<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
OR
Transition report pursuant to Section 13 or 15d of the Securities
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission file number 1-13531
------------------------
TRAMMELL CROW COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-2721454
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
2001 ROSS AVENUE
SUITE 3400
DALLAS, TEXAS
(Address of principal executive offices)
75201
(Zip Code)
(214) 863-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
At November 9, 1998, there were 34,250,701 shares of Common Stock
outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
-------------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December 31,
1997........................................................................................ 1
Condensed Consolidated Statements of Operations for the three and nine months ended September
30, 1998 and 1997 (unaudited)............................................................... 2
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1998
and 1997 (unaudited)........................................................................ 3
Notes to Condensed Consolidated Financial Statements (unaudited).............................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 9
PART II. Other Information
Item 1. Legal Proceedings............................................................................. 19
Item 5. Other Information............................................................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................................................. 19
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Current assets
Cash and cash equivalents......................................................... $ 76,471 $ 96,747
Accounts receivable, net of allowance for doubtful accounts of $586 in 1998 and
$955 in 1997.................................................................... 70,456 40,602
Receivables from affiliates....................................................... 1,394 926
Notes and other receivables....................................................... 6,205 4,007
Income taxes recoverable.......................................................... -- 4,939
Deferred income taxes............................................................. 3,058 3,870
Real estate held for sale......................................................... 128,058 98,567
Other current assets.............................................................. 10,928 9,220
------------- ------------
Total current assets............................................................ 296,570 258,878
Furniture and equipment, net........................................................ 12,783 6,309
Deferred income taxes............................................................... 11,866 14,397
Investments in unconsolidated subsidiaries.......................................... 13,026 11,244
Goodwill, net....................................................................... 103,863 27,111
Other assets........................................................................ 28,530 8,297
------------- ------------
$ 466,638 $ 326,236
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................................. $ 25,100 $ 18,523
Accrued expenses.................................................................. 69,246 56,270
Payables to affiliates............................................................ 4,930 4,466
Income taxes payable.............................................................. 3,555 --
Current portion of long-term debt................................................. 1,799 875
Notes payable on real estate held for sale........................................ 77,297 76,623
Other current liabilities......................................................... 1,493 2,185
------------- ------------
Total current liabilities....................................................... 183,420 158,942
Long-term debt, less current portion................................................ 93,476 1,555
Deferred compensation............................................................... 57 8,391
Other liabilities................................................................... 245 417
------------- ------------
Total liabilities............................................................... 277,198 169,305
Minority interest................................................................... 14,210 19,859
Stockholders' equity
Preferred stock; $0.01 par value; 30,000,000 shares authorized; none issued or
outstanding..................................................................... -- --
Common stock; $0.01 par value; 100,000,000 shares authorized; 34,173,855 and
33,892,038 shares issued and outstanding in 1998 and 1997,
respectively.................................................................... 342 339
Paid-in capital................................................................... 157,663 150,647
Retained earnings (deficit)....................................................... 18,730 (12,734)
Less: Stockholder loans........................................................... (1,028) (1,180)
Unearned compensation, net................................................... (477) --
------------- ------------
Total stockholders' equity.......................................................... 175,230 137,072
------------- ------------
$ 466,638 $ 326,236
------------- ------------
------------- ------------
</TABLE>
See accompanying notes.
1
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------- ----------------------
1998 1997 1998 1997
---------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C> <C>
REVENUES
Property management services.................................... $ 29,387 $ 21,213 $ 81,897 $ 65,055
Brokerage services.............................................. 42,206 24,774 100,814 61,692
Infrastructure management services.............................. 29,936 18,395 79,414 47,954
Development and construction services........................... 23,442 13,380 42,132 27,462
Retail services................................................. 6,491 1,417 11,487 1,912
---------- --------- ---------- ----------
131,462 79,179 315,744 204,075
Income from investments in unconsolidated subsidiaries.......... 693 241 7,151 1,467
Gain (loss) on disposition of real estate....................... 12,436 (130) 23,455 1,566
Other income.................................................... 2,229 2,507 6,012 6,131
---------- --------- ---------- ----------
146,820 81,797 352,362 213,239
COSTS AND EXPENSES
Salaries, wages, and benefits................................... 70,742 41,957 176,264 114,006
Commissions..................................................... 20,546 9,922 48,053 25,379
General and administrative...................................... 24,455 10,329 56,777 33,779
Profit sharing.................................................. -- 7,999 -- 15,417
Depreciation.................................................... 1,292 975 3,385 2,682
Amortization.................................................... 2,240 250 3,510 592
Interest........................................................ 2,543 1,223 7,782 3,336
Royalty and consulting fees..................................... -- 1,643 -- 3,167
Minority interest............................................... 822 (76) 3,702 280
---------- --------- ---------- ----------
122,640 74,222 299,473 198,638
---------- --------- ---------- ----------
Income before income taxes........................................ 24,180 7,575 52,889 14,601
Income tax expense................................................ 9,896 3,007 21,425 5,747
---------- --------- ---------- ----------
Net income........................................................ $ 14,284 $ 4,568 $ 31,464 $ 8,854
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Earnings per share:
Basic........................................................... $ .42 * $ .93 *
---------- ----------
---------- ----------
Diluted......................................................... $ .39 * $ .87 *
---------- ----------
---------- ----------
</TABLE>
- ------------------------
* Information is not relevant due to change in capital structure.
See accompanying notes.
2
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
---------------------
1998 1997
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................ $ 31,464 $ 8,854
Adjustments to reconcile net income to net cash used in operating activities
Depreciation............................................................................ 3,385 2,682
Amortization............................................................................ 3,510 592
Amortization of employment contracts.................................................... 693 --
Minority interest....................................................................... 3,702 280
Deferred income tax provision........................................................... 4,000 159
Income from investments in unconsolidated subsidiaries.................................. (7,151) (1,467)
Gain on disposition of real estate...................................................... (23,455) (1,566)
Changes in operating assets and liabilities
Accounts receivable................................................................... (26,557) (4,962)
Receivables from affiliates........................................................... (468) 941
Notes receivable and other assets..................................................... (14,255) (6,805)
Expenditures for real estate held for sale............................................ (140,768) (59,672)
Proceeds from sale of real estate..................................................... 136,598 39,272
Proceeds from real estate notes payable............................................... 75,922 56,860
Payments on real estate notes payable................................................. (75,248) (37,386)
Accounts payable and accrued expenses................................................. 15,758 (7,183)
Payables to affiliates................................................................ 897 (3,660)
Income taxes recoverable/payable...................................................... 8,494 (2,011)
Deferred compensation................................................................. (8,334) 5,843
Other liabilities..................................................................... (1,373) (971)
---------- ---------
Net cash used in operating activities..................................................... (13,186) (10,200)
---------- ---------
INVESTING ACTIVITIES
Expenditures for furniture and equipment.................................................. (7,579) (2,470)
Acquisitions of real estate service companies............................................. (92,226) (22,658)
Investments in unconsolidated subsidiaries................................................ (3,907) (4,163)
Distributions from unconsolidated subsidiaries............................................ 9,278 2,382
Contributions from minority interest...................................................... 201 2,009
Distributions to minority interest........................................................ (9,985) (906)
---------- ---------
Net cash used in investing activities..................................................... (104,218) (25,806)
---------- ---------
FINANCING ACTIVITIES
Principal payments on debt................................................................ (12,251) (12,399)
Proceeds from debt........................................................................ 102,721 34,372
Proceeds from exercise of stock options................................................... 553 --
Proceeds from issuance of common stock.................................................... 5,953 --
Purchase of common stock.................................................................. -- (730)
Dividends paid............................................................................ -- (8,200)
Collections of stockholder loans.......................................................... 152 1,918
---------- ---------
Net cash provided by financing activities................................................. 97,128 14,961
---------- ---------
Net decrease in cash and cash equivalents................................................. (20,276) (21,045)
Cash and cash equivalents, beginning of period............................................ 96,747 58,505
---------- ---------
Cash and cash equivalents, end of period.................................................. $ 76,471 $ 37,460
---------- ---------
---------- ---------
</TABLE>
See accompanying notes.
3
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. GENERAL
The consolidated interim financial statements of Trammell Crow Company (the
"Company") 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. These financial statements should be read in conjunction with the
consolidated financial statements included in the Company's annual report on
Form 10-K for the year ended December 31, 1997. 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 higher in the last
quarter of the year than in the first three quarters 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. The timing and introduction of new contracts and other factors may also
cause quarterly fluctuations in the Company's results of operations.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles ("GAAP") 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.
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 provision for income taxes and amounts computed by
applying the statutory federal income tax rates to income are primarily a result
of amortization of goodwill, non-deductible meals and entertainment
expenditures, payment of deferred compensation, and the impact of options
exercised and expected to be exercised prior to December 31, 1998.
EARNINGS PER SHARE
Weighted average shares outstanding used to calculate basic earnings per
share for the three and nine months ended September 30, 1998 were 34,138,530 and
33,984,517, respectively. Weighted average shares outstanding used to calculate
diluted earnings per share for the three and nine months ended September 30,
1998 were 36,344,113 and 36,208,762, respectively. For the three and nine months
ended September 30, 1998, employee stock options to purchase 2,205,583 and
2,224,245 shares of common stock,
4
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. GENERAL (CONTINUED)
respectively, were included in the weighted average shares outstanding used to
calculate diluted earnings per share.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 presentation.
2. REAL ESTATE HELD FOR SALE
During the nine months ended September 30, 1998, the Company sold
twenty-nine real estate projects for an aggregate sales price of $136,598,
resulting in a gain on disposition of $23,455. During the nine months ended
September 30, 1997, the Company sold eight real estate projects for an aggregate
sales price of $39,272, resulting in a gain on disposition of $1,566.
In March 1997, the Company contributed real estate held for sale of $35,400
and the related $35,400 note payable to a partnership and received a 16% limited
partner interest. No gain was recognized.
3. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
Operating results for unconsolidated subsidiaries in which the Company has
an investment were as follows:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Total revenues............................................................ $ 46,661
Total expenses............................................................ 28,532
-------
Net income................................................................ $ 18,129
-------
-------
</TABLE>
5
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
4. STOCKHOLDERS' EQUITY
A summary of the Company's stock option activity for the nine months ended
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE OF
EXERCISE PRICE OF $17.50 TO $36.00 (AT
$3.85 (BELOW MARKET MARKET PRICE AT
PRICE AT GRANT DATE) GRANT DATE) TOTAL
-------------------- -------------------- ----------
<S> <C> <C> <C>
OPTIONS OUTSTANDING:
December 31, 1997....................................... 2,423,769 2,364,277 4,788,046
Granted................................................. -- 253,885 253,885
Exercised............................................... (62,700) -- (62,700)
Forfeited............................................... -- (104,894) (104,894)
Expired................................................. -- -- --
---------- ---------- ----------
September 30, 1998...................................... 2,361,069 2,513,268 4,874,337
---------- ---------- ----------
---------- ---------- ----------
OPTIONS EXERCISABLE AT SEPTEMBER 30, 1998............... 2,361,069 62,769 2,423,838
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In the nine months ended September 30, 1998, the Company issued an aggregate
of 17,429 restricted shares of its common stock. These shares will vest over a
five year period, 20% on each anniversary date of grant. The Company recorded
$493 of unearned compensation related to the issuance of these shares.
5. ACQUISITIONS OF REAL ESTATE SERVICE COMPANIES
In March 1998, the Company purchased all of the issued and outstanding
capital stock of Tooley & Company, Inc. ("Tooley"), a California real estate
services company primarily engaged in office management and leasing. The Company
paid cash of $23,400 for the capital stock, and paid an additional $1,000 to two
of the principals of Tooley as consideration for non-compete agreements. The
Company also agreed to pay the seller an additional $3,000 of purchase price if
Tooley achieves certain performance standards in the future, as well as certain
payments based upon the future performance of certain of Tooley's projects. In
connection with the acquisition, which was accounted for using the purchase
method of accounting, the Company recorded goodwill of $17,016. The operations
of Tooley are included in the Company's operations from the date of acquisition.
The Company borrowed $23,000 under its credit facility to fund the purchase.
In May 1998, the Company acquired the business of Fallon Hines & O'Connor,
Inc., a Boston, Massachusetts-based commercial real estate brokerage, consulting
and advisory firm ("Fallon"). In exchange for substantially all of the assets of
Fallon, the Company paid approximately $30,595 in cash and agreed to pay up to
an additional $6,000 in cash and/or grant stock options if the acquired business
meets certain performance thresholds. The Company also paid an aggregate of
$2,000 to the principals of Fallon in exchange for certain covenants not to
compete. In connection with the acquisition, which was accounted for using the
purchase method of accounting, the Company recorded goodwill of $29,654. The
operations of Fallon are included in the Company's operations from the date of
acquisition. The Company borrowed $32,000 under its credit facility to fund the
acquisition.
6
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
5. ACQUISITIONS OF REAL ESTATE SERVICE COMPANIES (CONTINUED)
In July 1998, the Company acquired a portion of the businesses of Faison &
Associates ("Faison") and Faison Enterprises, Inc. ("Faison Enterprises"), which
are engaged in the development, leasing and management of office and retail
properties primarily in the Midatlantic and Southeast regions of the United
States. In exchange for the portion of the businesses acquired, the Company paid
$36,107 in cash and delivered a $2,000 promissory note that bears interest at an
annual rate of 6.0%. The note matures on April 30, 2000 and is payable in eight
equal quarterly installments. In connection with the closing, Mr. Henry Faison
and Faison Enterprises purchased an aggregate of 127,828 shares of common stock
for $4,000. In addition, the Company entered into a development program with
Faison Enterprises to develop certain retail development projects identified
through the Company's operations purchased in the acquisition. Faison
Enterprises also entered into a long-term services contract with the Company
with respect to the properties developed under this program and certain other
properties controlled by Mr. Henry Faison.
In connection with the acquisition, the Company entered into employment
agreements with four key employees, including Mr. Faison, and in connection with
such employment agreements the Company paid an aggregate of $1,000 in exchange
for certain covenants not to compete. The Company authorized the issuance of
options to purchase an aggregate of 71,424 shares of common stock at an exercise
price per share equal to the fair market value of the common stock on the date
of grant to certain employees of the acquired business who were retained after
the closing.
In addition, on August 5, 1998, the Company authorized the grant of an
aggregate of 63,490 restricted shares of its common stock to certain employees
of the acquired business who were retained after the closing. These shares were
issued on October 7, 1998 and will vest on July 2, 2000 if the grantee has been
continuously employed by the Company from the date of closing. At the closing,
Mr. Henry Faison was elected to serve as a Class III Director of the Company's
Board of Directors with a term expiring at the Company's annual meeting of
stockholders in 2000. In connection with the acquisition, which was accounted
for using the purchase method of accounting, the Company recorded goodwill of
$30,670. The operations of Faison are included in the Company's operations from
the date of acquisition. The Company borrowed $37,105 under its credit facility
to fund the acquisition.
7
<PAGE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Borrowings under $150,000 line of credit with a bank............ $ 92,105 $ --
Capital lease obligations....................................... 1,061 1,579
Notes payable................................................... 2,109 --
Notes payable to former stockholders............................ -- 851
------------- ------------
Total long-term debt............................................ 95,275 2,430
Less current portion of long-term debt.......................... 1,799 875
------------- ------------
$ 93,476 $ 1,555
------------- ------------
------------- ------------
</TABLE>
At September 30, 1998, the Company has $51,674 available under its $150,000
line of credit.
7. FINANCIAL INSTRUMENTS
In September 1998, as required under the Company's line of credit, the
Company entered into an interest rate swap to manage market risks related to
changes in interest rates. The Company's participation in derivative
transactions has been designated for hedging purposes, and derivative
instruments are not held or issued for trading purposes. At September 30, 1998,
the Company has an interest rate swap outstanding with a notional amount of
$135,000. This swap agreement establishes a fixed interest pay rate of 5.29% on
a portion of the Company's variable rate debt and terminates on June 24, 1999.
The weighted average receive rate for the swap agreement is 5.59% for the
period.
8. CONTINGENCIES
At September 30, 1998, the Company has guaranteed $4,837 of real estate
notes payable of others. These notes are collateralized by the underlying real
estate. The Company has outstanding letters of credit totaling $14,721 at
September 30, 1998, which expire at varying dates through January 2004.
In addition, at September 30, 1998, the Company has several completion and
budget guarantees relating to development projects. Management does not expect
to incur any material losses under these guarantees.
The Company and its subsidiaries are defendants in 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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and the notes thereto included in
Item 1 of this Quarterly Report on Form 10-Q.
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. 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. The infrastructure management business
entails providing comprehensive day-to-day occupancy related services,
principally to large corporations which occupy commercial facilities in multiple
locations. These 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 Company's developement and investment activities include
development and construction services and the acquisition and disposition of
developed properties. The development and construction services 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, as well as property
management and leasing services to regional malls.
9
<PAGE>
Summarized operating data by business line for the three and nine months
ended September 30, 1998 and 1997 are set forth in the table below (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
1998 1997 1998 1997
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
PROPERTY MANAGEMENT:
Service revenues (1).............................................. $ 29,387 $ 21,213 $ 81,897 $ 65,055
Income from unconsolidated subsidiaries........................... -- -- -- --
Gain on disposition of real estate................................ -- -- -- --
Other............................................................. 1,568 1,532 4,560 4,009
---------- --------- ---------- ----------
Total revenues.................................................... 30,955 22,745 86,457 69,064
Operating costs and expenses...................................... 29,955 22,517 74,984 62,900
---------- --------- ---------- ----------
Income before income taxes........................................ $ 1,000 $ 228 $ 11,473 $ 6,164
---------- --------- ---------- ----------
---------- --------- ---------- ----------
EBITDA, as adjusted (2)........................................... $ 2,023 $ 4,301 $ 13,899 $ 14,359
---------- --------- ---------- ----------
---------- --------- ---------- ----------
BROKERAGE:
Service revenues.................................................. $ 42,206 $ 24,774 $ 100,814 $ 61,692
Income from unconsolidated subsidiaries........................... -- -- -- --
Gain on disposition of real estate................................ -- -- -- --
Other............................................................. 221 (25) 434 278
---------- --------- ---------- ----------
Total revenues.................................................... 42,427 24,749 101,248 61,970
Operating costs and expenses...................................... 37,356 23,920 91,244 61,272
---------- --------- ---------- ----------
Income before income taxes........................................ $ 5,071 $ 829 $ 10,004 $ 698
---------- --------- ---------- ----------
---------- --------- ---------- ----------
EBITDA, as adjusted (2)........................................... $ 6,636 $ 4,598 $ 12,735 $ 7,949
---------- --------- ---------- ----------
---------- --------- ---------- ----------
INFRASTRUCTURE MANAGEMENT:
Service revenues.................................................. $ 29,936 $ 18,395 $ 79,414 $ 47,954
Income from unconsolidated subsidiaries........................... -- -- -- --
Gain on disposition of real estate................................ -- -- -- --
Other............................................................. 48 (4) 131 143
---------- --------- ---------- ----------
Total revenues.................................................... 29,984 18,391 79,545 48,097
Operating costs and expenses...................................... 27,652 17,071 71,610 45,292
---------- --------- ---------- ----------
Income before income taxes........................................ $ 2,332 $ 1,320 $ 7,935 $ 2,805
---------- --------- ---------- ----------
---------- --------- ---------- ----------
EBITDA, as adjusted (2)........................................... $ 3,149 $ 2,575 $ 9,519 $ 5,835
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
1998 1997 1998 1997
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
DEVELOPMENT AND CONSTRUCTION:
Service revenues (1).............................................. $ 23,442 $ 13,380 $ 42,132 $ 27,462
Income from unconsolidated subsidiaries........................... 693 241 7,151 1,467
Gain (loss) on disposition of real estate......................... 11,106 (92) 21,816 650
Other............................................................. 387 1,003 834 1,693
---------- --------- ---------- ----------
Total revenues.................................................... 35,628 14,532 71,933 31,272
Operating costs and expenses...................................... 22,143 9,375 51,245 26,007
---------- --------- ---------- ----------
Income before income taxes........................................ $ 13,485 $ 5,157 $ 20,688 $ 5,265
---------- --------- ---------- ----------
---------- --------- ---------- ----------
EBITDA, as adjusted (2)........................................... $ 15,745 $ 7,757 $ 27,584 $ 11,270
---------- --------- ---------- ----------
---------- --------- ---------- ----------
RETAIL:
Service revenues.................................................. $ 6,491 $ 1,417 $ 11,487 $ 1,912
Income from unconsolidated subsidiaries........................... -- -- -- --
Gain (loss) on disposition of real estate......................... 1,330 (38) 1,639 916
Other............................................................. 5 1 53 8
---------- --------- ---------- ----------
Total revenues.................................................... 7,826 1,380 13,179 2,836
Operating costs and expenses...................................... 5,534 1,339 10,390 3,167
---------- --------- ---------- ----------
Income (loss) before income taxes................................. $ 2,292 $ 41 $ 2,789 $ (331)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
EBITDA, as adjusted (2)........................................... $ 2,702 $ 434 $ 3,829 $ 382
---------- --------- ---------- ----------
---------- --------- ---------- ----------
TOTAL:
Service revenues.................................................. $ 131,462 $ 79,179 $ 315,744 $ 204,075
Income from unconsolidated subsidiaries........................... 693 241 7,151 1,467
Gain (loss) on disposition of real estate......................... 12,436 (130) 23,455 1,566
Other............................................................. 2,229 2,507 6,012 6,131
---------- --------- ---------- ----------
Total revenues.................................................... 146,820 81,797 352,362 213,239
Operating costs and expenses...................................... 122,640 74,222 299,473 198,638
---------- --------- ---------- ----------
Income before income taxes........................................ $ 24,180 $ 7,575 $ 52,889 $ 14,601
---------- --------- ---------- ----------
---------- --------- ---------- ----------
EBITDA, as adjusted (2)........................................... $ 30,255 $ 19,665 $ 67,566 $ 39,795
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
- ------------------------
(1) As of September 30, 1998, rental revenues of $6.6 million and $4.0 million
for the nine months ended September 30, 1998 and 1997, respectively, related
to operational real estate properties were reclassified from property
management services to development and construction services because
management believes these revenues are more closely aligned with the
Company's development business.
(2) EBITDA, as adjusted, represents earnings before interest, income taxes,
depreciation and amortization, royalty and consulting fees and profit
sharing. The Company had no profit sharing expense in 1998 as the future
profits participation under the Company's Profit Sharing Plan was terminated
in conjunction with the Company's initial public offering (the "Offering").
Additionally, the Company had no royalty or consulting expenses in 1998
because certain royalty and consulting arrangements to which the Company was
a party were terminated in connection with the Offering. 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 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.
11
<PAGE>
RESULTS OF OPERATIONS--THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
REVENUES. The Company's total revenues increased $65.0 million, or 79.5%,
to $146.8 million for the three months ended September 30, 1998 and increased
$139.2 million, or 65.3%, to $352.4 million for the nine months ended September
30, 1998 from the comparable periods in the prior year.
Property management services revenue, which represented 20.0% and 23.2% of
the Company's total revenue for the three and nine months ended September 30,
1998, respectively, increased $8.2 million, or 38.7%, to $29.4 million for the
three months ended September 30, 1998 and increased $16.8 million, or 25.8%, to
$81.9 million for the nine months ended September 30, 1998 from the comparable
periods in the prior year. These increases were primarily due to an increase in
square feet under management in 1998, primarily due to the acquisitions of
Tooley in March of 1998 and Faison in July 1998.
Brokerage services revenue, which represented 28.7% and 28.6% of the
Company's total revenue for the three and nine months ended September 30, 1998,
respectively, increased $17.4 million, or 70.2%, to $42.2 million for the three
months ended September 30, 1998 and increased $39.1 million, or 63.4%, to $100.8
million for the nine months ended September 30, 1998 from the comparable periods
in the prior year. The revenue growth resulted from an increase in the number of
brokerage transactions fueled by an increase of 43.5% and 44.6% in the average
number of brokers employed during the three and nine months ended September 30,
1998, respectively, from the comparable prior year periods, coupled with an
increased focus on larger transactions.
Infrastructure management services revenues, which represented 20.4% and
22.5% of the Company's total revenue for the three and nine months ended
September 30, 1998, respectively, increased $11.5 million, or 62.5%, to $29.9
million for the three months ended September 30, 1998 and increased $31.4
million, or 65.4%, to $79.4 million for the nine months ended September 30, 1998
from the comparable periods in the prior year. The revenue growth resulted
primarily from the impact in 1998 of the addition to the Company's facility
management portfolio of over 25.0 million square feet associated with two
significant new customers in the financial services industry in the third
quarter of 1997, expansion of services provided to several other major
customers, and the addition of an infrastructure management contract with the
University of Pennsylvania in April 1998.
Revenues from development and investment activities (comprised of
development and construction service fees, gain on disposition of non-retail
real estate projects and income from unconsolidated subsidiaries) totaled $35.2
million and $71.1 million for the three and nine months ended September 30,
1998, respectively, and represented 24.0% and 20.2% of the Company's total
revenue for the three and nine months ended September 30, 1998, respectively.
These revenues increased $21.7 million, or 160.7%, from $13.5 million for the
three months ended September 30, 1997 and increased $41.4 million, or 139.4%,
from $29.7 million for the nine months ended September 30, 1997. The revenue
growth was primarily due to a significant increase in the second and third
quarters of 1998 in the number of development projects with respect to which the
Company receives development fees, an increase in gain on disposition of real
estate resulting primarily from four significant sales, two in the second
quarter of 1998 and two in the third quarter of 1998, and an increase in income
from unconsolidated subsidiaries resulting from sale of the underlying real
estate.
A portion of the Company's development and investment activities involves
the provision of development services to companies that invest in commercial
real estate projects. In recent months, the Company has seen some evidence that
providers of capital are beginning to take a more cautious approach regarding
investments in development projects. If this trend should continue or
accelerate, that portion of the Company's development activity could level off
or decline.
Retail revenues (including services revenues and gain on disposition of
retail real estate projects) totaled $7.8 million and $13.1 million for the
three and nine months ended September 30, 1998,
12
<PAGE>
respectively, and represented 5.3% and 3.7% of the Company's total revenue for
the three and nine months ended September 30, 1998, respectively. These revenues
increased $6.4 million, or 457.1%, from $1.4 million for the three months ended
September 30, of 1997 and increased $10.3 million, or 367.9%, from $2.8 million
for the nine months ended September 30, 1997. This revenue growth was primarily
a result of the acquisition of Doppelt & Company in August 1997, an increase in
gain on disposition of build-to-suit real estate projects resulting primarily
from four sales in the third quarter of 1998, and the addition of approximately
10.0 million square feet of regional malls under management due to the Faison
acquisition in July of 1998.
OPERATING COSTS AND EXPENSES. The Company's operating costs and expenses
increased by $48.4 million, or 65.2%, to $122.6 million for the three months
ended September 30, 1998 and increased $100.9 million, or 50.8%, to $299.5
million for the nine months ended September 30, 1998 from comparable periods in
the prior year.
The increases in operating costs and expenses were primarily due to 68.3%
and 54.6% increases in salaries, wages, and benefits for the three and nine
months ended September 30, 1998, respectively, primarily due to an increase in
staffing in 1998. The Company added approximately 2,000 employees in 1998 due to
the acquisitions of real estate service companies, staffing requirements of the
infrastructure management services business, and support for internal growth in
the Company's other lines of business. A significant portion of the salary
increase is reimbursable by infrastructure management services customers.
Additionally, compensation increased for the three and nine months ended
September 30, 1998 from the comparable periods in 1997 due to the impact of the
new compensation structure adopted in connection with the Offering in the fourth
quarter of 1997.
Commissions increased 107.1% and 89.4%, respectively, for the three and nine
months ended September 30, 1998, primarily as a result of the increased
brokerage activities giving rise to the significant growth in the Company's
brokerage services revenues. Commissions also include payments made to certain
employees in 1998 related to the Company's development activities. Such
development-related commissions totaled $2.0 million and $4.2 million,
respectively, for the three and nine months ended September 30, 1998.
General and administrative expenses increased $14.2 million, or 137.9%, and
$23.0 million, or 68.0%, for the three and nine months ended September 30, 1998,
respectively, as compared with the same periods in the prior year. The increase
is primarily due to increases in rent, travel and overhead costs of the
infrastructure management services business resulting from the addition of three
significant customers and the expansion of services provided to several other
significant customers, a company-wide increase in administrative costs resulting
from the overall increase in number of employees, and costs associated with
being a public company. Additionally, general and administrative expenses
increased in part due to increases in management information systems expenses
and related consulting costs as the Company continues to enhance its systems.
The Company had no profit sharing expense in 1998 as compared to $8.0
million and $15.4 million, respectively, for the three and nine months ended
September 30, 1997, as future profits participation under the Company's Profit
Sharing Plan was terminated in conjunction with the Offering and with the
adoption of the Company's current compensation structure. Additionally, the
Company had no royalty or consulting expenses in 1998 as compared to $1.6
million and $3.2 million, respectively, for the three and nine months ended
September 30, 1997, because certain royalty and consulting arrangements to which
the Company was a party were terminated in connection with the Offering.
Interest expense increased for the three and nine months ended September 30,
1998 primarily as a result of interest expensed on real estate development
projects that were completed and operated in 1998, as well as contingent
interest incurred upon the sale of a real estate project and interest on debt
borrowed for acquisitions of real estate service companies.
13
<PAGE>
INCOME BEFORE INCOME TAXES. The Company's income before income taxes
increased $16.6 million, to $24.2 million, for the three months ended September
30, 1998 and increased $38.3 million to $52.9 million, for the nine months ended
September 30, 1998 from the comparable prior year periods due to the
fluctuations in revenues and expenses described above.
NET INCOME. Net income increased $9.7 million, to $14.3 million, for the
three months ended September 30, 1998 as compared to the same period in the
prior year, and increased $22.6 million, to $31.5 million, for the nine months
ended September 30, 1998 from the same period in the prior year.
QUARTERLY FLUCTUATIONS/SEASONALITY
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 higher in the last
quarter of the year than in the first three quarters 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. The timing and introduction of new contracts and other factors may also
cause quarterly fluctuations in the Company's results of operations.
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 the
funding of capital investments, including the acquisition of other real estate
service companies. The Company finances its operations with internally generated
funds and borrowings under its revolving line of credit (described below). The
portion of the Company's development and investment business that involves the
acquisition or development of real estate is financed with loans secured by the
underlying real estate, external equity, internal sources of funds, or a
combination thereof.
Net cash used in operating activities totaled $13.2 million for the nine
months ended September 30, 1998, compared to $10.2 million in the comparable
period in 1997. The increased use of cash in operating activities is primarily
due to a significant increase in development activity and related expenditures
for real estate held for sale, payment in 1998 of profit sharing distributions
totaling $13.1 million, which were accrued at December 31, 1997, and working
capital used to support the growth in operations.
Net cash used in investing activities totaled $104.2 million for the nine
months ended September 30, 1998, compared to $25.8 million for the comparable
period in 1997. This change is primarily attributable to the acquisitions of
Tooley & Company, Fallon Hines & O'Connor, Inc and Faison & Associates in March,
May and July 1998, respectively.
Net cash provided by financing activities totaled $97.1 million for the nine
months ended September 30, 1998, compared to $15.0 million for the comparable
period in 1997. The increase in net cash provided by financing activities is
primarily due to the issuance of common stock for total proceeds of $6.5
million, a $68.3 million increase in the amount of borrowings under a revolving
line of credit as described below, and a $8.2 million decrease in dividends
paid.
On December 1, 1997, the Company obtained a $150 million revolving line of
credit arranged by NationsBank of Texas, N.A. as the administrative agent (the
"Credit Facility"). Under the terms of the Credit Facility, the Company can
obtain loans which are Base Rate Loans or Eurodollar Rate Loans. Base
14
<PAGE>
Rate Loans bear interest at a base rate, which is the higher of the prime
lending rate announced from time-to-time by the administrative agent or an
average federal funds rate plus 0.5%. Eurodollar Rate Loans bear interest at an
adjusted Eurodollar rate plus a margin which ranges from 1.25% to 1.75%,
depending upon the Company's leverage ratio at the date the margin is
determined. The Credit Facility contains various covenants such as the
maintenance of minimum equity and liquidity and covenants relating to certain
key financial data. The Credit Facility also includes limitations on payment of
cash dividends or other distributions of assets and certain restrictions on
investments and acquisitions that can be made by the Company. The covenants
contained in the Credit Facility and the amount of the Company's other
borrowings and contingent liabilities may have the effect of limiting the credit
available to the Company under the Credit Facility to an amount less than the
$150 million commitment. Through September 30, 1998, the Company had borrowed
$102.1 million under the Credit Facility including $10.0 million to fund its
co-investment activities and $92.1 million for recent acquisitions, and repaid
$10.0 million of these amounts. At September 30, 1998, the Company had an unused
borrowing capacity (taking into account letters of credit outstanding) under the
Credit Facility of approximately $51.7 million. The Credit Facility requires the
Company to enter into one or more interest rate agreements for the Company's
indebtedness in excess of $50,000,000 ensuring the net interest is fixed, capped
or hedged. In September 1998, the Company entered into an interest rate swap
agreement with a notional amount of $135.0 million. The swap agreement
establishes a fixed interest pay rate of 5.29% and terminates on June 24, 1999.
The weighted average receive rate for the swap agreement is 5.59% for the
period. The Company's participation in derivative transactions has been designed
for hedging purposes, and derivative instruments are not held for trading
purposes. The shares of certain wholly-owned subsidiaries accounting for 5% or
more of the consolidated assets, revenues or earnings of the Company, and
subsidiaries which are engaged primarily in the business of real estate
development and ownership, whose assets are not subject to any financing,
accounting for more than 5% of the consolidated assets, revenues or earnings of
the Company, are pledged as security for the Credit Facility. The Company
expects to continue to borrow under the Credit Facility to finance future
strategic acquisitions, fund its co-investment activities and provide the
Company with an additional source of working capital.
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 and
available credit under the Credit Facility, will be sufficient to finance its
current operations, planned capital expenditure requirements, payment
obligations for development purchases, acquisitions of service companies and
internal growth for the foreseeable future. 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.
IMPACT OF YEAR 2000
The Year 2000 problem refers to the inability of many existing computer
programs to properly recognize or process a year that begins with "20" instead
of the familiar "19." If not corrected, many time-sensitive computer programs
using two digits to indicate the year may recognize "00" as the year 1900 rather
than the year 2000. The failure to recognize the year 2000 and other key dates
could result in a variety of problems from data miscalculations to the failure
of entire systems.
In early 1998, the Company formed a Year 2000 Task Force (the "Task Force")
including internal technical, operational, financial and legal representatives
and technical and legal consultants. Under the direction of the Task Force, the
Company is pursuing multiple Year 2000-related initiatives (collectively, the
"Program") with the goal of mitigating the impact of Year 2000 issues on Company
operations.
15
<PAGE>
INFORMATION TECHNOLOGY SYSTEMS
Prior to the formation of the Task Force, the system services provider that
operates and maintains the Company's central data center had conducted an
assessment of the data center's information technology ("IT") systems for the
purpose of assessing such systems' Year 2000 readiness. The IT systems resident
at the Company's central data center include its central property management
system (hardware and software handling accounting and reporting for
approximately 60% of the Company-managed properties), its central communication
system (e-mail, wide-area network and internet servers) and its central work
order system. On the basis of this assessment and the installation of previously
planned hardware and software upgrades, completed early in 1998, the Company
believes that the data center IT systems should not be materially adversely
affected by Year 2000 issues.
One of the Program initiatives calls for the inventory, assessment and
remediation of IT assets (mainly consisting of PCs, servers and resident
software) at Company locations remote from the data center. Company technical
personnel are currently engaged in the first phase of this initiative, in which
IT assets in the Company's 56 largest offices will be inventoried, assessed and
remediated. Inventory and assessment of hardware and inventory of software for
this first phase is expected to be complete in December 1998. Assessment of the
software inventory for this phase is expected to be complete in January 1999, at
which time the Company will commence indicated remediation. Following completion
of the first phase inventory, the Company will commence the second phase,
inventorying and assessing IT assets in those smaller offices where the Company
believes that the criticality of the IT assets warrants the assessment effort.
The inventory and assessment portion of this second phase is expected to be
complete in February 1999, whereupon the Company will commence the indicated
remediation.
Costs associated with both phases of the field office inventory and
assessment effort, expected to be incurred in the fourth quarter of 1998 and
first quarter of 1999, are expected to total less than $400,000. These costs
include license fees for application software used in the inventory and
assessment process and fees paid to consultants in connection with the
assessment of the software inventory. Based on earlier inventory and assessment
of IT assets conducted by an independent consultant at two of the Company's
larger field offices, the Company currently estimates that the cost of Year 2000
IT asset remediation at all of its field offices will be approximately
$2,000,000 (in excess of normal, recurring PC acquisitions and replacements) and
is budgeting accordingly for 1999. This amount represents anticipated
expenditures for Year 2000-driven PC replacement and commercial application
software upgrades. As this budgeted amount is based on a small sample, actual
indicated remediation costs may differ materially from those budgeted.
MANAGED PROPERTIES--NON-IT SYSTEMS
Another of the Program initiatives calls for the Company to assist owners of
Company-managed properties with the inventory, assessment and remediation of
non-IT systems at such properties. Most of the Company's field offices are in
leased premises in these managed properties. In 1997, owners and tenants of many
of the properties managed by the Company began to contact the Company seeking
information as to the Year 2000 readiness of the properties they own or occupy.
In response to these requests, the Company began making inquiries of vendors of
building systems as to the Year 2000 readiness of such systems, communicating
with owners and tenants as to the results of these inquiries and assisting
owners with the remediation recommended by the vendors or otherwise requested by
the owners. In the summer of 1998, the Company determined to engage a consultant
to serve as a project manager and technical resource for the Company's property
management personnel as work on this initiative continues at Company-managed
properties. Under the direction of the project manager, the Company expects to
complete its inventory and assessment work on this initiative in March 1999.
Following the inventory and assessment work, the Company will assist owners with
the remediation of indicated Year 2000 issues in accordance with owners'
instructions. THIS INFORMATION IS INTENDED SOLELY TO ADVISE THE INVESTMENT
COMMUNITY OF THE STEPS THAT THE COMPANY IS TAKING TO ASSIST OWNERS OF
COMPANY-MANAGED PROPERTIES (IN
16
<PAGE>
WHICH MOST OF THE COMPANY'S OFFICES ARE LOCATED) WITH YEAR 2000 ISSUES RELATING
TO NON-IT SYSTEMS. NO OWNER OR TENANT IN A COMPANY-MANAGED PROPERTY SHOULD RELY
ON THIS STATEMENT AS AN INDICATION THAT THE COMPANY HAS OR WILL INVENTORY OR
ASSESS THE MANAGED PROPERTY ON ITS BEHALF OR THAT, IN FACT, SUCH PROPERTY IS OR
WILL BE IN A STATE OF YEAR 2000 READINESS. QUERIES IN THIS REGARD SHOULD BE
ADDRESSED TO APPROPRIATE PROPERTY MANAGEMENT PERSONNEL.
The Company currently expects that its unreimbursed out-of-pocket costs
relating to this initiative, including the costs of the consultant engaged to
act as the project manager and technical resource, should not exceed $1,000,000.
Costs of remediating Year 2000 issues associated with non-IT systems at managed
properties should be borne exclusively by the owners or tenants of such
properties.
YEAR 2000 READINESS OF THIRD PARTIES
The Company is to varying degrees dependent on the Year 2000 readiness of
third parties. Because of the breadth of the Company's customer base, the
success of its business is not closely tied to the success of any particular
customer. Aside from vendors of certain IT systems that have already been
contacted by the Company concerning the Year 2000 compliance of their products,
the Company is in the preliminary stages of identifying the other parties with
which it does business (utilities, other vendors, etc.) whose Year 2000 problems
could adversely impact the Company. Another Program initiative calls for the
Company to make appropriate inquiries of these parties. The Company expects to
complete these inquiries in the first quarter of 1999.
YEAR 2000 RISKS
Significant uncertainty exists concerning the scope and magnitude of
problems associated with Year 2000 issues. While the goal of the Program is to
mitigate the impact of Year 2000 issues on the Company's operations, there can
be no assurance that it will be successful in doing so. For example, there is no
assurance that the Program itself will succeed in accomplishing its purposes or
that unforeseen circumstances will not arise during implementation of the
Program that would materially and adversely affect the Company. Year
2000-related failures of mission-critical systems or at Company-managed
properties could materially adversely affect the Company's operations.
CONTINGENCY PLANS
The Company currently does not have any contingency plans in place. As the
Program initiatives described above are pursued further, the Company will
continue to consider the need for contingency plans.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this Quarterly
Report on Form 10-Q, 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 risks,
uncertainties and other matters include, but are not limited to, (i) the fact
that a significant portion of the Company's historic revenues have been derived
from significant business activities with certain entities which are affiliated
with a significant stockholder, (ii) the conduct of investment or development
activities by affiliates that are directly competitive with the Company's
activities, (iii) confusion that may be created in the market place between the
Company and such affiliates, (iv) the control over the affairs and policies of
the Company that could be exercised by the Company's directors, officers,
employees and affiliates due to their significant stock ownership, (v) the
Company's ability to continue to pursue an aggressive growth
17
<PAGE>
strategy (including through acquisitions), (vi) the ability of the Company to
manage fluctuations in the Company's net earnings and cash flow which could
result from the Company's increased participation as a principal in real estate
investments, (vii) the Company's ability to compete in highly competitive
national and local business lines and (viii) the Company's ability to attract
and retain qualified personnel in all areas of its business (particularly
management). In addition, the Company's ability to achieve certain anticipated
results will be subject to other factors affecting the Company's business that
are beyond the Company's control, including but not limited to general economic
conditions and the effect of government regulation on the conduct of the
Company's business. Given these uncertainties, readers are cautioned not to
place undue reliance on such forward-looking statements. The Company disclaims
any obligation to update any such statements or 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.
18
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. In the Company's opinion, no litigation to which the Company is
currently a party, if decided adversely to the Company, is likely to have a
material adverse effect on the Company's results of operation or financial
condition.
ITEM 5. OTHER INFORMATION
Because of a recent change to Rule 14a-4(c)(1) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company's
management will have discretionary authority to vote on any matter of which the
Company does not receive notice by March 9, 1999, with respect to proxies
submitted to the 1999 Annual Meeting of the Company's stockholders. This rule
change does not affect the deadline set forth in Rule 14a-8 promulgated under
the Exchange Act for including a stockholder proposal in the Board of Directors'
solicitation of proxies. Therefore, in order to be included in the Board of
Directors' solicitation of proxies relating to the 1999 Annual Meeting of the
Company's stockholders, a stockholder proposal must be received by the Secretary
of the Company at 2001 Ross Avenue, Suite 3400, Dallas, Texas 75201, no later
than December 22, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Employment Agreement for Henry Faison dated July 2, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K filed since June 30, 1998:
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
TRAMMELL CROW COMPANY
By: /s/ ROBERT E. SULENTIC
-----------------------------------------
Robert E. Sulentic
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND DIRECTOR (PRINCIPAL FINANCIAL
OFFICER AND DULY AUTHORIZED TO SIGN THIS
REPORT ON BEHALF OF THE REGISTRANT)
</TABLE>
Date: November 16, 1998
20
<PAGE>
EMPLOYMENT AGREEMENT
FOR HENRY J. FAISON
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of July 2, 1998, by
and between Trammell Crow Company, a Delaware corporation ("Employer"), and
Henry J. Faison, an individual residing in North Carolina ("Employee").
R E C I T A L S
A. Faison Enterprises, Inc., a North Carolina corporation ("FE"),Faison &
Associates, Inc., a North Carolina corporation ("FA"), Employee, Employer, TCSE
Realty Services, Inc., a Delaware corporation and wholly-owned subsidiary of
Employer ("Buyer"), and Media Advertising & Design, Inc., a North Carolina
corporation, have entered into an Asset Purchase Agreement dated as of the date
hereof (the "Purchase Agreement"), pursuant to which Buyer will purchase
substantially all of the commercial real estate services assets of FA and
certain assets of FE.
B. The Board of Directors of Employer (the "Board") has determined that
it is in the best interests of Employer and its stockholders to employ Employee
on the terms and conditions set forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the respective agreements and covenants
set forth herein and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agrees as follows:
1. EMPLOYMENT PERIOD. Subject to the terms and conditions set forth in
this Agreement, including the rights of Employer and Employee to terminate
Employee's employment under Section 12, Employer hereby employs Employee, and
Employee hereby accepts such employment from Employer, for a specified term (the
"Employment Period") commencing on the date hereof (the "Effective Date") and,
unless earlier terminated or extended in accordance with the provisions of this
Agreement, expiring on the fifth anniversary of the Effective Date.
2. EXTENT OF SERVICES. During the Employment Period, Employee shall
devote a substantial majority of his business time, attention and effort to the
business of Employer in order to discharge his duties in a manner consistent
with any and all reasonable policies and guidelines as may be established by
Employer from time to time; provided, however, that Employer expressly
recognizes that Employee is (i) a very substantial investor in commercial real
estate projects; (ii) an officer and director in FE, Faison-Stone, Inc., Faison
Capital Development, Inc. and a number of other companies owned, directly and
indirectly, by FE (collectively, the "Faison Entities"); and (iii)
<PAGE>
a director, member or otherwise active in a number of civic and governmental
agencies; and that Employee is permitted to continue said activities
(collectively, the "Employee's Outside Activities"), provided that Employee's
Outside Activities shall not violate any provision of this Agreement or the
provisions of the policy regarding Employee's ownership of commercial real
estate set forth on EXHIBIT A hereto. Prior to investing in any real estate
asset other than retail projects as to which Employer, or its affiliates, are
required to extend a right of first refusal pursuant to that certain Merchant
Build/Right of First Refusal Agreement (the "Merchant Build Agreement")
between Employer and Employee dated as of the date hereof, Employee shall
notify in writing the Employer's Administrative Committee (the
"Administrative Committee") of his intention to make such investment. If the
Administrative Committee fails to object to Employee's planned investment
within the 10-day period following receipt of such notice from Employee,
Employee shall be entitled to make such investment without further
consultation with, or involvement by, the Administrative Committee or
Employer. If, however, the Administrative Committee gives Employee written
notice during said 10-day period of its disapproval of such planned
investment, the Employee may make such investment if he wishes, subject to
the Employer's right, AS ITS SOLE AND EXCLUSIVE REMEDY, exercisable at any
time within thirty (30) days after notice that Employee shall make any
unapproved investment, to terminate Employee's employment.
3. DUTIES. Employee shall be employed during the Employment Period as an
Executive Vice President of Employer and the President of Employer's regional
mall business and its interests in Chile (if, as and when Employer acquires any
such interests), with general responsibility for overseeing Buyer's regional
mall management, leasing, development and construction management business;
generating investment opportunities, development opportunities and service
contracts for such regional mall business; expanding the operations of Chile;
and developing strategies to enter other planned and approved South American
markets. Employer may also ask Employee to perform other functions and
responsibilities in keeping with Employee's reputation, experience and
expertise, including but not limited to management of major customer
relationships, business development and duties related to the integration of the
Business with the business operations of Employer. Employee shall serve on the
Board of Directors of Employer as a Class III director and as a member of the
Employer's National Leadership Council when established. In such capacities,
Employee shall perform the duties associated with such positions, subject to the
general direction, approval and control of the Board and Employer's Chief
Executive Officer (such officer or such officer's designee being referred to in
this Agreement and the exhibits hereto as the "Chief Executive Officer").
Employee shall perform his duties faithfully, competently, in compliance with
all laws and to the best of his ability.
4. COMPENSATION. (a) BASE SALARY. Subject to the other terms and
conditions of this Agreement and as compensation for the performance of his
services hereunder, during the Employment Period, Employer shall pay Employee
fixed cash compensation at an initial annual rate of $200,000 (such amount is
referred to herein as "Base Salary"). Base Salary shall accrue and be payable
in accordance with the payroll practices of Employer for executives in effect
from time to
-2-
<PAGE>
time during the Employment Period. All such payments shall be subject to
deduction and withholding authorized or required by applicable law. The Base
Salary may be increased at the sole discretion of the Employer, and any
increase in Base Salary shall then become the Base Salary payable under this
Agreement.
(b) OTHER COMPENSATION. During the Employment Period, Employee will be
eligible to receive incentives and other forms of compensation to be determined
from time to time by Employer and agreed to by Employee.
5. HEALTH INSURANCE; RETIREMENT BENEFITS; WELFARE BENEFITS. During the
Employment Period, Employer shall provide Employee with such health insurance as
is generally made available from time to time by Employer to Employer's
executive officers. Employer will use its best efforts to carry over balances
relating to deductibles and out-of-pocket expenses existing as of the date of
the closing of the transactions contemplated by the Purchase Agreement under
Employee's health insurance plan in effect prior to the Effective Date. During
the Employment Period, Employee shall be entitled to participate in Employer's
401(k) plan, and Employee shall receive credit for past service with FA with
respect to the ability to participate in Employer's 401(k) plan and the ability
to receive paid vacation leave (as opposed to vacation pay). During the
Employment Period, Employer shall provide Employee with such other welfare
benefits as are generally made available from time to time by Employer to
Employer's executive officers.
6. EXPENSE REIMBURSEMENT. Employer shall reimburse Employee for all
reasonable out of pocket expenses related to travel, entertainment and
miscellaneous expense incurred in carrying out his duties under this Agreement.
Reimbursement shall only be made against an itemized list of such expenditures
signed by the Employee in such form as required by the Employer and consistent
with Employer's company policy.
7. KEY-MAN INSURANCE. At any time during the term of this Agreement,
Employer shall have the right to insure the life of Employee for Employer's sole
benefit, and to determine the amount of insurance and the type of policy.
Employee shall cooperate with Employer in obtaining such insurance by submitting
to physical examination, by supplying all information required by the insurance
company and by executing all necessary documents. Employee shall incur no
financial obligation by executing any required document and shall have no
interest in any such policy.
8. CONFIDENTIALITY. Employee acknowledges that he is being employed by
Employer under this Agreement in a capacity in which he will receive or
contribute "Confidential Information" (as defined herein). "Confidential
Information" shall mean business or technical information, including but not
limited to any formula, pattern, program, device, compilation of information,
method, technique or process, customer list, pricing arrangements, budgets and
all undisclosed information relating to acquisitions and compensation that (i)
derives independent actual or potential commercial value from not being
generally known or readily ascertainable through independent
-3-
<PAGE>
development or reverse engineering by persons who can obtain economic value
from its disclosure or use; and (ii) is the subject of efforts by Employer or
its subsidiaries that are reasonable under the circumstances to maintain its
secrecy. Employee hereby acknowledges and agrees that all Confidential
Information concerning the business or affairs of Employer or its
subsidiaries which Employee may acquire in connection with or as a result of
his association with Employer and any of its subsidiaries was and shall be
received in strict confidence and shall be used only for the purpose of
performing his duties pursuant to this Agreement, and that no such
Confidential Information shall be otherwise used or disclosed by Employee
during or after the term of this Agreement without the prior written consent
of Employer. Upon termination of Employee's employment hereunder, all
Confidential Information and other documents, records, notebooks, customer
lists, business proposals, contracts, agreements and other repositories
containing information concerning Employer or its subsidiaries or the
business of Employer or its subsidiaries (including all copies thereof) in
Employee's possession, whether prepared by Employee or others, shall remain
confidential and remain with or be returned to Employer. Employee's
obligations under this Section 8 are in addition to, and do not supersede,
Employee's obligations under applicable law to maintain the confidentiality
of Employer's Confidential Information.
Additionally, Employee is subject to the Special Trading Policy of Employer
and insider trading policies.
9. NONCOMPETITION. Employee controls FE and FA, each of which is a party
to the Purchase Agreement. In exchange for (i) the covenants made by Buyer in
the Purchase Agreement, (ii) the receipt of the consideration paid to FE and FA
as described in the Purchase Agreement, and (iii) the covenants and agreements
made by Employer in this Agreement, Employee covenants and agrees that, for a
period beginning on the Effective Date and ending on the later to occur of
(A) the fifth anniversary of the Effective Date and (B) the first anniversary of
the date (the "Date of Termination") that Employee's employment relationship
with Employer is terminated, he will not, within the Territory, directly or
indirectly, Compete with Employer. For the purposes of this Section 9, the
following terms shall have the meanings indicated below:
(a) The term "Territory" shall mean the collective reference to Chile, the
District of Columbia, and the states of Texas (but only after FE no longer owns,
directly or indirectly, any interest in Faison-Stone, Inc.), Georgia, Florida,
Tennessee, Ohio, Pennsylvania, New Jersey, Maryland, Virginia, North Carolina,
South Carolina, Arizona, Wisconsin and West Virginia.
(b) The term "Compete" shall mean engaging in the business of providing or
attempting to provide commercial property leasing, management, brokerage,
development, and other real estate services ("Services") for others, either
alone or with any individual, partnership, corporation, cooperative or
association; excluding however, the following activities, all of which are not
prohibited by Employee's covenant hereunder:
-4-
<PAGE>
(i) providing Services, either directly or indirectly through any entity
owned or controlled by Employee (an "Employee Affiliate"), to any and
all Related Properties (as defined below) on which Employer does not
(voluntarily or involuntarily) provide Services. For purposes hereof,
"Related Properties" shall mean all properties in which Employee or
any Employee Affiliate owns at least a ten percent (10%) equity,
partnership or similar interest or has invested $1 million or more in
equity capital other than any properties which Employee has assigned
or granted to Employer the right to service; provided that, with
respect to the Related Properties, Employer shall have the right to be
the exclusive service provider subject to conditions described in
those agreements related to the Purchase Agreement; and
(ii) indirectly controlling the business of Faison-Stone, Inc., a Texas
corporation which constitutes an Employee Affiliate ("Faison-Stone"),
serving as an officer and director of Faison-Stone, and actively
participating in the business of Faison-Stone in the State of Texas;
provided, however, that upon any sale of the stock or substantially
all of the assets and liabilities of Faison-Stone, Inc., Employee
shall no longer be permitted to engage in any activities described in
this clause (ii); and provided, further, that Employee realizes that
Employer and Faison-Stone compete directly in all lines of business
and Employee will not use any Confidential Information in connection
with his efforts on behalf of Faison-Stone. Employee will work in
good faith to manage this conflict of interest. Employee shall use
commercially reasonable efforts to cause FE to sell its interest in
Faison-Stone after the Effective Date.
(c) The words "directly or indirectly" as they modify the word "Compete"
shall mean: (i) acting as an agent, representative, consultant, officer,
director or employee of any entity or enterprise which is Competing (as defined
in this Section 9) with the business of Employer; (ii) participating in any such
Competing entity or enterprise as an owner, partner, limited partner, joint
venturer, creditor or shareholder (other than as permitted by paragraph 9(b) or
as a holder of less than 1% of the common stock of any publicly traded
corporation); or (iii) communicating to any such competing entity or enterprise
any Confidential Information concerning any past, present or identified
prospective client or customer of, or supplier to, Employer.
(d) With the objective of obtaining the successful implementation of the
foregoing restrictive covenant, Employer and Employee agree that in the event
such restrictive covenant should fail for lack of reasonableness, such covenant
and the obligation contained therein shall be enforced to the maximum extent
that such covenant and obligation may be enforced and still be held to be
reasonable.
10. NON-SOLICITATION. (a) EMPLOYEES AND CUSTOMERS. Except as otherwise
provided herein, for a period beginning on the Effective Date and ending on the
later to occur of (i) the fifth anniversary of the Effective Date and (ii) the
date which is 12 months after the Date of Termination,
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<PAGE>
Employee shall not (A) induce or attempt to induce any employee of Employer
or its subsidiaries to terminate, or in any way interfere with, the
relationship between Employer or its subsidiaries and any such employee, (B)
hire directly or through another entity any person who, at any time during
the 12-month period beginning on the Date of Termination, was employed by
Employer or its subsidiaries in the Territory, or (C) induce or attempt to
induce any existing customer or other business relation of the Employer or
its subsidiaries to terminate any existing real estate services agreements
with the Employer or its subsidiaries, or materially interfere with any
existing contractual relationship between any such customer or business
relation and the Employer or its subsidiaries or denigrate the ability of
Employer or its subsidiaries to competently discharge their obligations to
existing customers under existing real estate services agreements. Employer
recognizes that Employee will continue to use some of Employer's employees
who currently work for FA and its subsidiaries to assist Employee in
evaluating investments in real estate properties. Notwithstanding the
foregoing, upon 30 day's advance written notice to Employer or with the
written consent of Employer, Employee shall be permitted to hire any employee
of Employer (i) who, immediately prior to the date hereof, was an employee of
FA or any of its wholly-owned subsidiaries, and (ii) who resigns Employer's
employment without being solicited or encouraged to do so by Employee.
(b) ASSETS. For a period beginning on the Effective Date and ending on
the later to occur of (i) the fifth anniversary of the Effective Date and
(ii) the first anniversary of the Date of Termination, Employee shall not
solicit the real estate services work for any property managed, leased, improved
or developed by Employer or any of its subsidiaries in the Territory at any time
during the twelve (12) month period beginning on the Date of Termination except
as provided in Section 9(b)(i) above.
11. INJUNCTIVE RELIEF. In the event of a breach or threatened breach by
Employee of any of the provisions of Sections 8, 9 or 10 hereof, Employer shall
be entitled to specific performance, injunctive relief or such other legal
and/or equitable remedies as may be appropriate. Nothing contained in this
Section 11 shall be construed as prohibiting Employer from pursuing any other
remedies available to it for such breach or threatened breach of any of the
terms and provisions of this Agreement, nor limiting its right to the recovery
of damages from Employee or any other person or entity for the breach or
violation of any provision of this Agreement, whether such remedy be at law or
in equity.
12. TERMINATION. (a) Upon written notice, Employer may immediately
terminate Employee's employment for Cause; provided that Employee shall have a
period of 30 days after receipt of such notice to cure the breach giving rise to
any termination for Cause if such breach can be reasonably remedied in the
reasonable opinion of Employer. In the event of a termination for Cause,
Employee shall be paid only that portion of the Base Salary accrued through the
date of such termination notice (less all amounts required to be withheld or
deducted therefrom), and Employee shall forfeit all rights to all compensation
which would otherwise be due to him under this
-6-
<PAGE>
Agreement or to which he would otherwise be entitled. As used in this
Agreement, "Cause" means termination of Employee's employment because of:
(i) Employee's conviction of, or plea of NOLO CONTENDERE to, a felony or
crime involving moral turpitude; (ii) Employee's personal dishonesty; willful
misconduct; or willful violation of any law, rule or regulation having direct
bearing on Employee's duties performed on behalf of Employer; (iii)
Employee's commission of material mismanagement in the conduct of his duties
as assigned to him by Employer; (iv) Employee's intentional failure to
perform the duties as assigned to him by Employer; (v) Employee's willful
violation of a significant written policy of Employer applicable to Employee;
or (vi) Employee's abuse of or addiction to an illegal substance. The
definition of "Cause" set forth herein shall override the definition of
"Cause" as set forth in Employer's Long-Term Incentive Plan.
(b) In the event that Employee terminates his employment with Employer
other than for Good Reason (as defined below) prior to the fifth anniversary of
the Effective Date, Employee shall be paid only that portion of the Base Salary
accrued through the date of termination (less all amounts required to be
withheld or deducted therefrom), and Employee shall forfeit all rights to all
compensation which would otherwise be due to him under this Agreement or to
which he would otherwise be entitled. Any such termination of employment by
Employee, and the payment of Base Salary pursuant to this Section 12(b) shall be
Employer's sole remedy other than the continued right to enforce the
covenant-not-to-compete and non-solicitation provisions of this Agreement.
(c) In the event that Employee terminates Employee's employment for Good
Reason or Employer terminates Employee's employment other than for Cause or
disability under Section 12(e), Employee shall be paid only (i) that portion of
the Base Salary accrued through the date of such termination, (ii) Base Salary
for a period of twelve (12) months in accordance with the payroll practices of
Employer for executives in effect from time to time (less all amounts required
to be withheld or deducted therefrom); provided, however, that Employee shall
only be entitled to receive the payment described in this clause (ii) for as
along as Employee complies with the covenants and agreements set forth in
Section 9, and (iii) an amount equal to the cost of continuing Employee's health
benefit coverage under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") for a period of one year beginning on the Date of Termination.
Employer shall be entitled to withhold or deduct any amounts required to be
withheld or deducted from any payment described in this Section 12(c).
(d) If Employee dies prior to the fifth anniversary of the Effective Date,
this Agreement shall terminate, and Employer shall pay to the estate of Employee
that portion of the Base Salary which would otherwise be payable to Employee
through the end of the month in which Employee's death occurs, together with a
death benefit payment, if any, to which Employee's estate is entitled in
accordance with Employer's policies, plans and procedures relating to death
benefits in effect from time to time. Employer shall be entitled to withhold or
deduct any amounts required to be withheld or deducted from any payment
described in this Section 12(d).
-7-
<PAGE>
(e) Employer may terminate this Agreement if, prior to the fifth
anniversary of the Effective Date, Employee becomes disabled. For purposes of
this Agreement, Employee shall be deemed to have become disabled when Employer
determines in good faith that Employee is disabled pursuant to Employer's
policies and procedures relating to disability benefits in effect from time to
time. In the event Employer terminates this Agreement due to the disability of
Employee, Employee shall be paid only (i) that portion of the Base Salary which
would otherwise be payable to Employee through the end of the month of such
termination, and (ii) such disability benefit payments, if any, for which
Employee is eligible in accordance with Employer's policies, plans and
procedures relating to disability benefits in effect from time to time.
Employer shall be entitled to withhold or deduct any amounts required to be
withheld or deducted from any payment described in this Section 12(e).
(f) The Employee's employment may be terminated by Employee during the
Employment Period for no reason or Good Reason; provided, however, that the
Employee agrees not to terminate his employment for Good Reason unless (x)
Employee has given Employer at least 30 days' prior written notice of his intent
to terminate his employment for Good Reason, which notice shall specify the
facts and circumstances constituting Good Reason, and (y) Employer has not
remedied such facts and circumstances constituting Good Reason within such
30-day period. For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following without Employee's written consent:
(i) any action taken by Employer which results in a material
diminution in the position, authority, duties or responsibilities of
Employee as contemplated in Section 3, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by Employer within 30 days after receipt of notice
thereof given by Employee;
(ii) any termination or material reduction of a material benefit
under any insurance, retirement or welfare plan in which Employee
participates unless (a) there is substituted a comparable benefit that is
economically substantially equivalent to the terminated or reduced benefit
prior to such termination or reduction, or (b) benefits under such
insurance, retirement or welfare benefit plans are terminated or reduced
with respect to all of Employer's executives previously granted benefits
thereunder; or
(iii) any material breach by the Employer of this Agreement.
13. VACATION. During the term of this Agreement, Employee shall be
entitled to an annual vacation leave of five weeks at full pay. The time for
such vacation shall be selected by Employee and reasonably approved by Employer,
and it must be taken in each calendar year or it is forfeited.
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<PAGE>
14. SEVERABILITY. Subject to Section 9 hereof, in the event that any
provision contained herein shall be held to be invalid, illegal or unenforceable
for any reason, such invalidity, illegality or unenforceability shall not affect
any other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
15. WAIVER. No delay or omission by either party hereto in exercising any
right or power hereunder shall impair such right or power or be construed as a
waiver thereof. A waiver by either of the parties hereto of any of the
covenants to be performed by the other or any breach thereof shall not be
construed to be a waiver of any succeeding breach thereof or of any other
covenant herein contained. All remedies provided for in this Agreement shall be
cumulative and in addition to and not in lieu of any other remedies available to
either party at law, in equity or otherwise.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter thereof, and there
are no representations, understandings or agreements related hereto which are
not fully expressed herein, all prior agreements with respect to the subject
matter hereof being expressly superseded hereby. To the extent that this
Agreement contains terms and provisions dealing with compensation or other
benefits and Employee would, in the absence of this Agreement, otherwise be
entitled to similar benefits under Employer's policies and guidelines applicable
to its executives (including but not limited to salary, severance and vacation
benefits), the terms of this Agreement shall apply, and such benefits provided
to Employee under this Agreement shall be in substitution for, and not in
addition to, such other benefits that Employee would otherwise be entitled to
receive. No change, waiver or discharge hereof shall be valid unless in writing
and signed by the party against which such change, waiver or discharge is sought
to be enforced.
17. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina (without giving effect
to principles of conflicts of law).
18. MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
identical counterparts, each of which shall be deemed an original, and all of
which taken together shall constitute but one and the same instrument. In
making proof of this Agreement, it shall not be necessary to produce or account
for more than one counterpart executed by the party sought to be charged with
performance hereunder.
19. HEADINGS AND PRONOUNS. The subject headings of the sections contained
herein are inserted for convenience only and shall not be considered in
interpreting any term or provision hereof. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the entities or persons referred to may require.
20. BINDING ARBITRATION. (a) ELECTION. In the event of a contested claim
or other matter in dispute under this Agreement, either of the parties may, by
notice to the other party (a "Demand
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<PAGE>
to Arbitrate"), elect that the matter shall be settled by arbitration in
accordance with the National Rules of the American Arbitration Association
for Resolution of Employment Disputes ("AAA") by three (3) arbitrators, who
shall administer the arbitration. The costs and expenses of any such
arbitration shall be borne by the parties as determined by the arbitrators.
Any such election to arbitrate shall be binding on all parties to this
Agreement; provided, however, that nothing set forth in this Section 20 shall
be deemed to be a waiver by Employer of its rights to seek specific
performance, injunctive relief or such other legal and/or equitable remedies
as may be appropriate to maintain the STATUS QUO pending arbitration among
the parties as to any alleged breach or threatened breach by Employee of any
of the provisions of Section 8, 9 or 10 hereof (as contemplated in Section 11
hereof).
(b) ARBITRATORS. Employer shall appoint one arbitrator, and Employee
shall appoint one arbitrator. If either party fails to appoint an arbitrator
within thirty (30) days from the date a Demand to Arbitrate was given, AAA shall
make the appointment of the arbitrator. The two (2) arbitrators thus appointed
shall appoint the third arbitrator. If such two (2) arbitrators fail to appoint
the third arbitrator within sixty (60) days from the date a Demand to Arbitrate
was given, AAA shall make the appointment of the third arbitrator. Should any
of the arbitrators so appointed die, resign, refuse or become unable to act
before a decision is given, the vacancy shall be filled by the method set forth
in this sub-paragraph (b) for the original appointment. The place of
arbitration shall be Charlotte, North Carolina.
(c) BINDING EFFECT. The award and all decisions of the arbitrators shall
be final and binding upon the parties and there shall be no appeal therefrom to
any court except as expressly permitted by the law of the place of arbitration.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. In the event of any conflict between the rules of
the arbitral authority and this Section 20, the provisions of this Section 20
shall govern.
21. SURVIVAL. Employee understands and agrees that his covenants and
agreements contained in Sections 8, 9, 10 and 11 hereof are the essence of this
Agreement and without the agreement of Employee to such covenants, Employer
would not employ him and divulge to him its Confidential Information and other
proprietary information developed at great cost to Employer. The continuation
of the employment of the Employee pursuant to the terms hereof is not a
condition to the survival of the covenants and provisions contained in such
sections. All obligations and duties of Employee and, subject to the specific
terms of each obligation contained herein, all rights of Employer as set forth
in said sections, shall survive the termination or expiration of this Agreement.
22. ATTORNEY'S FEES. If any civil action or arbitration, whether at law
or in equity, is necessary to enforce or interpret any of the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorney's fees,
court costs and other reasonable expenses of litigation, in addition to any
other relief to which such party may be entitled.
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<PAGE>
23. NOTICE. For the purposes of this Agreement:
(a) Notices and all other communications to Employer provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered, telecopied with telephonic confirmation (with original
copy sent by first class mail, postage prepaid, or delivered by hand, messenger
or overnight courier) or on the third day after being mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
To Employer:
Trammell Crow Company
2001 Ross Avenue
Suite 3400
Attn: General Counsel
with a further copy to:
Vinson & Elkins L.L.P.
2001 Ross Avenue
Suite 3700
Dallas, Texas 75201
Attn: Michael J. Schimberg
or to such other address as Employer may have furnished to Employee in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
(b) Notices and all other communications to Employee provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered as follows:
To Employee:
Henry J. Faison
121 West Trade Street
1900 Interstate Tower
Charlotte, North Carolina 28202-5399
Attn: Personal and Confidential
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<PAGE>
with a copy to:
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street
Suite 1900
Charlotte, North Carolina 28246
Attn: William T. Graves
or to such other address as Employee may have furnished to Employer in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
24. AMENDMENT. This Agreement (including the Exhibits hereto) may not be
amended or modified at any time except by a written instrument approved by the
Board (or a committee thereof) and executed by the Employer and the Employee.
25. EFFECTIVENESS OF AGREEMENT. Employer and Employee agree that if the
Purchase Agreement is terminated in accordance with its terms, this Agreement
shall terminate and to the parties hereto shall have no obligations to any party
hereunder. Each provision of this Agreement shall, unless otherwise expressly
stated by its own terms, survive termination of Employee's employment hereunder.
[Signatures begin on next page.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement this 2nd day of July, 1998, to be effective as of the Effective Date.
EMPLOYER:
TRAMMELL CROW COMPANY
By:/s/ Derek R. McClain
--------------------------------
Name: Derek R. McClain
------------------------------
Title: Executive Vice President and
-----------------------------
General Counsel
EMPLOYEE:
HENRY J. FAISON
/s/ Henry J. Faison
-----------------------------------
[Signature page to HJF Employment Agreement.]
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<PAGE>
EXHIBIT A
For purposes of this policy, "commercial real estate" shall mean all real estate
other than residential real estate owned primarily for Employee's residential
use.
Any service business arising from Employee's ownership of commercial real
estate must, at Employer's option, be transacted by Employer, assuming that
Employer is qualified to provide those services and subject to Employee's
ability to control the service provider selection decision. Fees paid to
Employer will be at market rates. If Employee's ability to acquire a
particular commercial real estate asset is impaired by designating Employer
as service provider, then Employee may hire an alternative provider with 5
days prior written notice to Employer.
Employee may not buy real estate offered for sale by Employer without full
disclosure to Employer's customer.
Any equity investment in investment real estate undertaken by Employee must
be paid in cash, not exchanged for commissions or fees that would
customarily have been paid to Employee in connection with that transaction.
Employee must be sensitive to potential conflicts of interest with
customers of Employer when considering real estate investments and endeavor
to discuss prospective investments with Employer for this purpose.
Employer's sole and exclusive remedy for any violation of this policy,
exercisable at any time within thirty (30) days after notice that Employee
has made such violation, is to terminate Employee's employment.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TRAMMELL CROW COMPANY FOR NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 76,471
<SECURITIES> 0
<RECEIVABLES> 78,641
<ALLOWANCES> (586)
<INVENTORY> 0
<CURRENT-ASSETS> 296,570<F1>
<PP&E> 29,849
<DEPRECIATION> (17,066)
<TOTAL-ASSETS> 466,638
<CURRENT-LIABILITIES> 183,420<F2>
<BONDS> 0
0
0
<COMMON> 342
<OTHER-SE> 174,888
<TOTAL-LIABILITY-AND-EQUITY> 466,638
<SALES> 0
<TOTAL-REVENUES> 352,362
<CGS> 0
<TOTAL-COSTS> 291,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,782
<INCOME-PRETAX> 52,889
<INCOME-TAX> 21,425
<INCOME-CONTINUING> 31,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,464
<EPS-PRIMARY> .93
<EPS-DILUTED> .87
<FN>
<F1>INCLUDES REAL ESTATE HELD FOR SALE OF $128,058
<F2>INCLUDES NOTES PAYABLE ON REAL ESTATE HELD FOR SALE OF $77,297
</FN>
</TABLE>
