made by the Corporation pursuant to
this Paragraph 6.3 in connection with the redemption of any outstanding Awards
shall be paid to the Holder thereof currently with the delivery to the
Corporation of the Award Agreement evidencing that Award; provided, however,
that any such redemption shall be effective upon the consummation of the
Restructure notwithstanding that the payment of the redemption price may occur
subsequent to the consummation. If all or any portion of an outstanding Award
is to be exercised or accelerated upon or after the consummation of a
Restructure that is in the form of a Non-Surviving Event and as a part of that
Restructure shares of stock, other securities, cash or property shall be
issuable or deliverable in exchange for Stock, then the Holder of the Award
shall thereafter be entitled to purchase or receive (in lieu of the number of
shares of Stock that the Holder would otherwise be entitled to purchase or
receive) the number of shares of stock, other securities, cash or property to
which such number of shares of Stock would have been entitled in connection with
the Restructure at an aggregate exercise price equal to the Exercise Price that
would have been payable if that number of Total Shares had been purchased on the
exercise of the Option immediately before the consummation of the Restructure.
6.4 NOTICE OF CHANGE IN CONTROL OR RESTRUCTURE. The Corporation shall
attempt to keep all Holders informed with respect to any Change in Control or
Restructure or of any potential Change in Control or Restructure to the same
extent that the Corporation's stockholders are informed by the Corporation of
any such event or potential event.
SECTION 7. ADDITIONAL PROVISIONS
7.1 TERMINATION OF EMPLOYMENT. Subject to the last sentence of Paragraph
6.2 and unless the Board of Directors otherwise elects, if a Holder's employment
relationship is terminated for any reason, whether voluntary or involuntary
(including termination of employment as a result of death, disability or
retirement), and without regard to the circumstances giving rise to or the
legality of the termination, then all Awards held by that Holder that have not
yet vested shall be forfeited and all Awards that have vested shall continue to
be exercisable (by the Holder or, in the case of his death or, if appropriate,
his disability, by the Holder's legatees, distributees, guardian or other legal
representative) during the period(s) described in the relevant Award Agreement.
7.2 TRANSFERABILITY OF AWARDS. In addition to such other terms and
conditions as may be included in a particular Award Agreement, an Award
requiring exercise shall be exercisable during a Holder's lifetime only by that
Holder or by that Holder's guardian or legal representative. An Award requiring
exercise shall not be transferrable other than by will or the laws of descent
and distribution, except as permitted in accordance with Paragraph 3.5.
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7.3 FORFEITURE AND RESTRICTIONS ON TRANSFER. Each Award Agreement may
contain or otherwise provide for conditions giving rise to the forfeiture of the
Stock acquired pursuant to an Award or otherwise and may also provide for those
restrictions on the transferability of shares of the Stock acquired pursuant to
an Award or otherwise that the Committee in its sole and absolute discretion may
deem proper or advisable. The conditions giving rise to forfeiture may include,
but need not be limited to, the requirement that the Holder render substantial
services to the Corporation or its Subsidiaries for a specified period of time.
The restrictions on transferability may include, but need not be limited to,
options and rights of first refusal in favor of the Corporation and stockholders
of the Corporation other than the Holder of such shares of Stock who is a party
to the particular Award Agreement or a subsequent holder of the shares of Stock
who is bound by that Award Agreement.
7.4 DELIVERY OF CERTIFICATES OF STOCK. Subject to Paragraph 7.5, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock as to which an Option has been exercised after the
Corporation receives an Exercise Notice and upon receipt by the Corporation of
the Exercise Price and any tax withholding as may be requested. The value of
the shares of Stock issuable or transferable because of an Award under the Plan
shall not bear any interest owing to the passage of time, except as may be
otherwise provided in an Award Agreement.
7.5 CONDITIONS TO DELIVERY OF STOCK. Nothing herein or in any Award
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Award if that issuance would, in the opinion of
counsel for the Corporation, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option, the
Corporation may, as a condition precedent to the exercise of such Option,
require from the Holder of the Award (or in the event of his death, his legal
representatives, heirs, legatees, or distributees) such written representations,
if any, concerning the Holder's intentions with regard to the retention or
disposition of the shares of Stock being acquired pursuant to the Award and such
written covenants and agreements, if any, as to the manner of disposal of such
shares as, in the opinion of counsel to the Corporation, may be necessary to
ensure that any disposition by that Holder (or in the event of the Holder's
death, his legal representatives, heirs, legatees, or distributees) will not
involve a violation of the Securities Act or any similar or superseding statute
or statutes, any other applicable state or federal statute or regulation, or any
rule of any applicable securities exchange or securities association, as then in
effect.
7.6 SECURITIES ACT LEGEND. Certificates for shares of Stock, when issued,
may have the following legend or statements of other applicable restrictions
endorsed thereon and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF
PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION
OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION
WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
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This legend shall not be required for shares of Stock issued pursuant to an
effective registration statement under the Securities Act.
7.7 LEGEND FOR RESTRICTIONS ON TRANSFER. Each certificate representing
shares issued to a Holder pursuant to an Award granted under the Plan shall, if
such shares are subject to any transfer restriction, including a right of first
refusal, provided for under this Plan, an Award Agreement or other agreement,
such as a shareholders' agreement among the Corporation and its shareholders,
bear a legend that complies with applicable law with respect to the restrictions
on transferability, such as:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY
___________________________________, AND MAY NOT BE TRANSFERRED, SOLD,
OR OTHERWISE DISPOSED OF EXCEPT AS THEREIN PROVIDED. THE CORPORATION
WILL FURNISH A COPY OF SUCH INSTRUMENT AND AGREEMENT TO THE RECORD
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
7.8 NO RIGHTS AS STOCKHOLDER. A Holder shall have no right as a
stockholder with respect to any shares covered by his Award until a certificate
representing those shares is issued in his name. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is before the date that
certificate is issued, except as contemplated by Section 6.
7.9 FURNISH INFORMATION. Each Holder shall furnish to the Corporation all
information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
7.10 OBLIGATION TO EXERCISE. The granting of an Award hereunder shall
impose no obligation upon the Holder to exercise the same or any part thereof.
7.11 ADJUSTMENTS TO AWARDS. Subject to the general limitations set
forth in Sections 5 and 6 and the provisions of Paragraph 8.1, the Committee
may make any adjustment in the exercise price of, the number of shares
subject to or the terms of an Option by canceling an outstanding Option and
regranting an Option. Such adjustment shall be made by amending, substituting
or regranting an outstanding Option. Such amendment, substitution or regrant
may result in terms and conditions that differ from the terms and conditions
of the original Option. The Committee may not, however, impair the rights of
any Holder to previously granted Options without that Holder's consent. If
such action is effected by amendment, the effective date of such amendment
shall be the date of the original grant.
7.12 REMEDIES. The Corporation shall be entitled to recover from a
Holder reasonable attorneys' fees incurred in connection with the enforcement of
the terms and provisions of the Plan and any Award Agreement whether by an
action to enforce specific performance or for damages for its breach or
otherwise.
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7.13 CONSIDERATION. No Option shall be exercisable unless and until
the Holder shall have paid cash or property to, or performed services for, the
Corporation or any of its Subsidiaries that the Committee believes is equal to
or greater in value that the par value of the Stock subject to such Award.
SECTION 8. DURATION AND AMENDMENT OF PLAN
8.1 DURATION. No Awards may be granted hereunder after September 15,
1997.
8.2 AMENDMENT. The Board of Directors may, insofar as permitted by law,
with respect to any shares which, at the time, are not subject to Awards,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever,
and may amend any provision of the Plan or any Award Agreement to make the Plan
or the Award Agreement, or both, comply with Section 16(b) of the Exchange Act
and the exemptions therefrom, the Code, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the regulations promulgated under the Code or
ERISA, or any other law, rule or regulation that may affect the Plan. The Board
of Directors may also amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in other legal requirements
applicable to the Corporation or the Plan or for any other purpose permitted by
law. The Plan may not be amended without the consent of the holders of a
majority of the shares of Stock then outstanding to increase materially the
aggregate number of shares of Stock that may be issued under the Plan (except
for adjustments pursuant to Section 6 of the Plan).
SECTION 9. GENERAL
9.1 APPLICATION OF FUNDS. The proceeds received by the Corporation from
the sale of shares pursuant to Awards shall be used for general corporate
purposes.
9.2 RIGHT OF THE CORPORATION AND SUBSIDIARIES TO TERMINATE EMPLOYMENT.
Nothing contained in the Plan, or in any Award Agreement, shall confer upon any
Holder the right to continue in the employ of the Corporation or any Subsidiary,
or interfere in any way with the rights of the Corporation or any Subsidiary to
terminate his or her employment at any time.
9.3 NO LIABILITY FOR GOOD FAITH DETERMINATIONS. Neither the members of the
Board of Directors nor any member of the Committee shall be liable for any act,
omission, or determination taken or made in good faith with respect to the Plan
or any Award granted under it, and members of the Board of Directors and the
Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors and officers liability or similar insurance coverage that may from
time to time be in effect. This right to indemnification shall be in addition
to, and not a limitation on, any other indemnification rights any member of the
Board of Directors or the Committee may have.
9.4 OTHER BENEFITS. Participation in the Plan shall not preclude the
Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any old age benefit, insurance, pension, profit
sharing retirement, bonus, or other extra compensation plans that the
Corporation or any
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Subsidiary has adopted, or may, at any time, adopt for the benefit of its
Employees. The adoption of the Plan by the Board of Directors shall not be
construed as creating any limitations on the power of the Board of Directors
to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding
of stock and cash otherwise than under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
9.5 EXCLUSION FROM PENSION AND PROFIT-SHARING COMPENSATION. By acceptance
of an Award, each Holder shall be deemed to have agreed that the Award is
special incentive compensation that will not be taken into account in any manner
as salary, compensation or bonus in determining the amount of any payment under
any pension, retirement or other employee benefit plan of the Corporation or any
Subsidiary. In addition, each beneficiary of a deceased Holder shall be deemed
to have agreed that the Award will not affect the amount of any life insurance
coverage, if any, provided by the Corporation or a Subsidiary on the life of the
Holder that is payable to the beneficiary under any life insurance plan covering
employees of the Corporation or any Subsidiary.
9.6 EXECUTION OF RECEIPTS AND RELEASES. Any payment of cash or any
issuance or transfer of shares of Stock to the Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
9.7 NO GUARANTEE OF INTERESTS. Neither the Committee nor the Corporation
guarantees the Stock of the Corporation from loss or depreciation.
9.8 PAYMENT OF EXPENSES. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Subsidiaries; provided,
however, the Corporation or a Subsidiary may recover any and all damages, fees,
expenses, and costs arising out of any actions taken by the Corporation to
enforce its right to purchase Stock under this Plan.
9.9 CORPORATION RECORDS. Records of the Corporation or its Subsidiaries
regarding the Holder's period of employment, termination of employment and the
reason therefor, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes hereunder, unless determined by the Committee to be
incorrect.
9.10 INFORMATION. The Corporation and its Subsidiaries shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished, all of the information or documentation which is necessary or
required by the Committee to perform its duties and functions under the Plan.
9.11 NO LIABILITY OF CORPORATION. The Corporation assumes no
obligation or responsibility to the Holder or his legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
9.12 CORPORATION ACTION. Any action required of the Corporation shall
be by resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.
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9.13 SEVERABILITY. If any provision of this Plan is held to be
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining provisions hereof, but such provision shall be fully severable and
the Plan shall be construed and enforced as if the illegal or invalid provision
had never been included herein.
9.14 NOTICES. Whenever any notice is required or permitted hereunder
other than any Exercise Notice, such notice must be in writing and personally
delivered or sent by mail. Any such notice required or permitted to be
delivered hereunder shall be deemed to be delivered on the date on which it is
personally delivered, or, whether actually received or not, on the third
Business Day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at the
address which such person has theretofore specified by written notice delivered
in accordance herewith. The Corporation or a Holder may change, at any time and
from time to time, by written notice to the other, the address which it or he
had previously specified for receiving notices. Until changed in accordance
herewith, the Corporation and each Holder shall specify as its and his address
for receiving notices the address set forth in the Agreement pertaining to the
shares to which such notice relates. Any Exercise Notice shall be valid only
when it is in fact received by the Corporation or the Person it designates in
accordance with procedures that the Committee may adopt from time to time.
9.15 WAIVER OF NOTICE. Any person entitled to notice hereunder may
waive such notice.
9.16 SUCCESSORS. The Plan shall be binding upon the Holder, his legal
representatives, heirs, legatees, and distributees, upon the Corporation, its
successors, and assigns, and upon the Committee, and its successors.
9.17 HEADINGS. The titles and headings of Sections and Paragraphs are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
9.18 GOVERNING LAW. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Texas except to the extent Texas law is preempted by federal law.
Questions arising with respect to the provisions of an Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Agreement, except to the extent the corporate law of the Corporation's (or
its successor's) jurisdiction of incorporation conflicts with the contract law
of such state, in which event such corporate law shall govern. The obligation
of the Corporation to sell and deliver Stock hereunder is subject to applicable
laws and to the approval of any governmental authority required in connection
with the authorization, issuance, sale, or delivery of such Stock.
9.19 WORD USAGE. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
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IN WITNESS WHEREOF, Trammell Crow Company, acting by and through its
officer hereunto duly authorized, has executed this Trammell Crow Company 1997
Stock Option Plan this 1st day of August, 1997.
TRAMMELL CROW COMPANY
By: /s/ George L. Lippe
-----------------------------------------
Name: George L. Lippe
-----------------------------------------
Title: President and Chief Executive Officer
-----------------------------------------
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TRAMMELL CROW COMPANY
LONG-TERM INCENTIVE PLAN
SCOPE AND PURPOSE OF PLAN
Trammell Crow Company, a Delaware corporation (the "CORPORATION"), has
adopted this Long-Term Incentive Plan (the "PLAN") to provide for the granting
of:
(a) Incentive Options to certain Employees;
(b) Nonstatutory Options to certain Employees, Non-employee Directors and
other persons;
(c) Performance Units to certain Employees and other persons;
(d) Restricted Stock Awards to certain Employees and other persons; and
(e) Stock Appreciation Rights to certain Employees and other persons.
The purpose of the Plan is to provide an incentive for Employees, directors
and certain consultants and advisors of the Corporation or its Subsidiaries to
remain in the service of the Corporation or its Subsidiaries, to extend to them
the opportunity to acquire a proprietary interest in the Corporation so that
they will apply their best efforts for the benefit of the Corporation, and to
aid the Corporation in attracting able persons to enter the service of the
Corporation and its Subsidiaries.
SECTION 1. DEFINITIONS
As used in this Plan, the following terms have the meanings set forth
below:
1.1 "Award" means the grant of any form of Option, Performance Unit,
Reload Option, Restricted Stock Award or Stock Appreciation Right under the
Plan, whether granted singly, in combination, or in tandem, to a Holder pursuant
to the terms, conditions, and limitations that the Committee may establish in
order to fulfill the objectives of the Plan.
1.2 "Award Agreement" means the written document or agreement delivered to
Holder evidencing the terms, conditions and limitations of an Award that the
Corporation granted to that Holder.
1.3 "Board of Directors" means the board of directors of the Corporation.
1.4 "Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of Texas are authorized or obligated
by law or executive order to close.
1.5 "Cause," with respect to any Holder that is an Employee, means
termination of the Holder's employment by the Corporation because of : (a) the
Holder's conviction of, or plea of nolo contendere to, a felony or crime
involving moral turpitude; (b) the Holder's personal dishonesty, incompetence,
willful
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misconduct, willful violation of any law, rule or regulation (other than
minor traffic violations or similar offenses) or breach of fiduciary duty
which involves personal profit; (c) the Holder's commission of material
mismanagement in the conduct of his duties as assigned to him by the Board of
Directors or the Holder's supervising officer or officers of the Corporation
or any Subsidiary; (d) the Holder's willful failure to execute or comply with
the policy of the Company or any of its Subsidiaries or his stated duties as
established by the Board of Directors or the Holder's supervising officer or
officers of the Corporation or any Subsidiary or the Holder's intentional
failure to perform the Holder's stated duties; or (e) substance abuse or
addiction on the part of the Holder. Notwithstanding the foregoing, in the
case of any Holder who, subsequent to the effective date of this Plan, enters
into an employment agreement with the Corporation or any Subsidiary that
contains the definition of "cause" (or any similar definition), then during
the term of such employment agreement the definition contained in such
Employment Agreement shall be the applicable definition of "cause" under the
Plan as to such Holder if such Employment Agreement expressly so provides.
1.6 "Change in Control" means the occurrence of any of the following
events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "PERSON") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of either (x) the then outstanding shares of Common
Stock of the Corporation (the "OUTSTANDING CORPORATION COMMON STOCK") or (y) the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"OUTSTANDING CORPORATION VOTING SECURITIES"); PROVIDED, HOWEVER, that for
purposes of this subsection (i), the following acquisitions shall not constitute
a Change of Control: (A) any acquisition directly from the Corporation, (B) any
acquisition by the Corporation, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Corporation or any corporation
controlled by the Corporation or (D) any acquisition by any corporation pursuant
to a transaction which complies with clauses (A), (B) and (C) of paragraph (iii)
below; or
(ii) Individuals who, as of the date of this Plan, constitute the
Board of Directors cease for any reason to constitute at least a majority of the
Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Corporation or an acquisition of assets of another corporation (a "BUSINESS
COMBINATION"), in each case, unless, following such Business Combination,
(A) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Corporation, or all
or substantially all of the Corporation's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities, as the case may be,
(B) no Person (excluding any employee benefit plan (or related trust) of the
Corporation or the corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
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outstanding voting securities of such corporation except to the extent that
such ownership of the Corporation existed prior to the Business Combination
and (C) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
1.7 "Code" means the Internal Revenue Code of 1986, as amended.
1.8 "Committee" means the committee or subcommittee appointed pursuant to
Section 3 by the Board of Directors to administer this Plan.
1.9 "Common Stock" means the authorized common stock, par value $.01 per
share, as described in the Corporation's Certificate of Incorporation.
1.10 "Common Stock Equivalent" means (without duplication with any other
Common Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities, exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock or securities convertible or exchangeable into Common Stock,
whether at the time the number of shares of Common Stock Equivalents are
determined or within sixty days of that date and that are traded or are of the
same class as securities that are traded on a national securities exchange or
quoted on the NASDAQ National Market System, NASDAQ, or National Quotation
Bureau Incorporated. The number of shares of Common Stock Equivalents
outstanding shall equal the number of shares of Common Stock plus the number of
shares of Common Stock issuable upon exercise, conversion or exchange of all
other Common Stock Equivalents.
1.11 "Corporation" means Trammell Crow Company, a Delaware corporation.
1.12 "Date of Grant" has the meaning given it in Paragraph 4.3.
1.13 "Disability" has the meaning given it in Paragraph 10.5.
1.14 "Effective Date" means August 22, 1997.
1.15 "Eligible Individuals" means (a) Employees, (b) Non-employee
Directors and (c) any other Person that the Committee designates as eligible
for an Award (other than for Incentive Options) because the Person performs
bona fide consulting or advisory services for the Corporation or any of its
Subsidiaries (other than services in connection with the offer or sale of
securities in a capital-raising transaction).
1.16 "Employee" means any employee of the Corporation or of any of its
Subsidiaries, including officers and directors of the Corporation who are also
employees of the Corporation or of any of its Subsidiaries.
1.17 "Exchange Act" means the Securities Exchange Act of 1934.
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1.18 "Exercise Notice" has the meaning given it in Paragraph 5.5.
1.19 "Exercise Price" has the meaning given it in Paragraph 5.4.
1.20 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities exchange
at the date of determining the Fair Market Value, then the last reported
sale price, regular way, on the composite tape of that exchange on the last
Business Day before the date in question or, if no such sale takes place on
that Business Day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to unlisted
trading privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subparagraph 1.19(a) and if
sales prices for shares of Stock of the same class in the over-the-counter
market are reported by the NASDAQ National Market System (or a similar
system then in use) at the date of determining the Fair Market Value, then
the last reported sales price so reported on the last Business Day before
the date in question or, if no such sale takes place on that Business Day,
the average of the high bid and low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subparagraph 1.19(a) and
sales prices for shares of Stock of the same class are not reported by the
NASDAQ National Market System (or a similar system then in use) as provided
in Subparagraph 1.19(b), and if bid and asked prices for shares of Stock of
the same class in the over-the-counter market are reported by NASDAQ (or,
if not so reported, by the National Quotation Bureau Incorporated) at the
date of determining the Fair Market Value, then the average of the high bid
and low asked prices on the last Business Day before the date in question;
or
(d) If shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in Subparagraph 1.19(a) and
sales prices or bid and asked prices therefor are not reported by NASDAQ
(or the National Quotation Bureau Incorporated) as provided in Subparagraph
1.19(b) or Subparagraph 1.19(c) at the date of determining the Fair Market
Value, then the value determined in good faith by the Committee, which
determination shall be conclusive for all purposes; or
(e) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.19(a) or sales
prices or bid and asked prices therefor are reported by NASDAQ (or the
National Quotation Bureau Incorporated) as provided in Subparagraph
1.19(b), Subparagraph 1.19(c) or Subparagraph 1.19(d) at the date of
determining the Fair Market Value, but the volume of trading is so low that
the Board of Directors determines in good faith that such prices are not
indicative of the fair value of the Stock, then the value determined in
good faith by the Committee, which determination shall be conclusive for
all purposes notwithstanding the provisions of Subparagraphs 1.19(a), (b),
(c) or (d).
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For purposes of valuing Incentive Options, the Fair Market Value of Stock shall
be determined without regard to any restriction other than one that, by its
terms, will never lapse and will be determined on the date in question instead
of the last Business Day before the date in question. For purposes of the
redemption provided for in Subparagraph 9.3(e)(vi), Fair Market Value shall have
the meaning and shall be determined as provided above; PROVIDED, HOWEVER, that
the Committee, with respect to any such redemption, shall have the right to
determine that the Fair Market Value for purposes of the redemption should be an
amount measured by the value of the shares of stock, other securities, cash or
property otherwise being received by holders of shares of Stock in connection
with the Restructure, and upon that determination the Committee shall have the
power and authority to determine Fair Market Value for purposes of the
redemption based upon the value of such shares of stock, other securities, cash
or property. Any such determination by the Committee shall be conclusive for
all purposes.
1.21 "Holder" means an Eligible Individual to whom an Award has been
granted.
1.22 "Incentive Option" means an incentive stock option as defined under
Section 422 of the Code and regulations thereunder.
1.23 "Incumbent Board" means the individuals who, as of the Effective Date,
constitute the Board of Directors and any other individual who becomes a
director of the Corporation after that date and whose election or appointment by
the Board of Directors or nomination for election by the Corporation's
stockholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Incumbent Board.
1.24 "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotations, Inc.
1.25 "Non-employee Director" means a director of the Corporation who while
a director is not an Employee.
1.26 "Nonstatutory Option" means a stock option that does not satisfy the
requirements of Section 422 of the Code or that is designated at the Date of
Grant or in the applicable Option Agreement to be an option other than an
Incentive Option.
1.27 "Non-Surviving Event" means an event of Restructure as described in
either subparagraph (b) or (c) of Paragraph 1.37.
1.28 "Option Agreement" means an Award Agreement for an Incentive Option or
a Nonstatutory Option.
1.29 "Option" means either an Incentive Option or a Nonstatutory Option, or
both.
1.30 "Performance Period" means a period of one or more fiscal years of the
Corporation, beginning with the fiscal year for which Performance Units are
granted and over which performance is
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measured, for the purpose of determining the payment value of Performance
Units. A Performance Period shall not exceed ten years.
1.31 "Performance Unit" means a unit representing a contingent right to
receive a specified amount of cash or shares of Stock at the end of a
Performance Period.
1.32 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a limited liability company, a partnership, a trust or other
entity. A Person, together with that Person's affiliates and associates (as
those terms are defined in Rule 12b-2 under the Exchange Act for purposes of
this definition only), and any Persons acting as a partnership, limited
partnership, joint venture, association, syndicate or other group (whether or
not formally organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to any
express agreement), for the purpose of acquiring, holding, voting or disposing
of securities of the Corporation with that Person, shall be deemed a single
"Person."
1.33 "Plan" means the Trammell Crow Company Long-Term Incentive Plan, as it
may be amended from time to time.
1.34 "Reload Option" has the meaning given it in Paragraph 5.9.
1.35 "Restricted Stock Award" means the grant or purchase, on the terms and
conditions that the Committee determines or on the terms and conditions of
Section 7, of Stock that is nontransferable or subject to substantial risk of
forfeiture until specific conditions are met.
1.36 "Restructure" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any Person,
whether effected as a single transaction or a series of related
transactions, with the Corporation remaining the continuing or surviving
entity of that merger or consolidation and the Stock remaining outstanding
and not changed into or exchanged for stock or other securities of any
other Person or of the Corporation, cash or other property;
(b) The merger or consolidation of the Corporation with any Person,
whether effected as a single transaction or a series of related
transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger or consolidation or (ii) the Corporation
remaining the continuing or surviving entity of that merger or
consolidation but all or a part of the outstanding shares of Stock are
changed into or exchanged for stock or other securities of any other Person
or the Corporation, cash, or other property; or
(c) The transfer, directly or indirectly, of all or substantially all
of the assets of the Corporation (whether by sale, merger, consolidation,
liquidation or otherwise) to any Person whether effected as a single
transaction or a series of related transactions.
1.37 "Retirement" means the separation of the Holder from employment with
the Corporation and its Subsidiaries on account of retirement.
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1.38 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act,
or any successor rule, as it may be amended from time to time.
1.39 "SAR Exercise Price" has the meaning given it in Paragraph 1.43.
1.40 "Section 162(m)" means Section 162(m) of the Code and the rules and
regulations adopted from time to time thereunder, or any successor law or rule
as it may be amended from time to time.
1.41 "Securities Act" means the Securities Act of 1933.
1.42 "Stock" means Common Stock, or any other securities that are
substituted for Stock as provided in Section 9.
1.43 "Stock Appreciation Right" means the right to receive an amount equal
to the excess of the Fair Market Value of a share of Stock (as determined on the
date of exercise) over, as appropriate, the Exercise Price of a related Option
or over a price specified in the related Award Agreement (the "SAR EXERCISE
PRICE") that is not less than eighty-five percent of the Fair Market Value of
the Stock on the Date of Grant of the Stock Appreciation Right.
1.44 "Subsidiary" means, with respect to any Person, any corporation,
limited partnership, limited liability company or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by that Person.
1.45 "Total Shares" has the meaning given it in Paragraph 9.2.
1.46 "Voting Securities" means any securities that are entitled to vote
generally in the election of directors, in the admission of general partners, or
in the selection of any other similar governing body.
SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 MAXIMUM NUMBER OF SHARES. Subject to the provisions of Section 9 of
the Plan, the maximum aggregate number of shares of Stock in respect of which
Awards may be granted for all purposes under the Plan shall be [INSERT NUMBER
EQUAL TO 15% OF THE POST-IPO SHARES OUTSTANDING (AS DEFINED IN THE MERGER
AGREEMENT)].
2.2 RESTORATION OF UNUSED AND SURRENDERED SHARES. If Stock subject to any
Award is not issued or transferred, or ceases to be issuable or transferable for
any reason, including (but not exclusively) because an Award is forfeited,
terminated, expires unexercised, is settled in cash in lieu of Stock, or is
exchanged for other Awards, the shares of Stock that were subject to that Award
shall again be available for issue, transfer, or exercise pursuant to Awards
under the Plan to the extent of such forfeiture, termination, expiration,
settlement or exchange.
2.3 DESCRIPTION OF SHARES. The shares to be delivered under the Plan
shall be made available from (a) authorized but unissued shares of Stock, (b)
Stock held in the treasury of the Corporation, or (c) previously issued shares
of Stock reacquired by the Corporation, including shares purchased on the open
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market, in each situation as the Board of Directors or the Committee may
determine from time to time at its sole option.
2.4 REGISTRATION AND LISTING OF SHARES. From time to time, the Board of
Directors and appropriate officers of the Corporation shall be, and are,
authorized to take whatever actions are necessary to file required documents
with governmental authorities, stock exchanges and other appropriate Persons to
make shares of Stock available for issuance pursuant to Awards.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 COMMITTEE. The Board of Directors shall administer the Plan with
respect to all Eligible Individuals or may delegate all or part of its duties
under this Plan to the Committee or to any officer or committee of officers
of the Corporation, subject in each case to such conditions and limitations
as the Board of Directors may establish and subject to the following
sentence. Unless a majority of the members of the Board of Directors
determines otherwise: (a) the Committee shall be constituted in a manner
that satisfies the requirements of Rule 16b-3, which Committee shall
administer the Plan with respect to all Eligible Individuals who are subject
to Section 16 of the Exchange Act in a manner that satisfies the requirements
of Rule 16b-3; and (b) the Committee shall be constituted in a manner that
satisfies the requirements of Section 162(m), which Committee shall
administer the Plan with respect to "performance-based compensation" for all
Eligible Individuals who are reasonably expected to be "covered employees" as
those terms are defined in Section 162(m). The number of persons that shall
constitute the Committee shall be determined from time to time by a majority
of all the members of the Board of Directors. Except for references in
Paragraphs 3.1, 3.2, and 3.3 and unless the context otherwise requires,
references herein to the Committee shall also refer to the Board of Directors
as administrator of the Plan for Eligible Individuals or to the appropriate
delegate of the Committee or the Board of Directors.
3.2 DURATION, REMOVAL, ETC. The members of the Committee shall serve at
the pleasure of the Board of Directors, which shall have the power, at any
time and from time to time, to remove members from or add members to the
Committee. Removal from the Committee may be with or without cause. Any
individual serving as a member of the Committee shall have the right to
resign from membership in the Committee by at least three days written notice
to the Board of Directors. The Board of Directors, and not the remaining
members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused.
3.3 MEETINGS AND ACTIONS OF COMMITTEE. The Board of Directors shall
designate which of the Committee members shall be the chairman of the
Committee. If the Board of Directors fails to designate a Committee chairman,
the members of the Committee shall elect one of the Committee members as
chairman, who shall act as chairman until he ceases to be a member of the
Committee or until the Board of Directors elects a new chairman. The
Committee shall hold its meetings at those times and places as the chairman
of the Committee may determine. At all meetings of the Committee, a quorum
for the transaction of business shall be required, and a quorum shall be
deemed present if at least a majority of the members of the Committee are
present. At any meeting of the Committee, each member shall have one vote.
All decisions and determinations of the Committee shall be made by the
majority vote or majority decision of all of its members present at a meeting
at which a quorum is present; provided, however, that any decision or
determination reduced to writing and signed by all of the members of the
Committee shall be as fully
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effective as if it had been made at a meeting that was duly called and held.
The Committee may make any rules and regulations as it may deem advisable for
the conduct of its business that are not inconsistent with the provisions of
the Plan, the Certificate of Incorporation and the by-laws of the
Corporation, Rule 16b-3, so long as it is applicable, and Section 162(m), so
long as it is applicable.
3.4 COMMITTEE'S POWERS. Subject to the express provisions of the Plan and
any applicable law with which the Corporation intends the Plan to comply, the
Committee shall have the authority, in its sole and absolute discretion, (a) to
adopt, amend and rescind administrative and interpretive rules and regulations
relating to the Plan, including without limitation to adopt and observe such
procedures concerning the counting of Awards against the Plan and individual
maximums as it may deem appropriate from time to time; (b) to determine the
Eligible Individuals to whom, and the time or times at which, Awards shall be
granted; (c) to determine the amount of cash and the number of shares of Stock,
Stock Appreciation Rights, Restricted Stock Awards or Performance Units, or any
combination thereof, that shall be the subject of each Award; (d) to determine
the terms and provisions of each Award Agreement (which need not be identical),
including provisions defining or otherwise relating to (i) the term and the
period or periods and extent of exercisability of the Options, (ii) the extent
to which the transferability of shares of Stock issued or transferred pursuant
to any Award is restricted, (iii) the effect of termination of employment on the
Award, and (iv) the effect of approved leaves of absence (consistent with any
applicable regulations of the Internal Revenue Service); (e) to accelerate,
pursuant to Section 9, the time of exercisability of any Option that has been
granted or the time of vesting or settlement of any Restricted Stock Award or
Performance Unit; (f) to construe the respective Award Agreements and the Plan;
(g) to make determinations of the Fair Market Value of the Stock pursuant to the
Plan; (h) to delegate its duties under the Plan to such agents as it may appoint
from time to time, subject to the second sentence of Paragraph 3.1; and (i) to
make all other determinations, perform all other acts, and exercise all other
powers and authority necessary or advisable for administering the Plan,
including the delegation of those ministerial acts and responsibilities as the
Committee deems appropriate subject in all respects to the last two sentences of
Paragraph 5.12. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan, in any Award, or in any Award Agreement
in the manner and to the extent it deems necessary or desirable to carry the
Plan into effect, and the Committee shall be the sole and final judge of that
necessity or desirability. The determinations of the Committee on the matters
referred to in this Paragraph 3.4 shall be final and conclusive. The Committee
shall not have the power to appoint members of the Committee or to terminate,
modify or amend the Plan. Those powers are vested in the Board of Directors.
3.5 TRANSFERABILITY OF AWARDS. Notwithstanding any limitation on a
Holder's right to transfer an Award, the Committee may (in its sole discretion)
permit a Holder to transfer an Award, or may cause the Corporation to grant an
Award that otherwise would be granted to an Eligible Individual, in any of the
following circumstances: (a) pursuant to a qualified domestic relations order,
(b) to a trust established for the benefit of the Eligible Individual or one or
more of the children, grandchildren or spouse of the Eligible Individual; (c) to
a limited partnership in which all the interests are held by the Eligible
Individual and that Person's children, grandchildren or spouse; or (d) to
another Person in circumstances that the Committee believes will result in the
Award continuing to provide an incentive for the Eligible Individual to remain
in the service of the Corporation or its Subsidiaries and apply his or her best
efforts for the benefit of the Corporation or its Subsidiaries. If the
Committee determines to allow such transfers or issuances of Awards, any Holder
or Eligible Individual desiring such transfers or issuances shall make
application therefor in the manner and time that the Committee specifies and
shall comply with such other requirements as the Committee may require to assure
compliance with all applicable laws, including securities laws, and to
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assure fulfillment of the purposes of this Plan. The Committee shall not
authorize any such transfer or issuance if it may not be made in compliance
with all applicable federal, state and foreign securities laws. The granting
of permission for such an issuance or transfer shall not obligate the
Corporation to register the shares of Stock to be issued under the applicable
Award.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBLE INDIVIDUALS. Awards may be granted pursuant to the Plan only
to persons who are Eligible Individuals at the time of the grant thereof or in
connection with the severance or retirement of Eligible Individuals.
4.2 GRANT OF AWARDS. Subject to the express provisions of the Plan, the
Committee shall determine which Eligible Individuals shall be granted Awards
from time to time. In making grants, the Committee shall take into
consideration the contribution the potential Holder has made or may make to the
success of the Corporation or its Subsidiaries and such other considerations as
the Board of Directors may from time to time specify. The Committee shall also
determine the number of shares or cash amounts subject to each of the Awards and
shall authorize and cause the Corporation to grant Awards in accordance with
those determinations.
4.3 DATE OF GRANT. The date on which an Award is granted (the "DATE OF
GRANT") shall be the date specified by the Committee as the effective date or
date of grant of an Award or, if the Committee does not so specify, shall be the
date as of which the Committee adopts the resolution approving the offer of an
Award to an individual, including the specification of the number (or method of
determining the number) of shares of Stock and the amount (or method of
determining the amount) of cash to be subject to the Award, even though certain
terms of the Award Agreement may not be determined at that time and even though
the Award Agreement may not be executed or delivered until a later time. In no
event shall a Holder gain any rights in addition to those specified by the
Committee in its grant, regardless of the time that may pass between the grant
of the Award and the actual execution or delivery of the Award Agreement by the
Corporation or the Holder. The Committee may invalidate an Award at any time
before the Award Agreement is signed by the Holder (if signature is required) or
is delivered to the Holder (if signature is not required), and such Award shall
be treated as never having been granted.
4.4 AWARD AGREEMENTS. Each Award granted under the Plan shall be
evidenced by an Award Agreement that incorporates those terms that the Committee
shall deem necessary or desirable. More than one Award may be granted under the
Plan to the same Eligible Individual and be outstanding concurrently. If an
Eligible Individual is granted both one or more Incentive Options and one or
more Nonstatutory Options, those grants shall be evidenced by separate Award
Agreements, one for each of the Incentive Option grants and one for each of the
Nonstatutory Option grants.
4.5 LIMITATION FOR INCENTIVE OPTIONS. Notwithstanding any provision
contained herein to the contrary, (a) a person shall not be eligible to receive
an Incentive Option unless he or she is an Employee of the Corporation or a
corporate Subsidiary (but not a partnership or other non-corporate Subsidiary),
and (b) a person shall not be eligible to receive an Incentive Option if,
immediately before the time the Incentive Option is granted, that person owns
(within the meaning of Sections 422 and 424 of the Code) stock possessing more
than ten percent of the total combined voting power or value of all classes of
stock of the
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Corporation or a Subsidiary. Nevertheless, this Subparagraph 4.5(b) shall
not apply if, at the time the Incentive Option is granted, the Exercise Price
of the Incentive Option is at least one hundred and ten percent of the Fair
Market Value of the Stock underlying the Incentive Option and the Incentive
Option is not, by its terms, exercisable after the expiration of five years
from the Date of Grant.
4.6 NO RIGHT TO AWARD. The adoption of the Plan shall not be deemed to
give any person a right to be granted an Award.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
All Options granted under the Plan shall comply with, and the related
Option Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 5 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Paragraph 9.1 and Section 10; PROVIDED, HOWEVER, that the Committee may
authorize an Option Agreement that expressly contains terms and provisions that
differ from the terms and provisions of Section 10. The Committee may also
authorize an Option Agreement that contains any or all of the terms and
provisions of Paragraphs 9.2 and 9.3 or that contains terms and provisions
dealing with similar subject matter differently than do those Paragraphs;
nevertheless, no term or provision of Paragraph 9.2 or 9.3 (or any such
differing term or provision) shall apply to an Option Agreement unless the
Option Agreement expressly states that such term or provision applies.
5.1 NUMBER OF SHARES. Each Option Agreement shall state the total number
of shares of Stock to which it relates.
5.2 VESTING. Each Option Agreement shall state the time, periods or other
conditions on which the right to exercise the Option or a portion thereof shall
vest and the number (or method of determining the number) of shares of Stock for
which the right to exercise the Option shall vest at each such time, period or
satisfaction of condition.
5.3 EXPIRATION OF OPTIONS. Nonstatutory Options and Incentive Options may
be exercised during the term determined by the Committee and set forth in the
Option Agreement; PROVIDED that no Incentive Option shall be exercised after the
expiration of a period of ten years commencing on the Date of Grant of the
Incentive Option.
5.4 EXERCISE PRICE. Each Option Agreement shall state the exercise price
per share of Stock (the "EXERCISE PRICE"). The exercise price per share of
Stock subject to an Incentive Option shall not be less than the greater of
(a) the par value per share of the Stock or (b) 100% of the Fair Market Value
per share of the Stock on the Date of Grant of the Option. The exercise price
per share of Stock subject to a Nonstatutory Option shall not be less than the
greater of (a) the par value per share of the Stock or (b) eighty-five percent
of the Fair Market Value per share of the Stock on the Date of Grant of the
Option.
5.5 METHOD OF EXERCISE. Each Option shall be exercisable only by written,
recorded electronic or other notice of exercise in the manner specified by the
Committee from time to time (the "EXERCISE NOTICE") delivered to the Corporation
or to the Person designated by the Committee during the term of the Option,
which notice shall (a) state the number of shares of Stock with respect to which
the Option is being
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exercised, (b) be signed or otherwise given by the Holder of the Option or
by the person authorized to exercise the Option in the event of the Holder's
death or disability, (c) be accompanied by the Exercise Price for all shares
of Stock for which the Option is exercised, unless provision for the payment
of the Exercise Price has been made pursuant to Paragraph 5.7 or 5.8 or in
another manner permitted by law and approved in advance by the Committee, and
(d) include such other information, instruments, and documents as may be
required to satisfy any other condition to exercise contained in the Option
Agreement. The Option shall not be deemed to have been exercised unless all
of the requirements of the preceding provisions of this Paragraph 5.5 have
been satisfied.
5.6 INCENTIVE OPTION EXERCISES. During the Holder's lifetime, only the
Holder may exercise an Incentive Option. The Holder of an Incentive Option
shall immediately notify the Corporation in writing of any disposition of the
Stock acquired pursuant to the Incentive Option that would disqualify the
Incentive Option from the incentive option tax treatment afforded by Section 422
of the Code. The notice shall state the number of shares disposed of, the dates
of acquisition and disposition of the shares, and the consideration received
upon that disposition.
5.7 MEDIUM AND TIME OF PAYMENT. The Exercise Price of an Option shall be
payable in full upon the exercise of the Option (a) in cash or by an equivalent
means (such as that specified in Paragraph 5.8) acceptable to the Committee, (b)
on the Committee's prior consent, with shares of Stock owned by the Holder
(including shares received upon exercise of the Option or restricted shares
already held by the Holder) and having a Fair Market Value at least equal to the
aggregate Exercise Price payable in connection with such exercise, or (c) by any
combination of clauses (a) and (b). If the Committee chooses to accept shares
of Stock in payment of all or any portion of the Exercise Price, then (for
purposes of payment of the Exercise Price) those shares of Stock shall be deemed
to have a cash value equal to their aggregate Fair Market Value determined as of
the date of the delivery of the Exercise Notice. If the Committee elects to
accept shares of restricted Stock in payment of all or any portion of the
Exercise Price, then an equal number of shares issued pursuant to the exercise
shall be restricted on the same terms and for the restriction period remaining
on the shares used for payment.
5.8 PAYMENT WITH SALE PROCEEDS. In addition, at the request of the Holder
and to the extent permitted by applicable law, the Committee may (but shall not
be required to) approve arrangements with a brokerage firm under which that
brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised (either as a loan to the Holder or
from the proceeds of the sale of Stock issued pursuant to that exercise of the
Option), and the Corporation shall promptly cause the exercised shares to be
delivered to the brokerage firm. Such transactions shall be effected in
accordance with the procedures that the Committee may establish from time to
time.
5.9 RELOAD PROVISIONS. Options may contain a provision pursuant to which
a Holder who pays all or a portion of the Exercise Price of an Option or the tax
required to be withheld pursuant to the exercise of an Option by surrendering
shares of Stock shall automatically be granted an Option for the purchase of the
number of shares of Stock equal to the number of shares surrendered (a "RELOAD
OPTION"). The Date of Grant of the Reload Option shall be the date on which the
Holder surrenders the shares of Stock in respect of which the Reload Option is
granted. The Reload Option shall have an Exercise Price equal to the Fair
Market Value of a share of Stock on the Date of Grant of the Reload Option and
shall have a term that is no longer than the original term of the underlying
Option.
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5.10 LIMITATION ON AGGREGATE VALUE OF SHARES THAT MAY BECOME FIRST
EXERCISABLE DURING ANY CALENDAR YEAR UNDER AN INCENTIVE OPTION. Except as is
otherwise provided in subparagraph 9.2(b), with respect to any Incentive
Option granted under this Plan, the aggregate Fair Market Value of shares of
Stock subject to an Incentive Option and the aggregate Fair Market Value of
shares of Stock or stock of any Subsidiary (or a predecessor of the
Corporation or a Subsidiary) subject to any other incentive stock option
(within the meaning of Section 422 of the Code) of the Corporation or its
Subsidiaries (or a predecessor corporation of any such corporation) that
first become purchasable by a Holder in any calendar year may not (with
respect to that Holder) exceed $100,000, or such other amount as may be
prescribed under Section 422 of the Code or applicable regulations or rulings
from time to time. As used in the previous sentence, Fair Market Value shall
be determined as of the date the Incentive Option is granted. For purposes
of this Paragraph 5.10 "predecessor corporation" means (a) a corporation that
was a party to a transaction described in Section 424(a) of the Code (or
which would be so described if a substitution or assumption under that
Section had been effected) with the Corporation, (b) a corporation which, at
the time the new incentive stock option (within the meaning of Section 422 of
the Code) is granted, is a Subsidiary of the Corporation or a predecessor
corporation of any such corporations, or (c) a predecessor corporation of any
such corporations. Failure to comply with this provision shall not impair
the enforceability or exercisability of any Option, but shall cause the
excess amount of shares to be reclassified in accordance with the Code.
5.11 NO FRACTIONAL SHARES. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock, the
Corporation shall pay to the Holder an amount in cash equal to the same
fraction (as the fractional Stock) of the Fair Market Value of a share of
Stock determined as of the date of the applicable Exercise Notice.
5.12 MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the
terms and conditions of and within the limitations of the Plan and any
applicable law, and any consent required by the last two sentences of this
Paragraph 5.12, the Committee may (a) modify, extend or renew outstanding
Options granted under the Plan, (b) accept the surrender of Options
outstanding hereunder (to the extent not previously exercised) and authorize
the granting of new Options in substitution for outstanding Options (to the
extent not previously exercised), and (c) amend the terms of an Incentive
Option at any time to include provisions that have the effect of changing the
Incentive Option to a Nonstatutory Option. Nevertheless, without the consent
of the Holder, the Committee may not modify any outstanding Options so as to
specify a higher Exercise Price or accept the surrender of outstanding
Incentive Options and authorize the granting of new Options in substitution
therefor specifying a higher Exercise Price. In addition, no modification of
an Option granted hereunder shall, without the consent of the Holder,
materially alter or impair any rights of the Holder or materially increase
the obligations of a Holder under any Option theretofore granted to that
Holder under the Plan except, with respect to Incentive Options, as may be
necessary to satisfy the requirements of Section 422 of the Code or as
permitted in clause (c) of this Paragraph 5.12.
5.13 OTHER AGREEMENT PROVISIONS. The Option Agreements authorized under
the Plan shall contain such provisions in addition to those required by the
Plan (including, without limitation, restrictions or the removal of
restrictions upon the exercise of the Option and the retention or transfer of
shares thereby acquired) as the Committee may deem advisable. Each Option
Agreement shall identify the Option evidenced thereby as an Incentive Option
or Nonstatutory Option, as the case may be, and no Option Agreement shall
cover both an Incentive Option and a Nonstatutory Option. Each Agreement
relating to an Incentive Option granted hereunder shall contain such
limitations and restrictions upon the exercise of the
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Incentive Option to which it relates as shall be necessary for the Incentive
Option to which such Agreement relates to constitute an incentive stock
option, as defined in Section 422 of the Code.
SECTION 6. STOCK APPRECIATION RIGHTS
All Stock Appreciation Rights granted under the Plan shall comply with,
and the related Award Agreements shall be deemed to include and be subject
to, the terms and conditions set forth in this Section 6 (to the extent each
term and condition applies to the form of Stock Appreciation Right) and also
to the terms and conditions set forth in Paragraph 9.1 and Section 10;
PROVIDED, HOWEVER, that the Committee may authorize an Award Agreement
relating to a Stock Appreciation Right that expressly contains terms and
provisions that differ from the terms and provisions of Section 10. The
Committee may also authorize an Award Agreement relating to a Stock
Appreciation Right that contains any or all of the terms and provisions of
Paragraphs 9.2 and 9.3 or that contains terms and provisions dealing with
similar subject matter differently than do those Paragraphs; nevertheless, no
term or provision of Paragraph 9.2 or 9.3 (or any such differing term or
provision) shall apply to an Award Agreement relating to a Stock Appreciation
Right unless the Award Agreement expressly states that such term or provision
applies.
6.1 FORM OF RIGHT. A Stock Appreciation Right may be granted to an
Eligible Individual (a) in connection with an Option, either at the time of
grant or at any time during the term of the Option, or (b) without relation
to an Option.
6.2 RIGHTS RELATED TO OPTIONS. A Stock Appreciation Right granted
pursuant to an Option shall entitle the Holder, upon exercise, to surrender
that Option or any portion thereof, to the extent unexercised, and to receive
payment of an amount computed pursuant to Subparagraph 6.2(b). That Option
shall then cease to be exercisable to the extent surrendered. Stock
Appreciation Rights granted in connection with an Option shall be subject to
the terms of the Award Agreement governing the Option, which shall comply
with the following provisions in addition to those applicable to Options:
(a) EXERCISE AND TRANSFER. Subject to Paragraph 10.10, a Stock
Appreciation Right granted in connection with an Option shall be
exercisable only at such time or times and only to the extent that the
related Option is exercisable and shall not be transferable except to the
extent that the related Option is transferable. To the extent that an
Option has been exercised, the Stock Appreciation Rights granted in
connection with that Option shall terminate.
(b) VALUE OF RIGHT. Upon the exercise of a Stock Appreciation Right
related to an Option, the Holder shall be entitled to receive payment from
the Corporation of an amount determined by multiplying:
(i) The difference obtained by subtracting the Exercise Price of
a share of Stock specified in the related Option from the Fair Market
Value of a share of Stock on the date of exercise of the Stock
Appreciation Right, by
(ii) The number of shares as to which that Stock Appreciation
Right has been exercised.
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6.3 RIGHT WITHOUT OPTION. A Stock Appreciation Right granted without
relationship to an Option shall be exercisable as determined by the Committee
and set forth in the Award Agreement governing the Stock Appreciation Right,
which Award Agreement shall comply with the following provisions:
(a) NUMBER OF SHARES. Each Award Agreement shall state the total
number of shares of Stock to which the Stock Appreciation Right relates.
(b) VESTING. Each Award Agreement shall state the time, periods or
other conditions on which the right to exercise the Stock Appreciation
Right or a portion thereof shall vest and the number of shares of Stock for
which the right to exercise the Stock Appreciation Right shall vest at each
such time, period or satisfaction of condition.
(c) EXPIRATION OF RIGHTS. Each Award Agreement shall state the date
at which the Stock Appreciation Rights shall expire if not previously
exercised.
(d) VALUE OF RIGHT. A Stock Appreciation Right granted without
relationship to an Option shall entitle the Holder, upon exercise of the
Stock Appreciation Right, to receive payment of an amount determined by
multiplying:
(i) The difference obtained by subtracting the SAR Exercise
Price from the Fair Market Value of a share of Stock on the date of
exercise of that Stock Appreciation Right, by
(ii) The number of rights as to which the Stock Appreciation
Right has been exercised.
6.4 LIMITATIONS ON RIGHTS. Notwithstanding Subparagraph 6.2(b) and
Subparagraph 6.3(d), the Committee may limit the amount payable upon exercise
of a Stock Appreciation Right. Any such limitation must be determined as of
the Date of Grant and be noted on the instrument evidencing the Stock
Appreciation Right.
6.5 PAYMENT OF RIGHTS. Payment of the amount determined under
Subparagraph 6.2(b) or Subparagraph 6.3(d) and Paragraph 6.4 may, in the sole
discretion of the Committee, be made solely in whole shares of Stock valued
at Fair Market Value on the date of exercise of the Stock Appreciation Right
or, in the sole discretion of the Committee, solely in cash or a combination
of cash and Stock. If the Committee decides to make full payment in shares
of Stock and the amount payable results in a fractional share, payment for
the fractional share shall be made in cash.
6.6 OTHER AGREEMENT PROVISIONS. The Award Agreements authorized
relating to Stock Appreciation Rights shall contain such provisions in
addition to those required by the Plan (including, without limitation,
restrictions or the removal of restrictions upon the exercise of the Stock
Appreciation Right and the retention or transfer of shares thereby acquired)
as the Committee may deem advisable.
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SECTION 7. RESTRICTED STOCK AWARDS
All Restricted Stock Awards granted under the Plan shall comply with, and
the related Award Agreements shall be deemed to include, and be subject to
the terms and conditions set forth in this Section 7 and also to the terms
and conditions set forth in Paragraph 9.1 and Section 10; PROVIDED, HOWEVER,
that the Committee may authorize an Award Agreement relating to a Restricted
Stock Award that expressly contains terms and provisions that differ from the
terms and provisions of Section 10. The Committee may also authorize an
Award Agreement relating to a Restricted Stock Award that contains any or all
of the terms and provisions of Paragraphs 9.2 and 9.3 or that contains terms
and provisions dealing with similar subject matter differently than do those
Paragraphs; nevertheless, no term or provision of Paragraph 9.2 or 9.3 (or
any such differing term or provision) shall apply to an Award Agreement
relating to a Restricted Stock Award unless the Award Agreement expressly
states that such term or provision applies.
7.1 RESTRICTIONS. All shares of Restricted Stock Awards granted or sold
pursuant to the Plan shall be subject to the following conditions:
(a) TRANSFERABILITY. The shares may not be sold, transferred or
otherwise alienated or hypothecated until the restrictions are removed or
expire.
(b) CONDITIONS TO REMOVAL OF RESTRICTIONS. Conditions to removal or
expiration of the restrictions may include, but are not required to be
limited to, continuing employment or service as a director, officer,
consultant or advisor or achievement of performance objectives described in
the Award Agreement.
(c) LEGEND. Each certificate representing Restricted Stock Awards
granted pursuant to the Plan shall bear a legend making appropriate
reference to the restrictions imposed.
(d) POSSESSION. At its sole discretion, the Committee may (i)
authorize issuance of a certificate for shares in the Holder's name only
upon lapse of the applicable restrictions, (ii) require the Corporation,
transfer agent or other custodian to retain physical custody of the
certificates representing Restricted Stock Awards during the restriction
period and may require the Holder of the Award to execute stock powers,
endorsed or in blank, for those certificates and deliver those stock
powers to the Corporation, transfer agent or custodian, or (iii) may
require the Holder to enter into an escrow agreement providing that the
certificates representing Restricted Stock Awards granted or sold pursuant
to the Plan shall remain in the physical custody of an escrow holder until
all restrictions are removed or expire. The Corporation may issue shares
subject to stop-transfer restrictions or may issue such shares subject only
to the restrictive legend described in subparagraph 7.1(c).
(e) OTHER CONDITIONS. The Committee may impose other conditions on
any shares granted or sold as Restricted Stock Awards pursuant to the Plan
as it may deem advisable, including, without limitation, (i) restrictions
under the Securities Act or Exchange Act, (ii) the requirements of any
securities exchange upon which the shares or shares of the same class are
then listed, and (iii) any state securities law applicable to the shares.
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7.2 EXPIRATION OF RESTRICTIONS. The restrictions imposed in Paragraph
7.1 on Restricted Stock Awards shall lapse as determined by the Committee and
set forth in the applicable Award Agreement, and the Corporation shall
promptly cause to be delivered to the Holder of the Restricted Stock Award a
certificate representing the number of shares for which restrictions have
lapsed, free of any restrictive legend relating to the lapsed restrictions.
Each Restricted Stock Award may have a different restriction period, in the
discretion of the Committee. The Committee may, in its discretion,
prospectively reduce the restriction period applicable to a particular
Restricted Stock Award. The foregoing notwithstanding, no restriction not
required by law shall remain in effect for more than ten years after the date
of the Award.
7.3 CHANGES IN ACCOUNTING RULES. Notwithstanding any other provision of
the Plan to the contrary, if, during the term of the Plan, any changes in the
financial or tax accounting rules applicable to Restricted Stock Awards shall
occur that, in the sole judgement of the Board of Directors, may have a
material adverse effect on the reported earnings, assets, or liabilities of
the Corporation, the Committee shall have the right and power to modify as
necessary any then outstanding Restricted Stock Awards as to which the
applicable restrictions have not been satisfied.
7.4 RIGHTS AS STOCKHOLDER. Subject to the provisions of Paragraphs 7.1
and 10.11, the Committee may, in its discretion, determine what rights, if
any, the Holder shall have with respect to the Restricted Stock Awards
granted or sold, including the right to vote the shares and receive all
dividends and other distributions paid or made with respect thereto.
7.5 OTHER AGREEMENT PROVISIONS. The Award Agreements relating to
Restricted Stock Awards shall contain such provisions in addition to those
required by the Plan as the Committee may deem advisable.
SECTION 8. PERFORMANCE UNITS
All Performance Units granted under the Plan shall comply with, and the
related Award Agreements shall be deemed to include and be subject to, the
terms and conditions set forth in this Section 8 (to the extent each term and
condition applies to the form of Performance Unit) and also to the terms and
conditions set forth in Paragraph 9.1 and Section 10; PROVIDED, HOWEVER, that
the Committee may authorize an Award Agreement related to a Performance Unit
that expressly contains terms and provisions that differ from the terms and
provisions of Section 10. The Committee may also authorize an Award
Agreement related to a Performance Unit that contains any or all of the terms
and provisions of Paragraphs 9.2 and 9.3 or that contains terms and
provisions dealing with similar subject matter differently than do those
Paragraphs; nevertheless, no term or provision of Paragraph 9.2 or 9.3 (or
any such differing term or provision) shall apply to an Award Agreement
related to a Performance Unit unless the Award Agreement expressly states
that such term or provision applies.
8.1 MULTIPLE GRANTS. The Committee may make grants of Performance Units
in such a manner that more than one Performance Period is in progress
simultaneously. At or before the beginning of each Performance Period, the
Committee will establish the contingent value of each Performance Unit, if
any, for that Performance Period, which may vary depending on the degree to
which performance objectives established by the Committee are met.
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8.2 PERFORMANCE STANDARDS. At or before the beginning of each
Performance Period, the Committee will (a) establish the beginning and ending
dates of the Performance Period, (b) establish for that Performance Period
specific performance objectives as the Committee (in its sole discretion)
believes are relevant to the Corporation's overall business objectives, (c)
determine the minimum and maximum value of a Performance Unit and the value
of a Performance Unit based on the degree to which performance objectives are
achieved, exceeded or not achieved, (d) determine a minimum performance level
below which Performance Units will be assigned a value of zero, and a maximum
performance level above which the value of Performance Units will not
increase, and (e) notify each Holder of a Performance Unit for that
Performance Period in writing of the established performance objectives and
minimum, target and maximum Performance Unit value for that Performance
Period.
8.3 MODIFICATION OF STANDARDS. If the Committee determines in its sole
discretion that the established performance measures or objectives are no
longer suitable to the Corporation's objectives because of a change in the
Corporation's business, operations, corporate structure, capital structure or
other conditions the Committee deems to be material, the Committee may modify
the performance measures and objectives as it considers appropriate and
equitable.
8.4 PAYMENT. The basis for payment of Performance Units for a given
Performance Period will be the achievement of those performance objectives
determined by the Committee at the beginning of the Performance Period. If
minimum performance is not achieved or exceeded for a Performance Period, no
payment will be made and all contingent rights will cease. If minimum
performance is achieved or exceeded, the value of a Performance Unit will be
based on the degree to which actual performance exceeded the pre-established
minimum performance standards. The amount of payment will be determined by
multiplying the number of Performance Units granted at the beginning of the
Performance Period by the final Performance Unit value. Payments will be
made in cash or Stock as soon as administratively possible following the
close of the applicable Performance Period.
8.5 OTHER AGREEMENT PROVISIONS. The Award Agreements, if any,
authorized relating to Performance Units shall contain such provisions in
addition to those required by the Plan (including, without limitation,
restrictions or the removal of restrictions upon the transfer of shares
thereby acquired) as the Committee may deem advisable.
SECTION 9. ADJUSTMENT PROVISIONS
The Committee may authorize an Award that contains any or all of the
terms and provisions of this Section 9 or, with respect to Paragraphs 9.2 and
9.3, that contains terms and provisions dealing with similar subject matter
differently than do those Paragraphs; nevertheless, no term or provision of
Paragraph 9.2 or 9.3 (or any such differing term or provision) shall apply to
an Award Agreement unless the Award Agreement expressly states that such term
or provision applies.
9.1 ADJUSTMENT OF AWARDS AND AUTHORIZED STOCK. The terms of an Award,
the number of shares of Stock authorized pursuant to Paragraph 2.1 for
issuance under the Plan, and the number shares of Stock that constitute the
individual limitations in Paragraph 2.6 shall be subject to adjustment, from
time to time, in accordance with the following provisions:
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(a) If at any time or from time to time, the Corporation shall
subdivide as a whole (by reclassification, by a Stock split, by the
issuance of a distribution on Stock payable in Stock or otherwise) the
number of shares of Stock then outstanding into a greater number of shares
of Stock, then (i) the maximum number of shares of Stock available for the
Plan and for any individual as provided in Paragraph 2.1 and Paragraph 2.6,
respectively, shall be increased proportionately, and the kind of shares or
other securities available for the Plan shall be appropriately adjusted,
(ii) the number of shares of Stock (or other kind of shares or securities)
that may be acquired under any Award shall be increased proportionately,
and (iii) the price (including Exercise Price) for each share of Stock (or
other kind of shares or unit of other securities) subject to then
outstanding Awards shall be reduced proportionately, without changing the
aggregate purchase price or value as to which outstanding Awards remain
exercisable or subject to restrictions.
(b) If at any time or from time to time the Corporation shall
consolidate as a whole (by reclassification, reverse Stock split, or
otherwise) the number of shares of Stock then outstanding into a lesser
number of shares of Stock, (i) the maximum number of shares of Stock
available for the Plan and for any individual as provided in Paragraph 2.1
and Paragraph 2.6, respectively shall be decreased proportionately, and the
kind of shares or other securities available for the Plan shall be
appropriately adjusted, (ii) the number of shares of Stock (or other kind
of shares or securities) that may be acquired under any Award shall be
decreased proportionately, and (iii) the price (including Exercise Price)
for each share of Stock (or other kind of shares or unit of other
securities) subject to then outstanding Awards shall be increased
proportionately, without changing the aggregate purchase price or value as
to which outstanding Awards remain exercisable or subject to restrictions.
(c) Whenever the number of shares of Stock subject to outstanding
Awards and the price for each share of Stock subject to outstanding Awards
are required to be adjusted as provided in this Paragraph 9.1, the
Committee shall promptly prepare a notice setting forth, in reasonable
detail, the event requiring adjustment, the amount of the adjustment, the
method by which such adjustment was calculated, and the change in price and
the number of shares of Stock, other securities, cash or property
purchasable subject to each Award after giving effect to the adjustments.
The Committee shall promptly give each Holder such a notice.
(d) Adjustments under Paragraph 9(a) and (b) shall be made by the
Committee, and its determination as to what adjustments shall be made and
the extent thereof shall be final, binding and conclusive. No fractional
interest shall be issued under the Plan on account of any such adjustments.
9.2 CHANGES IN CONTROL. Upon the occurrence of a Change in Control, but
only if approved by the Committee, for Awards held by Participants who are
employees or directors of the Corporation (and their permitted transferees
pursuant to Paragraph 3.5), (a) all outstanding Stock Appreciation Rights and
Options shall immediately become fully vested and exercisable in full,
including that portion of any Stock Appreciation Right or Option that
pursuant to the terms and provisions of the applicable Award Agreement had
not yet become exercisable (the total number of shares of Stock as to which a
Stock Appreciation Right or Option is exercisable upon the occurrence of a
Change in
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Control is referred to herein as the "TOTAL SHARES"); (b) the restriction
period of any Restricted Stock Award shall immediately be accelerated and the
restrictions shall expire; and (c) the target payout opportunity attainable
under the Performance Units will be deemed to have been fully earned for all
Performance Periods upon the occurrence of the Change in Control and the
Holder will be paid a pro rata portion of all associated targeted payout
opportunities (based on the number of complete and partial calendar months
elapsed as of the occurrence of the Change in Control) in cash within thirty
days following the Change in Control or in Stock effective as of the Change
in Control, for cash and stock-based Performance Units, respectively. If a
Change in Control involves a Restructure or occurs in connection with a
series of related transactions involving a Restructure and if such
Restructure is in the form of a Non-Surviving Event and as a part of such
Restructure shares of stock, other securities, cash or property shall be
issuable or deliverable in exchange for Stock, then the Holder of an Award
shall be entitled to purchase or receive (in lieu of the Total Shares that
the Holder would otherwise be entitled to purchase or receive), as
appropriate for the form of Award, the number of shares of stock, other
securities, cash or property to which that number of Total Shares would have
been entitled in connection with such Restructure (and, for Options, at an
aggregate exercise price equal to the Exercise Price that would have been
payable if that number of Total Shares had been purchased on the exercise of
the Option immediately before the consummation of the Restructure). Nothing
in this Paragraph 9.2 shall impose on a Holder the obligation to exercise any
Award immediately before or upon the Change of Control, and, unless otherwise
provided in the Award Agreement relating to the Award, no Holder shall
forfeit the right to exercise the Award during the remainder of the original
term of the Award because of a Change in Control or because the Holder's
employment is terminated for any reason following a Change in Control.
9.3 RESTRUCTURE AND NO CHANGE IN CONTROL. In the event a Restructure
should occur at any time while there is any outstanding Award hereunder and
that Restructure does not occur in connection with a Change in Control or in
connection with a series of related transactions involving a Change in
Control, then:
(a) no Holder of an Option shall automatically be granted
corresponding Stock Appreciation Rights;
(b) neither any outstanding Stock Appreciation Rights nor any
outstanding Options shall immediately become fully vested and exercisable
in full merely because of the occurrence of the Restructure;
(c) the restriction period of any Restricted Stock Award shall not
immediately be accelerated nor shall the restrictions expire merely because
of the occurrence of the Restructure; and
(d) the target payout opportunity attainable under the Performance
Units will not be deemed to have been fully earned for all Performance
Periods merely because of the occurrence of the Restructure.
The Corporation shall promptly notify each Holder of any election or action
taken by the Corporation under this Paragraph 9.3. In the event of any
election or action taken by the Corporation pursuant to this Paragraph 9.3
that requires the amendment or cancellation of any Award Agreement as may be
specified in any notice to the Holder thereof, that Holder shall promptly
deliver that Award Agreement to the Corporation in order for that amendment
or cancellation to be implemented by the Corporation and the Committee. The
failure of the Holder to deliver any such Award Agreement to the Corporation
as provided in the preceding sentence shall not in any manner affect the
validity or enforceability of any action taken by the Corporation and the
Committee under this Paragraph 9.3, including, without limitation, any
redemption of an Award as of the consummation of a Restructure. Any cash
payment to be made by the Corporation pursuant to this Paragraph 9.3 in
connection with the redemption of any outstanding Awards shall be paid to the
Holder thereof
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currently with the delivery to the Corporation of the Award Agreement
evidencing that Award; provided, however, that any such redemption shall be
effective upon the consummation of the Restructure notwithstanding that the
payment of the redemption price may occur subsequent to the consummation. If
all or any portion of an outstanding Award is to be exercised or accelerated
upon or after the consummation of a Restructure that is in the form of a
Non-Surviving Event and as a part of that Restructure shares of stock, other
securities, cash or property shall be issuable or deliverable in exchange for
Stock, then the Holder of the Award shall thereafter be entitled to purchase
or receive (in lieu of the number of shares of Stock that the Holder would
otherwise be entitled to purchase or receive) the number of shares of stock,
other securities, cash or property to which such number of shares of Stock
would have been entitled in connection with the Restructure (and, for
Options, at an aggregate exercise price equal to the Exercise Price that
would have been payable if that number of Total Shares had been purchased on
the exercise of the Option immediately before the consummation of the
Restructure).
9.4 NOTICE OF CHANGE IN CONTROL OR RESTRUCTURE. The Corporation shall
attempt to keep all Holders informed with respect to any Change in Control or
Restructure or of any potential Change in Control or Restructure to the same
extent that the Corporation's stockholders are informed by the Corporation of
any such event or potential event.
SECTION 10. ADDITIONAL PROVISIONS
10.1 TERMINATION OF EMPLOYMENT. Subject to the last sentence of
Paragraph 9.2, if a Holder is an Eligible Individual because the Holder is an
Employee and if that employment relationship is terminated for any reason
other than Retirement or that Holder's death or Disability, then the
following provisions shall apply to all Awards held by that Holder that were
granted because that Holder was an Employee:
(a) If the termination is by the Holder's employer, then the
following provisions shall apply: (i) if the termination is for Cause, then
that portion, if any, of any and all Awards held by that Holder that are
not yet exercisable (or for which restrictions have not lapsed) as of the
date of termination shall become null and void; provided, however, that the
portion, if any, of any and all Awards held by that Holder which are
exercisable (or for which restrictions have lapsed) as of the date of such
termination shall survive such termination and shall be exercisable by such
Holder for a period of the lesser of (A) the remainder of the term of the
Award or (B) three (3) days following the date of such termination or (ii)
if the termination is not for Cause, then that portion, if any, of any and
all Awards held by that Holder that are not yet exercisable (or for which
restrictions have not lapsed) as of the date of the termination shall
become null and void as of the date of the termination; provided, however,
that the portion, if any, of any and all Awards held by that Holder which
are exercisable (or for which restrictions have lapsed) as of the date of
such termination shall survive such termination and shall be exercisable by
such Holder for a period of the lesser of (A) the remainder of the term of
the Award or (B) 180 days following the date of such termination.
(b) If such termination is by the Holder, then, unless otherwise
agreed to by the Corporation, any and all Awards held by that Holder,
whether or not then exercisable and whether or not restrictions thereon
have lapsed (except in full), shall become null and void as of the date of
the termination.
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10.2 OTHER LOSS OF ELIGIBILITY. If a Holder is an Eligible Individual
because the Holder is serving in a capacity other than as an Employee and if
that capacity is terminated for any reason other than the Holder's death,
then that portion, if any, of any and all Awards held by the Holder that were
granted because of that capacity which are not yet exercisable (or for which
restrictions have not lapsed) as of the date of the termination shall become
null and void as of the date of the termination; provided, however, that the
portion, if any, of any and all of the Awards held by the Holder that are
exercisable (or for which restrictions have lapsed) as of the date of the
termination shall survive the termination and shall be exercisable by such
Holder for a period of the lesser of (a) the remainder of the term of the
Award or (b) 90 days following the date of such termination.
10.3 DEATH. Upon the death of a Holder, then any and all Awards held by
the Holder, including those portions of the Awards that pursuant to the terms
and provisions of the applicable Award Agreement had not yet become
exercisable, shall immediately become fully vested and exercisable in full by
the Holder, his guardians or his legal representatives, legatees or
distributees for a period of the lesser of (a) the remainder of the term of
the Award or (b) one year following the date of the Holder's death. Any
portion of an Award not exercised upon the expiration of the periods
specified in (a) or (b) shall be null and void. Except as expressly provided
in this Paragraph 10.3, all Awards held by a Holder shall not be exercisable
after the death of that Holder.
10.4 RETIREMENT. If a Holder is an Eligible Individual because the
Holder is an Employee and if that employment relationship is terminated by
reason of the Holder's Retirement, then the portion, if any, of any and all
Awards held by the Holder that are not yet exercisable (or for which
restrictions have not lapsed) as of the date of that retirement shall become
null and void as of the date of retirement; provided, however, that the
portion, if any, of any and all Awards held by the Holder that are
exercisable as of the date of that Retirement shall survive the Retirement
and shall be exercisable by such Holder for a period of the lesser of (a) the
remainder of the terms of the Award or (b) ninety days following the date of
retirement.
10.5 DISABILITY. If a Holder is an Eligible Individual because the
Holder is an Employee and if that employment relationship is terminated by
reason of the Holder's Disability, then any and all Awards held by the
Holder, including those portions of the Awards that pursuant to the terms and
provisions of the applicable Award Agreement had not yet become exercisable
(or for which restrictions had not lapsed), shall immediately become fully
vested and exercisable in full by the Holder, his guardians or his legal
representatives for a period of the lesser of (a) the remainder of the term
of the Award or (b) one year following the date on which the Holder's
employment is terminated due to such Holder's Disability. "Disability" shall
have the meaning given it in the employment agreement of the Holder;
provided, however, that if that Holder has no employment agreement,
"Disability" shall mean a physical or mental impairment of sufficient
severity that, in the opinion of the Corporation, either the Holder is unable
to continue performing the duties he performed before such impairment or the
Holder's condition entitles him to disability benefits under any insurance or
employee benefit plan of the Corporation or its Subsidiaries and that
impairment or condition is cited by the Corporation as the reason for
termination of the Holder's employment.
10.6 LEAVE OF ABSENCE. With respect to an Award, the Committee may, in
its sole discretion, determine that any Holder who is on leave of absence for
any reason will be considered to still be in the employ of the Corporation,
provided that rights to that Award during a leave of absence will be limited
to the extent to which those rights were earned or vested when the leave of
absence began.
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10.7 TRANSFERABILITY OF AWARDS. In addition to such other terms and
conditions as may be included in a particular Award Agreement, an Award
requiring exercise shall be exercisable during a Holder's lifetime only by
that Holder or by that Holder's guardian or legal representative. An Award
requiring exercise shall not be transferrable other than by will or the laws
of descent and distribution, except as permitted in accordance with Paragraph
3.5.
10.8 FORFEITURE AND RESTRICTIONS ON TRANSFER. Each Award Agreement may
contain or otherwise provide for conditions giving rise to the forfeiture of
the Stock acquired pursuant to an Award or otherwise and may also provide for
those restrictions on the transferability of shares of the Stock acquired
pursuant to an Award or otherwise that the Committee in its sole and absolute
discretion may deem proper or advisable. The conditions giving rise to
forfeiture may include, but need not be limited to, the requirement that the
Holder render substantial services to the Corporation or its Subsidiaries for
a specified period of time. The restrictions on transferability may include,
but need not be limited to, options and rights of first refusal in favor of
the Corporation and stockholders of the Corporation other than the Holder of
such shares of Stock who is a party to the particular Award Agreement or a
subsequent holder of the shares of Stock who is bound by that Award Agreement.
10.9 DELIVERY OF CERTIFICATES OF STOCK. Subject to Paragraph 10.10, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock as to which (a) an Option has been exercised after
the Corporation receives an Exercise Notice and upon receipt by the
Corporation of the Exercise Price and any tax withholding as may be
requested; (b) a Stock Appreciation Right has been exercised and upon receipt
by the Corporation of any tax withholding as may be requested; (c)
restrictions have lapsed with respect to a Restricted Stock Award and upon
receipt by the Corporation of any tax withholding as may be requested; and
(d) performance objectives have been achieved during a Performance Period
relating to a Performance Unit for Stock. The value of the shares of Stock,
cash or notes transferable because of an Award under the Plan shall not bear
any interest owing to the passage of time, except as may be otherwise
provided in an Award Agreement. If a Holder is entitled to receive
certificates representing Stock received for more than one form of Award
under the Plan, separate Stock certificates shall be issued with respect to
each such Award and for Incentive Options and Nonstatutory Stock Options
separately.
10.10 CONDITIONS TO DELIVERY OF STOCK. Nothing herein or in any
Award granted hereunder or any Award Agreement shall require the Corporation
to issue any shares with respect to any Award if that issuance would, in the
opinion of counsel for the Corporation, constitute a violation of the
Securities Act or any similar or superseding statute or statutes, any other
applicable statute or regulation, or the rules of any applicable securities
exchange or securities association, as then in effect. At the time of any
exercise of an Option or Stock Appreciation Right, or at the time of any
grant of a Restricted Stock Award or Performance Unit, the Corporation may,
as a condition precedent to the exercise of such Option or Stock Appreciation
Right or vesting of any Restricted Stock Award or Performance Unit, require
from the Holder of the Award (or in the event of his death, his legal
representatives, heirs, legatees, or distributees) such written
representations, if any, concerning the Holder's intentions with regard to
the retention or disposition of the shares of Stock being acquired pursuant
to the Award and such written covenants and agreements, if any, as to the
manner of disposal of such shares as, in the opinion of counsel to the
Corporation, may be necessary to ensure that any disposition by that Holder
(or in the event of the Holder's death, his legal representatives, heirs,
legatees, or distributees) will not involve a violation of the Securities Act
or any similar or superseding statute or statutes, any other applicable state
or federal statute or regulation, or any rule of any applicable securities
exchange or securities association, as then in effect.
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10.11 CERTAIN DIRECTORS AND OFFICERS. With respect to Awards granted
to Holders who are directors or officers of the Corporation or any Subsidiary
and who are subject to Section 16(b) of the Exchange Act, Awards shall
contain such other terms and conditions as may be required by Rule 16b-3
unless the majority of the Board of Directors or the Holder has determined
not to have the Award comply with Rule 16b-3.
10.12 SECURITIES ACT LEGEND. Certificates for shares of Stock, when
issued, may have the following legend, or statements of other applicable
restrictions endorsed thereon and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER)
THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Stock issued pursuant to an
effective registration statement under the Securities Act.
10.13 LEGEND FOR RESTRICTIONS ON TRANSFER. Each certificate
representing shares issued to a Holder pursuant to an Award granted under the
Plan shall, if such shares are subject to any transfer restriction, including
a right of first refusal, provided for under this Plan or an Award Agreement,
bear a legend that complies with applicable law with respect to the
restrictions on transferability contained in this Paragraph 10.13, such as:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT
ENTITLED "TRAMMELL CROW COMPANY LONG-TERM INCENTIVE PLAN" AS ADOPTED
BY TRAMMELL CROW COMPANY (THE "CORPORATION") ON _____________, 1997,
AND AN AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND [HOLDER] DATED
______________________, ____, AND MAY NOT BE TRANSFERRED, SOLD, OR
OTHERWISE DISPOSED OF EXCEPT AS THEREIN PROVIDED. THE CORPORATION
WILL FURNISH A COPY OF SUCH INSTRUMENT AND AGREEMENT TO THE RECORD
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
10.14 RIGHTS AS A STOCKHOLDER. A Holder shall have no right as a
stockholder with respect to any shares covered by his Award until a
certificate representing those shares is issued in his name. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash or
other property) or distributions or other rights for which the record date is
before the date that certificate is issued, except as contemplated by Section
9. Nevertheless, dividends and dividend equivalent rights may be extended
to and made part of any Award denominated in Stock or units of Stock, subject
to such terms, conditions, and
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restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents for deferred payment denominated in Stock
or units of Stock.
10.15 FURNISH INFORMATION. Each Holder shall furnish to the
Corporation all information requested by the Corporation to enable it to
comply with any reporting or other requirement imposed upon the Corporation
by or under any applicable statute or regulation.
10.16 OBLIGATION TO EXERCISE. The granting of an Award hereunder
shall impose no obligation upon the Holder to exercise the same or any part
thereof.
10.17 ADJUSTMENTS TO AWARDS. Subject to the general limitations set
forth in Sections 5, 6 and 9, the Committee may make any adjustment in the
exercise price of, the number of shares subject to or the terms of a
Nonstatutory Option or Stock Appreciation Right by canceling an outstanding
Nonstatutory Option or Stock Appreciation Right and regranting a Nonstatutory
Option or Stock Appreciation Right. Such adjustment shall be made by
amending, substituting or regranting an outstanding Nonstatutory Option or
Stock Appreciation Right. Such amendment, substitution or regrant may result
in terms and conditions that differ from the terms and conditions of the
original Nonstatutory Option or Stock Appreciation Right. The Committee may
not, however, impair the rights of any Holder to previously granted
Nonstatutory Options or Stock Appreciation Rights without that Holder's
consent. If such action is effected by amendment, the effective date of such
amendment shall be the date of the original grant.
10.18 REMEDIES. The Corporation shall be entitled to recover from a
Holder reasonable attorneys' fees incurred in connection with the enforcement
of the terms and provisions of the Plan and any Award Agreement whether by an
action to enforce specific performance or for damages for its breach or
otherwise.
10.19 INFORMATION CONFIDENTIAL. As partial consideration for the
granting of each Award hereunder, the Holder shall agree with the Corporation
that he will keep confidential all information and knowledge that he has
relating to the manner and amount of his participation in the Plan; provided,
however, that such information may be disclosed as required by law and may be
given in confidence to the Holder's spouse, tax and financial advisors, or to
a financial institution to the extent that such information is necessary to
secure a loan. In the event any breach of this promise comes to the attention
of the Committee, it shall take into consideration that breach in determining
whether to recommend the grant of any future Award to that Holder, as a
factor militating against the advisability of granting any such future Award
to that individual.
10.20 CONSIDERATION. No Option or Stock Appreciation Right shall be
exercisable, no restriction on any Restricted Stock Award shall lapse, and no
Performance Unit shall be settled in Stock with respect to a Holder unless
and until the Holder shall have paid cash or property to, or performed
services for, the Corporation or any of its Subsidiaries that the Committee
believes is equal to or greater in value then the par value of the Stock
subject to such Award.
10.21 PAYMENT OF TAXES. The Committee may, in its discretion,
require a Holder to pay to the Corporation (or the Corporation's Subsidiary
if the Holder is an employee of a Subsidiary of the Corporation), at the time
of the exercise of an Award, the amount that the Committee deems necessary to
satisfy the Corporation's or its Subsidiary's current or future obligation to
withhold federal, state or local income or other taxes that the Holder incurs
by exercising an Award. Upon the exercise of an Award
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requiring tax withholding, a Holder may (a) direct the Corporation to
withhold from the shares of Stock to be issued to the Holder the number of
shares necessary to satisfy the Corporation's obligation to withhold taxes,
that determination to be based on the shares' Fair Market Value as of the
date of exercise; (b) deliver to the Corporation sufficient shares of Stock
(based upon the Fair Market Value at date of exercise) to satisfy the
Corporation's tax withholding obligations, based on the shares' Fair Market
Value as of the date of exercise; or (c) deliver sufficient cash to the
Corporation to satisfy its tax withholding obligations. Holders who elect to
use such a stock withholding feature must make the election at the time and
in the manner that the Committee prescribes. The Committee may, at its sole
option, deny any Holder's request to satisfy withholding obligations through
Stock instead of cash. In the event the Committee subsequently determines
that the aggregate Fair Market Value (as determined above) of any shares of
Stock withheld as payment of any tax withholding obligation is insufficient
to discharge that tax withholding obligation, then the Holder shall pay to
the Corporation, immediately upon the Committee's request, the amount of that
deficiency.
SECTION 11. DURATION AND AMENDMENT OF PLAN
11.1 DURATION. No Awards may be granted hereunder after the date that is
ten (10) years from the date the last amendment to this Plan involving an
increase in authorized shares is approved by the stockholders of the
Corporation.
11.2 AMENDMENT. The Board of Directors may, insofar as permitted by law,
with respect to any shares which, at the time, are not subject to Awards,
suspend or discontinue the Plan or revise or amend it in any respect
whatsoever, and may amend any provision of the Plan or any Award Agreement to
make the Plan or the Award Agreement, or both, comply with Section 16(b) of
the Exchange Act and the exemptions therefrom, the Code, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the regulations
promulgated under the Code or ERISA, or any other law, rule or regulation
that may affect the Plan. The Board of Directors may also amend, modify,
suspend or terminate the Plan for the purpose of meeting or addressing any
changes in other legal requirements applicable to the Corporation or the Plan
or for any other purpose permitted by law. The Plan may not be amended
without the consent of the holders of a majority of the shares of Stock then
outstanding to increase materially the aggregate number of shares of Stock
that may be issued under the Plan (except for adjustments pursuant to Section
9 of the Plan).
SECTION 12. GENERAL
12.1 APPLICATION OF FUNDS. The proceeds received by the Corporation
from the sale of shares pursuant to Awards shall be used for general
corporate purposes.
12.2 RIGHT OF THE CORPORATION AND SUBSIDIARIES TO TERMINATE
EMPLOYMENT. Nothing contained in the Plan or in any Award Agreement shall
confer upon any Holder the right to continue in the employ of the Corporation
or any Subsidiary, or interfere in any way with the rights of the Corporation
or any Subsidiary to terminate his or her employment at any time.
12.3 NO LIABILITY FOR GOOD FAITH DETERMINATIONS. Neither the members
of the Board of Directors nor any member of the Committee shall be liable for
any act, omission or determination taken or made in good faith with respect
to the Plan or any Award granted under it, and members of the Board of
Directors
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and the Committee shall be entitled to indemnification and reimbursement by
the Corporation in respect of any claim, loss, damage or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and
amounts paid in satisfaction of a judgment, except a judgment based on a
finding of bad faith) arising therefrom to the full extent permitted by law
and under any directors and officers liability or similar insurance coverage
that may from time to time be in effect. This right to indemnification shall
be in addition to, and not a limitation on, any other indemnification rights
any member of the Board of Directors or the Committee may have.
12.4 OTHER BENEFITS. Participation in the Plan shall not preclude
the Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any old age benefit, insurance, pension,
profit sharing, retirement, bonus or other extra compensation plans that the
Corporation or any Subsidiary has adopted or may, at any time, adopt for the
benefit of its Employees. Neither the adoption of the Plan by the Board of
Directors nor the submission of the Plan to the stockholders of the
Corporation for approval shall be construed as creating any limitations on
the power of the Board of Directors to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash otherwise than
under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
12.5 EXCLUSION FROM PENSION AND PROFIT-SHARING COMPENSATION. By
acceptance of an Award (whether in Stock or cash), as applicable, each Holder
shall be deemed to have agreed that the Award is special incentive
compensation that will not be taken into account in any manner as salary,
compensation or bonus in determining the amount of any payment under any
pension, retirement or other employee benefit plan of the Corporation or any
Subsidiary. In addition, each beneficiary of a deceased Holder shall be
deemed to have agreed that the Award will not affect the amount of any life
insurance coverage, if any, provided by the Corporation or a Subsidiary on
the life of the Holder that is payable to the beneficiary under any life
insurance plan covering employees of the Corporation or any Subsidiary.
12.6 EXECUTION OF RECEIPTS AND RELEASES. Any payment of cash or any
issuance or transfer of shares of Stock or other property to the Holder, or
to his legal representative, heir, legatee or distributee, in accordance with
the provisions hereof, shall, to the extent thereof, be in full satisfaction
of all claims of such persons hereunder. The Committee may require any
Holder, legal representative, heir, legatee or distributee, as a condition
precedent to such payment, to execute a release and receipt therefor in such
form as it shall determine.
12.7 UNFUNDED PLAN. Insofar as it provides for Awards of cash and Stock,
the Plan shall be unfunded. Although bookkeeping accounts may be established
with respect to Holders who are entitled to cash, Stock, other property or
rights thereto under the Plan, any such accounts shall be used merely as a
bookkeeping convenience. The Corporation shall not be required to segregate
any assets that may at any time be represented by cash, Stock, other property
or rights thereto, nor shall the Plan be construed as providing for such
segregation, nor shall the Corporation nor the Board of Directors nor the
Committee be deemed to be a trustee of any cash, Stock, other property or
rights thereto to be granted under the Plan. Any liability of the
Corporation to any Holder with respect to a grant of cash, Stock, other
property or rights thereto under the Plan shall be based solely upon any
contractual obligations that may be created by the Plan and any Award
Agreement; no such obligation of the Corporation shall be deemed to be
secured by any pledge or other encumbrance on any property of the
Corporation. Neither the Corporation nor the Board of
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Directors nor the Committee shall be required to give any security or bond
for the performance of any obligation that may be created by the Plan.
12.8 NO GUARANTEE OF INTERESTS. The Board of Directors, the
Committee and the Corporation do not guarantee the Stock of the Corporation
from loss or depreciation.
12.9 PAYMENT OF EXPENSES. All expenses incident to the
administration, termination or protection of the Plan, including, but not
limited to, legal and accounting fees, shall be paid by the Corporation or
its Subsidiaries; provided, however, the Corporation or a Subsidiary may
recover any and all damages, fees, expenses and costs arising out of any
actions taken by the Corporation to enforce its right to purchase Stock under
this Plan.
12.10 CORPORATION RECORDS. Records of the Corporation or its
Subsidiaries regarding the Holder's period of employment, termination of
employment and the reason therefor, leaves of absence, re-employment, and
other matters shall be conclusive for all purposes hereunder, unless
determined by the Committee to be incorrect.
12.11 INFORMATION. The Corporation and its Subsidiaries shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished, all of the information or documentation which is necessary or
required by the Committee to perform its duties and functions under the Plan.
12.12 CORPORATION ACTION. Any action required of the Corporation
shall be by resolution of its Board of Directors or by a person authorized to
act by resolution of the Board of Directors.
12.13 SEVERABILITY. If any provision of this Plan is held to be
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions hereof, but such provision shall be fully
severable and the Plan shall be construed and enforced as if the illegal or
invalid provision had never been included herein. If any of the terms or
provisions of this Plan conflict with the requirements of Rule 16b-3 (as
those terms or provisions are applied to Eligible Individuals who are subject
to Section 16(b) of the Exchange Act) or Section 422 of the Code (with
respect to Incentive Options), then those conflicting terms or provisions
shall be deemed inoperative to the extent they so conflict with the
requirements of Rule 16b-3 or Section 422 of the Code unless the Committee
has determined that the Plan should not comply with such requirements. With
respect to Incentive Options, if this Plan does not contain any provision
required to be included herein under Section 422 of the Code, that provision
shall be deemed to be incorporated herein with the same force and effect as
if that provision had been set out at length herein; provided, further, that,
to the extent any Option that is intended to qualify as an Incentive Option
cannot so qualify, that Option (to that extent) shall be deemed a
Nonstatutory Option for all purposes of the Plan.
12.14 NOTICES. Whenever any notice is required or permitted
hereunder other than any Exercise Notice or notice to exercise an Stock
Appreciation Right, such notice must be in writing and personally delivered
or sent by mail. Any such notice required or permitted to be delivered
hereunder shall be deemed to be delivered on the date on which it is
personally delivered, or, whether actually received or not, on the third
Business Day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at
the address which such person has theretofore specified by written notice
delivered in accordance herewith. The Corporation or a Holder may change, at
any time and from time to time, by written notice to the other, the address
which it or he had previously specified for
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receiving notices. Until changed in accordance herewith, the Corporation and
each Holder shall specify as its and his address for receiving notices the
address set forth in the Award Agreement pertaining to the shares to which
such notice relates. Any Exercise Notice or notice to exercise a Stock
Appreciation Right shall be valid only when it is in fact received by the
Corporation or the Person it designates in accordance with procedures that
the Committee may adopt from time to time.
12.15 WAIVER OF NOTICE. Any person entitled to notice hereunder may
waive such notice.
12.16 SUCCESSORS. The Plan shall be binding upon the Holder, his
legal representatives, heirs, legatees and distributees, upon the
Corporation, its successors and assigns, and upon the Committee and its
successors.
12.17 HEADINGS. The titles and headings of Sections and Paragraphs
are included for convenience of reference only and are not to be considered
in construction of the provisions hereof.
12.18 GOVERNING LAW. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Delaware except to the extent Delaware law is preempted by federal
law. Questions arising with respect to the provisions of an Award Agreement
that are matters of contract law shall be governed by the laws of the state
specified in the Award Agreement, except to the extent Delaware corporate law
conflicts with the contract law of such state, in which event Delaware
corporate law shall govern. The obligation of the Corporation to sell and
deliver Stock hereunder is subject to applicable laws and to the approval of
any governmental authority required in connection with the authorization,
issuance, sale, or delivery of such Stock.
12.19 WORD USAGE. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates,
the plural shall be read as the singular and the singular as the plural.
IN WITNESS WHEREOF, Trammell Crow Company, acting by and through its
officer hereunto duly authorized, has executed this Trammell Crow Company
Long-term Incentive Plan this ______ day of _________________, 1997.
TRAMMELL CROW COMPANY
By: /s/ George L. Lippe
---------------------------------------
George Lippe
President and Chief Executive Officer
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED.
SUBORDINATED PROMISSORY NOTE
$6,000,000 August 22, 1997
FOR VALUE RECEIVED, TRAMMELL CROW COMPANY, a Texas close corporation
("BORROWER"), hereby unconditionally (subject to the provisions of Section 3
below) promises to pay to DOPPELT & COMPANY, an Ohio corporation ("LENDER"), in
lawful money of the United States of America and in immediately available funds,
the principal sum of $6,000,000 (the "LOAN") on the dates and in the manner set
forth below.
This Note is executed and delivered in connection with that certain
Acquisition Agreement dated as of August 15, 1997, by and among Borrower,
Lender, Trammell Crow Retail Services, Inc. and Jeffrey J. Doppelt (as the same
may from time to time be amended, modified or supplemented, the "AGREEMENT").
All terms defined in the Agreement shall have the same definitions when used
herein, unless otherwise defined herein.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan
shall be payable on August 22, 1998 (the "MATURITY DATE"), subject to the
provisions of Section 3 below. The Borrower may prepay this Note in cash at any
time without penalty, and may also prepay this Note in accordance with the
provisions of Section 4 below. All amounts payable hereunder shall be payable
to Lender at the address it specifies to Borrower in writing.
2. INTEREST. This Note shall be non-interest bearing. Notwithstanding
the foregoing, Borrower shall reimburse Lender to the extent necessary to make
Lender whole for any tax liability to Lender associated with the imputation of
interest on this Note under applicable provisions of the Internal Revenue Code
and comparable provisions of applicable state income tax laws, which
reimbursement shall be payable within five (5) business days after presentation
of a copy of Lender's federal and state income tax returns reflecting such
imputed interest. This reimbursement obligation shall continue in effect until
repayment of this Note in full in cash or pursuant to Section 4.
<PAGE>
3. SUBORDINATION.
(a) AGREEMENT TO SUBORDINATE. Subject to the provisions of Section 4, the
Borrower, for itself, its successors and assigns, covenants and agrees, and the
Lender by acceptance hereof, likewise covenants and agrees, that the payment of
this Note is hereby expressly subordinated to the extent and in the manner
hereinafter set forth in right of payment to the prior payment in full of the
Borrower's outstanding indebtedness for borrowed money, whether now existing or
hereafter created (the "SENIOR INDEBTEDNESS"), and that such subordination is
for the benefit of the holders of Senior Indebtedness. All persons who, in
reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, shall be entitled to rely hereon, and such provisions are made for
the benefit of the holders of Senior Indebtedness, and they or any of them may
proceed to enforce such provisions directly against the Lender.
(b) SUBORDINATION IN THE EVENT OF DEFAULT ON SENIOR INDEBTEDNESS. No
payment shall be made on this Note at such time as any default exists with
respect to any Senior Indebtedness. If any such payment is made, Lender (or its
assignee) shall remit to the holders of the Senior Indebtedness all such money
so received, which shall be applied to amounts due under the Senior
Indebtedness. In the absence of a default with respect to Senior Indebtedness,
this Note shall be payable when due. The provisions of this Section 3 shall not
prevent the Company from honoring its mandatory prepayment obligation pursuant
to Section 4.
(c) DISTRIBUTION ON DISSOLUTION, LIQUIDATION AND REORGANIZATION;
SUBROGATION OF NOTE. Upon any distribution of assets of Borrower (or Borrower's
assignee) upon any dissolution, winding up, liquidation or reorganization of
Borrower (or Borrower's assignee), whether in bankruptcy, insolvency,
reorganization or receivership proceedings or upon an assignment for the benefit
of creditors or any other marshalling of the assets and liabilities of Borrower
(or Borrower's assignee) or otherwise:
(1) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full thereof before Lender is entitled to receive any payment
with respect to the indebtedness evidenced by this Note;
(2) any payment or distribution of assets of Borrower (or Borrower's
assignee) of any kind or character, whether in cash, property or securities, to
which Lender would be entitled except for the provisions of this Section 3 shall
be paid or delivered by Borrower (or Borrower's assignee) or any liquidating
trustee, trustee in bankruptcy, receiver, agent or other person making such
payment or distribution directly to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, as their interests appear, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid, after giving effect
to any concurrent payment or distribution to the holders of such Senior
Indebtedness; and
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(3) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of Borrower (or Borrower's assignee) of any kind or
character, whether in cash, property or securities (other than pursuant to
Section 4), shall be received by Lender before all Senior Indebtedness is paid
in full, such payment or distribution shall be paid over or delivered to the
holders of such Senior Indebtedness or their representative or representatives
or to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, as their
interests appear, for application to the payment of all Senior Indebtedness
remaining unpaid until all such Senior Indebtedness shall have been paid in
full, after giving effect to any concurrent payment or distribution to the
holder of such Senior Indebtedness.
(d) AGREEMENT TO EFFECT SUBORDINATION. Lender by acceptance of this Note
agrees to take such action and execute such documents as may be necessary or
appropriate to effectuate the subordination as provided in this Section 3.
4. PREPAYMENT.
(a) MANDATORY PREPAYMENT. In the event that the Borrower or its parent
corporation consummates an initial public offering of its common stock (the
"COMMON STOCK") prior to the Maturity Date, the Borrower shall prepay the
principal amount of this Note immediately prior to the closing of such offering
by delivery of a number of shares of Common Stock determined by dividing such
principal amount by the public offering price of the Common Stock. In the event
that the Borrower or its parent corporation fails to consummate its initial
public offering prior to the Maturity Date, the Borrower shall prepay the
principal amount of this Note by delivery of a number of shares of the common
stock of Trammell Crow Retail Services, Inc., a Delaware corporation and a
wholly-owned subsidiary of Borrower ("TCRS"), representing 8.3% of the
outstanding TCRS common stock on the date hereof multiplied by the percentage of
the original principal amount of this Note so prepaid. Upon any prepayment of
this Note in the form of shares of Common Stock, Lender shall enter into a
customary "holdback agreement" with the underwriters for the Common Stock in the
same form executed by members of the Borrower's senior management.
Notwithstanding any provision to the contrary contained herein, this Note shall
automatically become due and payable in the event that Borrower fails to honor
its mandatory prepayment obligation within five (5) business days following the
date on which Borrower is obligated to deliver shares of Common Stock or TCRS
Common Stock in accordance with the provisions of this Section 4.
(b) MECHANICS OF PREPAYMENT. In the event this Note is prepaid in the
form of a delivery of shares of Common Stock or TCRS common stock pursuant to
this Section 4, the holder of this Note shall be treated for all purposes as the
record holder of such shares on the date of such prepayment, and shall
thereafter have the right to receive certificates representing such shares upon
surrender of this Note at the Borrower's principal executive offices.
(c) ISSUE TAXES. Borrower shall pay any and all issue and other taxes
that may be payable in respect of any issue or delivery of shares in connection
with prepayment of this Note
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pursuant to this Section 4; provided, however, that Borrower shall not be
obligated to pay any transfer taxes resulting from any transfer requested by
any holder in connection with any such issuance and delivery.
(d) FRACTIONAL SHARES. No fractional share shall be issued upon the
prepayment of this Note. Borrower shall, in lieu of issuing any fractional
share, pay Lender a sum in cash equal to the fair market value of such fraction
on the date of prepayment (as determined in good faith by the Board of Directors
of Borrower).
5. WAIVER. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses. The right to plead any and all statutes of
limitations as a defense to any demands hereunder is hereby waived to the
fullest extent permitted by law.
6. ATTORNEY'S FEES. In the event of default by the Borrower (or its
assignee) in the payment of this Note, Lender shall be entitled to receive and
Borrower (or its assignee) agrees to pay all costs of collection incurred by
Lender, including, without limitation, reasonable attorney's fees for
consultation and suit.
7. AMENDMENT AND WAIVER. Any term of this Note may be amended and the
observance of any term of this Note may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Borrower and Lender. Any waiver or amendment effected in
accordance with this Section 7 shall be binding upon the holder of this Note and
the holder of any securities into which this Note may be converted (including
securities into which such securities have been converted), and upon each future
holder of this Note and all such securities and the Borrower.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Colorado, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. TRANSFER RESTRICTION. Neither this Note nor any interest therein may
be transferred or assigned by Lender (other than to Jeffrey J. Doppelt and his
spouse) prior to the Maturity Date.
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IN WITNESS WHEREOF, Borrower has duly executed this Note as of the date
set forth above.
TRAMMELL CROW COMPANY
By: /s/ William Rothacker
------------------------------- Title: President
----------------------------
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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 August 25, 1997), August
8, 1997 (except for Note 8, as to which the date is August 15, 1997), and August
22, 1997, in Amendment No. 1 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
October 21, 1997
