<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1999
REGISTRATION NO. 333-72925
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TRAMMELL CROW COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2721454
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2001 ROSS AVENUE, SUITE 3400
DALLAS, TEXAS 75201
(214) 863-3000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
--------------------------
GEORGE L. LIPPE
CHIEF EXECUTIVE OFFICER
TRAMMELL CROW COMPANY
2001 ROSS AVENUE, SUITE 3400
DALLAS, TEXAS 75201
(214) 863-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
JEFFREY E. ELDREDGE JI HOON HONG
J. CHRISTOPHER KIRK SHEARMAN & STERLING
VINSON & ELKINS L.L.P. 599 LEXINGTON AVENUE
3700 TRAMMELL CROW CENTER NEW YORK, NEW YORK 10022
2001 ROSS AVENUE (212) 848-4000
DALLAS, TEXAS 75201
(214) 220-7700
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
--------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
--------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus"), and the other to be used in connection with a concurrent offering
outside the United States and Canada (the "International Prospectus"). The U.S.
Prospectus and the International Prospectus are identical in all respects except
that they contain different front cover pages.
The form of the U.S. Prospectus is included herein and is followed by the
front cover page to be used in the International Prospectus that differs from
the front cover page in the U.S. Prospectus. The front cover page for the
International Prospectus included herein is labeled "Alternative Cover Page for
International Prospectus."
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
MARCH 9, 1999
4,500,000 SHARES
TRAMMELL CROW COMPANY
COMMON STOCK
--------------
SELLING STOCKHOLDERS ARE OFFERING ALL OF THE SHARES TO BE SOLD IN THE OFFERING.
WE WILL NOT RECEIVE ANY PROCEEDS FROM THE OFFERING. IN 1991, OUR REAL
ESTATE SERVICES BUSINESS WAS SEPARATED FROM THE COMMERCIAL REAL
ESTATE ASSET BASE OWNED BY OUR PREDECESSOR. WE CONTINUED
TO OPERATE THE REAL ESTATE SERVICES BUSINESS WHILE
OWNERSHIP OF THE COMMERCIAL REAL ESTATE
ASSET BASE WAS SEGREGATED INTO
SEPARATE ENTITIES WITH
INDEPENDENT
MANAGEMENT AND
OPERATIONS.
-------------------
THE COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"TCC."
ON MARCH 5, 1999, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON
THE NEW YORK STOCK EXCHANGE WAS $15.75 PER SHARE.
-------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS STOCKHOLDERS
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE
UP TO AN ADDITIONAL 675,000 SHARES TO COVER OVER-ALLOTMENTS. MORGAN STANLEY &
CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON ,
1999.
-------------------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
BT ALEXQ BROWN
DONALDSON, LUFKIN & JENRETTE
, 1999.
<PAGE>
The artwork on the inside front cover of the gatefold is a landscape-format,
two-page, tan, gray, blue, black, and white-colored depiction of: (a) a map of
the continental United States and the southern portion of Canada, three small
inset maps of Asia, South America and Europe, the Company's logo, "Trammell Crow
Company," presented in white lettering inside a black box that is outlined in
blue and gray, logos of some of the Company's major clients and a small black
inset box with the following text in white block lettering: "Crow Holdings
International" is an entity with which the Company has a strategic alliance but
in which the Company has no ownership interest" (in the upper four-fifths); and
(b) a boxed, black, white and blue-colored listing of the cities and states of
the Company's North American locations (labeled "North American Locations")(in
the lower one-fifth).
Scattered across the map of the continental U.S. are triangles which
correspond to the cities in the boxed listing described above. Within the inset
maps of Asia, South America and Europe, respectively, the countries of Japan and
China; Brazil and Chile; and Hungary, Belgium, Germany and the Netherlands, are
identified by name. Within the box listing the Company's North American
locations, the names of U.S. states and the country of Canada are presented in
blue capital letters and city names are presented in white large and small
letters. The states and cities listed are: Arizona (Phoenix, Tucson); Arkansas
(Little Rock); California (Commerce, Foster City, Irvine, Los Angeles, Newport
Beach, Ontario, Pleasanton, San Diego, San Francisco, San Jose); Canada
(Calgary, Toronto); Colorado (Colorado Springs, Denver); Connecticut (Greenwich,
Hartford, Stamford); Delaware (Wilmington); District of Columbia (Washington,
D.C.); Florida (Boca Raton, Coral Gables, Fort Lauderdale, Fort Myers,
Jacksonville, Miami, Orlando, Sunrise, Tampa, West Palm Beach); Georgia
(Atlanta); Idaho (Boise); Illinois (Barrington, Chicago, Deerfield, Des Plaines,
McGaw Park, Oakbrook Terrace, Round Lake, Waukegan); Indiana (Indianapolis);
Iowa (Des Moines); Kansas (Kansas City, Overland Park, Topeka, Wichita);
Kentucky (Louisville, Winchester); Louisiana (Baton Rouge, Lake Charles, Monroe,
New Orleans, Shreveport); Maine (Portland); Maryland (Baltimore, Bethesda,
Columbia); Massachusetts (Boston); Michigan (Auburn Hills, Southfield);
Minnesota (Eden Prairie, Edina, Golden Valley, Minnetonka); Missouri (Kansas
City, Maryland Heights, Springfield, St. Louis); Nevada (Reno/Sparks); New
Jersey (Carlstadt, Chatham, Cherry Hill, Edison, Newark, Park Ridge); New Mexico
(Albuquerque); New York (Albany, Buffalo, Montgomery, Rochester, Syracuse);
North Carolina (Charlotte); Ohio (Cleveland, Columbus, Hudson); Oklahoma
(Oklahoma City, Tulsa); Oregon (Portland); Pennsylvania (Norristown,
Philadelphia, Pittsburgh, Wayne, Wyomissing); South Carolina (Columbia);
Tennessee (Brentwood, Cordova, Memphis, Nashville); Texas (Amarillo, Austin,
Dallas, Fort Worth, Houston, San Antonio); Utah (Salt Lake City); Vermont
(Burlington); Virginia (Alexandria, Chantilly, Fairfax, Hampton, McLean, Reston,
Richmond, Virginia Beach); Washington (Bellevue, Redmond, Seattle, Tacoma); and
Wisconsin (Milwaukee).
Logos and names of some of the Company's major clients fill the areas
between the maps; identified logos and names are as follows: the Principal
Financial Group, AEW, Allegiance, BankOne, AMB Property Corporation, United
Health Group, ARCHON Group, KeyCorp, EXXON, Travelers Property Casualty,
Allegis, Kennedy Associates Real Estate Counsel, Inc., Sovereign Bank,
Microsoft, Baxter, OfficeMax, CIGNA Investment Management, NationsBank, IBM and
Mobil.
The following asterisk note appears in black block lettering near the lower
lefthand corner of the area around the amp of the U.S.: "The logos are the
official trademarks of these companies and are issued and used with their
permission."
The artwork on the outside cover of the gatefold is a portrait-format, blue
and black-colored depiction of the North American portion of the northern
hemisphere (in the bottom-most two-thirds of the representation) overlaid, in
part, with the five portrait-format boxes presenting summary information about
the areas of service offered by the Company, and (in the uppermost one-third of
the representation) the following text is presented in a gray-colored,
landscape-formatted box: "Trammell Crow Company is one of the largest
diversified commercial real estate service companies in the United States.
Through the Company's 150 offices in the United States and Canada, the Company
is organized to deliver a comprehensive range of service offerings to clients
which include leading multinational corporations, institutional investors and
other users of real estate services. Founded in 1948, the Company has
established itself as a market leader in each of its primary businesses."
Partially overlapping the central part of the bottom line of this box is the
Company's logo: "Trammell Crow Company" which is presented in white lettering
inside a black box that is outlined in blue and gray.
The text of the summary information about the areas of service offered by
Trammell Crow Company listed in the five boxes is as follows: (1) Property
Management Services (Building Management, Tenant Relations, Tenant Finish,
Financial Management); (2) Brokerage Services (Tenant Representation, Investment
Sales, Listings, Land Sales); (3) Infrastructure Management Services (Strategic
Services, Facility Management, Facility Planning and Project Management,
Transaction Services, Office Services); (4) Development and Construction
Services (Project Sourcing, Acquisition and Financial Services, Coordination of
Design and Approvals, Construction Management, Tenant Finish Coordination,
General Contracting); and (5) Retail Services (Brokerage Services, Development
Services, Acquisition, Rehabilitation and Sale of Retail Properties). The titles
within each gray and white-outlined box are printed in blue capital letters; the
items listed within each column are printed in white large and small letters.
The artwork on the inside back cover of the gatefold is a full-page, blue,
gray, black and white-colored, portrait-formatted photograph of several people,
overlaid with two small boxes of text. Centered one-third of the way from the
top of the page is the Company's logo: "Trammell Crow Company" which is
presented in white lettering inside a black box that is outlined in blue and
gray. Toward the lower right-hand corner of the page is an inset box of gray and
white text on a white background which reads: "Mission Statement--To be the
premier customer-driven, full-service real estate company in the industry."
2
<PAGE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this Prospectus. Do not rely
on any such unauthorized information. This Prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
Prospectus is current as of , 1999.
------------------------
Unless the context otherwise requires, all references to the "Company,"
"we," "our," and "us" in this Prospectus are to Trammell Crow Company and its
consolidated subsidiaries.
All references to "EBITDA, as adjusted," in this Prospectus are to earnings
before interest, income taxes, depreciation and amortization, royalty and
consulting fees, profit sharing and non-recurring charges to income related to
an option plan and a terminated stock appreciation rights plan.
In this Prospectus references to "dollar" and "$" are to United States
dollars, and the term "United States" or "U.S." means the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 10
The Company................................................................................................ 15
Use of Proceeds............................................................................................ 19
Dividend Policy............................................................................................ 19
Market for Common Stock.................................................................................... 19
Selected Consolidated Financial Data....................................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 23
Business................................................................................................... 38
Management................................................................................................. 53
Principal and Selling Stockholders......................................................................... 56
Description of Capital Stock............................................................................... 59
Shares Eligible for Future Sale............................................................................ 64
Certain U.S. Federal Tax Considerations for Non-U.S. Holders of Common Stock............................... 65
Underwriting............................................................................................... 68
Legal Matters.............................................................................................. 71
Experts.................................................................................................... 71
Where You Can Find More Information........................................................................ 71
Incorporation by Reference................................................................................. 72
Index to Financial Statements.............................................................................. F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
PLEASE READ THE FOLLOWING SUMMARY CAREFULLY, TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING THE COMPANY AND THE COMMON STOCK AND THE FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
COMPANY OVERVIEW
We are one of the largest diversified commercial real estate services
companies in North America. Through 150 offices in the United States and Canada,
we deliver a comprehensive range of services to leading multinational
corporations, institutional investors and other users of real estate services.
In the United States, we are a leading provider of commercial property
management, commercial property brokerage, infrastructure management and office
and industrial property development and construction services.
For the nine months ended September 30, 1998, our total revenues were $347.0
million (an increase of 62.8% over the same period in 1997), and EBITDA, as
adjusted, was $67.6 million (an increase of 69.8% over the same period in 1997).
Acquisitions contributed 23.5% of our revenue growth and 16.5% of our growth in
EBITDA, as adjusted, over this period. In 1997, total revenues were $313.6
million (an increase of 22.7% over 1996), and our EBITDA, as adjusted, was $59.5
million (an increase of 21.7% over 1996).
We were founded in 1948 by Mr. Trammell Crow to develop, own and manage
industrial, office and retail projects. In 1991, our real estate services
business was separated from our commercial real estate asset base. Today, we
operate the real estate services business while the commercial real estate asset
base is owned by a number of separate entities. Many of these entities are
managed by subsidiaries of Crow Holdings. Because Crow Holdings and its owners
hold significant amounts of our common stock and conduct other real estate
activities in direct competition with us, our relationship with these entities
could give rise to conflicts of interest.
COMPETITIVE ADVANTAGES
We have the following important competitive advantages:
COMPREHENSIVE SERVICE OFFERINGS. Our comprehensive menu of services
provides clients with single-point solutions to all of their commercial real
estate services needs. We often commence client relationships by providing a
single service, and later expand these relationships by anticipating and
satisfying the client's other specific service requirements. By offering a full
array of services, we maximize our effect on our clients' businesses while
becoming highly integrated into their operations. Our comprehensive service
offerings also decrease our exposure to a downturn in any one of our primary
businesses.
GEOGRAPHIC SCOPE. Through our 150 offices, we develop and maintain
extensive knowledge of local real estate markets across the United States and
Canada. Approximately 88% of our employees are based in markets other than
Dallas, Texas, where our executive offices are located. This broad geographic
scope allows us to serve as a single-source, full service provider to
multinational corporations and institutional investors with real estate
interests that span regional and national boundaries. It also tends to limit our
exposure to an economic downturn in any single market.
TECHNOLOGY. We use off-the-shelf and proprietary technology applications to
better meet customer needs. An example is our centralized call center, which is
a vital component of our proprietary total occupancy cost management process
that provides comprehensive cost studies and analyses of building portfolios to
our customers. This call center provides responses to customer needs 24 hours a
day. Use of these applications is intended to enhance sharing of vital market
information and provide significantly enhanced control over clients' expenses.
4
<PAGE>
MANAGEMENT/PERSONNEL. We have a highly qualified management team. Our seven
member executive committee has an average of approximately 16 years of
experience with us. We believe the low turnover among this senior management
group is linked to our collegial internal culture and our history of promoting
talented individuals from within. Our growth strategy, incentive-based
compensation and the high level of ownership by our insiders provides further
motivation to achieve a high level of performance. Immediately following the
offering, our employees will beneficially own approximately 37% of our
outstanding common stock.
BUSINESS
To address the comprehensive real estate services requirements of our
diverse group of clients, we have five principal lines of business.
PROPERTY MANAGEMENT SERVICES
As of September 30, 1998, we managed approximately 266.6 million square feet
of commercial property (excluding malls and facilities occupied by
infrastructure management customers) and served approximately 630 clients and
18,300 tenants through our locally based property management teams present in 70
markets. Revenues from property management services for the nine months ended
September 30, 1998 were $81.9 million, compared to $65.1 million for the same
period in 1997. A substantial portion of this growth in revenues is due to
acquisitions.
BROKERAGE SERVICES
In 1997, we facilitated approximately 6,000 sales and lease transactions. As
of September 30, 1998, we employed 475 brokers, having added 280 brokerage
professionals since the beginning of 1996. Revenues from brokerage services for
the nine months ended September 30, 1998 were $100.8 million, compared to $61.7
million for the same period in 1997. A substantial portion of this growth in
revenues is due to acquisitions.
INFRASTRUCTURE MANAGEMENT SERVICES
As of September 30, 1998, we had approximately 1,300 employees who serviced
62 infrastructure management clients in approximately 16,000 properties
encompassing over 128 million square feet. We have expertise in providing
infrastructure management services to clients in the financial services,
healthcare, higher education, automotive, oil and gas and
technology/communications industries. Revenues from infrastructure management
services for the nine months ended September 30, 1998 were $74.0 million,
compared to $48.0 million for the same period in 1997.
DEVELOPMENT AND INVESTMENT ACTIVITIES
We focus our commercial real estate development business on third party
build-to-suit customers and investors in office, industrial and retail projects.
We have the capability to implement active and sizeable development programs,
primarily on behalf of our clients, but also for our own account. Revenues from
development and investment activities for the nine months ended September 30,
1998 (consisting of development and construction service fees, income from
unconsolidated subsidiaries and gain on disposition of non-retail real estate
projects) were $71.1 million, compared to $29.6 million for the same period in
1997. From January 1, 1993 through September 30, 1998, we developed and
redeveloped approximately 56.9 million square feet of projects with aggregate
project costs of approximately $3.7 billion. From January 1 through September
30, 1998, we started approximately 14.1 million square feet of development
projects with an estimated aggregate cost of $1.2 billion.
5
<PAGE>
RETAIL SERVICES
Our retail services management group was formed in 1996 to better serve
national retail customers (who demand specialized property and market knowledge)
and compete with service providers whose sole focus is retail. Retail revenues
for the nine months ended September 30, 1998 (consisting of service revenues and
gain on disposition of retail build-to-suit real estate projects) were $13.1
million, compared to $2.8 million for the same period in 1997. This increase
resulted primarily from acquisitions in August 1997 and in July 1998. We believe
these acquisitions established us as one of the leading retail services
providers in the Southeastern United States and provided us with the platform
and expertise needed to expand our retail services business.
GROWTH STRATEGY
We are using our broad industry expertise, our recognized brand and our
long-standing client relationships to pursue the following growth strategy:
EXPAND CLIENT RELATIONSHIPS. Our existing clients represent the most
immediate opportunity to increase revenues and earnings through cross-selling
our services. We have dedicated national client services personnel to identify
our most strategically significant customers and focus on expanding the business
generated from these customers. Of the 152 discrete assignments secured from the
16 most strategically significant customers in 1997, 21 were awarded in cities
where we previously did not serve the client making the assignment. Through
September 30, 1998, these customers awarded 130 new business assignments to us
in 1998.
EXPAND THE BREADTH OF SERVICE OFFERINGS. We continuously expand and enhance
our breadth of service offerings, principally by creating new service businesses
internally. For example, we took advantage of the trend toward outsourcing of
real estate services by creating our infrastructure management services
business, which provided 21.9% of total revenues in 1997, up from 9.4% in 1993.
CO-INVESTMENT AND DEVELOPMENT PROGRAMS. We continue to make selective
co-investments of capital alongside corporate and institutional clients. This
leverages our relationships with these clients and our extensive knowledge of
the real estate industry to create new opportunities to invest capital. We seek
co-investments that generate investment returns while still allowing us to earn
fees in exchange for services provided in the development and management of the
project. Since October 1997, we have entered into several development programs
which provide opportunities to earn fees and achieve investment returns over a
series of projects with a single investor, rather than seeking these
opportunities on a transaction-by-transaction basis.
ACQUISITIONS. We actively pursue selective acquisitions of complementary
businesses. The traditionally fragmented real estate services industry is
experiencing rapid consolidation as customers seek national service providers
who can meet their broad range of real estate needs. Capitalizing on this trend,
in 1998 we acquired the following businesses in exchange for an aggregate
consideration of approximately $98.3 million, plus certain contingent payments
and common stock options:
- Tooley & Company, a real estate services company with 190 employees that
manages and leases office space in California;
- James Norman & Company, a property management and brokerage firm with 30
employees concentrating in Seattle's central business district office and
retail markets;
- Fallon, Hines & O'Connor, Inc., a Boston-based commercial real estate
brokerage, consulting and advisory firm with 52 employees;
- CORE Resource, Inc., which provides infrastructure management services to
the automotive industry; and
6
<PAGE>
- A portion of the business conducted by Faison & Associates and Faison
Enterprises, Inc., which develop, lease and manage office and retail
properties located primarily in the Midatlantic and Southeastern regions
of the United States.
Our executive offices are located at 2001 Ross Avenue, Suite 3400, Dallas,
Texas 75201, and our telephone number at that address is (214) 863-3000.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered(1)............. 4,500,000 shares
Common stock to be outstanding after
the offering(2)................... 34,921,977
Selling stockholders................ Certain of our current and former employees and
certain affiliates of descendants of Mr. Trammell
Crow. See "Principal and Selling Stockholders."
Use of proceeds(3).................. We will not receive any proceeds from the offering.
New York Stock Exchange Symbol...... TCC
</TABLE>
- ------------------------
(1) Unless otherwise specifically stated, the information in this Prospectus
does not take into account the possible purchase by the underwriters from
the selling stockholders of up to an additional 675,000 shares to cover
over-allotments.
(2) Based upon the number of shares outstanding on January 31, 1999. Includes an
aggregate of 320,676 shares expected to be issued immediately prior to the
closing of the offering upon exercise of options granted under the 1997
Stock Option Plan and the Long-Term Incentive Plan. Excludes other shares
issuable or reserved for future grants or awards under the 1997 Stock Option
Plan, the Long-Term Incentive Plan and the Employee Stock Purchase Plan.
(3) We expect that 320,676 shares of common stock to be sold in the offering
will be issued to certain selling stockholders immediately prior to the
closing of the offering upon the exercise of options. The approximately $1.2
million we expect to receive upon the exercise of such options will be used
for general corporate purposes.
RISK FACTORS
Prospective investors should consider the factors discussed in detail
elsewhere in this Prospectus under the caption "Risk Factors."
7
<PAGE>
SUMMARY FINANCIAL DATA
The following information should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical and pro forma financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 PRO 1998 PRO
1993 1994 1995 1996 1997 FORMA(1) 1997 1998 FORMA(1)
--------- --------- --------- --------- ---------- ---------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Property management
services.................. $ 90,954 $ 99,609 $ 92,970 $ 90,179 $ 87,756 $ 157,575 $ 65,055 $ 81,897 $ 106,043
Brokerage services.......... 47,299 48,652 61,960 72,095 91,053 132,786 61,692 100,814 116,527
Infrastructure management
services.................. 16,401 27,063 38,681 50,836 68,719 71,512 47,954 74,008 75,612
Development and construction
services.................. 14,377 12,792 20,382 22,732 40,054 49,024 27,462 42,132 49,390
Retail services............. 1,306 1,966 1,510 2,393 5,318 10,293 1,912 11,487 11,487
Income from unconsolidated
subsidiaries.............. 465 3,141 114 594 512 512 1,467 7,151 7,151
Gain on disposition of real
estate.................... -- 4,646 5,026 6,630 10,241 10,241 1,566 23,455 23,455
Other....................... 3,759 3,039 6,559 9,996 9,986 12,802 6,131 6,012 6,462
--------- --------- --------- --------- ---------- ---------- --------- ---------- ----------
Total revenues.............. 174,561 200,908 227,202 255,455 313,639 444,745 213,239 346,956 396,127
Salaries, wages and
benefits.................. 106,606 115,330 130,248 137,794 161,425 257,739 114,006 180,509 213,683
Non-recurring compensation
costs..................... -- -- -- -- 33,085 -- -- -- --
Commissions................. 15,856 20,788 23,730 27,119 39,121 42,676 25,379 43,808 46,835
General and
administrative............ 35,365 35,282 40,671 41,421 55,884 73,434 33,779 51,371 60,130
Profit sharing.............. 8,292 16,562 15,893 20,094 23,514 597 15,417 -- --
Other....................... 4,255 7,284 8,526 9,087 17,997 23,653 10,057 18,379 23,515
--------- --------- --------- --------- ---------- ---------- --------- ---------- ----------
Operating costs and
expenses.................. 170,374 195,246 219,068 235,515 331,026 398,099 198,638 294,067 344,163
--------- --------- --------- --------- ---------- ---------- --------- ---------- ----------
Income (loss) before income
taxes..................... 4,187 5,662 8,134 19,940 (17,387) 46,646 14,601 52,889 51,964
Income tax expense
(benefit)................. 1,854 2,636 3,793 7,826 (3,367) 18,380 5,747 21,425 21,055
--------- --------- --------- --------- ---------- ---------- --------- ---------- ----------
Income (loss) before
extraordinary gain........ 2,333 3,026 4,341 12,114 (14,020) 28,266 8,854 31,464 30,909
Extraordinary gain.......... 188 782 -- -- -- -- -- -- --
--------- --------- --------- --------- ---------- ---------- --------- ---------- ----------
Net income (loss)........... $ 2,521 $ 3,808 $ 4,341 $ 12,114 $ (14,020) $ 28,266 $ 8,854 $ 31,464 $ 30,909
--------- --------- --------- --------- ---------- ---------- --------- ---------- ----------
--------- --------- --------- --------- ---------- ---------- --------- ---------- ----------
EARNINGS (LOSS) PER
SHARE(2):
Basic....................... $ (.42) $ .83 $ .93 $ .90
Diluted..................... $ (.42) $ .79 $ .87 $ .85
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING(2):
Basic....................... 33,583,467 34,031,971 33,984,517 34,305,193
Diluted..................... 33,583,467 35,955,799 36,208,762 36,355,658
OTHER DATA:
EBITDA, as adjusted(3)...... $ 16,969 $ 29,686 $ 32,033 $ 48,915 $ 59,522 $ 68,854 $ 39,795 $ 67,566 $ 71,777
Net cash provided by (used
in) operating
activities................ 7,556 15,907 10,648 25,148 (4,978) 19,189 (10,200) (13,186) (13,672)
Net cash used in investing
activities................ (1,974) (2,748) (646) (5,019) (21,322) (112,074) (25,806) (104,218) (13,796)
Net cash provided by (used
in) financing
activities................ (4,412) 93 (5,457) (1,779) 64,542 154,668 14,961 97,128 4,936
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
DECEMBER 31, ----------------------
----------------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(4)
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 22,358 $ 35,610 $ 40,155 $ 58,505 $ 96,747 $ 76,471 $ 77,706
Total assets.............................. 55,774 99,867 114,315 194,314 326,236 466,638 467,873
Long-term debt............................ 8,425 9,762 7,065 12,361 2,430 95,275 95,275
Notes payable on real estate held for
sale.................................... -- 22,914 13,182 67,810 76,623 77,297 77,297
Deferred compensation..................... 14,661 21,468 25,883 20,963 8,391 57 57
Total liabilities......................... 43,767 85,516 95,090 160,018 169,305 277,198 277,242
Minority interest......................... 27 278 3,932 3,294 19,859 14,210 14,210
Stockholders' equity...................... 11,980 14,074 15,293 31,002 137,072 175,230 176,421
</TABLE>
- ------------------------------
(1) Gives effect to the Doppelt acquisition, the Tooley acquisition, the Norman
acquisition, the Fallon, Hines & O'Connor acquisition, the Core acquisition,
the Faison acquisition, the reincorporation transactions and the initial
public offering, as though they had occurred on January 1, 1997. Excludes a
non-recurring charge to income of $33.1 million related to an option plan
and a $4.4 million, non-recurring charge to income resulting from the
settlement of claims by certain former employees arising out of a terminated
stock appreciation rights plan. See "The Company--Recent Acquisitions,"
"--Initial Public Offering," "--Reincorporation Transactions",
"Business--Retail Services" and "Pro Forma Consolidated Financial
Statements."
(2) This information for the years prior to 1997 and for the nine months ended
September 30, 1997 is not relevant due to the change in capital structure
effected in connection with the reincorporation transactions in the fourth
quarter of 1997. The weighted average shares outstanding used to calculate
basic and diluted earnings per share for 1997 include the shares issued in
our initial public offering and in the reincorporation transactions as if
they were outstanding for the entire period. See "The Company-- Initial
Public Offering" and "Reincorporation Transactions."
(3) EBITDA, as adjusted, represents earnings before interest, income taxes,
depreciation and amortization, royalty and consulting fees, profit sharing,
the non-cash, non-recurring charge to income related to the stock options
granted under the 1997 Stock Option Plan and the non-recurring charge to
income resulting from the settlement of claims by certain former employees
arising out of a terminated stock appreciation rights plan. While management
believes that EBITDA, as adjusted, can be a meaningful measure of our
operating performance, cash generation and ability to service debt, it
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. Our calculation of EBITDA, as
adjusted, may differ from similarly titled items reported by other
companies.
(4) Adjusted to give effect to the offering as though it occurred on September
30, 1998. See "Pro Forma Consolidated Financial Statements."
RECENT DEVELOPMENTS
On February 18, 1999, we reported results of operations for the quarter and
year ended December 31, 1998. For the year ended December 31, 1998, our total
revenues were $517.5 million, an increase of 65.0% from $313.6 million in 1997.
EBITDA, as adjusted, for the year increased 62.7% to $96.8 million compared with
$59.5 million in 1997. Our net income for 1998 was $46.5 million, as compared to
a net loss in 1997 of $14.0 million. The net loss in 1997 was primarily due to
$37.5 million of non-recurring charges related to an option plan and a
terminated stock appreciation rights plan.
For the three months ended December 31, 1998, our total revenues were $170.6
million, an increase of 69.9% from $100.4 million for the three months ended
December 31, 1997. EBITDA, as adjusted, for the fourth quarter of 1998 increased
48.2% to $29.2 million from $19.7 million in the fourth quarter of 1997. Our net
income for the fourth quarter of 1998 was $15.0 million, as compared to a net
loss in the fourth quarter of 1997 of $22.9 million. The net loss in the fourth
quarter of 1997 was primarily due to $37.5 million of non-recurring charges
related to an option plan and a terminated stock appreciation rights plan.
As anticipated, we recognized a high percentage of our income in the third
and fourth quarters of 1998 due to the closing in those quarters of a
disproportionate number of development and investment transactions (which
typically generate higher margins than transactions in our other business
lines). Specifically, one atypically large and profitable transaction that
closed in the fourth quarter contributed approximately $10.1 million of
revenues, $10.1 million of EBITDA, as adjusted, and $6.2 million of net income.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Recent Developments."
9
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
READ THIS ENTIRE PROSPECTUS CAREFULLY AND SHOULD CONSIDER, AMONG OTHER THINGS,
THE RISKS DESCRIBED BELOW AND THROUGHOUT THIS PROSPECTUS. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND UNCERTAINTY. ACTUAL
RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET
FORTH BELOW AND OTHER FACTORS DISCUSSED ELSEWHERE IN THIS PROSPECTUS. SEE
"FORWARD-LOOKING STATEMENTS" BELOW.
DEALINGS WITH AND RELIANCE ON AFFILIATES; POTENTIAL CONFLICTS OF INTEREST
Crow Holdings and its affiliates are collectively our largest customer,
accounting for approximately 6.8% of 1997 revenues. We are not certain that Crow
Holdings or its affiliates will continue to transact business with us or that
their ownership of our common stock will not influence the terms on which they
transact business with us in the future.
Because Crow Holdings and its owners hold significant amounts of common
stock and conduct real estate activities in direct competition with us, our
relationship with these entities could give rise to conflicts of interest. These
competing activities may create a conflict with a major customer or cause
confusion in the real estate or capital markets. We have an approval policy
intended to help us manage potential conflicts involving related parties, but we
cannot be sure this policy will be effective.
TRADE NAME LICENSE
We have entered into a License Agreement (the "License Agreement") with an
affiliate of Crow Holdings that allows us to use the name "Trammell Crow"
perpetually throughout the world in any business except the residential real
estate business. This license can be revoked if we fail to maintain certain
quality standards or infringe certain of such affiliate's intellectual property
rights.
If we lose the right to use the Trammell Crow name, our business will suffer
significantly. The License Agreement permits certain existing uses of this name
by affiliates of Crow Holdings. The use of the Trammell Crow name or other
similar names by third parties may create confusion or reduce the value
associated with the Trammell Crow name.
CONTROL BY EXISTING STOCKHOLDERS
Immediately after this offering, our directors, officers and employees will
beneficially own approximately 56% of the common stock outstanding. These
individuals will be able to control our affairs and policies and will be able to
approve or disapprove most matters submitted to a vote of our stockholders,
including the election of directors. This concentration of ownership could delay
or prevent a change in control. See "Principal and Selling Stockholders" and
"Description of Capital Stock."
RAPID GROWTH
We have grown significantly in recent years and intend to continue to pursue
an aggressive growth strategy by:
- increasing revenues from existing clients;
- expanding the breadth of our service offerings;
- seeking selective co-investment opportunities; and
- pursuing strategic acquisitions.
This historical growth and any significant future growth will continue to
place demands on our resources. Our future success and profitability will
depend, in part, on our ability to enhance our
10
<PAGE>
management and operating systems and obtain financing for capital expenditures
or strategic acquisitions. We may not be able to successfully manage any
significant expansion or obtain adequate financing on favorable terms, if at
all.
ACQUISITIONS
We completed five strategic acquisitions in 1998 and intend to pursue other
acquisitions. See "The Company--Recent Acquisitions." In the future we may not
be able to acquire businesses on favorable terms, and may have to use a
substantial portion of our capital resources for any such acquisitions.
Challenges and issues commonly encountered in strategic acquisitions include:
- diversion of management's attention to assimilating the acquired business;
- maintaining employment relationships with the employees of an acquired
business;
- adverse short-term effects on operating results;
- integrating financial and other administrative systems;
- amortization of any acquired intangible assets; and
- maintaining uniform standards, controls, procedures and policies.
In addition, the acquired businesses' customers could cease to do business
with us. Potential conflicts between our customers and those of an acquired
business could threaten our business relationships. If we are not able to manage
these risks, our business could suffer significantly.
REAL ESTATE INVESTMENT AND CO-INVESTMENT ACTIVITIES
Selective investment in real estate projects is an important part of our
strategy. These activities involve the inherent risk of loss of our investment.
As of December 31, 1998, we were involved as a principal in 60 "in process" real
estate development projects with an estimated aggregate cost of approximately
$654.6 million. As of December 31, 1998, we had invested approximately $31.8
million and had assumed approximately $19.0 million in recourse obligations with
respect to such projects.
Because the disposition of a single significant investment can impact our
financial performance in any period, our ownership of real estate investments
could increase fluctuations in our net earnings and cash flow. We have limited
control over the timing of the disposition of these investments and the
recognition of any related gain or loss. For the fourth quarter of 1998, our
gain on disposition of real estate was approximately $8.2 million, compared to
approximately $0.9 million, $10.2 million and $12.4 million for the first,
second and third quarters, respectively. Our income from unconsolidated
subsidiaries (which is primarily generated from development and investment
activity) was approximately $11.3 million in the fourth quarter of 1998,
compared to $2.4 million, $4.0 million and $0.7 million for the first, second
and third quarters, respectively.
The commercial real estate market is cyclical and depends on the perceptions
of real estate investors as to general economic conditions. Because our
investment strategy typically entails making relatively modest investments
alongside our corporate and institutional clients, our ability to conduct these
activities depends in part on the supply of investment capital for commercial
real estate and related assets. In recent months, providers of capital for real
estate investment have taken a more cautious approach regarding investments in
development projects. If this trend continues or accelerates, our investment
activities, as well as our traditional construction and development business,
could be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
11
<PAGE>
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
In recent years our revenues have been lower in the first three quarters
because our clients tend to close transactions toward the end of their fiscal
years (typically the calendar year). This causes us to earn a significant
portion of our revenues under transaction-oriented service contracts in the
fourth quarter. In addition, a growing portion of our property management and
infrastructure management contracts provide for bonus payments if we achieve
certain performance targets. These incentive payments are generally earned in
the fourth quarter. We plan our capital and operating expenditures based on our
expectations of future revenues. If revenues are below expectations in any given
quarter, we may be unable to adjust expenditures to compensate for any
unexpected revenue shortfall. Our business could suffer as a consequence. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Quarterly Results of Operations and Seasonality."
COMPETITION
We compete in several market segments within the commercial real estate
industry, each of which is highly competitive on a national and a local level.
We face competition from other real estate services providers, consulting firms
and in-house corporate real estate and infrastructure management departments. In
recent years, the number of REITs which self-manage their real estate assets has
increased significantly. Continuation of this trend could shrink the asset base
available to be managed by third party service providers, decrease the demand
for our services and thereby significantly increase our competition. See
"Business--Competitive Environment."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The market price of the common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering, or the
perception that such sales could occur. These factors could also make it more
difficult for us to raise funds through future offerings of common stock.
There will be 34,921,977 shares of common stock outstanding immediately
after the offering. Based on information available at January 31, 1999,
approximately 10,934,689 of these shares will be freely transferable without
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by our "affiliates," as
defined in Rule 144 under the Securities Act. Approximately 23,987,288 of the
remaining shares may be sold without registration under the Securities Act to
the extent permitted by Rule 144 or an exemption under the Securities Act.
Certain stockholders have registration rights which allow them to cause us to
register their shares for sale. These stockholders have agreed for our benefit
and for the benefit of the Underwriters that they will not exercise such
registration rights until one year after the offering closes. See "Description
of Capital Stock--Registration Rights of Certain Holders" and "Shares Eligible
for Future Sale--Lock-up Arrangement."
We have filed registration statements with respect to an aggregate of
8,094,312 shares of common stock that, immediately after the offering, will be
reserved for issuance under the 1997 Stock Option Plan, the Long-Term Incentive
Plan and the Employee Stock Purchase Plan. All of these shares could be sold in
the public market by their holders at any time on or after the date such shares
are issued or the restrictions on such shares have lapsed.
RECRUITING AND RETENTION OF QUALIFIED PERSONNEL
Our continued success is highly dependent upon the efforts of our executive
officers and key employees. If any of our key employees leaves, our business may
suffer. The growth of our business is also largely dependent upon our ability to
attract and retain qualified personnel in all areas of our business,
particularly management. If we are unable to attract and retain such qualified
personnel, we may be forced to limit our growth, and our business and operating
results could suffer. See "Management."
12
<PAGE>
RELIANCE ON MAJOR CLIENTS AND CONTRACT RETENTION
A relatively small number of our clients generate a significant portion of
our revenues. Our ten largest clients accounted for approximately 21.9% of our
total 1997 revenues. The loss of one or more of our major clients could have a
material adverse effect on our business.
In 1997, revenue from property management and infrastructure management
contracts constituted approximately 28.0% and 21.9%, respectively, of our total
revenues. Our property management contracts can generally be cancelled upon 30
days notice by either party and our infrastructure management service contracts
are typically for initial terms of three to five years with options to renew.
Accordingly, contracts representing a significant percentage of our revenues are
terminable on short notice or may be scheduled to expire in any one year. We
have been successful in retaining and renewing a significant portion of our
contracts, but may not be able to do so in the future. Moreover, increased
competition may force us to renew such contracts on less favorable terms.
YEAR 2000 COMPLIANCE
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, the scope and magnitude of which are not
known. In early 1998, we formed a Year 2000 Task Force comprised of internal
technical, operational, financial and legal representatives and technical and
legal consultants. Under the direction of the task force, we will seek to
mitigate the impact of Year 2000 issues on our operations. We cannot be certain
that these efforts will be successful. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Impact of Year 2000."
ENVIRONMENTAL LIABILITY
Various laws and regulations impose liability on real property owners or
operators for the cost of investigating, cleaning up or removing contamination
caused by hazardous or toxic substances at the property. In our role as a
property manager, we could be held liable as an operator for such costs. This
liability may be imposed without regard to the legality of the original actions
and without regard to whether we knew of, or were responsible for, the presence
of the hazardous or toxic substances. If we fail to disclose environmental
issues, we could also be liable to a buyer or lessee of the property. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs we incur in connection with the
contamination. If we incur any such liability, our business could suffer
significantly. See "Business--Environmental Liability."
ANTI-TAKEOVER CONSIDERATIONS
Some provisions of our certificate of incorporation and certain provisions
of Delaware law may deter or prevent a takeover attempt, including an attempt
that might result in a premium over the market price for our common stock. These
provisions include:
- STAGGERED BOARD OF DIRECTORS. Our Board of Directors is divided into three
classes serving terms currently expiring in 1999, 2000 and 2001. Because
our Board of Directors is divided into classes, members of our Board of
Directors may only be removed from office prior to the expiration of their
term if such removal is for "cause." Therefore, the staggered terms of
directors may limit the ability of holders of common stock to complete a
change of control.
- STOCKHOLDER PROPOSALS. Our stockholders must follow an advance
notification procedure for certain stockholder nominations of candidates
for our Board of Directors and for certain other business to
13
<PAGE>
be conducted at any stockholders' meeting. This limitation on stockholder
proposals could inhibit a change of control.
- PREFERRED STOCK. Our certificate of incorporation authorizes our Board of
Directors to issue up to 30,000,000 shares of preferred stock having such
rights as may be designated by our Board of Directors, without stockholder
approval. The issuance of such preferred stock could inhibit a change of
control.
- DELAWARE ANTI-TAKEOVER STATUTE. Section 203 of the Delaware General
Corporation Law restricts certain business combinations with interested
stockholders upon their acquiring 15% or more of our common stock. This
statute may have the effect of inhibiting a non-negotiated merger or other
business combination. See "Description of Capital Stock--Anti-takeover
Provisions," and
"--Section 203 of the Delaware General Corporation Law."
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations about future events.
These forward-looking statements are subject to risks, uncertainties, and
assumptions, including, among other things:
- Our anticipated growth strategies,
- Our expected internal growth,
- Our ability to introduce new services,
- Technological advances in the industry,
- Anticipated trends and conditions in the industry,
- Our ability to implement a Year 2000 readiness program,
- Our future financing needs, and
- Our ability to compete.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Prospectus might not occur. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
14
<PAGE>
THE COMPANY
BACKGROUND
The Company is a Delaware corporation that was formed in August 1997 to
become the successor to Trammell Crow Company, a Texas close corporation (the
"Predecessor Company"). In 1948 Mr. Trammell Crow founded the Predecessor
Company, which consisted of a collection of affiliated partnerships and
corporations doing business as "Trammell Crow Company" until 1991. From the
Predecessor Company's founding through the 1970s, the Predecessor Company's
primary business consisted of the development and management of industrial
warehouses. In the 1980s, the Predecessor Company broadened its commercial
property asset base by expanding into retail and office projects, while
continuing to develop its industrial property business. By 1989, the Predecessor
Company had evolved into the largest commercial real estate developer in the
United States, with industrial, office and retail projects that were valued at
more than $11 billion.
Following a severe recession in the United States commercial real estate
industry in the late 1980s, the Predecessor Company determined that a
restructuring was necessary to continue the historic growth of its business
despite the adverse changes in the industry. This restructuring, completed in
1991, entailed the separation of the Predecessor Company's commercial real
estate asset base and related operations from its real estate services business.
The Predecessor Company, existing as a Texas close corporation with a total
capitalization of $18 million following the restructuring, continued to operate
the real estate services business while ownership of the commercial real estate
asset base was segregated into a large number of separate entities distinct from
the Predecessor Company, with independent management and operations. While the
Company no longer has an ownership interest in the commercial real estate asset
base, the entities owning such assets are collectively one of the Company's
largest post-restructuring service customers. Many of these entities are managed
by subsidiaries of Crow Realty Investors, L.P. d/b/a Crow Holdings ("Crow
Holdings") which is wholly owned by certain affiliates and descendants of Mr.
Trammell Crow. See "Risk Factors--Dealings with and Reliance on Affiliates;
Potential Conflicts of Interest."
RECENT ACQUISITIONS
An important component of the Company's growth strategy is the selective
acquisition of complementary real estate services businesses. In 1998, the
Company actively continued to pursue this part of its growth strategy and
consummated the following acquisitions:
In March, 1998, the Company purchased Tooley & Company, Inc. ("Tooley"), a
California real estate services company primarily engaged in office management
and leasing (the "Tooley Acquisition"). In exchange for the stock of Tooley, the
Company paid a cash purchase price of approximately $23.4 million to BCB
Holdings, LLC ("BCB"), a Delaware limited liability company whose members are
William L. Tooley, Craig Ruth and Robert N. Ruth. The Company has also agreed to
pay BCB up to an additional $3.0 million if Tooley achieves certain performance
targets in the future and to make certain payments to BCB based upon the future
performance of certain of Tooley's projects. In connection with the acquisition,
each of Messrs. Tooley, Ruth and Ruth entered into employment agreements with
the Company. Pursuant to the terms of their respective employment agreements,
the Company paid William L. Tooley and Craig Ruth an aggregate of $1.0 million
at closing in exchange for certain covenants not to compete. At the closing of
the Tooley Acquisition, a former employee of Tooley who was retained by the
Company received options to purchase 31,858 shares of the Company's Common
Stock, par value $0.01 per share ("Common Stock"), at an exercise price of
$28.25 per share (the fair market value of the Common Stock on the date of
grant), which vest ratably over a five-year term, and options to purchase an
additional 8,437 shares of Common Stock at an exercise price of $28.25 per
share, which vest ratably over a three-year term.
In May, 1998, the Company acquired (the "FHO Acquisition") the business of
Fallon, Hines & O'Connor, Inc., a Boston, Massachusetts-based commercial real
estate brokerage, consulting and advisory firm ("Fallon, Hines & O'Connor"). In
exchange for substantially all of the assets of Fallon, Hines & O'Connor, the
Company paid approximately $30.6 million in cash and agreed to pay up to an
additional $6.0 million in cash and/or stock options if the acquired business
meets certain performance thresholds. Because the acquired business met its
performance thresholds for 1998, the Company is obligated to pay $2.5 million
and issue certain stock options during the first quarter of 1999. The Company
also paid an aggregate of $2.0 million to the principals of Fallon, Hines &
O'Connor in exchange for certain covenants
15
<PAGE>
not to compete. The Company considers Fallon, Hines & O'Connor to be one of the
premier brokerage firms in the Northeast and believes that the addition of 30
brokerage professionals through this acquisition, including the principals of
Fallon, Hines & O'Connor, enhances its existing brokerage business.
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 located primarily in the Midatlantic and Southeast regions of the
United States (the "Faison Acquisition"). In exchange for the acquired
businesses, the Company paid $36.1 million in cash and delivered a $2.0 million
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. As of
January 31, 1999, the outstanding principal balance of this note was $1.25
million. In connection with the Faison Acquisition, Mr. Henry Faison and Faison
Enterprises purchased an aggregate of 127,828 shares of Common Stock for $4.0
million (at a price of $31.29 per share). In addition, the Company entered into
a program whereby Faison Enterprises will be given the opportunity to invest in,
and provide the financing for, certain retail projects identified through the
Company's operations purchased in the Faison Acquisition. If any of such
projects are accepted by Faison Enterprises, the Company will be entitled to
receive up to a 40% carried interest in the distributions that Faison
Enterprises receives from such projects, subject to certain limitations. If the
Company receives any such carried interests in 1999, it is required to award 50%
of such interests to certain key Faison employees other than Mr. Faison. The
Company is obligated to pay Faison Enterprises an additional $1.0 million if
retail development construction starts funded through this development program
exceed certain levels in 1999 and 2000. 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.
Faison. In connection with the Faison 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 $1.0
million in exchange for certain covenants not to compete. The Company granted to
employees of the acquired businesses who were retained after the closing options
to purchase an aggregate of 36,504 shares of Common Stock at an exercise price
of $32.875 per share and options to purchase an aggregate of 34,920 shares of
Common Stock at an exercise price of $31.50 per share (the fair market value of
the Common Stock on the respective dates of grant). In addition, in August 1998,
the Company granted an aggregate of 63,490 restricted shares of its Common Stock
to certain employees of the acquired businesses who were retained after the
closing. These shares 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. Faison was elected to serve as a Class III Director on the Company's Board
of Directors with a term expiring at the Company's annual meeting of
stockholders in 2000. The Company believes the Faison Acquisition has
strengthened its position in the strip center and regional mall construction and
development business, has established the Company as one of the leading
providers of retail and office property management and brokerage services in the
Southeastern United States and has provided the Company with a platform and
expertise for expansion of its retail services business.
In March 1998, the Company acquired (the "Norman Acquisition") substantially
all of the assets of James Norman & Company, a real estate services firm with
operations concentrated in Seattle's central business district office and retail
markets ("Norman"). In addition, in June 1998 the Company acquired substantially
all of the assets of CORE Resource, Inc. ("Core"), a Detroit-based real estate
services company that focuses on providing infrastructure management services to
the automotive industry (the "Core Acquisition"). The Company's goal in
effecting the Core Acquisition was to combine its resources and management
experience with the expertise of the former Core employees to become a leading
provider of infrastructure management services in the automotive industry.
As part of the Company's ongoing acquisition strategy, the Company is
continually evaluating certain other potential acquisition opportunities. See
"Risk Factors--Acquisitions" and "Business--Growth Strategy--Acquisitions."
The Tooley Acquisition, the Norman Acquisition, the FHO Acquisition, the
Core Acquisition and the Faison Acquisition are collectively referred to in this
Prospectus as the "Recent Acquisitions." The Recent Acquisitions and the Doppelt
Acquisition are collectively referred to in this Prospectus as the
"Acquisitions." See "Business--Retail Services."
16
<PAGE>
INITIAL PUBLIC OFFERING
On December 1, 1997, the Company closed its initial public offering of
5,750,000 shares of Common Stock (the "Initial Public Offering"). Of the
approximately $90.2 million in net proceeds which the Company raised from the
Initial Public Offering: (i) approximately $31.0 million was used to repay all
outstanding indebtedness under a credit facility that was terminated upon the
closing of the Initial Public Offering; (ii) approximately $25.2 million was
used for development purposes; (iii) approximately $8.4 million was used to
repay other indebtedness of the Company (including approximately $4.7 million
owed to retired Profit Sharing Plan participants); and (iv) approximately $1.6
million was paid to J. McDonald Williams, Chairman of the Company's Board of
Directors, in connection with the termination of the Company's consulting
arrangements with Mr. Williams (see "--Reincorporation Transactions"). The
remaining proceeds were used for working capital.
REINCORPORATION TRANSACTIONS
In connection with the Initial Public Offering, the Company and TCC Merger
Sub, Inc., a wholly owned subsidiary of the Company ("Merger Sub"), entered into
a series of transactions to convert the legal form in which the Predecessor
Company's business and operations were held from a Texas close corporation to a
Delaware corporation. As part of these transactions, Merger Sub was merged (the
"Reincorporation Merger") with and into the Predecessor Company. As a result of
the Reincorporation Merger, the Predecessor Company survived as a wholly-owned
subsidiary of the Company and the Predecessor Company's shareholders immediately
prior to the effective time of the Reincorporation Merger (the "Effective Time")
received, in the aggregate, 25,502,964 shares of Common Stock. Contemporaneously
with the consummation of the Reincorporation Merger, the Company, Crow Family
Partnership, L.P. ("Crow Family"), CFH Trade-Names, L.P. ("CFH"), each
affiliates of Crow Holdings, and J. McDonald Williams entered into a
Stockholders' Agreement. See "Description of Capital Stock-- Stockholders'
Agreement."
The Company and CFH entered into the License Agreement immediately prior to
the closing of the Initial Public Offering. In September 1998, CFH assigned the
License Agreement to CF 98, L.P. ("CF98"). Pursuant to the terms of the License
Agreement, and subject to certain quality standards, the Company was granted the
right to use the name "Trammell Crow" perpetually in any business in any region
around the world except for the residential real estate business. The license
granted pursuant to the License Agreement (the "Trade Name License") is subject
to the Company's continued use and compliance with certain quality standards and
CF98's right to terminate upon the occurrence of certain bankruptcy events. The
Company is not obligated to pay any fees under the License Agreement. However,
in exchange for the grant of the Trade Name License, the Company issued
2,295,217 shares of Common Stock to CFH immediately prior to the closing of the
Initial Public Offering.
Following the initial capitalization of the Company, the issuance of shares
of Common Stock in the Reincorporation Merger and the issuance of shares of
Common Stock in exchange for the Trade Name License, the Predecessor Company's
shareholders immediately prior to the Effective Time received, in the aggregate,
27,799,181 shares of Common Stock, constituting approximately 82.02% of the
outstanding Common Stock after giving effect to the Initial Public Offering.
On August 1, 1997, the Predecessor Company granted to certain of its
employees options to acquire an aggregate of 1,626 shares of its common stock,
which constituted all shares authorized under the 1997 Stock Option Plan (the
"Assumed Option Plan"). At the Effective Time, the Company assumed the
Predecessor Company's obligations with respect to all such options, thereby
becoming obligated to issue 2,423,769 shares of Common Stock at an exercise
price per share of $3.85. All of such options vested upon the closing of the
Initial Public Offering and became exercisable 30 days thereafter. No additional
options will be granted under the Assumed Option Plan. Because the exercise
price established for each assumed option at the time it was granted was less
than the initial price to the public in the Initial Public Offering,
17
<PAGE>
the Company recognized a non-cash, non-recurring charge to earnings of $33.1
million in the fourth quarter of its 1997 fiscal year. As of January 31, 1999,
300,295 shares of Common Stock had been issued upon exercise of such options,
and the Company was obligated to issue up to an aggregate of 2,123,474 shares of
Common Stock upon the exercise of the remainder of such options.
On November 2, 1997, the Company settled claims asserted by certain former
employees arising out of the termination of a stock appreciation rights plan.
Such claims had been asserted in connection with the Initial Public Offering. In
connection with the settlement, the Company accrued approximately $4.4 million
of general and administrative expense, all of which was paid in 1997 and 1998.
Concurrent with the closing of the Initial Public Offering, the Company
granted options under the Trammell Crow Company Long-Term Incentive Plan (the
"Long-Term Incentive Plan") to acquire an aggregate of 2,348,455 shares of
Common Stock to certain employees. The exercise price for such stock options was
$17.50 per share, the initial price to the public in the Initial Public
Offering. The stock option grants include grants to each of the executive
officers of the Company to acquire 58,529 shares and a grant to Mr. Williams to
acquire 40,965 shares. The options vest ratably over a three-year period.
At the Effective Time, the Royalty Agreement (the "Royalty Agreement")
between CFH (as assignee of Crow Family) and the Predecessor Company and all
consulting arrangements entered into between the Predecessor Company and each of
Crow Family and J. McDonald Williams were terminated. In September, 1997, prior
to the assignment of the Royalty Agreement to CFH, the Predecessor Company made
a cash payment in an aggregate amount of approximately $1.4 million to Crow
Family in partial satisfaction of accrued royalty and consulting expenses. The
Royalty Agreement was terminated immediately prior to the closing of the Initial
Public Offering. On April 1, 1998, the Predecessor Company paid CFH and Crow
Family approximately $2.7 million in the aggregate, representing all amounts
owed by the Company to CFH and Crow Family under the Royalty Agreement and such
consulting arrangements. In connection with the Initial Public Offering, the
Predecessor Company paid Mr. Williams approximately $1.6 million in satisfaction
of all of its obligations to Mr. Williams under his consulting arrangements with
the Company.
In connection with the Initial Public Offering, the Company determined to no
longer grant to any past, present or future employees any profit participation
interests under its 1995 Profit Sharing Plan, as amended (the "Profit Sharing
Plan"). In September and October 1997, the Predecessor Company made cash
payments in an aggregate amount of approximately $11.3 million to Profit Sharing
Plan participants in reduction of deferred compensation payables. The payment of
these deferred compensation amounts triggered an obligation on the part of
certain Profit Sharing Plan participants to repay certain loans owed to the
Predecessor Company in an aggregate amount of approximately $0.7 million. At the
closing of the Initial Public Offering, the Predecessor Company had accrued
deferred compensation balances under the Profit Sharing Plan of approximately
$33.6 million, which included approximately $4.7 million (including $0.3 million
of interest) owed to retired Profit Sharing Plan participants that was paid with
a portion of the proceeds from the Initial Public Offering. At January 31, 1999,
the Company had paid approximately $10.3 million of such remaining balances and
had offset another $12.5 million against amounts owed to the Company by
participants in the Profit Sharing Plan. The Company anticipates that it will
pay the remaining balances of approximately $6.1 million in roughly equal
quarterly installments in 1999. The Company maintains its obligation to pay to
certain participants amounts relating to their interests in certain of the
Company's projects.
In October 1997, the Predecessor Company declared and paid dividends to its
stockholders in an aggregate amount of approximately $6.8 million.
Immediately following the Effective Time, the Company issued to Doppelt &
Company ("Doppelt") 342,857 shares of Common Stock (the "Doppelt Shares"). The
Doppelt Shares were issued in payment of the $6.0 million promissory note issued
by the Predecessor Company to Doppelt in connection with the Doppelt
Acquisition. See "Business--Retail Services."
18
<PAGE>
The transactions described above are collectively referred to in this
Prospectus as the "Reincorporation Transactions." The Company undertook these
transactions and the Initial Public Offering to facilitate access to capital
markets, provide greater flexibility for acquisitions and create long-term
liquidity for its stockholders.
USE OF PROCEEDS
All of the shares being offered hereby (the "Offering") are being offered by
stockholders of the Company (the "Selling Stockholders"). Consequently, no
proceeds from the Offering will be received by the Company. However, the Company
expects that 320,676 shares of Common Stock to be sold in the Offering will be
issued to certain Selling Stockholders immediately prior to the closing of the
Offering upon the exercise of options. The approximately $1.2 million the
Company expects to receive upon the exercise of such options will be used for
general corporate purposes.
DIVIDEND POLICY
The Company intends to retain earnings to finance its growth and for general
corporate purposes and, therefore, does not anticipate paying dividends in the
foreseeable future. Any future payment of dividends will be at the discretion of
the Board of Directors and will depend upon the Company's results of operations,
financial condition, cash requirements and other factors deemed relevant by the
Board of Directors, including the terms of the Company's indebtedness.
Provisions in agreements governing the Company's long-term indebtedness limit
the amount of dividends that the Company may pay to its stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Prior to 1997, the Predecessor Company declared annual cash dividends which
were paid during the first six months of each year and were based upon the
Predecessor Company's earnings in the prior year. In April 1997, the Predecessor
Company paid dividends based on 1996 earnings in the aggregate amount of
approximately $8.2 million. In October 1997, the Predecessor Company declared
and paid dividends in an aggregate amount of approximately $6.8 million based on
earnings through September 30, 1997. See "The Company--Reincorporation
Transactions." The Company did not pay any dividends in 1998.
MARKET FOR COMMON STOCK
The Common Stock was listed on the New York Stock Exchange ("NYSE") on
November 25, 1997 under the symbol "TCW." On June 3, 1998, the Common Stock
began trading under the symbol "TCC." At January 31, 1999, 34,601,301 shares
were held by 353 stockholders of record. The following table sets forth the high
and low sales prices per share of Common Stock as reported on the NYSE Composite
Transaction Tape on a quarterly basis for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ----------
<S> <C> <C>
1998
First Quarter........................................................ $ 30.875 $ 22.688
Second Quarter....................................................... $ 37.563 $ 25.500
Third Quarter........................................................ $ 33.500 $ 25.375
Fourth Quarter....................................................... $ 28.000 $ 15.000
1999
First Quarter (through March 5)...................................... $ 28.000 $ 15.000
</TABLE>
A recently reported sale price of the Common Stock on the NYSE is set forth
on the cover page of this Prospectus.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data set forth below have been derived from the pro
forma consolidated financial statements of the Company and from the historical
consolidated financial statements of the Company included elsewhere in this
Prospectus. The historical consolidated financial statements of the Company as
of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997 have been audited by Ernst & Young LLP, independent
auditors, whose reports thereon appear elsewhere in this Prospectus. The pro
forma data is unaudited but, in the opinion of management, all pro forma
adjustments necessary to reflect the effects of the Acquisitions, the
Reincorporation Transactions, the Initial Public Offering and the Offering have
been made. The selected financial data at September 30, 1998, and for the nine
months ended September 30, 1997 and 1998 have been derived from the unaudited
consolidated financial statements of the Company and reflect all adjustments,
consisting of normal recurring accruals, which management considers necessary
for a fair presentation of the financial position and results of operations for
these periods.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical and pro forma financial statements and notes thereto of the
Company contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1997 PRO
1993 1994 1995 1996 1997 FORMA(1)
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Property management services...... $ 90,954 $ 99,609 $ 92,970 $ 90,179 $ 87,756 $ 157,575
Brokerage services................ 47,299 48,652 61,960 72,095 91,053 132,786
Infrastructure management
services........................ 16,401 27,063 38,681 50,836 68,719 71,512
Development and construction
services........................ 14,377 12,792 20,382 22,732 40,054 49,024
Retail services................... 1,306 1,966 1,510 2,393 5,318 10,293
Income from unconsolidated
subsidiaries.................... 465 3,141 114 594 512 512
Gain on disposition of real
estate.......................... -- 4,646 5,026 6,630 10,241 10,241
Other............................. 3,759 3,039 6,559 9,996 9,986 12,802
----------- ----------- ----------- ----------- ----------- -----------
Total revenues.................... 174,561 200,908 227,202 255,455 313,639 444,745
Salaries, wages and benefits...... 106,606 115,330 130,248 137,794 161,425 257,739
Non-recurring compensation
costs........................... -- -- -- -- 33,085 --
Commissions....................... 15,856 20,788 23,730 27,119 39,121 42,676
General and administrative........ 35,365 35,282 40,671 41,421 55,884 73,434
Profit sharing.................... 8,292 16,562 15,893 20,094 23,514 597
Other............................. 4,255 7,284 8,526 9,087 17,997 23,653
----------- ----------- ----------- ----------- ----------- -----------
Operating costs and expenses...... 170,374 195,246 219,068 235,515 331,026 398,099
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................... 4,187 5,662 8,134 19,940 (17,387) 46,646
Income tax expense (benefit)...... 1,854 2,636 3,793 7,826 (3,367) 18,380
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary
gain............................ 2,333 3,026 4,341 12,114 (14,020) 28,266
Extraordinary gain................ 188 782 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................. $ 2,521 $ 3,808 $ 4,341 $ 12,114 $ (14,020) $ 28,266
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
EARNINGS (LOSS) PER SHARE(3):
Basic............................. $ (.42) $ .83
Diluted........................... $ (.42) $ .79
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING(3):
Basic............................. 33,583,467 34,031,971
Diluted........................... 33,583,467 35,955,799
OTHER DATA:
EBITDA, as adjusted(4)............ $ 16,969 $ 29,686 $ 32,033 $ 48,915 $ 59,522 $ 68,854
Net cash provided by (used in)
operating activities............ 7,556 15,907 10,648 25,148 (4,978) 19,189
Net cash used in investing
activities...................... (1,974) (2,748) (646) (5,019) (21,322) (112,074)
Net cash provided by (used in)
financing activities............ (4,412) 93 (5,457) (1,779) 64,542 154,668
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1998 PRO
1997 1998(2) FORMA(1)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Property management services...... $ 65,055 $ 81,897 $ 106,043
Brokerage services................ 61,692 100,814 116,527
Infrastructure management
services........................ 47,954 74,008 75,612
Development and construction
services........................ 27,462 42,132 49,390
Retail services................... 1,912 11,487 11,487
Income from unconsolidated
subsidiaries.................... 1,467 7,151 7,151
Gain on disposition of real
estate.......................... 1,566 23,455 23,455
Other............................. 6,131 6,012 6,462
----------- ----------- -----------
Total revenues.................... 213,239 346,956 396,127
Salaries, wages and benefits...... 114,006 180,509 213,683
Non-recurring compensation
costs........................... -- -- --
Commissions....................... 25,379 43,808 46,835
General and administrative........ 33,779 51,371 60,130
Profit sharing.................... 15,417 -- --
Other............................. 10,057 18,379 23,515
----------- ----------- -----------
Operating costs and expenses...... 198,638 294,067 344,163
----------- ----------- -----------
Income (loss) before income
taxes........................... 14,601 52,889 51,964
Income tax expense (benefit)...... 5,747 21,425 21,055
----------- ----------- -----------
Income (loss) before extraordinary
gain............................ 8,854 31,464 30,909
Extraordinary gain................ -- -- --
----------- ----------- -----------
Net income (loss)................. $ 8,854 $ 31,464 $ 30,909
----------- ----------- -----------
----------- ----------- -----------
EARNINGS (LOSS) PER SHARE(3):
Basic............................. $ .93 $ .90
Diluted........................... $ .87 $ .85
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING(3):
Basic............................. 33,984,517 34,305,193
Diluted........................... 36,208,762 36,355,658
OTHER DATA:
EBITDA, as adjusted(4)............ $ 39,795 $ 67,566 $ 71,777
Net cash provided by (used in)
operating activities............ (10,200) (13,186) (13,672)
Net cash used in investing
activities...................... (25,806) (104,218) (13,796)
Net cash provided by (used in)
financing activities............ 14,961 97,128 4,936
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
DECEMBER 31, -----------------------
-------------------------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(5)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 22,358 $ 35,610 $ 40,155 $ 58,505 $ 96,747 $ 76,471 $ 77,706
Total assets............................ 55,774 99,867 114,315 194,314 326,236 466,638 467,873
Long-term debt.......................... 8,425 9,762 7,065 12,361 2,430 95,275 95,275
Notes payable on real estate held for
sale.................................. -- 22,914 13,182 67,810 76,623 77,297 77,297
Deferred compensation................... 14,661 21,468 25,883 20,963 8,391 57 57
Total liabilities....................... 43,767 85,516 95,090 160,018 169,305 277,198 277,242
Minority interest....................... 27 278 3,932 3,294 19,859 14,210 14,210
Stockholders' equity.................... 11,980 14,074 15,293 31,002 137,072 175,230 176,421
</TABLE>
- ------------------------------
Summarized operating data by business line for the year ended December 31,
1997 (in thousands):
<TABLE>
<CAPTION>
DEVELOPMENT
PROPERTY INFRASTRUCTURE AND
MANAGEMENT BROKERAGE MANAGEMENT INVESTMENT RETAIL TOTAL
----------- ----------- ---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service revenues................... $ 87,756 $ 91,053 $ 68,719 $ 40,054 $ 5,318 $ 292,900
Income from unconsolidated
subsidiaries..................... -- -- -- 512 -- 512
Gain on disposition of real
estate........................... -- -- -- 9,004 1,237 10,241
Other.............................. 6,678 189 193 2,915 11 9,986
----------- ----------- ------- ----------- ----------- -----------
Total revenues..................... 94,434 91,242 68,912 52,485 6,566 313,639
Operating costs and expenses(6).... 104,070 100,041 70,800 48,797 7,318 331,026
----------- ----------- ------- ----------- ----------- -----------
Income (loss) before income
taxes............................ $ (9,636) $ (8,799) $ (1,888) $ 3,688 $ (752) $ (17,387)
----------- ----------- ------- ----------- ----------- -----------
----------- ----------- ------- ----------- ----------- -----------
EBITDA, as adjusted(4)............. $ 16,421 $ 10,639 $ 8,471 $ 22,520 $ 1,471 $ 59,522
</TABLE>
Summarized operating data by business line for the nine month periods ended
September 30, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
PROPERTY MANAGEMENT INFRASTRUCTURE MANAGEMENT
BROKERAGE
------------------------- ------------------------- -------------------------
1997 1998 1997 1998 1997 1998(2)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service revenues........................ $ 65,055 $ 81,897 $ 61,692 $ 100,814 $ 47,954 $ 74,008
Income from unconsolidated
subsidiaries.......................... -- -- -- -- -- --
Gain on disposition of real estate...... -- -- -- -- -- --
Other................................... 4,009 4,560 278 434 143 131
----------- ----------- ----------- ----------- ----------- -----------
Total revenues.......................... 69,064 86,457 61,970 101,248 48,097 74,139
Operating costs and expenses............ 62,900 74,984 61,272 91,244 45,292 66,204
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes....... $ 6,164 $ 11,473 $ 698 $ 10,004 $ 2,805 $ 7,935
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
EBITDA, as adjusted(4).................. $ 14,359 $ 13,899 $ 7,949 $ 12,735 $ 5,835 $ 9,519
</TABLE>
<TABLE>
<CAPTION>
DEVELOPMENT AND
INVESTMENT RETAIL TOTAL
------------------------- ------------------------- -------------------------
1997 1998 1997 1998 1997 1998(2)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service revenues........................ $ 27,462 $ 42,132 $ 1,912 $ 11,487 $ 204,075 $ 310,338
Income from unconsolidated
subsidiaries.......................... 1,467 7,151 -- -- 1,467 7,151
Gain on disposition of real estate...... 650 21,816 916 1,639 1,566 23,455
Other................................... 1,693 834 8 53 6,131 6,012
----------- ----------- ----------- ----------- ----------- -----------
Total revenues.......................... 31,272 71,933 2,836 13,179 213,239 346,956
Operating costs and expenses............ 26,007 51,245 3,167 10,390 198,638 294,067
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes....... $ 5,265 $ 20,688 $ (331) $ 2,789 $ 14,601 $ 52,889
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
EBITDA, as adjusted(4).................. $ 11,270 $ 27,584 $ 382 $ 3,829 $ 39,795 $ 67,566
</TABLE>
21
<PAGE>
- ------------------------------
(1) Gives effect to the Doppelt Acquisition, the Tooley Acquisition, the Norman
Acquisition, the FHO Acquisition, the Core Acquisition, the Faison
Acquisition, the Reincorporation Transactions and the sale of 5,750,000
shares of Common Stock by the Company in the Initial Public Offering and the
receipt and application of the net proceeds therefrom, as though they had
occurred on January 1, 1997, but excludes the non-cash, non-recurring charge
to income of $33.1 million related to options granted under the Assumed
Option Plan, and a $4.4 million non-recurring charge to income resulting
from the settlement of claims by certain former employees arising out of a
terminated stock appreciation rights plan. See "The Company--Recent
Acquisitions," "--Initial Public Offering," "--Reincorporation
Transactions," "Business--Retail Services" and "Pro Forma Consolidated
Financial Statements."
(2) Certain revenues and expenses for the period ended September 30, 1998 have
been reclassified to conform to the presentation for the quarter and year
ended December 31, 1998. As a result, certain revenue and expense items
differ from the amounts reported in previously filed documents. These
reclassifications do not impact net income or EBITDA, as adjusted.
(3) Earnings per share and weighted average common shares outstanding for the
years prior to 1997 and for the nine months ended September 30, 1997 are not
relevant due to the change in capital structure effected in connection with
the Reincorporation Transactions in the fourth quarter of 1997. The weighted
average shares outstanding used to calculate basic and diluted earnings per
share for 1997 include the shares issued in the Initial Public Offering and
in the Reincorporation Transactions as if they were outstanding for the
entire period. See "The Company-- Initial Public Offering" and
"--Reincorporation Transactions."
(4) EBITDA, as adjusted, represents earnings before interest, income taxes,
depreciation and amortization, royalty and consulting fees, profit sharing,
the non-cash, non-recurring charge to income related to the stock options
granted under the Assumed Option Plan and the non-recurring charge to income
resulting from the settlement of claims by certain former employees arising
out of a terminated stock appreciation rights plan. 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. The Company's
calculation of EBITDA, as adjusted, may differ from similarly titled items
reported by other companies.
(5) As adjusted to give effect to the Offering as though it occured on September
30, 1998. See "Pro Forma Consolidated Financial Statements."
(6) Includes a non-cash, non-recurring charge to compensation expense of $33.1
million related to the stock options granted under the Assumed Option Plan,
which was allocated as follows: Property Management--$13.6 million;
Brokerage--$10.4 million; Infrastructure Management-- $4.1 million;
Development and Investment--$3.8 million; and Retail--$1.2 million. Also
includes a non-recurring charge to general and administrative expense for
payment obligations incurred in connection with the settlement of claims
made pursuant to a terminated stock appreciation rights plan, which was
allocated as follows: Property Management--$1.8 million; Brokerage--$1.4
million; Infrastructure Management--$0.5 million; Development and
Investment--$0.5 million; and Retail--$0.2 million. See "The
Company--Reincorporation Transactions."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto, the Selected
Consolidated Financial Data and the other information included elsewhere in this
Prospectus.
OVERVIEW
Trammell Crow Company is one of the largest diversified commercial real
estate service firms in North America. 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 development and investment activities include
development and construction services and the acquisition and disposition of
commercial real estate projects. 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.
The Company's annual revenues increased to $313.6 million in 1997 from
$227.2 million in 1995. This revenue growth was achieved during a period when
the composition of the Company's revenues shifted significantly as the Company
increased the role which brokerage, infrastructure management, development and
investment and retail services play in its overall strategy. From 1995 to 1997,
the percentage of the Company's revenues generated by its property management
services business declined from 40.9% to 28.0%. Over this same period, revenues
from brokerage, infrastructure management, development and investment (including
income from unconsolidated subsidiaries and gain on disposition of non-retail
build-to-suit real estate projects) and retail (including gain on disposition of
retail build-to-suit real estate projects) increased from a combined 56.2% of
total revenues to 68.8% of total revenues.
The Company's revenue streams consist primarily of recurring payments made
pursuant to service contracts and variable transaction-oriented payments. The
Company typically receives base monthly fees from clients for services provided
in its property management services business. A majority of the fees generated
by the Company's infrastructure management services business are contractual and
recurring in nature. The Company typically earns fees from its development and
construction services business which are based upon a negotiated percentage of a
project's cost, and the Company may receive incentive bonuses for completing a
development project under budget and within certain critical time deadlines. The
fees generated in the Company's brokerage and retail services businesses are
typically paid in connection with the consummation of a transaction such as the
purchase or sale of commercial property or the execution of a lease. Although
the fees generated by the Company's brokerage and development and construction
services businesses are not typically recurring in nature, a majority of the
aggregate service fees generated by these businesses in 1997 was earned in the
performance of services relating to properties included in the Company's
approximately 240 million square foot property management and leasing portfolio.
Revenues from the Company's investment activities primarily consist of gain on
disposition of
23
<PAGE>
real estate and income from unconsolidated subsidiaries that hold real estate
assets. The Company has limited control over the timing of the disposition of
these investments and the recognition of any related gain or loss. Because the
disposition of a single significant investment can impact the Company's
financial performance in any period, these investment activities could create
fluctuations in the Company's revenues. Because the Company's investment
strategy typically entails making relatively modest investments alongside its
corporate and institutional clients, its ability to conduct these activities
depends in part on the supply of investment capital for commercial real estate
and related assets. In recent months, providers of capital for real estate
investment have taken a more cautious approach regarding investments in
development projects. If this trend continues or accelerates, the Company's
investment activities, as well as its traditional construction and development
business, could be adversely affected.
For the nine months ended September 30, 1998, the percentage of the
Company's total revenues generated by each of its property management,
brokerage, infrastructure management, development and investment, and retail
businesses (including $6.0 million in other revenues) was 24.9%, 29.2%, 21.4%,
20.7% and 3.8%, respectively. For the nine months ended September 30, 1998, the
percentage of EBITDA, as adjusted, generated by each of the Company's property
management, brokerage, infrastructure management, development and investment,
and retail businesses was 20.6%, 18.8%, 14.1%, 40.8%, and 5.7%, respectively.
The Company's operating expenses consist of salaries, wages and benefits,
commissions, general and administrative expenses, rent, depreciation and
amortization expense, interest, profit sharing, royalty and consulting fees and
minority interest. Salaries, wages and benefits and commissions constitute a
majority of the Company's total operating costs and expenses.
RECENT DEVELOPMENTS
On February 18, 1999, the Company reported its results of operations for the
fourth quarter and year ended December 31, 1998. The data set forth below have
been derived from the historical consolidated financial statements of the
Company. The historical consolidated financial statements of the Company for the
year ended December 31, 1997 have been audited by Ernst & Young LLP, independent
auditors, whose reports thereon appear elsewhere in this Prospectus. The
financial data for the year ended December 31, 1998 and for the three months
ended December 31, 1997 and 1998 have been derived from unaudited consolidated
financial statements of the Company, and reflect all adjustments, consisting of
normal recurring accruals, which management considers necessary for a fair
presentation of the results of operations for these periods.
24
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, DECEMBER 31,
---------------------- ----------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Property management services.................................. $ 87,756 $ 116,784 $ 22,701 $ 34,887
Brokerage services............................................ 91,053 152,154 29,361 51,340
Infrastructure management services............................ 68,719 105,129 20,765 31,121
Development and construction services......................... 40,054 65,942 12,592 23,810
Retail services............................................... 5,318 19,700 3,406 8,213
Income (loss) from unconsolidated subsidiaries................ 512 18,438 (955) 11,287
Gain on disposition of real estate............................ 10,241 31,658 8,675 8,203
Other......................................................... 9,986 7,718 3,855 1,706
---------- ---------- ---------- ----------
Total revenues................................................ 313,639 517,523 100,400 170,567
Salaries, wages and benefits.................................. 161,425 269,780 47,419 89,271
Non-recurring compensation costs.............................. 33,085 -- 33,085 --
Commissions................................................... 39,121 67,508 13,742 23,700
General and administrative.................................... 55,884 78,344 22,105 26,973
Profit sharing................................................ 23,514 -- 8,097 --
Other......................................................... 17,997 25,766 7,940 7,387
---------- ---------- ---------- ----------
Operating costs and expenses.................................. 331,026 441,398 132,388 147,331
---------- ---------- ---------- ----------
Income (loss) before income taxes............................. (17,387) 76,125 (31,988) 23,236
Income tax expense (benefit).................................. (3,367) 29,674 (9,114) 8,249
---------- ---------- ---------- ----------
Net income (loss)............................................. $ (14,020) $ 46,451 $ (22,874) $ 14,987
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS (LOSS) PER SHARE(1):
Basic....................................................... $ (.42) $ 1.36 $ (.68) $ 0.44
Diluted..................................................... $ (.42) $ 1.28 $ (.68) $ 0.41
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING(1):
Basic....................................................... 33,583,467 34,059,155 33,583,467 34,280,642
Diluted..................................................... 33,583,467 36,216,352 33,583,467 36,241,036
OTHER DATA:
EBITDA, as adjusted(2)........................................ $ 59,522 $ 96,811 $ 19,727 $ 29,245
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities........... (4,978) 7,677 5,222 (13,186)
Net cash provided by (used in) investing activities........... (21,322) (105,694) 4,484 (104,218)
Net cash provided by financing activities..................... 64,542 89,216 49,581 97,128
</TABLE>
Summarized operating data by business line for the year ended December 31,
1998 (in thousands):
<TABLE>
<CAPTION>
DEVELOPMENT
PROPERTY INFRASTRUCTURE AND
MANAGEMENT BROKERAGE MANAGEMENT INVESTMENT RETAIL TOTAL
------------ ----------- ------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service revenues....................... $ 116,784 $ 152,154 $ 105,129 $ 65,942 $ 19,700 $ 459,709
Income from unconsolidated
subsidiaries......................... -- -- -- 18,438 -- 18,438
Gain on disposition of real estate..... -- -- -- 29,411 2,247 31,658
Other.................................. 6,059 637 190 756 76 7,718
------------ ----------- ------------- ------------ --------- ---------
Total revenues......................... 122,843 152,791 105,319 114,547 22,023 517,523
Operating costs and expenses........... 108,913 141,254 96,211 75,589 19,431 441,398
------------ ----------- ------------- ------------ --------- ---------
Income before income taxes............. $ 13,930 $ 11,537 $ 9,108 $ 38,958 $ 2,592 $ 76,125
------------ ----------- ------------- ------------ --------- ---------
------------ ----------- ------------- ------------ --------- ---------
EBITDA, as adjusted(2)................. $ 17,394 $ 16,881 $ 10,910 $ 47,424 $ 4,202 $ 96,811
</TABLE>
- ------------------------------
(1) The weighted average shares outstanding used to calculate basic and diluted
earnings per share for 1997 include the shares issued in the Initial Public
Offering and in the Reincorporation Transactions as if they were outstanding
for the entire period. See "The Company--Initial Public Offering" and
"--Reincorporation Transactions."
(2) EBITDA, as adjusted, represents earnings before interest, income taxes,
depreciation and amortization, royalty and consulting fees, profit sharing,
the non-cash, non-recurring charge to income related to the stock options
granted under the Assumed Option Plan and the non-recurring charge to income
resulting from the settlement of claims by certain former employees arising
out of a terminated stock appreciation rights plan. 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. The Company's
calculation of EBITDA, as adjusted, may differ from similarly titled items
reported by other companies.
25
<PAGE>
For the year ended December 31, 1998, the Company's total revenues were
$517.5 million, an increase of 65.0% from $313.6 million in 1997. EBITDA, as
adjusted, for the year increased 62.7% to $96.8 million, compared with $59.5
million in 1997. Acquisitions contributed 31.1% of the Company's revenue growth
and 18.2% of the Company's growth in EBITDA, as adjusted, for 1998. The
Company's net income for 1998 was $46.5 million, as compared to a net loss in
1997 of $14.0 million. The net loss in 1997 was primarily due to $37.5 million
of non-recurring charges related to an option plan and a terminated stock
appreciation rights plan.
For the three months ended December 31, 1998, the Company's total revenues
were $170.6 million, an increase of 69.9% from $100.4 million for the three
months ended December 31, 1997. EBITDA, as adjusted, for the fourth quarter of
1998 increased 48.2% to $29.2 million from $19.7 million in the fourth quarter
of 1997. Acquisitions contributed 49.4% of the Company's revenue growth and
23.6% of the Company's growth in EBITDA, as adjusted, for the period. Net income
for the fourth quarter of 1998 was $15.0 million, as compared to a net loss in
the fourth quarter of 1997 of $22.9 million. The net loss in the fourth quarter
of 1997 was primarily due to $37.5 million of non-recurring charges related to
an option plan and a terminated stock appreciation rights plan.
As anticipated, the Company recognized a high percentage of its income in
the third and fourth quarters of 1998 due to the closing in those quarters of a
disproportionate number of development and investment transactions (which
typically generate higher margins than transactions in the Company's other
business lines). Specifically, one atypically large and profitable transaction
that closed in the fourth quarter contributed approximately $10.1 million of
revenues, $10.1 million of EBITDA, as adjusted, and $6.2 million of net income.
Primarily because this transaction was atypically large and profitable, the
Company believes that in 1999 its margins on this business activity will be
lower than the margins in 1998.
The Company's positive third and fourth quarter results were partially
offset by an increase in operating expenses. This increase in operating expenses
was attributable in part to expenses incurred in connection with the integration
into the Company's business of the operations acquired in the Faison
Acquisition. The Company expects to continue to incur increased expenses
associated with the Faison integration in 1999, primarily in the first and
second quarters. Operating expenses also increased in the third and fourth
quarters of 1998 due to expenses incurred in connection with several initiatives
begun in those quarters and intended to increase revenues and income in future
periods. These initiatives include upgrading the Company's management
information systems and making targeted investments to enhance its development
and investment, infrastructure management and brokerage businesses. These
investments are expected to exceed $10.0 million in 1999.
As in 1998, the Company anticipates that a disproportionately high
percentage of 1999 transactions in its development and investment business
(which typically generate higher margins than transactions in the Company's
other business lines) will close in the third and fourth quarters. Because of
this anticipated concentration of higher margin development and investment
activity in late 1999 and the increased level of expenses the Company expects to
continue to incur in early 1999 in connection with the Faison integration and
the other initiatives described above, the Company expects to recognize a
greater percentage of its 1999 income in the fourth quarter than was the case in
1998.
26
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth items from the Company's Consolidated
Statements of Operations for each of the three years in the period ended
December 31, 1997, and for each of the nine month periods ended September 30,
1997 and 1998, as a percent of revenue for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,
SEPTEMBER 30,
------------------------------- ----------------------
1995 1996 1997 1997 1998(1)
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Property management services......................................... 40.9% 35.3% 28.0% 30.5% 23.6%
Brokerage services................................................... 27.3 28.2 29.0 28.9 29.1
Infrastructure management services................................... 17.0 19.9 21.9 22.5 21.3
Development and construction services................................ 9.0 8.9 12.8 12.9 12.1
Retail services...................................................... 0.7 0.9 1.7 0.9 3.3
Income from unconsolidated subsidiaries.............................. 0.1 0.2 0.2 0.7 2.1
Gain on sale of real estate.......................................... 2.2 2.6 3.3 0.7 6.8
Other................................................................ 2.8 4.0 3.1 2.9 1.7
--------- --------- --------- --------- -----
Total revenues................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and benefits......................................... 57.3% 53.9% 62.0% 53.5% 52.0%
Commissions.......................................................... 10.4 10.6 12.5 11.9 12.6
General and administrative........................................... 17.9 16.2 17.8 15.9 14.8
Profit sharing....................................................... 7.0 7.9 7.5 7.2 --
Other................................................................ 3.8 3.6 5.7 4.7 5.3
--------- --------- --------- --------- -----
Total operating costs and expenses............................... 96.4% 92.2% 105.5% 93.2% 84.7%
--------- --------- --------- --------- -----
Income (loss) before income taxes...................................... 3.6% 7.8% (5.5)% 6.8% 15.3%
Income tax expense (benefit)........................................... 1.7 3.1 (1.1) 2.7 6.2
--------- --------- --------- --------- -----
Net income (loss)...................................................... 1.9% 4.7% (4.4)% 4.1% 9.1%
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
</TABLE>
- ------------------------------
(1) Certain revenues and expenses for the period ended September 30, 1998 have
been reclassified to conform to the presentation for the quarter and year
ended December 31, 1998. As a result, certain revenue and expense items
differ from the amounts reported in previously filed documents. These
reclassifications do not impact net income.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
REVENUES. The Company's total revenues increased $133.8 million, or 62.8%,
to $347.0 million for the nine months ended September 30, 1998 from $213.2
million for the nine months ended September 30, 1997.
Property management services revenue, which represented 23.6% of the
Company's total revenue for the nine months ended September 30, 1998, increased
$16.8 million, or 25.8%, to $81.9 million for that period from $65.1 million for
the nine months ended September 30, 1997. This increase was primarily due to an
increase in square feet under management in 1998, which resulted primarily from
the acquisitions of Tooley in March of 1998 and Faison in July 1998.
Brokerage services revenue, which represented 29.1% of the Company's total
revenue for the nine months ended September 30, 1998, increased $39.1 million,
or 63.4%, to $100.8 million for that period from $61.7 million for the nine
months ended September 30, 1997. The revenue growth resulted from an increase in
the number of brokerage transactions fueled by an increase of 44.6% in the
average number of brokers employed during the nine months ended September 30,
1998 as compared to the same period in 1997, coupled with an increased focus on
larger transactions.
Infrastructure management services revenues, which represented 21.3% of the
Company's total revenue for the nine months ended September 30, 1998, increased
$26.0 million, or 54.2%, to $74.0 million for that period from $48.0 million for
the nine months ended September 30, 1997. The revenue growth
27
<PAGE>
resulted primarily from (i) the impact in 1998 of the addition of over 25.0
million square feet associated with two significant new customers in the
financial services industry in the third quarter of 1997, (ii) expansion of
services provided to several other major customers, and (iii) the addition of an
infrastructure management contract (the "Penn Contract") with the University of
Pennsylvania ("Penn") commencing in April 1998.
Revenues from development and investment activities (consisting of
development and construction service fees, gain on disposition of non-retail
real estate projects and income from unconsolidated subsidiaries) totaled $71.1
million for the nine months ended September 30, 1998, and represented 20.5% of
the Company's total revenue for that period. These revenues increased $41.5
million, or 140.2%, from $29.6 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 and investment activity,
as well as our traditional construction and development business, could level
off or decline.
Retail revenues (including services revenues and gain on disposition of
retail real estate projects) totaled $13.1 million for the nine months ended
September 30, 1998, and represented 3.8% of the Company's total revenue for that
period. These revenues 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 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 $95.5 million, or 48.1%, to $294.1 million for the nine months ended
September 30, 1998 from $198.6 million for the nine months ended September 30,
1997.
The increase in operating costs and expenses was primarily due to a 58.3%
increase in salaries, wages, and benefits for the nine months ended September
30, 1998, resulting primarily from 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. Salaries, wages and benefits also include bonus payments made to
certain employees in 1998 related to the Company's development activities. Such
development-related bonuses totaled $4.2 million for the nine months ended
September 30, 1998. Additionally, compensation increased for the nine months
ended September 30, 1998 from the comparable period in 1997 due to the impact of
the new compensation structure adopted in connection with the Initial Public
Offering in the fourth quarter of 1997.
Commissions increased 72.6% for the 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.
General and administrative expenses increased $17.6 million, or 52.1%, for
the nine months ended September 30, 1998, as compared with the same period in
the prior year. The increase is primarily due to increases in rent, travel and
overhead costs of the infrastructure management services business resulting
28
<PAGE>
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 $15.4
million for the nine months ended September 30, 1997, as future profits
participation under the Company's Profit Sharing Plan was terminated in
conjunction with the Initial Public 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 $3.2 million for the 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 Initial Public Offering.
Other expense increased for the 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.
INCOME BEFORE INCOME TAXES. The Company's income before income taxes
increased $38.3 million, to $52.9 million, for the nine months ended September
30, 1998 from $14.6 million for the nine months ended September 30, 1997, due to
the fluctuations in revenues and expenses described above.
NET INCOME. Net income increased $22.6 million, to $31.5 million, for the
nine months ended September 30, 1998 from $8.9 million for the nine months ended
September 30, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. The Company's total revenues increased $58.1 million, or 22.7%,
to $313.6 million in 1997 from $255.5 million in 1996.
Property management services revenue, which represented 28.0% of the
Company's total revenue in 1997, decreased $2.4 million, or 2.7%, to $87.8
million in 1997 from $90.2 million in 1996. This decrease was primarily due to
an overall decrease in the number of square feet under management, and a
relative increase in the number of square feet under management constituted by
industrial properties, which typically generate lower property management
revenues per square foot than office, retail and other commercial property
types.
Brokerage services revenue, which represented 29.0% of the Company's 1997
total revenue, increased $19.0 million, or 26.4%, to $91.1 million in 1997 from
$72.1 million in 1996. The revenue growth resulted from the increase in tenant
representation fees and in investment sales revenue resulting from
implementation of the Company's strategy to aggressively pursue these business
lines. The Company added approximately 100 brokers in 1997 to support this
growth.
Infrastructure management services revenues, which represented 21.9% of the
Company's 1997 total revenues, increased $17.9 million, or 35.2%, to $68.7
million in 1997 from $50.8 million in 1996. The revenue growth resulted
primarily from the addition of new customers. Additionally, the Company was able
to expand project management and facility management services provided to
existing customers.
Revenues from development and investment activities (consisting of
development and construction service fees, income from unconsolidated
subsidiaries and gain on disposition of non-retail build-to-suit real estate
projects) totalled $49.6 million in 1997, which represented 15.8% of the
Company's 1997 total revenue. These revenues increased $20.4 million, or 69.9%,
from $29.2 million in 1996. This revenue growth was primarily due to a $7.4
million increase in development fees from $9.3 million in 1996 to $16.7 million
in 1997 and an increase in construction management services fees of $2.5 million
to
29
<PAGE>
$11.0 million in 1997 from $8.5 million in 1996. Additionally, gain on sale of
real estate increased $3.1 million, or 52.5%, from $5.9 million in 1996 to $9.0
million in 1997.
Retail revenues (consisting of service revenues and gain on disposition of
retail build-to-suit real estate projects), which represented 2.1% of the
Company's 1997 total revenue, increased $3.4 million, or 109.7%, to $6.5 million
in 1997 from $3.1 million in 1996, primarily as a result of the acquisition of
Doppelt in August 1997.
OPERATING COSTS AND EXPENSES. The Company's operating costs and expenses
increased by $95.5 million, or 40.6%, to $331.0 million in 1997 from $235.5
million in 1996. The increase in operating costs is primarily due to
non-recurring charges resulting from the completion of the Initial Public
Offering in December 1997. The 41.1% increase in salaries and benefits is
primarily due to the $33.1 million non-cash non-recurring charge related to the
stock options granted under the Assumed Option Plan. The remaining increase in
salaries is due to the increased staffing required for the infrastructure
management services business. The increase in commissions is due to the growth
in the Company's brokerage services and retail services businesses resulting
from an increase in the number of brokers. Approximately $4.4 million of the
increase in general and administrative expense relates to the non-recurring
charge to income resulting from the settlement of claims by certain former
employees arising out of a terminated stock appreciation rights plan. The
remaining increase in general and administrative expenses represents
approximately $2.3 million in operating expenses relating to rental properties
which were not operational in 1996 and the increased expenditures associated
with the Company's technological support systems. The Company's profit sharing
expense increased by $3.4 million, or 16.9%, to $23.5 million in 1997 from $20.1
million in 1996 due to the increase in earnings available for profit sharing.
Other operating costs increased due to $3.1 million of interest expense on real
estate held for sale that became operational in 1997, a $1.6 million expense
accrued in connection with the termination of the consulting arrangement with
Mr. Williams and increased amortization as a result of the Doppelt Acquisition.
INCOME (LOSS) BEFORE INCOME TAXES. The Company's income before income taxes
decreased $37.3 million, to a loss of $17.4 million in 1997 from a profit of
$19.9 million in 1996 due to the factors described above.
NET INCOME (LOSS). Net income decreased $26.1 million, to a loss of $14.0
million in 1997 from a profit of $12.1 million in 1996 due to the factors
described above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. The Company's total revenue increased $28.3 million, or 12.4%, to
$255.5 million in 1996 from $227.2 million in 1995.
Property management services revenue, which represented 35.3% of the
Company's total revenue in 1996, decreased $2.8 million, or 3.0%, to $90.2
million in 1996 from $93.0 million in 1995. This decrease was primarily due to
the net reduction in square footage of property management assignments and a
relative increase in the number of square feet under management constituted by
industrial properties, which typically generate lower property management
revenues per square foot than office, retail and other commercial property
types. Recognizing a trend toward a consolidation of service providers utilized
by large institutional owners and investors, the Company implemented a national
marketing program focused on its large customers. The Company believes the
implementation of this strategic initiative increased square footage under
management for these customers by 11.3 million square feet, or 12.9%, to 99.1
million square feet in 1996 from 87.8 million square feet in 1995.
Brokerage services revenue, which represented 28.2% of 1996 total revenues,
increased $10.1 million, or 16.4%, to $72.1 million in 1996 from $62.0 million
in 1995. This revenue growth resulted primarily from an increase in tenant
representation fees of $3.6 million, or 29.0%, to $16.0 million in 1996 from
$12.4 million in 1995 and the increase in investment sales revenue of $4.0
million, or 56.5%, to
30
<PAGE>
$11.1 million in 1996 from $7.1 million in 1995. The Company believes that this
revenue growth is attributable to the continuation of a strategic initiative to
expand its marketing services beyond project leasing to include tenant
representation, investment sales and land sales. This strategy resulted in an
increase in the aggregate number of brokers by 40, or 20.5%, to 235 in 1996 from
195 in 1995.
Infrastructure management services revenue, which represented 19.9% of the
Company's total revenues in 1996 increased $12.1 million, or 31.4%, to $50.8
million in 1996 from $38.7 million in 1995. The revenue growth resulted
primarily from the addition of new customers and expansion of services provided
to existing customers. In addition, in September 1996, the Company acquired the
remaining outstanding stock of Primaris Corporate Services, Ltd., a Canadian
provider of infrastructure management services. This acquisition, accounted for
under the purchase method, increased revenues by approximately $0.9 million in
1996.
Revenues from development and investment activities (consisting of
development and construction service fees, income from unconsolidated
subsidiaries and gain on disposition of non-retail build-to-suit real estate
projects), which represented 11.4% of 1996 total revenue, increased $5.1 million
or 21.2%, to $29.2 million in 1996 from $24.1 million in 1995. The revenue
growth was primarily due to increases in gross profit on general contracting
services of $1.0 million, or 34.8%, to $3.9 million in 1996 from $2.9 million in
1995, a decrease in development fees of $0.5 million, or 5.8%, to $8.5 million
in 1996 from $9.0 million in 1995 and an increase in gain on sale of real estate
of $2.3 million, or 63.9%, to $5.9 million in 1996 from $3.6 million in 1995.
Income from unconsolidated subsidiaries increased $0.5 million or 500%, to $0.6
million in 1996 from $0.1 million in 1995. In general, these service revenues
are affected by the timing of development transactions.
OPERATING COSTS AND EXPENSES. The Company's operating costs and expenses
increased by $16.4 million, or 7.5%, to $235.5 million in 1996 from $219.1
million in 1995. The increase in operating costs and expenses is primarily due
to increased salaries, wages and benefits (associated with the increased
staffing required for the infrastructure management service business) and
increased commissions (associated with increased brokerage services revenues).
The Company's profit sharing increased by $4.2 million, or 26.4%, to $20.1
million in 1996 from $15.9 million in 1995 due to the increase in profitability.
As a percentage of total revenue, operating costs and expenses declined to 92.2%
in 1996 from 96.4% in 1995, primarily as a result of the Company's ability to
spread its fixed costs over a greater revenue base.
INCOME BEFORE INCOME TAXES. The Company's income before income taxes
increased $11.8 million, or 145.1%, to $19.9 million in 1996 from $8.1 million
in 1995 due to the factors described above.
NET INCOME. Net income increased $7.8 million, or 179.1%, to $12.1 million
in 1996 from $4.3 million in 1995. As a percent of total revenue, net income
increased to 4.7% in 1996 from 1.9% in 1995 due to the factors described above.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table presents unaudited quarterly results of operations data
for the Company for each of the four quarters of 1998, 1997, 1996 and 1995. This
quarterly information is unaudited but, in the opinion of management, reflects
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information for the periods presented. The results of
operations for any quarter are not necessarily indicative of results for any
future period. Revenues and income before income taxes during the fourth fiscal
quarter historically have been somewhat greater than in the first three fiscal
quarters, primarily because the Company's clients have a demonstrated tendency
to close transactions toward the end of the fiscal year. The timing and
introduction of new contracts, the disposition of investments in real estate
assets and other factors may also cause quarterly fluctuations in the Company's
results of operations. The fourth quarter of 1997 includes a non-cash,
non-recurring charge to income of $33.1 million related to options granted under
the Assumed Option Plan and a $4.4 million non-recurring
31
<PAGE>
charge to income resulting from the settlement of claims by certain former
employees arising out of a terminated stock appreciation rights plan.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
1998:
Revenues (1)................................................. $ 88,959 $ 113,536 $ 144,461 $ 170,567
Income before income taxes................................... 10,568 18,141 24,180 23,236
Net income................................................... 6,329 10,851 14,284 14,987
1997:
Revenues..................................................... $ 62,098 $ 69,344 $ 81,797 $ 100,400
Income (loss) before income taxes............................ 2,624 4,402 7,575 (31,988)
Net income (loss)............................................ 1,601 2,685 4,568 (22,874)
1996:
Revenues..................................................... $ 56,397 $ 54,299 $ 65,515 $ 79,244
Income before income taxes................................... 3,025 3,507 5,934 7,474
Net income................................................... 1,876 2,093 3,673 4,472
1995:
Revenues..................................................... $ 47,415 $ 53,692 $ 54,530 $ 71,565
Income before income taxes................................... 663 2,693 2,028 2,750
Net income................................................... 420 1,371 1,082 1,468
</TABLE>
- ------------------------
(1) Certain revenues for the periods ended March 31, June 30 and September 30
have been reclassified to conform to the presentation for the quarter ended
December 31, 1998. As a result, revenues differ from the amounts reported in
previously filed documents. These reclassifications do not impact net
income.
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 includes 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. This 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 operating
activities totaled $5.0 million for the year ended December 31, 1997, compared
to net cash provided by operating activities of $25.1 million in 1996. The
primary reason for this change is a decrease in debt proceeds for real estate
held for sale as the Company used internal sources for funding these
transactions. In addition, in 1997 the Company made mid-year royalty, consulting
and profit sharing cash distributions relating to performance through October
1997. Prior to 1997, such distributions were typically paid during the first
quarter of the year following the activity which generated the distributions.
The Company also paid more federal taxes during the year due to a higher net
income (before the effect of the non-cash non-recurring charge related to the
stock options granted under the Assumed Option Plan). Net cash provided by
operating activities totaled $25.1 million and $10.6 million for the years ended
December 31, 1996 and 1995, respectively. The changes in these cash flows for
these periods can be
32
<PAGE>
attributed primarily to increases in net income, fluctuations in the net
proceeds from real estate development and construction and variations in
accounts receivable, accounts payable and accrued expenses.
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 Tooley Acquisition,
the FHO Acquisition and the Faison Acquisition in March, May and July 1998,
respectively. Net cash used in investing activities totaled $21.3 million for
the year ended December 31, 1997 compared to $5.0 million for the same period in
1996. This change is primarily attributable to the Doppelt Acquisition in August
1997, investments in unconsolidated subsidiaries and distributions to minority
interest. These uses were offset by distributions from unconsolidated
subsidiaries and contributions from minority interest. Net cash used in
investing activities totaled $5.0 million and $0.6 million for the years ended
December 31, 1996 and 1995, respectively. The changes in these cash flows for
these periods can be attributed primarily to an increase in technology related
fixed asset expenditures and a decrease in contributions from minority interest.
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. This increase in 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 the Existing
Credit Facility as described below and a $8.2 million decrease in dividends
paid. Net cash provided by financing activities totaled $64.5 million for the
year ended December 31, 1997 compared to net cash used in financing activities
of $1.8 million for the same period in 1996. The reasons for this change are an
increase of debt proceeds, the repayment of stock loans and the net proceeds
from the Initial Public Offering of $90.2 million. These increases were offset
by increased debt repayments and dividends paid during 1997. Net cash flow used
in financing activities totaled $1.8 million and $5.5 million for the years
ended December 31, 1996 and 1995, respectively. The changes in these cash flows
for these periods can be attributed primarily to an increase in debt proceeds
offset by repurchasing common stock into treasury.
On December 1, 1997, the Company obtained a $150 million revolving line of
credit (the "Existing Credit Facility") arranged by NationsBank of Texas, N.A.
as the administrative agent (the "Administrative Agent"). Under the terms of the
Existing Credit Facility, the Company can obtain loans which are Base Rate Loans
or Eurodollar Rate Loans. Base Rate Loans bear interest at a base rate, which is
the higher of the prime 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 Existing Credit Facility contains various covenants
such as the maintenance of minimum equity and liquidity and covenants relating
to certain key financial data. The Existing 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 Existing 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 Existing Credit
Facility to an amount less than the $150 million commitment. Through January 31,
1999, the Company had borrowed approximately $102.1 million under the Existing
Credit Facility, including $10.0 million to fund its co-investment activities
and $92.1 million for the Recent Acquisitions, and repaid $20.0 million of these
amounts. At January 31, 1999, the Company had an unused borrowing capacity
(taking into account letters of credit outstanding) under the Existing Credit
Facility of approximately $61.6 million. The Existing Credit Facility requires
the Company to enter into one or more interest rate agreements for the Company's
indebtedness in excess of $50 million 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 5.32% for the period
ended December 31, 1998. The Company's participation in derivative transactions
has been designed for hedging
33
<PAGE>
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 this credit facility. The Company expects to continue to borrow
under the Existing Credit Facility to finance future strategic acquisitions,
fund its co-investment activities and provide the Company with an additional
source of working capital.
In August 1997, Trammell Crow BTS, Inc., a wholly-owned subsidiary of the
Company ("TC BTS"), obtained a $20.0 million credit facility (the "Retail BTS
Facility") from KeyBank National Association ("KeyBank"). Under the terms of the
Retail BTS Facility, until May 31, 1999, subsidiaries of TC BTS can obtain loans
at one of a LIBOR-based interest rate, KeyBank's prime rate or a combination of
the two interest rates. The proceeds of any such loans must be used for the
construction of retail facilities. On January 31, 1999, the outstanding balance
owed under the Retail BTS Facility was $4.4 million. The Retail BTS facility is
secured by a first mortgage on and assignment of all rents from the constructed
facilities. In addition, TC BTS must guarantee all obligations of its
subsidiaries for loans made pursuant to the Retail BTS Facility and (i) if the
closing of any loan occurred prior to May 1, 1998, Trammell Crow MW, Inc., a
wholly-owned subsidiary of the Company, is required to guarantee the repayment
obligations under the Retail BTS Facility with respect to such loan and to
guarantee the timely lien free completion of the retail facility to which such
loan relates, and (ii) if the closing of any loan occurs on or after May 1,
1998, the Company must guarantee the repayment obligations under the Retail BTS
Facility with respect to such loan and must guarantee the timely lien free
completion of the retail facility to which such loan relates. The Retail BTS
Facility also contains various covenants, such as the maintenance of a minimum
net worth of TC BTS and prohibition on other TC BTS guarantees of build-to-suit
retail projects.
In December 1998, TCC NNN Trading, Inc., a wholly-owned subsidiary of the
Company ("TCC Triple Net"), obtained a two-year $20.0 million revolving line of
credit ("Triple Net Facility") from KeyBank National Association ("KeyBank").
Under the terms of the Triple Net Facility, TCC Triple Net can obtain loans at a
LIBOR-based interest rate, the proceeds of which must be used for the
acquisition of retail properties subject to "triple net" leases. On January 31,
1999, there was no outstanding balance under the Triple Net Facility. The Triple
Net Facility is nonrecourse to TCC Triple Net and is secured by a first mortgage
and assignment of all rents from the acquired properties. The Company will
guarantee from 10% to 40% of each such loan depending on the credit rating of
the tenant occupying the acquired property. The Company's guarantee percentage
will be reduced to 10% for any loan upon the receipt of a purchase agreement
relating to the property underlying such loan. The maximum amount of any advance
related to a single property will be either (i) 90% of the property's
acquisition costs and certain related costs (if the property's tenant has a debt
rating of BBB- or higher), or (ii) 80% of the property's acquisition costs and
certain related costs (if the property's tenant has a debt rating of BB+ or
lower). The Triple Net Facility also contains various covenants, such as the
maintenance of minimum equity and liquidity of the Company and covenants
relating to certain key financial data of the Company. The restrictions
contained in such financial covenants are identical to those set forth in the
Existing Credit Facility. See "Business--Retail Services."
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 Existing Credit Facility, the Retail BTS Facility and
the Triple Net 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
34
<PAGE>
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.
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 was completed in February 1999. Assessment of the software
inventory for this phase is also expected to be complete in March 1999, at which
time the Company will commence indicated remediation. Following completion of
the first phase inventory, the Company commenced 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 of hardware and inventory of software for this second phase is
expected to be complete in March 1999. Assessment of the software inventory for
this second phase is expected to be complete in April 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 no later than the 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 $2.0 million (in excess of normal,
recurring PC acquisitions and replacements). This amount represents anticipated
expenditures for Year 2000-driven PC replacement and commercial application
software upgrades. As this amount is based on a sample, actual remediation costs
may differ materially.
35
<PAGE>
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 April 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 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 $1.0
million. 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 second 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.
36
<PAGE>
EFFECTS OF INFLATION
The Company does not believe that inflation has had a significant impact on
its results of operations in recent years. However, there can be no assurance
that the Company's business will not be affected by inflation in the future.
37
<PAGE>
BUSINESS
COMPANY OVERVIEW
Trammell Crow Company is one of the largest diversified commercial real
estate services companies in North America. Through 150 offices in the United
States and Canada, the Company delivers a comprehensive range of services to
leading multinational corporations, institutional investors and other users of
real estate services. In addition, the Company has a strategic alliance with
Crow Holdings International, which has eight offices in Europe, Asia and South
America. In the United States, the Company is a leading provider of commercial
property management, commercial property brokerage, infrastructure management
and office and industrial property development and construction services. The
Company, which is headquartered in Dallas, Texas, was founded in 1948 by Mr.
Trammell Crow. From its founding through the 1980's, the Company's primary
business was the development and management of industrial, office and retail
projects. In 1991, the Company was reconstituted as a real estate services
company. This reconstitution entailed the separation of the Company's commercial
real estate asset base and related operations from its real estate services
business. The Company continued to operate the real estate services business
while ownership of the commercial real estate asset base was segregated into a
large number of separate entities distinct from the Company, with independent
management and operations. Many of these entities are managed by subsidiaries of
Crow Holdings. See "Risk Factors--Dealings with and Reliance on Affiliates;
Potential Conflicts of Interest."
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 development and
investment activities include development and construction services and the
acquisition and disposition of commercial real estate projects. The development
and construction services business includes 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.
COMPETITIVE ADVANTAGES
The Company believes it has the following important competitive advantages:
COMPREHENSIVE SERVICE OFFERINGS. The Company's comprehensive menu of
services provides clients with single-point solutions to all of their commercial
real estate services needs. The Company often commences client relationships by
providing a single service and later expands these relationships by anticipating
and satisfying the client's other specific service requirements. By offering a
full array of services, the Company is able to maximize the effect it has on its
clients' businesses while becoming highly integrated into its clients'
operations. Its comprehensive service offerings also decrease the Company's
exposure to a downturn in any one of its primary businesses.
GEOGRAPHIC SCOPE. Through its 150 offices, the Company develops and
maintains extensive knowledge of local real estate markets across the United
States and Canada. Approximately 88% of the
38
<PAGE>
Company's employees are based in markets other than Dallas, Texas, where its
executive offices are located. In addition, the Company has a strategic alliance
with Crow Holdings International, which has eight offices in Europe, Asia and
South America. This broad geographic scope allows the Company to serve as a
single-source, full service provider to multinational corporations and
institutional investors with real estate interests that span regional and
national boundaries. It also tends to limit its exposure to an economic downturn
in any single market.
TECHNOLOGY. The Company uses off-the-shelf and proprietary technology
applications to better meet customer needs. An example is its centralized call
center, which is a vital component of the Company's proprietary total occupancy
cost management process that provides comprehensive cost studies and analyses of
building portfolios to the Company's customers. This call center provides
responses to customer needs 24 hours a day. Use of these applications is
intended to enhance sharing of vital market information and provide
significantly enhanced control over clients' expenses.
MANAGEMENT/PERSONNEL. The Company has a highly qualified management team.
Its seven member executive committee has an average of approximately 16 years of
experience with the Company. The Company believes the low turnover among this
senior management group is linked to its collegial internal culture and its
history of promoting talented individuals from within. The Company's growth
strategy, incentive-based compensation and the high level of ownership by
Company insiders provides further motivation to achieve a high level of
performance. Immediately following the Offering, employees will beneficially own
approximately 37% of the Common Stock outstanding.
COMPETITIVE ENVIRONMENT
MARKET FOR REAL ESTATE SERVICES. The real estate industry experienced a
severe downturn in the late 1980s. This downturn caused a sharp reduction in
commercial and industrial property values, the withdrawal of credit, a related
reduction in new development and pressure on fee income derived from servicing
and maintaining all classes of property. In recent years, the industry
experienced a steady recovery that increased growth across all of the Company's
traditional service lines. This recovery stimulated a revival of activity in the
more traditional development and construction business. As demand for office and
industrial space increased and property values rebounded in many of the nation's
principal markets, new construction starts accelerated. If continued, this trend
would provide an opportunity for the Company to earn fees associated with new
development and to participate in development projects as both an advisor and as
principal. 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.
OUTSOURCING. Outsourcing is a rapidly growing trend in the United States.
Through outsourcing, organizations seek to reduce costs, improve profitability
and refocus management and other resources on core competencies. This trend has
resulted in the development of well established providers offering an expanding
range of outsourced services, including information processing, teleservicing
and flexible staffing. Increasingly, organizations are also seeking outside
providers for efficient and expert delivery of real estate management services.
CONSOLIDATION. The traditionally fragmented real estate services industry
is witnessing rapid consolidation in customers' selection of service providers
and in alliances and combinations among providers themselves. When outsourcing
real estate services, corporations and institutions have increasingly sought to
consolidate the number of providers used and engage firms that can offer a full
range of services across a wide geographic area. As the industry becomes more
sophisticated, customers require the flexibility, multi-market perspective and
technological and physical resources that large firms possess.
39
<PAGE>
As the real estate services industry has grown, it has been accompanied by
downward pressure on fees and the increased use of fee structures which reflect
shared risk and emphasize the achievement of performance targets. These trends
benefit firms with significant scale and the ability to spread fixed costs over
a larger revenue base, and have accelerated consolidation among real estate
service providers.
The Company believes that few real estate service providers can meet the
demands of large corporate and institutional customers and that many companies
are facing pressure to combine with others to remain competitive. In the
Company's view, the competitive imperatives presented by this consolidation
trend include the need to maintain comprehensive service offerings, serve an
expansive geographic area and operate the business with sufficient scale to
achieve significant cost efficiencies.
GROWTH STRATEGY
The Company is using its broad industry expertise, its recognized brand and
its long-standing client relationships to pursue the following growth strategy:
EXPAND CLIENT RELATIONSHIPS. The Company's existing clients represent the
most immediate opportunity to increase revenues and earnings through
cross-selling the services offered by the Company. The Company has dedicated
national client services personnel to identify the Company's most strategically
significant customers and focus on expanding the business generated from them.
Of the 152 discrete assignments secured from the 16 most strategically
significant customers in 1997, 21 were awarded in cities where the Company
previously did not serve the client making the assignment. Through September 30,
1998, these customers awarded 130 new business assignments to the Company in
1998.
EXPAND THE BREADTH OF SERVICE OFFERINGS. The Company continuously expands
and enhances its breadth of service offerings, principally by creating new
service businesses internally. For example, the Company took advantage of the
trend toward outsourcing of real estate services by creating its infrastructure
management services business, which provided 21.9% of total revenues in 1997, up
from 9.4% in 1993.
CO-INVESTMENT AND DEVELOPMENT PROGRAMS. The Company continues to make
selective co-investments of capital alongside corporate and institutional
clients. This leverages its relationships with these clients and its extensive
knowledge of the real estate industry to create new opportunities to invest
capital. The Company seeks co-investments that generate investment returns while
still allowing it to earn fees in exchange for services provided in the
development and management of the project. Since October 1997, the Company has
entered into several development programs which provide opportunities to earn
fees and achieve investment returns over a series of projects with a single
investor, rather than seeking these opportunities on a
transaction-by-transaction basis.
ACQUISITIONS. In addition to pursuing internal growth, the Company is
committed to a strategy of selective acquisitions of complementary businesses.
The Company bases this strategy on its belief that the traditionally fragmented
real estate services industry is experiencing rapid consolidation as customers
seek service providers who can meet their broad range of real estate needs. The
Company believes that few real estate service providers can meet the demands of
large corporate and institutional customers, and that many smaller companies are
facing pressure to combine with other service providers to remain competitive.
Seeking to capitalize on this consolidation trend, in 1998, the Company
completed the acquisition of five businesses based in Los Angeles, Seattle,
Detroit, Boston and Charlotte. See "The Company--Recent Acquisitions." The
Company continuously surveys the marketplace for other potential acquisitions
which might further enhance the quality or the breadth of services it can offer
clients.
PROPERTY MANAGEMENT SERVICES
As of September 30, 1998, the Company managed approximately 266.6 million
square feet of commercial property (excluding malls and facilities occupied by
infrastructure management customers) and served approximately 630 clients and
18,300 tenants nationwide through its locally based property
40
<PAGE>
management teams present in 70 markets. The approximately 41.0 million square
feet of retail space included in the Company's managed property portfolio make
the Company one of the largest non-REIT managers of retail property in the
United States. 1997 revenues from property management services were $87.8
million (28.0% of 1997 revenues), down from $91.0 million in 1993. Revenues from
property management services for the nine months ended September 30, 1998 were
$81.9 million, compared to $65.1 million for the same period in 1997. A
substantial portion of this growth in revenue is due to acquisitions. In 1998
the Company acquired: (i) Norman, a real estate services firm with operations
concentrated in Seattle's central business district office and retail markets;
(ii) Tooley, a California real estate services company primarily engaged in
office management and leasing; and (iii) a portion of the businesses of Faison
and Faison Enterprises, which are engaged in the development, leasing and
management of office and retail properties located primarily in the Midatlantic
and Southeast regions of the United States. As a result of these acquisitions,
the Company added approximately 41.5 million square feet to its property
management portfolio.
The following charts and table show the total square feet managed by the
Company at year end and the Company's revenues from its property management
business from 1993 through 1997:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SQUARE FEET REVENUES (1)
<S> <C> <C>
1993 215,025 $90,954
1994 207,020 $99,609
1995 212,499 $92,970
1996 210,102 $90,179
1997 204,428 $87,756
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Square Feet...................................... 215,025 207,020 212,499 210,102 204,428
Revenues(1)...................................... $ 90,954 $ 99,609 $ 92,970 $ 90,179 $ 87,756
</TABLE>
- ------------------------
(1) Revenue is not a measure of profitability. Except with respect to
infrastructure management services (which were conducted through a separate
subsidiary), the Company did not accumulate costs by revenue type for years
prior to 1997. Accordingly, a measure of profitability for the Company's
property management services business cannot be shown for such periods. For
summarized operating data by business line in 1997 and 1998, see "Selected
Consolidated Financial Data" and Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments."
The objective of the Company's property management business is to enhance
its clients' investment values by maintaining high levels of occupancy and
lowering property operating costs by offering a wide range of property
management services. The property management services offered by the Company
consist of (i) building management services such as maintenance, landscaping,
security, energy management, owner's insurance, life safety, environmental risk
management and capital repairs; (ii) tenant relations services such as
promotional activities, processing tenant work orders and lease administration
41
<PAGE>
services; (iii) interfacing with the Company's development and construction
services personnel in coordinating tenant finish; and (iv) financial management
services including financial reporting and analysis utilizing software systems
supported by the Company's in-house design and development capability for
customized requirements.
The Company expects that most of its new property management engagements
will result from property transfers, projects that the Company develops for
institutional investors and property management assignments added through
strategic acquisitions. To the extent that institutional investors continue to
make direct investments in real estate, the Company believes that it will be in
an advantageous position to win new property management engagements due to its
existing relationships with large institutional investors and its ability to
provide single-source solutions for their multi-market and multi-functional
requirements.
The properties managed by the Company are typically served by locally based
teams of property managers and maintenance personnel supported by various
corporate level service functions, including technology support and purchasing.
Client accounts are typically managed at the Company's national office to assure
consistency of quality and to promote greater cross-selling of the Company's
services.
The Company typically receives monthly management fees for the property
management services it provides, based upon a specified percentage of the
monthly gross income generated from the property under management. In certain
cases, the Company's property management agreements entitle it to receive a
certain minimum fee based on the net rentable square footage or a percentage of
the expected full occupancy fee of the property. The amount of the management
fee varies depending upon local market conditions, the leasing engagement,
arrangements for expense reimbursements and specific services required.
Incentive fees are sometimes negotiated in turnaround or other unusual
circumstances. The Company also may be reimbursed for a portion of its
administrative and payroll costs directly attributed to the properties under
management.
A typical property management agreement of the Company provides for an
indefinite term, but permits the property owner or the Company to terminate the
agreement upon thirty days prior written notice. The Company believes that these
are customary termination provisions in the industry. The Company historically
has been successful in retaining property management agreements, but has lost
agreements in circumstances where a property has been sold and the new property
owner assumes direct responsibility for managing the property or retains one of
the Company's competitors to manage the property. On a portfolio basis,
excluding new assignments obtained within the last 12 months, the Company's
current average length per property management assignment is approximately five
years.
As part of its strategic alliance with AMB Property L.P. ("AMB"), the
Company has converted all of its property management contracts with AMB from
industry standard contracts terminable upon 30 days notice to contracts with
five year terms terminable only under certain circumstances. See "--Development
and Investment Activities."
BROKERAGE SERVICES
In 1997, the Company facilitated approximately 6,000 sales and lease
transactions. As of September 30, 1998, the Company employed 475 brokers, having
added 280 brokerage professionals since the beginning of 1996. Revenues from
brokerage services increased from $47.3 million in 1993 to $91.1 million in 1997
(29.0% of 1997 revenues). Revenues from brokerage services for the nine months
ended September 30, 1998 were $100.8 million, compared to $61.7 million for the
same period in 1997. A substantial portion of this growth in revenues is due to
acquisitions. In order to enhance its existing brokerage business, in May 1998
the Company acquired Fallon, Hines & O'Connor, a Boston-based commercial real
estate brokerage, consulting and advisory firm with 30 brokerage professionals.
42
<PAGE>
The following charts and table show the number of brokers employed by the
Company at year end and the Company's revenues from its brokerage services
business from 1993 through 1997:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BROKERS REVENUES (1)
<S> <C> <C>
1993 150 $47,299
1994 146 $48,652
1995 195 $61,960
1996 235 $72,095
1997 335 $91,053
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(REVENUES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Brokers.......................................... 150 146 195 235 335
Revenues(1)...................................... $ 47,299 $ 48,652 $ 61,960 $ 72,095 $ 91,053
</TABLE>
- ------------------------
(1) Revenue is not a measure of profitability. Except with respect to
infrastructure management services (which were conducted through a separate
subsidiary), the Company did not accumulate costs by revenue type for years
prior to 1997. Accordingly, a measure of profitability for the Company's
brokerage services business cannot be shown for such periods. For summarized
operating data by business line in 1997 and 1998, see "Selected Consolidated
Financial Data" and Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Developments."
The Company has historically provided project leasing services (leasing
space in real estate owned by clients and managed by the Company) for the
properties in its property management portfolio. In 1993 the Company began to
expand its brokerage services beyond project leasing to include tenant
representation (representing clients seeking to acquire real estate through
lease or purchase), investment sales (representing clients buying or selling
income producing real estate), listings (representing clients disposing of
surplus space) and land sales (representing clients buying or selling unimproved
land).
The Company typically receives fees for brokerage services based on a
percentage of the value of the lease or sale transaction. Some transactions may
stipulate a fixed fee or include an incentive bonus component based on the
performance of the brokerage professional or client satisfaction. Although
transaction volume can be subject to economic conditions, brokerage fee
structures remain relatively constant through both economic upswings and
downturns.
Project leasing revenues are derived from the steady turnover of tenants in
the Company's property management and leasing portfolio of approximately 334
million square feet at September 30, 1998. Lease terms for these properties
average four years, resulting in approximately 84 million square feet of space
"rolling" each year, providing the Company a commission paid by the owner of the
property for renewing the existing tenant's lease or releasing the space to a
new tenant. The Company's tenant representation revenues are derived from the
other side of the transaction, representing the tenants whose leases are
expiring. Listing revenues generally increase in economic downswings as
companies dispose of surplus space, while investment sales and land revenues
generally increase in economic upswings as available
43
<PAGE>
capital drives the trading of income producing properties and corporate demand
for additional space drives the purchase of land for new development.
The Company regards its brokerage force as an integral part of its delivery
system for the broad services the Company provides to its clients. Access to a
large network of experienced brokers is often a valuable asset when seeking new
property management, infrastructure management, development and construction and
retail services business. The presence of its brokers in on-site project leasing
offices can provide the Company with insights into its customers' non-brokerage
real estate needs and early opportunities to capture the client's real estate
services business. The sheer number of transactions in which its brokers are
involved can also be a source of information from which the Company can seek to
identify business opportunities in specific local or regional markets.
The Company actively engages its brokerage force in the execution of its
marketing strategy. Brokerage personnel often work in close concert with the
Company's "city leaders," who are the professionals with overall responsibility
for operations in major markets. Through this arrangement, key personnel are
kept abreast of national trends and of the full range of services provided to
customers in other areas in the United States. The ongoing dialogue among these
professionals serves to increase their level of expertise, and is supplemented
by other more formal education such as that provided at "Trammell Crow
University," which offers sales and motivational training as well as direct
exposure to personnel from the Company's other lines of business. Moreover, the
brokerage force is financially rewarded for cross-selling efforts which result
in new engagements for the Company, such as a development project, the
acquisition of a new infrastructure management account, or assistance across
geographic service lines which enables the Company to acquire additional
brokerage business. Brokerage personnel also earn commissions and are eligible
for profit sharing programs, participations and other forms of incentive
compensation. These incentives are designed to underscore the Company's belief
that the brokerage business is often a key point of entry for new clients, and
is thus integral to firmwide efforts to cross-sell a full range of services.
The Company intends to more aggressively recruit and hire (either
individually or through acquisitions) additional brokerage professionals
experienced primarily in the areas of investment sales and tenant
representation. The Company believes that the quality brand identification of
its name, the platform of a full range of services to offer clients, the ability
to learn and execute additional real estate services and the Company's
incentive-based compensation system which encourages ownership by Company
personnel create an environment conducive to attracting the most experienced and
capable brokerage professionals.
INFRASTRUCTURE MANAGEMENT SERVICES
As of September 30, 1998, the Company had approximately 1,300 employees who
serviced 62 infrastructure management clients in approximately 16,000 properties
encompassing over 128 million square feet. Revenues from infrastructure
management services have grown from $16.4 million in 1993 to $68.7 million in
1997 (21.9% of 1997 revenues). Revenues from infrastructure management services
for the nine months ended September 30, 1998 were $74.0 million, compared to
$48.0 million for the same period in 1997. The Company has developed expertise
in providing infrastructure management services to clients in the financial
services, healthcare, higher education, automotive, oil and gas and
technology/communications industries. In February 1998, the Company entered into
the Penn Contract, pursuant to which, on April 1, 1998, the Company became the
exclusive provider of certain infrastructure management services with respect to
designated properties and grounds of Penn. In addition, in June 1998, the
Company acquired substantially all of the assets of Core. The Company's goal in
effecting this acquisition was to combine its resources and management
experience with the expertise of the former Core employees to become a leading
provider of infrastructure management services in the automotive industry.
44
<PAGE>
The following charts and table show the growth of the Company's
infrastructure management services business from 1993 through 1997 in terms of
revenues and net income:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REVENUES NET INCOME
<S> <C> <C>
1993 $16,401 $342
1994 $27,063 $391
1995 $38,681 $441
1996 $50,836 $1,620
1997 $68,719 $1,664
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 16,401 $ 27,063 $ 38,681 $ 50,836 $ 68,719
Net Income....................................... 342 391 441 1,620 1,664(1)
</TABLE>
- ------------------------
(1) Excludes the after-tax effect of the following in 1997: (1) the allocation
to the Company's infrastructure management services business of $4,095,000
of the Company's $33,085,000 non-cash, non-recurring charge to compensation
expense and (2) the allocation to the Company's infrastructure management
services business of $539,000 of the Company's $4,355,000 non-recurring
charge to income resulting from the settlement of claims by certain former
employees arising out of a terminated stock appreciation rights plan. For
summarized operating data by business line in 1997 and 1998, see "Selected
Consolidated Financial Data" and Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments."
The goal of the Company's infrastructure management services business is to
align the facilities and support services of its clients with their operational
and strategic business objectives. Occupancy-related costs frequently represent
the largest corporate expense item after compensation and benefits. The Company
believes that organizations are increasingly outsourcing their infrastructure
management functions to reduce costs, improve profitability and refocus
management and other resources on core competencies.
The Company administers infrastructure management services through its
wholly-owned subsidiary, Trammell Crow Corporate Services, Inc., which combines
a centralized administrative, marketing and leadership organization with
client-based delivery systems. The infrastructure management services offered by
the Company consist of (i) strategic services, such as consulting, development,
properties portfolio management, real estate asset management, management of
accounting and information systems and organizational and process strategies;
(ii) facility management (the day-to-day maintenance and repair of facilities);
(iii) facility planning and project management (such as construction, space
planning, site consolidations, facilities design, moves adds and changes and
furniture, signage, and cabling); (iv) transaction services (such as
acquisitions, dispositions, project leasing and subleasing, lease administration
and lease audits where, rather than providing services on a
transaction-by-transaction basis according to the industry's traditional model,
the Company seeks to manage a client's entire firm-wide property acquisition and
divestiture program); (v) office services (such as security, reprographics,
mail, cafeteria, shipping and receiving and reception services); and (vi) call
center services (including work-order, dispatch, vendor management and emergency
response), which are provided 24 hours a day through the Company's centralized
call center.
45
<PAGE>
The Company offers the following infrastructure management service delivery
options: (i) dedicated Company employees located at a client site; (ii) a team
of Company employees dedicated to a client but located off the client's site at
Company offices; and (iii) a flexible, nationwide network of Company personnel
providing the full menu of the Company's real estate services from the Company's
city offices. Most of the Company's infrastructure management engagements
provide for on-site presence of Company employees, which the Company believes
enhances client communication, provides focused personal service, protects the
proprietary information of the client and enables the Company to monitor client
satisfaction on an ongoing basis.
The Company has developed expertise in providing infrastructure management
services to clients in the financial services, healthcare, higher education,
automotive, oil and gas and technology/communications industries. The growth,
consolidation and regulatory changes taking place in these industries have
increased the importance of infrastructure management to these corporations and
have caused them to seek to improve productivity by rationalizing facilities
organization and eliminating redundant assets. The Company believes that there
is opportunity to grow by targeting clients within these industries. For
example, within the financial services industry, the Company has grown from one
client in 1993 to 19 clients as of September 30, 1998, and from 3 million square
feet under management in 1993 to approximately 70 million square feet as of
September 30, 1998.
The Company also believes that it has an opportunity to achieve growth in
its infrastructure management services business by developing expertise in
additional industries. In order to expand into the higher education industry, in
February 1998 the Company entered into the Penn Contract with Penn, pursuant to
which, on April 1, 1998, the Company became the exclusive provider of certain
infrastructure management services with respect to designated properties and
grounds of Penn. The Company provides management of operations, maintenance,
utilities, facilities planning and design, small renovation work,
grounds-keeping, owner representation for construction and accounting and
financial reporting services to Penn. The Company also provides real estate
portfolio and transaction management services, such as property acquisitions and
dispositions. The Penn Contract has a one-year term with a multi-year extension
subject to Penn's receipt of a favorable tax ruling from the Internal Revenue
Service. Penn has engaged in discussions with the Internal Revenue Service and
has informed the Company that it expects to file a private letter ruling request
during March 1999.
The five largest customers for the Company's infrastructure management
services business, measured in 1997 revenues from such customers, collectively
represented 8.4% of the Company's total revenues in 1997. The Company believes
that significant growth opportunity exists within its existing customer base, as
only 25 out of 62 existing customers receive three or more types of services
from the Company out of the five types of infrastructure management services
offered.
The Company seeks to enter into multi-year infrastructure management
contracts with its clients. Most contracts are structured so the Company
receives a monthly base fee and annual incentives if certain agreed-upon
performance targets are satisfied. Most contracts also provide for the
reimbursement of client-related personnel costs and associated overhead
expenses. In many cases, these revenue sources are augmented by variable
commission-based revenues from brokerage, facility planning and project
management activities.
DEVELOPMENT AND INVESTMENT ACTIVITIES
The Company focuses its commercial real estate development business on third
party build-to-suit customers and investors in office, industrial and retail
projects. It has the capability to implement active and sizeable development
programs, primarily on behalf of its clients, but also for its own account. In
1997, revenues from development and investment activities (consisting of service
revenues, income from unconsolidated subsidiaries and gain on disposition of
non-retail real estate projects) were $49.6 million (15.8% of 1997 revenues).
Revenues from development and investment activities for the nine months
46
<PAGE>
ended September 30, 1998 were $71.1 million, compared to $29.6 million for the
same period in 1997. From January 1, 1993 through September 30, 1998, the
Company developed or redeveloped approximately 56.9 million square feet of
projects with aggregate project costs of approximately $3.7 billion. From
January 1 through September 30, 1998, the Company started approximately 14.1
million square feet of development projects with an estimated aggregate cost of
$1.2 billion. In connection with the Faison Acquisition, the Company entered
into a development program with Faison Enterprises which the Company believes
will strengthen its position in the strip center and regional mall construction
and development business.
The following charts and table show the Company's square feet of development
projects started and revenues from its development and construction services
business for 1993 through 1997:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SQUARE FEET OF DEVELOPMENT PROJECT STARTS REVENUES (1)
<S> <C> <C>
1993 2,829 $14,842
1994 5,124 $20,579
1995 10,083 $24,140
1996 12,408 $29,266
1997 12,273 $49,570
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Square Feet of Projects Started.................. 2,829 5,124 10,083 12,408 12,273
Revenues(1)...................................... $ 14,842 $ 20,579 $ 24,140 $ 29,266 $ 49,570
</TABLE>
- ------------------------
(1) Revenue is not a measure of profitability. Except with respect to
infrastructure management services (which were conducted through a separate
subsidiary), the Company did not accumulate costs by revenue type for years
prior to 1997. Accordingly, a measure of profitability for the Company's
development and construction services business cannot be shown for such
periods. For summarized operating data by business line in 1997 and 1998,
see "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Recent
Developments."
The Company provides its clients with services that are vital in all stages
of the development and construction process, including: (i) evaluating project
feasibility, budgeting, scheduling and cash flow analysis; (ii) site
identification, due diligence and acquisition; (iii) procurement of approvals
and permits, including zoning and other entitlements; (iv) coordination of
project design and engineering; (v) construction bidding and management and
tenant finish coordination; (vi) project close-out and user move coordination;
(vii) general contracting; and (viii) project finance advisory services.
The Company's development and construction services engagements are
typically staffed with a local/ regional team which includes a senior company
executive in the role of project general manager and one or more specialists in
the areas of physical project development and construction. The Company
currently employs approximately 30 senior executives with an average of thirteen
years experience in all aspects of
47
<PAGE>
sourcing development projects and providing general management and project
finance advisory capabilities for those projects. The Company also employs
approximately 78 other individuals with an average of more than 10 years
experience who are responsible for various aspects of the development process,
including the execution of physical development and construction management
responsibilities. The Company has dedicated ten of these full-time employees to
promote and oversee its development and construction services business on a
national basis while continuing to leverage the expertise and contacts of the
Company's local and regional development professionals. This national team will
focus on enhancing the value of large scale development projects, mitigating
development and construction risk in the Company's portfolio of business and
accessing the capital markets to arrange for development programs/ funds with
institutional investors.
The Company typically receives a fee for its development services that is
based on a negotiated percentage of a project's budgeted construction and
development cost. Incentive bonuses may be received for completing a project
under budget and within certain critical time deadlines. The Company has also
been flexible in negotiating other incentive compensation arrangements that
allow the Company to participate in the investment returns on projects it
develops for its clients. The Company may make a co-investment with its clients
(typically no more than 5% of a project's full construction and development
cost), receive its pro rata return on its investment in the project and also
receive an incentive participation in the project because of the Company's role
in sourcing the development project and/or executing a variety of services in
the development process. The Company's investments or co-investments in real
estate projects typically result in an ownership interest substantially greater
than the co-investment percentage. To facilitate development activity and to
further mitigate risk, the Company established three discretionary development
and investment funds which, as of September 30, 1998, had raised $64.0 million,
of which $30.7 million had been invested in projects with an aggregate
construction cost of approximately $377.2 million.
In 1997, the Company entered into a development program pursuant to a
non-binding memorandum of understanding with Kennedy Associates Real Estate
Counsel, Inc. ("Kennedy"). This development program focuses on multi-tenant
office and business park development projects. The Company has also entered into
a strategic alliance with AMB. As part of this strategic alliance, the Company
entered into two development programs pursuant to non-binding memoranda of
understanding, one of which focuses on developing and managing industrial
properties in targeted distribution markets, with particular emphasis placed on
multi-tenant freight forwarding facilities adjacent to major airports and
industrial submarkets of targeted metropolitan areas, while the other
development program focuses on multi-tenant retail redevelopment. The Company
has also entered into development programs pursuant to non-binding memoranda of
understanding with each of CFH Industrial Trust, an affiliate of Crow Holdings,
and LaSalle Advisors, Limited. Each of these development programs focuses on
developing and managing industrial properties in targeted distribution markets.
In connection with the Faison Acquisition, the Company also entered into a
development program with Faison Enterprises focusing on strip center, power
center and regional mall construction and development.
The following table identifies the number of projects which, as of December
31, 1998, had been targeted for inclusion in these development programs but are
pending approval of the development program partner, are under a letter of
intent with a program partner or are in development. To date, no projects have
been completed under these development programs, and there can be no assurance
that the
48
<PAGE>
projects targeted for inclusion in the programs will be accepted by the program
partners or that such projects or those under letters of intent will in fact be
developed.
<TABLE>
<CAPTION>
PROJECTS PENDING APPROVAL PROJECTS UNDER LETTER OF INTENT PROJECTS IN
BY PROGRAM PARTNER WITH DEVELOPMENT PROGRAM PARTNER DEVELOPMENT
-------------------------------- -------------------------------- -------------
NUMBER BUDGETED NUMBER NUMBER
OF DEVELOPMENT AND OF BUDGETED OF
DEVELOPMENT PROGRAM PROJECTS CONSTRUCTION PROJECTS DEVELOPMENT AND PROJECTS
- ---------------------------------- ------------- COSTS ------------- CONSTRUCTION -------------
----------------- COSTS
(IN MILLIONS) -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Kennedy........................... -- $ -- 5 $ 115.6 7
AMB Industrial.................... 2 18.0 -- -- 5
AMB Retail........................ -- -- -- -- --
Faison Retail..................... -- -- -- -- 1
CFH Industrial Trust.............. 3 34.7 -- -- 2
LaSalle Advisors, Limited......... 5 85.2 -- -- --
-- -- --
------ ------
Total........................... 10 $ 137.9 5 $ 115.6 15
-- -- --
-- -- --
------ ------
------ ------
<CAPTION>
BUDGETED
DEVELOPMENT AND
DEVELOPMENT PROGRAM CONSTRUCTION
- ---------------------------------- COSTS
-----------------
<S> <C>
Kennedy........................... $ 126.9
AMB Industrial.................... 64.5
AMB Retail........................ --
Faison Retail..................... 11.8
CFH Industrial Trust.............. 11.5
LaSalle Advisors, Limited......... --
------
Total........................... $ 214.7
------
------
</TABLE>
The market for development and construction services is cyclical and is
driven by various economic conditions. The demand for commercial real estate
properties in suburban office, downtown office and industrial markets has
increased over the last several years, driven mainly by the acquisition
activities of buyers, including real estate investment trusts and other
investors. 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 and investment activity, as well as its
traditional construction and development business, could level off or decline.
The Company's development activities generate business opportunities for the
Company's other service lines which can support the Company's earnings when
development and construction revenues decrease as a result of market conditions.
Because the Company provides development and construction services primarily to
third parties, including clients who invest in build-to-suit projects, the
Company believes that the adverse effect on its revenues when speculative
development activities are curtailed in a market down cycle should be mitigated.
In addition, because the Company's operating costs and expenses for this
business line are relatively small (representing only 14.7% of the Company's
total operating costs and expenses in 1997), the Company believes that the
adverse effect of a market down cycle on its earnings should not be as material
as it would be for other firms whose development overhead expenses constitute a
greater portion of their cost structure. When development activity reaches a
down cycle in the future, the Company intends to use professionals from its
development and construction services business to pursue opportunistic property
acquisitions with its established capital partners.
RETAIL SERVICES
The Company's retail services management group was formed in 1996 to better
serve national retail customers (who demand specialized property and market
knowledge) and compete with service providers whose sole focus is retail. In
furtherance of its goal to be the leading national retail real estate company,
in August 1997 the Company acquired Doppelt, which specializes in supporting the
real estate departments of retail companies by providing tenant representation
and lease disposition services to clients such as OfficeMax, TJX and General
Nutrition Centers. Retail revenues (consisting of service revenue and gain on
disposition of retail build-to-suit real estate projects) in 1997 were $6.5
million (2.1% of 1997 revenues). After giving pro forma effect to the Doppelt
Acquisition as of January 1, 1997, the Company's retail revenues in 1997 would
have been $11.5 million. Retail revenues for the nine months ended September 30,
1998 were $13.1 million, compared to $2.8 million for the same period in 1997.
This increase resulted primarily from the Doppelt Acquisition in August 1997 and
the Faison Acquisition in July 1998. The
49
<PAGE>
Company believes that the Faison Acquisition has established the Company as one
of the leading providers of retail and office property management and brokerage
services in the Southeastern United States and provided the Company with the
platform and expertise to expand its retail services business.
The primary services the Company provides to its retail clients include
brokerage services, such as tenant representation for site acquisition and
surplus space dispositions, and development services, such as predevelopment
activities, project finance advisory services and construction oversight. The
Company also acquires, rehabilitates and sells certain retail properties which
the Company believes to be undervalued. In the future, the Company will seek to
combine the expertise of its retail business leaders with that of its
development services personnel to formulate programs for developing retail
assets, both for the Company's account and for the account of third parties,
including third parties in which the Company may own an equity interest.
As of September 30, 1998, the Company provided retail services to over 48
retail customers and had developed more than 30 retail build-to-suit projects.
The 10 largest customers for the Company's retail services business in terms of
1997 revenues collectively generated $5.8 million of the Company's 1997
revenues. Although the Company is specifically focused on expanding its retail
client base, the Company also believes that there are significant opportunities
to provide additional services to its existing retail clients. Of the 60 major
national retail clients that have engaged the Company's retail services business
since 1993, 48 clients continue to use the Company for the same services on
additional retail projects. Another ten of these major clients have added new
services.
The Company delivers tenant representation services and disposition services
utilizing a network of the Company's local brokers and third-party providers.
The Company generates commission revenue from these services which are shared
with brokers in the local markets. The Company believes that the Doppelt
Acquisition has enhanced its ability to recruit brokerage professionals, build
its local retail brokerage capabilities and capture a greater portion of these
commission revenues.
Development services are delivered through a national retail build-to-suit
subsidiary that specializes in predevelopment activities, including land
acquisition and procurement of entitlements. For its development services to
third parties, the Company typically earns a base fee plus an incentive fee that
is paid out of the sale proceeds upon project completion.
In December 1998, the Company formed TCC Triple Net to acquire freestanding
retail properties and resell those properties within an anticipated hold period
of no more than six months after their acquisition. The Company's goal will be
to generate revenue through this activity by collecting rental income during the
period that the asset is owned and by capturing a spread on the purchase and
sale of the properties. The Company believes that, by providing real estate
services to its national retail customers, it has developed a proficiency in
identifying retail investment opportunities and formulating and implementing
retail development programs. In order to provide a portion of the funds
necessary to conduct these activities, the Company obtained the Triple Net
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
In connection with the Doppelt Acquisition, the Company delivered to Doppelt
(i) approximately $20.7 million in cash, (ii) a subordinated promissory note of
the Predecessor Company, payable to Doppelt in the principal amount of $6.0
million, and (iii) the right to receive up to $2.0 million of additional
purchase price if future commissions collected by the Company from any source
exceed $7.0 million, subject to reduction based on the amount of certain of
Doppelt's uncollected accounts receivable and certain leases executed by Doppelt
as of August 22, 1997, for which a commission is not collected by TCRS prior to
August 22, 1999. The Predecessor Company also paid Mr. Doppelt $2.0 million upon
the execution of an employment agreement. In November 1997, the Company issued
to Doppelt 342,857 shares of Common Stock in payment of the $6.0 million
promissory note.
50
<PAGE>
EMPLOYEES
As of December 31, 1998, the Company had approximately 5,100 employees.
Employees of the Company at certain properties located in San Francisco,
California; Las Vegas, Nevada; Reno, Nevada; and Chicago, Illinois are currently
represented by a labor union. The unions represented at the respective locations
are: International Union of Operating Engineers, Stationary Engineers, Local No.
39 (San Francisco, California); Southern California-Nevada Regional Council of
Carpenters (Las Vegas, Nevada); Carpenters Local Union #971 and Nevada Chapter
Associated General Contractors of America, Inc. and Laborers' International
Union of North America-AFL-CIO local No. 169 (Reno, Nevada); and Itasca Center
III, Limited Partnership; Oakbrook Terrace Tower, Itasca, Illinois and
International Union of Operating Engineers of Chicago, Illinois and Vicinity
Local No. 399. Management believes that its ongoing labor relations are good.
INSURANCE
The Company has the types of insurance coverage, including comprehensive
general liability and excess umbrella liability insurance, that it believes are
appropriate for a company in the lines of business in which it operates. The
Company's management will use its discretion in determining the amounts,
coverage limits and deductibility provisions of appropriate insurance coverage
on the Company's properties and operations at a reasonable cost and on suitable
terms. This might result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full value of the damages
suffered by the Company.
FACILITIES
The Company's executive offices are located at 2001 Ross Avenue, 3400
Trammell Crow Center, Dallas, Texas 75201 and consist of approximately 32,441
square feet of leased office space. The Company's telephone number at such
address is (214) 863-3000. The Company's lease at its executive offices will
expire on December 31, 1999.
TRADEMARKS
The trade name "Trammell Crow" is material to the Company's business. The
Company is a party to a License Agreement with CF98 with respect to such
business and trade names. See "Risk Factors--Trade Name License."
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
materially adverse effect on the Company's results of operation or financial
condition.
ENVIRONMENTAL LIABILITY
Various federal, state and local laws and regulations impose liability on
current or previous real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by hazardous or
toxic substances at the property. In the Company's role as a property manager,
it could be held liable as an operator for such costs. Such liability may be
imposed without regard to the legality of the original actions and without
regard to whether the Company knew of, or was responsible for, the presence of
such hazardous or toxic substances, and such liability may be joint and several
with other parties. If the liability is joint and several, the Company could be
responsible for payment of the full amount of the liability, whether or not any
other responsible party is also liable. Further, any failure by the Company to
disclose environmental issues could subject the Company to liability to a buyer
or lessee of the property. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for
51
<PAGE>
damages and costs it incurs in connection with the contamination. The operator
of a site also may be liable under common law to third parties for damages and
injuries resulting from hazardous substances or environmental contamination at a
site, including liabilities relating to the presence of asbestos-containing
materials. There can be no assurance that any of such liabilities to which the
Company or any of its affiliates may become subject will not have a material
adverse effect on the Company's business and results of operations.
Some of the properties owned, operated, or managed by the Company are on,
adjacent to or near properties that have contained in the past, or currently
contain, underground and/or above-ground storage tanks used to store regulated
substances such as petroleum products or other hazardous or toxic substances.
Some of the properties owned, operated or managed by the Company are in the
vicinity of properties which are currently, or have been, subject to releases of
regulated substances and remediation activity, and the Company is currently
aware of several properties owned, operated or managed by the Company which may
be impacted by regulated substances which may have migrated from adjacent or
nearby properties or which may be within the borders of areas suspected to be
impacted by regional groundwater contamination. In addition, the Company is
aware of the presence or the potential presence of regulated substances at
several properties owned, operated or managed by it which may have resulted from
historical or ongoing soil or groundwater activities on those properties. Based
on the information available to date, the Company believes that the
environmental issues described above are being or have been appropriately
managed and will not have a material adverse effect on the Company.
There can be no assurance that environmental liabilities or claims will not
adversely affect the Company in the future.
GOVERNMENT REGULATION
The Company and its brokers, salespersons and, in some instances, property
managers are regulated by the states in which they do business. These
regulations include licensing procedures, prescribed fiduciary responsibilities
and anti-fraud prohibitions. The Company's activities are also subject to
various federal and state fair advertising, trade, housing and real estate
settlement laws and regulations and are affected by laws and regulations
relating to real estate and real estate finance and development. In particular,
a number of states and localities have imposed environmental controls and zoning
restrictions on the development of real estate.
The Company is subject to laws governing its relationship with employees,
including minimum wage requirements, overtime, working conditions and work
permit requirements. The Company believes that it has the necessary permits and
approvals to operate each of its properties and their respective businesses.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that its
properties in which it holds an equity interest are substantially in compliance
with these requirements, a determination that such properties are not in
compliance with the ADA could result in the imposition of fines or an award of
damages to private litigants.
52
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Board of
Directors and executive officers of the Company including their respective ages
as of February 24, 1999:
<TABLE>
<CAPTION>
DIRECTOR'S TERM
NAME AGE TITLE ENDING
- ------------------------------------ --- ------------------------------------------------------- ---------------
<S> <C> <C> <C>
George L. Lippe..................... 44 Chief Executive Officer, President and Director 2001
H. Pryor Blackwell.................. 38 Executive Vice President and Chief Operating Officer --
William F. Concannon................ 43 President and Chief Executive Officer of Trammell Crow 2000
Corporate Services, Inc. and Director
Henry J. Faison..................... 64 Executive Vice President and Director 2000
William C. Maddux................... 44 Executive Vice President and President of Brokerage --
Operations
Asuka Nakahara...................... 43 Executive Vice President and Chief Knowledge Officer --
Philip W. Norwood................... 51 Vice Chairman --
William Rothacker................... 47 President and Chief Executive Officer of Trammell Crow --
Retail Services, Inc.
Robert E. Sulentic.................. 42 Executive Vice President, Chief Financial Officer and 2001
Director
James D. Carreker................... 51 Director 1999
Harlan R. Crow...................... 49 Director 1999
James R. Erwin...................... 54 Director 2000
Jeffrey M. Heller................... 59 Director 1999
Rowland T. Moriarty................. 52 Director 2001
J. McDonald Williams................ 57 Chairman of the Board of Directors 2000
</TABLE>
GEORGE L. LIPPE has been the President, Chief Executive Officer and a
director of the Company since its inception and has served as President and
Chief Executive Officer of the Predecessor Company since January 1996. From 1995
to 1996, Mr. Lippe served as Executive Vice President of Operations of the
Predecessor Company. From 1990 to date, Mr. Lippe has served as President and
Chief Executive Officer of the Company's Midwest Region. Mr. Lippe has served in
various other capacities with the Company since 1978.
H. PRYOR BLACKWELL has served as Executive Vice President and Chief
Operating Officer of the Company since September 1, 1998. Mr. Blackwell served
as Executive Vice President and Chief Operating Officer of the Company's Western
Operations from August 1997 through August 1998 and has served as President and
Chief Executive Officer of Trammell Crow Dallas/Fort Worth, Inc. and Trammell
Crow Dallas Industrial, Inc. since 1993. Mr. Blackwell has served on the Board
of Directors of the Predecessor Company since 1993 and as a member of the Board
of Directors served on the Operating Committee, Investment Committee and Audit
Committee of the Predecessor Company. From 1991 to 1993, Mr. Blackwell served as
President and Chief Executive Officer of Trammell Crow Central Office Group,
Inc. From 1987 to 1990, Mr. Blackwell served as the Partner in charge of the
Company's Downtown (Dallas) Office Division. Mr. Blackwell served as the
Company's Marketing Principal from 1986 to 1987 and Leasing Agent from 1984 to
1986.
53
<PAGE>
HENRY J. FAISON has served as Executive Vice President and a director of the
Company since July 1998. From 1994 to 1998, Mr. Faison served as Chairman of
Faison Enterprises. From 1988 to 1994, he served as the Chief Executive Officer
of Faison Enterprises.
WILLIAM F. CONCANNON has been a director of the Company since December 1997
and has served as President and Chief Executive Officer of Trammell Crow
Corporate Services since July 1991. Mr. Concannon has served as a Member of the
Board of Directors of the Predecessor Company since 1991. He joined the
Predecessor Company as Vice President of National Marketing in 1986 and in 1989
became Director and Partner in charge of Trammell Crow Corporate Services.
WILLIAM C. MADDUX has served as Executive Vice President and President of
Brokerage Operations since September 1, 1998. Mr. Maddux served as Executive
Vice President and Chief Operating Officer of the Company's Eastern Operations
from August 1997 through August 1998. Since 1992, Mr. Maddux has served as the
Executive Vice President of Trammell Crow MW, Inc., and has had responsibility
for overseeing the Company's operations in Illinois, Indiana, Michigan and
Wisconsin. Mr. Maddux served the Predecessor Company in various other capacities
from 1985 to 1992, including as Partner in charge of the Predecessor Company's
Carolina division from 1988 to 1992, Marketing Principal in charge of the
Company's Oklahoma City operations from 1987 to 1988 and Leasing Agent in the
Company's Oklahoma City office from 1985 to 1987.
ASUKA NAKAHARA has served as Executive Vice President and Chief Knowledge
Officer since September 1, 1998. Mr. Nakahara served as Executive Vice President
and Chief Financial Officer of the Company from August 1997 through August 1998,
and served as Executive Vice President and Chief Financial Officer of the
Predecessor Company from January 1996 through August 1998. During 1995, Mr.
Nakahara served as the Predecessor Company's Executive Vice President in charge
of National Programs. Mr. Nakahara served as President and Chief Executive
Officer of Trammell Crow Northeast, Inc. from 1991 to 1995 and as the Northeast
Regional Partner for the Predecessor Company from 1987 to 1991. Mr. Nakahara
served the Predecessor Company in various other capacities from 1980 to 1987,
including as the Operating Partner in charge of the Predecessor Company's
Philadelphia division from 1985 to 1987, Finance Associate and Partner in
Houston from 1983 to 1984, and Leasing Agent in Houston from 1980 to 1983.
PHILIP W. NORWOOD has served as Vice Chairman of the Company since July
1998. From 1994 until July 1998, Mr. Norwood served as the President and Chief
Executive Officer of Faison. From 1980 until 1993, Mr. Norwood held various
positions with affiliates of the Predecessor Company, including chairman of
Trammell Crow Realty Advisors in 1993 and its president and Chief Executive
Officer in 1992 and 1993.
WILLIAM ROTHACKER has been President and Chief Executive Officer of Trammell
Crow Retail Services since its formation in December 1996. Since 1994, Mr.
Rothacker has been President of Trammell Crow Denver and has had responsibility
for overseeing the Company's operations in New Mexico and Arizona. Mr. Rothacker
has served on the Predecessor Company's Operating Committee and as Chairman of
its Retail Committee since 1994. Mr. Rothacker served as Managing Director in
charge of the Predecessor Company's Denver operations from 1991 to 1994. From
1987 to 1991, Mr. Rothacker served as Partner in charge of the Denver Division.
Mr. Rothacker served as Partner in charge of the Denver Retail division from
1983 to 1986 and as a Leasing Agent in Denver from 1980 to 1983.
ROBERT E. SULENTIC has served as the Company's Executive Vice President and
Chief Financial Officer since September 1, 1998 and has been a director of the
Company since December 1997. Mr. Sulentic served as the Company's Executive Vice
President and National Director of Development and Investment from December 1997
through August 1998. Mr. Sulentic has been President of Trammell Crow NE, Inc.
since 1995, and has served on the Predecessor Company's Operating Committee and
as Chairman of its Development Committee since 1994. From 1991 to 1994, Mr.
Sulentic served as Managing Director in charge of the Predecessor Company's
Philadelphia Division. From 1987 to 1990, Mr. Sulentic served as the Partner in
charge of the Predecessor Company's New Jersey Division. Mr. Sulentic served in
Houston as a Marketing Director for the Predecessor Company in 1986 and 1987 and
as a Leasing Agent in 1984 and 1985.
54
<PAGE>
JAMES D. CARREKER has been a director of the Company since December 1997.
Mr. Carreker has served as Chairman of the Board and Chief Executive Officer of
Wyndham International, Inc. and a director of Patriot American Hospitality, Inc.
since January 1998. Mr. Carreker assumed these positions in connection with the
merger with and into Patriot Hospitality, Inc. of Wyndham Hotel Corporation, for
which he has served as President and Chief Executive Officer since May 1988. As
of March 1999, Mr. Carreker has also assumed the position of Chief Executive
Officer of Patriot American Hospitality, Inc. He also served as Chief Executive
Officer of the Predecessor Company from August 1994 to December 1995.
HARLAN R. CROW has been a director of the Company since its inception. Mr.
Crow is the Chief Executive Officer of Trammell Crow Interests Company, d/b/a
Crow Holdings, a private investment company managing investments in a variety of
real estate-related and other businesses, a position he has held since 1986. Mr.
Crow currently serves as a Director of Patriot American Hospitality, Inc. In any
given year within the past five years, Mr. Crow has indirectly owned interests
in over 1,000 partnerships (or affiliates of partnerships) or corporations. In
the past five years, Mr. Crow was a general partner in 1, and an officer or
director in 56, partnerships or corporations, or affiliates of such partnerships
or corporations, that filed for protection under federal bankruptcy laws. In
addition, in the past five years, Mr. Crow was an executive officer or director
in 15 partnerships or corporations, or affiliates of such partnerships or
corporations, that were placed in receivership. Pursuant to a Stockholders
Agreement to which the Company is a party, Crow Family Partnership, L.P. has
been granted the right to nominate a member of the Board of Directors and each
executive officer of the Company has agreed to vote his shares of Common Stock
in favor of such nominee. Mr. Crow is the initial such nominee. See "Certain
Relationships and Related Transactions--Stockholders' Agreement."
JAMES R. ERWIN has been a director of the Company since December 1997. Mr.
Erwin has served as Vice Chairman Texas and Senior Client Executive--Southwest
of BankAmerica Corporation since October 1998, and was Vice Chairman for Texas
and Corporate Finance Executive-West of NationsBank Corp. since January 1994,
and was Executive Vice President, Manager of Operations and Technology for
NationsBank Corp. from October 1991 to January 1994.
JEFFREY M. HELLER has been a director of the Company since December 1997.
Mr. Heller has served as President and Chief Operating Officer of Electronic
Data Systems Corporation ("EDS") since June 1996. From 1987 to June 1996, Mr.
Heller served as Senior Vice President of EDS with responsibilities for
Technical Operations and Asia-Pacific. Mr. Heller is a member of the Board of
Directors of Mutual of Omaha Insurance Company.
ROWLAND T. MORIARTY has been a director of the Company since December 1997.
Mr. Moriarty has served as Chairman and Chief Executive Officer of Cubex
Corporation, a consulting firm, since 1992. From 1981 to 1992, Mr. Moriarty
served as a professor at the Harvard Business School. Mr. Moriarty is a member
of the Board of Directors of Staples Inc., an office supply retailer, and
Charles River Associates, an economic research firm based in Boston.
J. MCDONALD WILLIAMS has been the Chairman of the Board of Directors of the
Company since its inception and served as Chairman of the Board of Directors of
the Predecessor Company from August 1994 to December 1997. Mr. Williams served
as President and Chief Executive Officer of the Predecessor Company from 1991 to
1994. From 1977 to 1991, Mr. Williams served as Managing Partner of the
Predecessor Company and from 1973 to 1977 Mr. Williams was Managing Partner,
International Projects for the Predecessor Company. Mr. Williams is a member of
the Board of Directors of A.H. Belo Corporation and Blanks Color Imaging, Inc.
In any given year within the past five years, Mr. Williams has indirectly owned
interests in over 1,000 partnerships (or affiliates of partnerships) or
corporations. In the past five years, Mr. Williams was a general partner in 54,
and an officer or director in 16, partnerships or corporations, or affiliates of
such partnerships or corporations, that filed for protection under federal
bankruptcy laws. In addition, in the past five years, Mr. Williams was a general
partner in 14 partnerships or corporations, or affiliates of such partnerships
or corporations, that were placed in receivership.
55
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides certain information with respect to the
beneficial ownership as of January 31, 1999, of the Common Stock as adjusted to
reflect the sale of Common Stock by the Selling Stockholders pursuant to the
Offering. The table sets forth the beneficial ownership by (i) each person known
to the Company to be the beneficial owner of 5% or more of the shares of Common
Stock outstanding; (ii) each director; (iii) each Named Executive Officer; (iv)
directors and executive officers of the Company as a group; and (v) each Selling
Stockholder, including certain former employees of the Company and the
Predecessor Company (the "Former Employees"). Unless otherwise indicated, each
person has sole voting (subject to the terms of the Stockholders' Agreement) and
dispositive power over the shares indicated as owned by such person. Unless
otherwise indicated, all stockholders set forth below have the same principal
business address as the Company, and all Selling Stockholders are Company
employees. See "Management" for a description of the positions the directors and
executive officers hold with the Company.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
------------------------------ ------------------------------
NUMBER OF SHARES NUMBER OF
SHARES PERCENT OF SHARES BEING SHARES PERCENT OF SHARES
NAME OWNED OUTSTANDING(1) OFFERED(2) OWNED OUTSTANDING(1)
- -------------------------------------------- ----------- ----------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
DIRECTORS, NAMED EXECUTIVE OFFICERS AND
RELATED ENTITIES
Crow Family Partnership, L.P. .............. 4,276,829 12.4% 40,000 4,236,829 12.1%
3200 Trammell Crow Ctr.
2001 Ross Avenue
Dallas, Texas 75201
CFH Trade Names, L.P. ...................... 2,295,217 6.6 1,255,722 1,039,495 3.0
3200 Trammell Crow Ctr.
2001 Ross Avenue
Dallas, Texas 75201
CFH Capital Resources, L.P.................. 1,327,489 3.8 -- 1,327,489 3.8
----------- ----- ----------- ----------- -----
Subtotal.................................. 7,899,535 22.8 1,294,722 6,603,813 18.9
J. McDonald Williams........................ 1,524,789(3) 4.4 -- 1,524,789(3) 4.4
George L. Lippe............................. 827,759( (5) 2.4 125,000 702,759( (5) 2.0
H. Pryor Blackwell.......................... 689,519(5) 2.0 173,277 516,242(5) 1.5
William Concannon........................... 405,448( (6) 1.2 80,000 325,448( (6) *
William C. Maddux........................... 377,412(5) 1.1 90,000 287,412(5) *
Asuka Nakahara.............................. 474,145(5) 1.4 100,000 374,145(5) 1.1
Robert E. Sulentic.......................... 289,614( (7) * 60,000 229,614( (7) *
William R. Rothacker........................ 600,584( (8) 1.7 110,000 490,584( (8) 1.4
Philip W. Norwood........................... 12,698(9) * -- 12,698(9) *
Harlan R. Crow ............................. 7,904,809( 11) 22.8 1,381,268 6,523,541( 11) 18.7
3200 Trammell Crow Ctr.
2001 Ross Avenue
Dallas, Texas 75201
James D. Carreker........................... 163,112(11) * 30,000 133,112(11) *
James R. Erwin.............................. 9,274(11) * -- 9,274(11) *
Henry J. Faison............................. 127,828(12) * -- 127,828(12) *
Rowland T. Moriarty......................... 15,274( 13) * -- 15,274( 13) *
Jeffrey M. Heller........................... 5,274(11) * -- 5,274(11) *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(15 PERSONS).............................. 13,427,539(14) 37.0 2,149,545 11,277,994(14) 29.1
FORMER EMPLOYEES(15)
Dona, Anthony W............................. 70,308 * 40,000 30,308 *
Hager, Mary M............................... 9,500 * 9,000 500 *
Miller, A. Bryce............................ 567,544 1.6 70,000 497,544 1.4
Sidell, Mark H.............................. 32,532 * 6,000 26,532 *
OTHER SELLING STOCKHOLDERS(16)
Abshier, Dorcey B........................... 177,214 * 34,850 142,364 *
Anderson, Chuck............................. 377,055 1.1 95,763 139,680 *
Apple, James W., Jr......................... 313,091 * 75,000 238,091 *
Baer, Kenneth J............................. 140,933 * 27,500 113,433 *
Bak, Thomas A............................... 173,824 * 43,948 129,876 *
Barnes, Robert W............................ 154,348 * 25,000 129,348 *
Belcher, E. Stevenson....................... 291,801 * 45,000 246,801 *
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
------------------------------ ------------------------------
NUMBER OF SHARES NUMBER OF
SHARES PERCENT OF SHARES BEING SHARES PERCENT OF SHARES
NAME OWNED OUTSTANDING(1) OFFERED(2) OWNED OUTSTANDING(1)
- -------------------------------------------- ----------- ----------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Bower, Barbara B............................ 32,584 * 7,000 25,584 *
Branch, Alfred.............................. 140,933 * 35,000 105,933 *
Brown, Charles B............................ 107,912 * 20,000 87,912 *
Casey, James M.............................. 140,432 * 27,428 113,004 *
Cataldo, Steven J........................... 33,581 * 1,700 31,881 *
Chagares, Robert Louis...................... 141,392 * 32,946 108,446 *
Clayton, Mark G............................. 51,831 * 6,250 45,581 *
Click, Anthony B............................ 31,301 * 5,000 26,301 *
Coe, Richard H.............................. 262,353 * 40,000 222,353 *
Coley, Elwood B., Jr........................ 313,360 * 79,801 233,559 *
Cooper, Thomas E............................ 30,911 * 6,000 24,911 *
Deutsch, Donald H........................... 118,072 * 22,500 95,572 *
Didion, James............................... 36,907 * 5,000 31,907 *
Doppelt, Jeffrey............................ 253,113 * 50,000 203,113 *
Dunavant, Vincent A......................... 33,035 * 7,000 26,035 *
Elam, Pryse R............................... 110,363 * 27,612 82,751 *
Eliot, John P............................... 33,184 * 7,000 26,184 *
Erwin, Stan K............................... 123,595 * 30,000 93,595 *
Fawcett, Phil J............................. 60,593 * 11,000 49,593 *
Francis, Mary Jo............................ 33,122 * 5,500 27,622 *
Frankfurt, Shaun W.......................... 34,020 * 10,000 24,020 *
Funck, Bernard Ross......................... 87,178 * 10,000 77,178 *
Gaffner, Arlin E............................ 30,729 * 3,341 27,388 *
Genova, Andrew J............................ 72,649 * 18,119 54,530 *
Gillespie, Samuel A......................... 170,719 * 35,000 135,719 *
Glimp, Frederick............................ 89,762 * 15,000 74,762 *
Grantham, Curtis C.......................... 160,328 * 30,000 130,328 *
Groch, James R.............................. 166,122 * 33,118 133,004 *
Ham, Gregory B.............................. 33,740 * 10,000 23,740 *
Hamilton, Philip B.......................... 142,082 * 25,000 117,082 *
Haynes, Jeffrey N........................... 164,308 * 25,000 139,308 *
Henry, Patrick T............................ 169,029 * 20,000 149,029 *
Holcomb, Jeffrey E.......................... 93,518 * 10,000 83,518 *
Holland, John A............................. 140,524 * 35,467 105,057 *
Hubbard, Michael K.......................... 33,405 * 5,000 28,405 *
Hudson, Daniel S............................ 139,229 * 45,000 94,229 *
Johnson, Kirk............................... 217,789 * 50,000 167,789 *
Khourie, Matthew S.......................... 381,243 1.1 40,000 341,243 1.0
Klein, Steven T............................. 31,041 * 7,603 23,438 *
Koop, Bryan J............................... 202,844 * 51,478 151,366 *
Laigaie, George............................. 70,897 * 25,341 45,556 *
Latran, Gregory S........................... 187,626 * 47,351 140,275 *
Leiser, Thomas A............................ 127,229 * 29,828 220,933 *
Leiser, William P........................... 273,227 * 25,000 248,227 *
Leonard, W. Trask, Jr....................... 32,691 * 3,000 29,691 *
Lindquist, Thomas........................... 129,865 * 25,000 104,865 *
Maher, John C............................... 106,787 * 30,246 76,541 *
Matoushek, Jim.............................. 69,407 * 15,000 54,407 *
McNearney, Thomas O., III................... 175,117 * 12,000 163,117 *
Moyski, Steven M............................ 116,298 * 22,000 94,298 *
Murphy, Robert J............................ 137,951 * 34,696 103,255 *
Nave, Joel Bret............................. 27,887 * 8,000 19,887 *
Nelson, Christopher J....................... 115,090 * 28,913 86,177 *
Newman, Linda............................... 216,455 * 55,128 161,327 *
Nickels, Matthew J., III.................... 150,866 * 25,000 125,866 *
Niles, Thomas E............................. 50,028 * 12,336 37,692 *
Noble, Dave................................. 11,532 * 2,313 9,219 *
O'Brien, D. Patrick......................... 229,120 * 58,403 170,717 *
O'Neil, Kevin C............................. 33,566 * 8,000 25,566 *
Peck, Martin C.............................. 29,961 * 6,000 23,961 *
Pustmueller, Joel........................... 33,836 * 4,000 29,836 *
Rodenstein, Barry........................... 58,047 * 14,410 43,637 *
Roth, T. Christopher........................ 273,906 * 68,798 205,108 *
Ryan, William P............................. 144,786 * 20,000 124,786 *
Santry, Arthur J., III...................... 77,121 * 18,750 58,371 *
Schoenheider, Donald P...................... 79,485 * 19,275 60,210 *
Seiz, Jon T................................. 191,114 * 25,000 166,114 *
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
------------------------------ ------------------------------
NUMBER OF SHARES NUMBER OF
SHARES PERCENT OF SHARES BEING SHARES PERCENT OF SHARES
NAME OWNED OUTSTANDING(1) OFFERED(2) OWNED OUTSTANDING(1)
- -------------------------------------------- ----------- ----------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Sklow, Robert B............................. 89,849 * 17,500 72,349 *
Smith, Joseph L., III....................... 36,156 * 6,500 29,656 *
Sperling, Ann............................... 238,093 * 35,000 203,093 *
Stirek, John A.............................. 444,113 1.3 109,336 334,777 1.0
Swain, Mike L............................... 22,800 * 10,000 12,800 *
Tatsch, Daniel L............................ 14,937 * 3,103 11,834 *
Thiemann, David J........................... 330,969 1.0 86,118 244,851 *
Thomas, Donald R., II....................... 29,159 * 6,939 22,220 *
Thompson, Donald C.......................... 147,608 * 10,000 137,608 *
Timberlake, Todd A.......................... 33,754 * 2,707 31,047 *
Tipple, David............................... 33,296 * 3,000 30,296 *
Tucker, Diane S............................. 172,046 * 50,000 122,046 *
Valliere, Ralph R........................... 36,942 * 8,000 28,942 *
Walker, Stanley Denton, III................. 27,930 * 5,000 22,930 *
Williams, George H.......................... 84,817 * 21,203 63,614 *
Woodworth, Tom.............................. 77,844 * 18,633 59,211 *
Woolstenhulme, Roger B...................... 128,506 * 18,750 109,756 *
</TABLE>
- ------------------------
* Less than 1%.
(1) Based on 34,921,977 shares of Common Stock the Company expects to be
outstanding immediately prior to the Offering, including 320,676 shares
which the Company expects to be issued upon the exercise of options and sold
in the Offering.
(2) Includes 320,676 shares issuable upon exercise of options.
(3) Includes 13,655 shares that may be acquired upon the exercise of options,
951 shares held indirectly through the Company's 401(k) Plan and 684 shares
acquired under the Company's Employee Stock Purchase Plan.
(4) Includes 2,252 shares held in trust for the benefit of George L. Lippe's
minor children. Mr. Lippe is the trustee of the trust. Also includes 957
shares acquired under the Company's Employee Stock Purchase Plan.
(5) Includes 19,509 shares that may be acquired upon the exercise of options.
(6) Includes 29,813 shares that may be acquired upon the exercise of options.
(7) Includes 23,000 shares owned by Mr. Sulentic's wife.
(8) Includes 384 shares acquired under the Company's Employee Stock Purchase
Plan.
(9) Includes 12,698 shares that may be acquired upon the exercise of options.
(10) Consists of all shares held by Crow Family Partnership, L.P., all shares
held by CFH Trade-Names, L.P., and all shares held by CFH Capital Resources,
L.P. Crow Family, Inc. is an affiliate of all such partnerships. Mr. Crow is
a director of Crow Family, Inc. and trustee of certain family trusts which
hold a significant equity interest in each such partnership. Mr. Crow
disclaims beneficial ownership of all such shares held by such partnerships.
(11) Includes 5,274 shares that may be acquired upon the exercise of options.
(12) Includes 63,914 shares held of record by Faison Enterprises, a non-profit
corporation of which Mr. Faison is the sole member. Although Mr. Faison
currently has the right to designate all of the members of the board of
directors of Faison Enterprises, he has no pecuniary interest in such shares
of Common Stock. Mr. Faison disclaims ownership of all shares of Common
Stock held by Faison Enterprises.
(13) Includes 2,000 shares held indirectly through a non-issuer profit sharing
plan.
(14) Includes 219,099 shares that may be acquired upon the exercise of options
within the next 60 days.
(15) Share ownership information includes for "Former Employees" (i) before the
Offering, an aggregate of 40,244 shares that may be acquired upon the
exercise of options within the next 60 days, (ii) an aggregate of 6,000
shares being offered that the Company expects to be issued upon the exercise
of such options and (iii) after the Offering, an aggregate of 34,244 shares
that may be acquired upon the exercise of such options. Unless otherwise
indicated, each Former Employee is a former principal level employee of the
Company or one or more of the Company's subsidiaries. The shares
beneficially owned by certain Former Employees named under "Former
Employees" may include shares owned of record by a corporation, partnership
or trust which such Former Employee controls or may be held of record
jointly by such Former Employee and such Former Employee's spouse.
(16) Share ownership information includes for "Other Selling Stockholders" (i)
before the Offering, an aggregate of 2,008,801 shares that may be acquired
upon the exercise of options within the next 60 days, (ii) an aggregate of
314,676 shares being offered that the Company expects to be issued upon the
exercise of such options and (iii) after the Offering, an aggregate of
1,694,125 shares that may be acquired upon the exercise of such options.
Unless otherwise indicated, each Selling Stockholder is a principal level
employee of the Company or one or more of the Company's subsidiaries. The
shares beneficially owned by certain Selling Stockholders named under "Other
Selling Stockholders" may include shares owned of record by a corporation,
partnership or trust which such Selling Stockholder controls or may be held
of record jointly by such Selling Stockholder and such Selling Stockholder's
spouse.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary description is qualified in its entirety by reference
to the Company's Certificate of Incorporation, which is filed as an exhibit to
the Registration Statement. The authorized capital stock of the Company consists
of 100,000,000 shares of Common Stock, par value $0.01 per share, and 30,000,000
shares of preferred stock ("Preferred Stock"), par value $0.01 per share.
The authorized and unissued shares of Common Stock and Preferred Stock may
be used by the Company for various purposes, including possible future
acquisitions. The Company currently does not have any specific plans or
obligations to issue shares of Common Stock or Preferred Stock, other than the
issuance of shares of Common Stock under the Company's benefit plans.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of common stockholders. There is
no provision in the Company's Certificate of Incorporation for cumulative voting
with respect to the election of directors. Accordingly, the holders of more than
50% of the total voting power of the Common Stock can, if they choose to do so,
elect all of the directors of the Company. Each share of Common Stock is
entitled to participate equally in dividends, when, as and if declared by the
Board of Directors, and in the distribution of assets in the event of
liquidation, dissolution or winding up of the Company, subject in all cases to
any prior rights of outstanding shares of Preferred Stock. The shares of Common
Stock have no preemptive or conversion rights, redemption rights or sinking fund
provisions and are not subject to calls, assessments or rights of redemption by
the Company. All shares of Common Stock outstanding are duly authorized, validly
issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
Company's stockholders, to issue Preferred Stock from time to time in one or
more series and to fix, as to any such series, the voting rights, if any,
applicable to such series and such other designations, preferences and special
rights as the Board of Directors may determine, including dividend, conversion,
redemption and liquidation rights and preferences. Upon the closing of this
Offering, there will be no shares of Preferred Stock outstanding. The issuance
of shares of Preferred Stock under certain circumstances could have the effect
of delaying or preventing a change in control of the Company or other corporate
actions. See "--Anti-takeover Provisions."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the DGCL which
provides, with certain exceptions, that a Delaware corporation may not engage in
any of a broad range of business combinations, such as mergers, consolidations
and sales of assets, with a person or an affiliate or associate of such person
who is an "Interested Stockholder" (as defined below) for a period of three
years from the date that such person became an Interested Stockholder unless:
(i) the business combination or the transaction resulting in a person's becoming
an Interested Stockholder is approved by the Board of Directors of the Company
before the person becomes an Interested Stockholder; (ii) upon consummation of
the transaction which results in the person becoming an Interested Stockholder,
the Interested Stockholder owned 85% or more of the voting stock of the Company
outstanding at the time the transaction commenced (excluding shares owned by
persons who are both officers and directors of the Company and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person became an Interested Stockholder, the business combination is approved by
the Company's Board of Directors and by the holders of at least 66 2/3% of the
Company's outstanding voting stock, excluding shares owned by the Interested
Stockholder,
59
<PAGE>
at an annual or special meeting. An "Interested Stockholder" is defined as any
person, other than the Company and any direct or indirect majority-owned
subsidiaries of the Company, that is (i) the owner of 15% or more of the
outstanding voting stock of the Company or (ii) an affiliate or associate of the
Company and was the owner of 15% or more of the outstanding voting stock of the
Company at any time within the three-year period immediately prior to the date
on which it is sought to be determined whether such person is an Interested
Stockholder. This statute would not prohibit the Company from entering into a
business combination with any stockholder who would otherwise have been deemed
to become an "Interested Stockholder" as a result of the Reincorporation
Transactions.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) in respect
of certain unlawful dividend payments or stock redemptions or repurchases; or
(iv) for any transaction from which the director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
The Company has entered into indemnification agreements with each of its
directors. Pursuant to such agreements, the Company will, to the extent
permitted by applicable law, indemnify such persons against all expenses,
judgments, fines and penalties incurred in connection with the defense or
settlement of any actions brought against them by reason of the fact that they
were directors or officers of the Company or assumed certain responsibilities at
the direction of the Company.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, Delaware
law, the Assumed Option Plan and the Stockholders' Agreement summarized in the
following paragraphs may have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in that stockholder's best interests, including attempts that might result in
a premium over the market price to be paid for the shares held by stockholders.
CERTIFICATE OF INCORPORATION
Pursuant to the Certificate of Incorporation, the Board of Directors by
resolution may issue, subject to certain limitations, additional shares of
Common Stock or establish one or more classes or series of Preferred Stock
having the number of shares, designations, relative voting rights, dividend
rates, liquidation and other rights, preferences and limitations that the Board
of Directors fixes without stockholder approval. Any additional issuance of
Common Stock or designation of rights, preferences, privileges and limitations
with respect to Preferred Stock could have the effect of impeding or
discouraging the acquisition of control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
the Company's management. Specifically, if, in the due exercise of its fiduciary
obligations, the Board of Directors were to determine that a takeover proposal
was not in the Company's best interest, such shares could be issued by the Board
of Directors without stockholder approval in one or more transactions that might
prevent or render more difficult or costly the completion of the proposed
takeover transaction by diluting the voting or other rights of the proposed
acquiror or insurgent stockholder group, by putting a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent Board of Directors, by effecting an acquisition that might
complicate or preclude the takeover, or otherwise.
60
<PAGE>
STAGGERED BOARD OF DIRECTORS
The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year.
The Board of Directors believes that a classified Board of Directors will
help to assure the continuity and stability of the Board of Directors and the
business strategies and policies of the Company as determined by the Board of
Directors, because the likelihood of continuity and stability in the composition
of the Company's Board of Directors and in the policies formulated by the Board
of Directors will be enhanced by staggered three-year terms.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company, even though such an attempt might be beneficial to the Company and
its stockholders. In addition, the classified board provision could delay
stockholders who do not agree with the policies of the Board of Directors from
removing a majority of the Board for two years. See "--Number of Directors;
Removal; Filling Vacancies."
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate of Incorporation provides that the number of members of the
Board of Directors shall be fixed from time to time by resolution adopted by a
majority of the directors then in office, but in no event shall the Board of
Directors have less than three or more than thirteen members. Further, subject
to the rights of the holders of any series of Preferred Stock then outstanding,
the Certificate of Incorporation authorizes only a majority of the directors
then in office to fill vacancies, including newly created directorships.
Accordingly, the Board of Directors could prevent a stockholder from obtaining
majority representation on the Board of Directors by enlarging the Board of
Directors and filling the new directorships with its own nominees. The
Certificate of Incorporation also provides that directors of the Company may be
removed only for cause and, even then, only by the affirmative vote of holders
of a majority of the outstanding shares of stock entitled to vote at an election
of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
The Certificate of Incorporation establishes an advance notice procedure for
the nomination, other than by or at the discretion of the Board of Directors or
a committee thereof, of candidates for election as director, as well as for
other stockholder proposals to be considered at an annual stockholders' meeting.
Notice of stockholder proposals and director nominations must be timely
given in writing to the secretary of the Company prior to the meeting at which
the matters are to be acted upon or the directors are to be elected. To be
timely, notice must be received at the principal offices of the Company not less
than 60, nor more than 90, days prior to the meeting of stockholders; provided,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the
earlier of (i) the day on which notice of the date of the meeting was mailed or
(ii) the day on which public disclosure was made.
The purpose of requiring advance notice is to afford the Board of Directors
an opportunity to consider the qualifications of the proposed nominees or the
merits of other stockholder proposals and, to the extent deemed necessary or
desirable by the Board of Directors, to inform stockholders about those matters.
SPECIAL MEETINGS OF STOCKHOLDERS
The Certificate of Incorporation provides that special meetings of the
stockholders of the Company may be called only by the Chairman of the Board of
Directors or a majority of the members of the Board
61
<PAGE>
of Directors. This provision will make it more difficult for stockholders to
take action opposed by the Board of Directors.
STOCKHOLDERS' AGREEMENT
Contemporaneously with the Reincorporation Transactions (see
"Reincorporation Transactions"), the Company, Crow Family, CFH and Mr. Williams
entered into a Stockholders' Agreement (the "Stockholders' Agreement"), pursuant
to which the Company agreed, subject to certain limitations and under certain
circumstances, to register for sale shares of Common Stock that are held by the
parties thereto (collectively, the "Registrable Securities"). Of the 28,142,038
shares issued in the Reincorporation Transactions, 9,369,035 were Registrable
Securities. 1,295,722 shares of Registrable Securities are being offered and
sold as part of this Offering. The Stockholders' Agreement provides that Crow
Family and Mr. Williams may, from and after the first anniversary of the Initial
Public Offering, require the Company upon written notice to register for sale
such Registrable Securities (a "Demand Registration"), provided that the Company
has no obligation to effect more than six underwritten Demand Registrations and
shall only be obligated to effect the sixth underwritten Demand Registration if
all remaining Registrable Securities of Crow Family are to be registered. The
total amount of Registrable Securities to be included in any underwritten Demand
Registration must have a market value of at least $25.0 million at the time
demand notice is given. The Company has no obligation to (i) effect an
underwritten Demand Registration within nine months (or file such Registration
Statement within seven months) after the effective date of the immediately
preceding Demand Registration or (ii) effect a shelf Demand Registration within
12 months (or file such Registration Statement within ten months) after such
effective date. In addition, the Company is only required to register a number
of shares of Common Stock for sale pursuant to a shelf Demand Registration that
is less than or equal to five times the amount limitation prescribed by Rule 144
at the time demand notice is given. The holders of Registrable Securities may
request an unlimited number of shelf Demand Registrations.
The Stockholders' Agreement also provides that, subject to certain
exceptions, if the Company proposes to file a registration statement with
respect to an offering of any class of equity securities, other than certain
types of registrations, the Company will offer the holders of Registrable
Securities the opportunity to register the number of Registrable Securities they
request to include (a "Piggyback Registration"), provided that the amount of
Registrable Securities requested to be registered may be limited by the
underwriters in an underwritten offering based on such underwriters'
determination that inclusion of the total amount of Registrable Securities
requested for registration exceeds the maximum amount that can be marketed at a
price reasonably related to the current market price of the Common Stock or
without materially and adversely affect the offering. The Company will generally
be required to pay all of the expenses of Demand Registrations and Piggyback
Registrations, other than underwriting discounts and commissions; provided,
however, that after the first three such Demand Registrations the Company and
the holders of Registrable Securities will each pay 50% of the expenses of
underwritten Demand Registrations and all road show expenses in connection with
any Demand Registration will be borne by the holders of Registrable Securities.
The Selling Stockholders are required to pay the expenses of the Offering.
However, as required by the Stockholders' Agreement, the Company will pay the
expenses incurred in connection with the Offering which would otherwise be
allocated to Crow Family and its affiliates.
Under the terms of the Stockholders' Agreement, the Company has granted Crow
Family the right to nominate a member of the Board of Directors. Mr. Harlan Crow
is Crow Family's initial nominee. Each executive officer of the Company has
agreed to vote his shares of Common Stock in favor of the nominee of Crow
Family. Crow Family's right to nominate a director will terminate on the first
date Crow Family's beneficial ownership of Common Stock represents less than the
lesser of (i) 12.5% of the then outstanding Common Stock and (ii) 50% of the
shares of Common Stock owned on the date of execution of the agreement;
provided, however, that in no event will the Company be obligated to nominate a
Crow Family
62
<PAGE>
designee beyond the first date on which the beneficial ownership of shares of
Common Stock held by Crow Family represents less than 5% of all then outstanding
shares of such class. For purposes of the Stockholders' Agreement, Crow Family's
beneficial ownership of Common Stock is defined as shares of Common Stock owned
by Crow Family, CFH and each of their respective affiliates. In connection with
any private sale of Common Stock by Crow Family, other than to an affiliate,
Crow Family will agree to give the Company 15 days notice prior to effecting
such sale.
Each of Crow Family and the Company has agreed, prior to the fifth
anniversary of the Stockholders' Agreement, not to solicit the other's
officer-level employees concerning potential employment without prior notice to
the other party. In addition, each of Crow Family and the Company has agreed not
to hire any employee that was improperly solicited until the earlier of (i) the
involuntary termination of such officer-level employee by his/her employer and
(ii) the first anniversary of the last incident of solicitation of such employee
in violation of the agreement.
DOPPELT STOCKHOLDERS AGREEMENT
Pursuant to a stockholders agreement entered into among TCRS, the
Predecessor Company, Doppelt & Company and Jeffrey Doppelt (the "Doppelt
Stockholders Agreement"), Doppelt (or permitted transferees of Doppelt) may not,
with the exception of certain permitted transfers, sell, pledge or otherwise
dispose of Common Stock of the Company. These transfer restrictions have lapsed
for 30% of the shares issued to Doppelt, and, as long as Mr. Doppelt remains
employed with the Company, these transfer restrictions will lapse (i) with
respect to 30% of these shares on August 22, 1999, (ii) with respect to 20% of
these shares on August 22, 2000, and (iii) with respect to 10% of these shares
on each of August 22, 2001 and August 22, 2002. These transfer restrictions will
lapse in full if (i) the Company terminates Mr. Doppelt's employment without
cause, (ii) the Company is sold or (iii) Mr. Doppelt's employment is terminated
as a result of his forced resignation, death or permanent disability. Regardless
of these transfer restrictions, Doppelt is entitled to receive all dividend
payments and to exercise all voting and other ownership rights with respect to
this stock. In addition, Mr. Doppelt may not, with the exception of permitted
transfers, sell, pledge or otherwise dispose of his shares of Doppelt & Company
before August 22, 2002. The Doppelt Stockholders Agreement permits certain
transfers to members of Mr. Doppelt's family and limited transfers to employees
of Doppelt pursuant to a trust arrangement. The Doppelt Stockholders Agreement
also provides that, in the event the Company proposes to register any shares of
Common Stock under the Securities Act, Doppelt (or permitted transferees of
Doppelt) will be entitled to include its (or their) shares of Common Stock in
the registration, subject to certain limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company expects to have an aggregate
of 34,921,977 shares of Common Stock outstanding. Of these shares, approximately
10,934,689, including 5,750,000 shares sold in the Initial Public Offering and
the 4,500,000 shares sold in the Offering (assuming no exercise of the U.S.
Underwriter's over-allotment option), will be freely transferable without
restriction or further registration under the Securities Act, except for shares
held by affiliates of the Company.
SALES OF RESTRICTED SHARES
Of the shares of Common Stock issued to certain stockholders of the Company
upon consummation of the Reincorporation Transactions, 23,987,288 will continue
to be held by such stockholders (or their transferees) immediately following the
Offering and will be deemed to be "restricted" securities under Rule 144.
Substantially all of such 23,987,288 shares are currently eligible for sale
under Rule 144. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including an affiliate of the Company, who
has beneficially owned restricted securities, within the meaning of Rule 144,
for at least one year is entitled to sell within any three-month period a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 349,220 shares immediately
after the Offering) or (ii) the average weekly trading volume of the Common
Stock on the New York Stock Exchange during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 are also subject to manner
of sale provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the three months immediately preceding the sale is entitled to sell restricted
shares pursuant to Rule 144(k) without regard to the limitations described
above, provided that two years have expired since the later of the date on which
such restricted shares were acquired from the Company or the date they were
acquired from an affiliate of the Company.
SHARES ISSUED UNDER OPTION PLANS
The Company filed registration statements on Form S-8 with respect to (i)
2,423,769 shares of Common Stock which underlie options granted under the
Assumed Option Plan, all of which became exercisable 30 days following the
closing of the Initial Public Offering, (ii) 5,334,878 shares of Common Stock
reserved for issuance under the Long-Term Incentive Plan, including 2,448,713
shares underlying options which were outstanding as of January 31, 1999, (iii)
1,000,000 shares of Common Stock reserved for issuance under the Employee Stock
Purchase Plan, including 188,439 shares which have been issued as of January 31,
1999, and (iv) 63,490 shares of Common Stock issued to certain individuals who
became employees of the Company in connection with the Faison Acquisition,
including 58,728 shares which were outstanding at January 31, 1999. The Company
expects that, at the closing of the Offering, options to purchase 320,676 shares
of Common Stock issued under the Assumed Option Plan will be exercised and that,
immediately following the closing of the Offering, the Company will be obligated
to issue up to an aggregate of 1,802,798 shares of Common Stock upon the
exercise of the remainder of such options. Shares so registered could be sold in
the public market by such holders at any time on or after the date such options
become exercisable.
LOCK-UP ARRANGEMENTS
Crow Family and each current principal-level employee of the Company holding
"restricted securities" or options granted under the Assumed Option Plan have
entered into lock-up agreements that are effective until one year after the
closing of the Offering. This group includes all Selling Stockholders other than
the Former Employees. After the Offering, this group will beneficially own
approximately 19,280,966 of the outstanding shares of Common Stock. Under these
lock-up agreements, such persons will
64
<PAGE>
not offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock (subject to certain exceptions) without the prior written consent of the
Company and Morgan Stanley & Co. Incorporated, except for sales made pursuant to
this Offering.
Each of the Selling Shareholders who is a Former Employee and each of the
Company's directors and executive officers who is neither a Company employee nor
holds any "restricted securities" or options granted under the Assumed Option
Plan has entered into a lock-up agreement that is effective until 120 days after
the closing of the Offering. After the Offering, this group will beneficially
own approximately 819,791 of the outstanding shares of Common Stock. These
lock-up agreements have substantially the same terms as those described above
except that such agreements are effective until 120 days after the closing of
the Offering.
The Company has also entered into a lock-up agreement which is effective
until six months after the Offering closes. Under this lock-up agreement, the
Company will not offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock (subject to certain exceptions) without the prior written
consent of Morgan Stanley & Co. Incorporated. See "Underwriting."
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a summary of the material United States federal income and
estate tax consequences of the ownership and disposition of Common Stock
generally applicable to "Non-United States Holders." The Company has received an
opinion from Vinson & Elkins L.L.P., that the legal conclusions set forth below
are accurate in all material respects. Subject to the discussion below under
"Estate Tax," a "Non-United States Holder" is any beneficial owner of Common
Stock that, for United States federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership or a foreign
estate or trust as such terms are defined in the Internal Revenue Code of 1986,
as amended (the "Code"). This discussion is based on the Code, existing,
proposed and temporary regulations promulgated thereunder, and administrative
and judicial interpretations, all as of the date hereof, and all of which are
subject to change either retroactively or prospectively. This discussion does
not address all aspects of United States federal income and estate taxation that
may be relevant to Non-United States Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign taxing jurisdiction or the application of any
particular tax treaty. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL INCOME AND OTHER
TAX CONSEQUENCES, AND THE NON-UNITED STATES TAX CONSEQUENCES, OF OWNING AND
DISPOSING OF COMMON STOCK.
DIVIDENDS
Subject to the discussion below (including the discussion of backup
withholding), any dividend paid to a Non-United States Holder generally will be
subject to United States withholding tax either at a rate of 30% of the gross
amount of the dividend or such lower rate as may be specified by any applicable
tax treaty. For purposes of determining whether tax is to be withheld at a 30%
rate or at a reduced rate as specified by an applicable tax treaty, under
current United States Treasury Regulations the Company ordinarily will presume
that dividends paid to a holder with an address in a foreign country are paid to
a resident of such country absent knowledge that such presumption is not
warranted. Under such Regulations, dividends paid to a holder with an address
within the United States generally will be presumed to be paid to a holder who
is not a Non-United States Holder and will not be subject to the 30% withholding
tax, unless the Company has actual knowledge that the holder is a Non-United
States Holder. Under final United States Treasury Regulations, effective January
1, 2000, however, a Non-United States Holder who wishes to claim the benefit of
an applicable treaty rate would be required to satisfy applicable certification
and other requirements, which would include the requirement that the Non-United
States Holder file with the Company a United States Internal Revenue Service
("IRS") Form W-8 which provides the holder's name and address.
65
<PAGE>
Dividends received by a Non-United States Holder that are effectively
connected with a United States trade or business conducted by such Non-United
States Holder (or, if a tax treaty applies attributable to a permanent
establishment in the United States maintained by such Non-United States Holder)
are exempt from withholding tax if the Non-United States Holder files an IRS
Form 4224 (and, generally for payments made after December 31, 1999, a Form W-8)
with the payor. However, such effectively connected dividends are subject to
regular United States federal income tax in the same manner as if the Non-United
States Holder were a United States person for United States federal income tax
purposes. Effectively connected dividends received by a corporate Non-United
States Holder may be subject to an additional "branch profits tax" at a rate of
30% (or such lower rate as may be specified by an applicable tax treaty) of such
corporate Non-United States Holder's effectively connected earnings and profits
for the taxable year, subject to certain adjustments.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain realized upon the sale or other
disposition of Common Stock unless: (i) such gain is effectively connected with
a United States trade or business of the Non-United States Holder (or, if a tax
treaty applies, attributable to a permanent establishment in the United States
maintained by such Non-United States Holder); (ii) the Non-United States Holder
is an individual who holds the Common Stock as a capital asset, is present in
the United States for a period or periods aggregating 183 days or more during
the taxable year in which such sale or disposition occurs, and certain other
conditions are met; or (iii) the Company is or has been a "United States real
property holding corporation" for United States federal income tax purposes at
any time within the shorter of the five-year period preceding such disposition
or such holder's holding period and certain other conditions are met. The
Company has determined that it is not and has never been, and the Company does
not believe that it will become, a "United States real property holding
corporation" for United States federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the recipient. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
For payments made before January 1, 2000, backup withholding generally will
not apply to dividends paid to holders at an address outside the United States
(unless the Company has knowledge that the holder is a United States person).
Unless the Company has actual knowledge that a holder is a Non-United States
Holder, dividends paid during such period to a holder at an address within the
United States may be subject to backup withholding at a rate of 31% if the
holder (i) is not a corporation or other "exempt recipient" as defined in
Treasury Regulations and (ii) fails to provide a correct taxpayer identification
number and other information to the Company. For payments made after December
31, 1999, a Non-United States Holder that is not an "exempt recipient" generally
will be subject to backup withholding at a rate of 31%, rather than the
withholding at a 30% rate or lower treaty rate discussed above, unless such
Non-U.S. Holder certifies as to its foreign status (which certification may be
made on IRS Form W-8).
Proceeds from the disposition of Common Stock by a Non-United States Holder
effected by or through a United States office of a broker will be subject to
information reporting and to backup withholding at a rate of 31% of the gross
proceeds unless such Non-United States Holder certifies under penalties of
perjury as to, among other things, its address and status as a Non-United States
Holder or
66
<PAGE>
otherwise establishes an exemption. Generally, United States information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the transaction is effected outside the United States by or through
a non-United States office of a broker. However, if such broker is, for United
States federal income tax purposes, a United States person, a "controlled
foreign corporation," a foreign person which derives 50% or more of its gross
income for certain periods from the conduct of a United States trade or
business, or, for payments after December 31, 1999, a partnership with certain
connections to the United States, information reporting (but not backup
withholding) will apply unless (i) such broker has documentary evidence in its
files that the holder is a Non-United States Holder and certain other conditions
are met or (ii) the holder otherwise establishes an exemption. Under final
United States Treasury Regulations, effective January 1, 2000, a Non-United
States Holder generally would not be subject to backup withholding if the
beneficial owner certifies to such owner's foreign status on a valid Form W-8
filed with the Company.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of United States
income taxes, a refund may be obtained, provided the required documents are
filed with the IRS.
ESTATE TAX
An individual Non-United States Holder who is treated as the owner of Common
Stock at the time of such individual's death or has made certain lifetime
transfers of an interest in Common Stock will be required to include the value
of such Common Stock in such individual's gross estate for United States federal
estate tax purposes and may be subject to United States federal estate tax,
unless an applicable tax treaty provides otherwise. For United States federal
estate tax purposes, a "Non-United States Holder" is an individual who is
neither a citizen nor a domiciliary of the United States. Whether an individual
is considered a "domiciliary" of the United States for estate tax purposes is
generally determined on the basis of all of the facts and circumstances.
67
<PAGE>
UNDERWRITING
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, BancBoston
Robertson Stephens Inc., BT Alex. Brown Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation are acting as U.S. Representatives, and the
International Underwriters named below, for whom Morgan Stanley & Co.
International Limited, BancBoston Robertson Stephens International Limited, BT
Alex. Brown International, a division of Bankers Trust International PLC and
Donaldson, Lufkin & Jenrette International are acting as International
Representatives, have severally agreed to purchase, and the Selling Stockholders
have agreed to sell to them, severally, the respective number of shares of
Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated........................................
BancBoston Robertson Stephens Inc........................................
BT Alex. Brown Incorporated..............................................
Donaldson, Lufkin & Jenrette Securities Corporation......................
Subtotal...............................................................
-----------------
International Underwriters:
Morgan Stanley & Co. International Limited...............................
BancBoston Robertson Stephens International Limited......................
BT Alex. Brown International, a division of Bankers Trust International
PLC....................................................................
Donaldson, Lufkin & Jenrette International...............................
Subtotal...............................................................
-----------------
Total................................................................
-----------------
-----------------
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriter's over-allotment option described below), if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein); and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person; and (ii) it has not offered or sold, and will not
offer to sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. As used herein, "United States or Canadian Person" means any
68
<PAGE>
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person), and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the Underwriters under the Underwriting
Agreement are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of Shares as may be mutually agreed. The per share price of any Shares so
sold shall be the public offering price set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations
in 1995; (ii) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in relation
to the Shares in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the offering of the
Shares to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
of Japanese International Underwriters or dealers except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and
69
<PAGE>
Exchange Law and otherwise in compliance with applicable provisions of Japanese
law, and that such dealer will send to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as is contained
in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the
Offering, the public offering price, concession and discount may be changed.
Pursuant to the Underwriting Agreement, the Selling Stockholders have
granted to the U.S. Underwriters an option, exercisable for 30 days from the
date of this Prospectus, to purchase up to an aggregate of 675,000 additional
shares of Common Stock at the public offering price set forth on the cover page
hereof, less underwriting discounts and commissions. The U.S. Underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Common Stock as the number set
forth next to such U.S. Underwriter's name in the preceding table bears to the
total number of shares of Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.
The Company, the Selling Stockholders, certain holders of options issued
under the Assumed Plan and the Company's directors and executive officers have
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, they will not, until 6 months after
the closing of the Offering (in the case of the Company), until 120 days after
the closing of the Offering (in the case of the Former Employees and each of the
Company's directors and executive officers who is neither a Company employee or
holds any "restricted securities" or options granted under the Assumed Plan) and
until 12 months after the closing of the Offering (in the case of Crow Family
and each current principal-level employee of the Company holding "restricted
securities" or options granted under the Assumed Option Plan), (i) offer, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) sales made
pursuant to this Offering, (B) the issuance by the Company of shares of Common
Stock upon the exercise of an option or a warrant or the conversion of a
security outstanding on the date of this Prospectus of which the Underwriters
have been advised in writing, (C) stock or stock option issuance by the Company
pursuant to existing employee benefit plans, (D) the bona fide pledge of shares
of Common Stock by any such stockholder to secure loans extended to or
guaranties made by such stockholder; (E) transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
closing of the Offering, (F) the contribution of Common Stock to an exchange
fund, capital fund or similar fund in exchange for securities of such fund; (G)
the issuance, grant or sale by the Company of any subsidiary thereof of shares
of Common Stock (or any option, right, warrant or other interest in shares of
Common Stock) to any person as consideration for any acquisition or as an
inducement to be employed by or to not compete with the Company or any
subsidiary thereof; (H) any charitable gift/donation of shares of Common Stock;
or (I) the transfer of shares of Common Stock to the following: (i) if the
stockholder is an individual, a member of the immediate family of such
stockholder, if any, or a trust whose sole beneficiaries are members of the
immediate family of such stockholder, or a partnership whose sole partners are
members of the immediate family of such stockholder; (ii) if the stockholder is
a trust, any
70
<PAGE>
member of the immediate family of such stockholder that is the grantor or
trustee of the trust and (iii) with respect to Crow Family, CFH and CFH Capital
Resources, L.P., any of their respective affiliates; provided, however, that
such stockholder shall first require any transferee described in clause (I)(i),
(I)(ii) or (I)(iii) to execute a similar "lock-up" agreement prior to such
permitted pledge or transfer.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or stabilize the price
of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities and may
end any of these activities at any time.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Vinson & Elkins L.L.P., Dallas, Texas. Certain legal
matters related to the offering will be passed upon for the Underwriters by
Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements and schedule of the Company at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities Exchange Commission pursuant to the Exchange
Act. Those reports, proxy statements and other information can be inspected at
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and the Regional Offices of the
Commission at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511,
and 7 World Trade Center, New York, New York 10048. Please call the Commission
at 1-800-SEC-0300 for further information on the public reference rooms. Copies
of those materials may also be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
The Commission maintains a World Wide Web site on the Internet at
HTTP://WWW.SEC.GOV that contains reports, proxy and information statements and
other information regarding the Company. Those reports, proxy and information
statements and other information concerning the Company also can be inspected
and copied at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005, on which the Common Stock is listed.
For further information on the Company and the Common Stock being offered,
please review the Registration Statement, including the exhibits that are filed
with it. Statements made in the Registration
71
<PAGE>
Statement that describe documents may not necessarily be complete. We recommend
that you review the documents that the Company has filed with the Registration
Statement to obtain a more complete understanding of those documents.
The Commission allows us to "incorporate by reference" information into the
Registration Statement which means that we can disclose important information to
you by referring you to another document filed separately with the Commission.
The information incorporated by reference is deemed to be part of the
Registration Statement, except for any information superseded by information in
the Registration Statement. The Registration Statement incorporates by reference
the documents set forth below that the Company previously filed with the
Commission. These documents contain important information about the Company.
INCORPORATION BY REFERENCE
The following documents have been filed by the Company with the Commission,
and are incorporated herein by reference and made a part hereof:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, filed with the Commission pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act") on March 31, 1998;
(b) The Company's Annual Report on Form 10-K/A (Amendment No. 1) for the
fiscal year ended December 31, 1997, filed with the Commission pursuant
to the Exchange Act on July 2, 1998;
(c) The Company's Quarterly Report on Form 10Q/A (Amendment No. 1) for the
quarterly period ended March 31, 1998, filed with the Commission pursuant
to the Exchange Act on July 17, 1998;
(d) The Company's Quarterly Report on Form 10Q for the quarterly period
ended June 30, 1998, filed with the Commission pursuant to the Exchange
Act on August 14, 1998;
(e) The Company's Quarterly Report on Form 10Q for the quarterly period
ended September 30, 1998, filed with the Commission pursuant to the
Exchange Act on November 16, 1998; and
(f) The description of the Company's Common Stock, $0.01 par value per
share, contained in Item 1 of the Company's Registration Statement on
Form 8-A filed with the Commission pursuant to the Exchange Act on
October 23, 1997.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act prior to the termination of the Offering
shall also be deemed to be incorporated by reference herein and to be a part
hereof from the dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Registration Statement. Upon the written or oral request of any person
to whom a copy of this Registration Statement has been delivered, including a
beneficial owner of Common Stock, the Company will provide without charge to
such person a copy of any and all documents (excluding exhibits thereto unless
such exhibits are specifically incorporated by reference into such documents)
that have been incorporated by reference into this Registration Statement but
not delivered herewith. Requests for such documents should be addressed to
Trammell Crow Company, 2001 Ross Avenue, Suite 3400, Dallas, Texas 75201,
Attention: Secretary, (214) 863-3000.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Pro Forma Consolidated Financial Statements of Trammell Crow Company (Unaudited):
Pro Forma Consolidated Balance Sheet as of September 30, 1998............................................ F-3
Pro Forma Consolidated Statements of Operations for the Nine Months Ended September 30, 1998 and for the
Year Ended December 31, 1997........................................................................... F-4
Consolidated Financial Statements of Trammell Crow Company (Audited):
Report of Independent Auditors........................................................................... F-7
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. F-8
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995............... F-9
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995..... F-10
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995............... F-11
Notes to Consolidated Financial Statements............................................................... F-12
Condensed Consolidated Financial Statements of Trammell Crow Company (Unaudited):
Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997..................... F-26
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 1998 and 1997.... F-27
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997.... F-28
Notes to Condensed Consolidated Financial Statements..................................................... F-29
</TABLE>
F-1
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are
derived from the Company's historical financial statements. The unaudited pro
forma balance sheet is presented as if the Offering had occurred on September
30, 1998. The unaudited pro forma consolidated statements of operations are
presented as if the Offering, the FHO Acquisition, the Core Acquisition, the
Faison Acquisition, the Tooley Acquisition, the Norman Acquisition, the Doppelt
Acquisition, the Reincorporation Transactions and the Initial Public Offering
had occurred on January 1, 1997. The unaudited pro forma consolidated financial
statements should be read in conjunction with the historical financial
statements of the Company and the notes thereto. See "The Company--Recent
Developments," "--Initial Public Offering," "-- Reincorporation Transactions,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Retail Services" and other financial information, all
included elsewhere in this Prospectus.
The unaudited pro forma consolidated financial statements have been prepared
using the purchase method of accounting whereby the assets and liabilities
acquired and assumed in the acquisitions are adjusted to estimated fair value,
based upon preliminary estimates which are subject to change as additional
information is obtained. The allocations of purchase costs are subject to final
determination based upon estimates and other evaluations of fair value.
Therefore, the allocations reflected in the following unaudited pro forma
consolidated financial statements may differ from the amounts ultimately
determined.
The unaudited pro forma consolidated financial statements are presented for
informational purposes only and are not necessarily indicative of what the
Company's actual results of operations and financial position would have been as
of September 30, 1998, or for the year ended December 31, 1997 and the nine
months ended September 30, 1998, had the Company completed the Offering, the FHO
Acquisition, the Core Acquisition, the Faison Acquisition, the Tooley
Acquisition, the Norman Acquisition, the Doppelt Acquisition, the
Reincorporation Transactions and the Initial Public Offering as of the dates
indicated, nor does it purport to represent the future financial position or
results of operations of the Company. In the opinion of the Company's
management, all material adjustments necessary to reflect the effects of these
transactions have been made.
F-2
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
--------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents..................................................... $ 76,471 $ 1,235(A) $ 77,706
Accounts receivable, net...................................................... 70,456 -- 70,456
Receivables from affiliates................................................... 1,394 -- 1,394
Notes and other receivables................................................... 6,205 -- 6,205
Deferred income taxes......................................................... 3,058 -- 3,058
Real estate held for sale..................................................... 128,058 -- 128,058
Other current assets.......................................................... 10,928 -- 10,928
--------- ----------- -----------
Total current assets...................................................... 296,570 1,235 297,805
Furniture and equipment, net.................................................... 12,783 -- 12,783
Deferred income taxes........................................................... 11,866 -- 11,866
Investments in unconsolidated subsidiaries...................................... 13,026 -- 13,026
Goodwill, net................................................................... 103,863 -- 103,863
Other assets.................................................................... 28,530 -- 28,530
--------- ----------- -----------
Total assets.............................................................. $ 466,638 $ 1,235 $ 467,873
--------- ----------- -----------
--------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.............................................................. $ 25,100 $ -- $ 25,100
Accrued expenses.............................................................. 69,246 (174)(B) 69,072
Payables to affiliates........................................................ 4,930 -- 4,930
Income taxes payable.......................................................... 3,555 218(A) 3,773
Current portion of long-term debt............................................. 1,799 -- 1,799
Notes payable on real estate held for sale.................................... 77,297 -- 77,297
Other current liabilities..................................................... 1,493 -- 1,493
--------- ----------- -----------
Total current liabilities................................................. 183,420 44 183,464
Long-term debt, less current portion............................................ 93,476 -- 93,476
Deferred compensation........................................................... 57 -- 57
Other liabilities............................................................... 245 -- 245
--------- ----------- -----------
Total liabilities......................................................... 277,198 44 277,242
Minority interest............................................................... 14,210 -- 14,210
Stockholders' equity
Common stock.................................................................. 342 3(A) 346
1(B)
Paid-in capital............................................................... 157,663 1,999(B) 160,676
1,014(A)
Retained earnings (deficit)................................................... 18,730 -- 18,730
Less: Stockholder loans....................................................... (1,028) -- (1,028)
Unearned compensation, net............................................... (477) (1,826)(B) (2,303)
--------- ----------- -----------
Total stockholders' equity................................................ 175,230 1,191 176,421
--------- ----------- -----------
Total liabilities and stockholders' equity................................ $ 466,638 $ 1,235 $ 467,873
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- --------------------------
(A) Reflects the exercise by the Selling Stockholders of options to purchase
320,676 shares of Common Stock.
(B) Reflects the issuance of 63,490 shares of Common Stock to certain employees
of Faison who were retained after the Faison Acquisition. The shares were
issued subsequent to September 30, 1998. At September 30, 1998, the Company
accrued $174,000 of compensation expense related to the period from the date
of grant to September 30, 1998.
F-3
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------
HISTORICAL
-------------------------
RECENT
ACQUISITIONS PRO FORMA
COMPANY(A) (B) ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Property management services.......................... $ 81,897 $ 25,569 $ (1,423)(C) $ 106,043
Brokerage services.................................... 100,814 16,275 (562)(C) 116,527
Infrastructure management services.................... 74,008 1,604 -- 75,612
Development and construction services................. 42,132 7,414 1,019(D) 49,390
(1,175)(C)
Retail services....................................... 11,487 -- -- 11,487
------------ ----------- ----------- ------------
310,338 50,862 (2,141) 359,059
Income from investments in unconsolidated
subsidiaries........................................ 7,151 -- -- 7,151
Gain on disposition of real estate.................... 23,455 -- -- 23,455
Other income.......................................... 6,012 854 (404)(E) 6,462
------------ ----------- ----------- ------------
346,956 51,716 (2,545) 396,127
EXPENSES:
Salaries, wages and benefits.......................... 180,509 38,487 (644)(C) 213,683
192(F)
(5,437)(G)
576(H)
Commissions........................................... 43,808 3,979 (952)(C) 46,835
General and administrative............................ 51,371 9,017 (258)(C) 60,130
Depreciation.......................................... 3,385 390 (39)(I) 3,719
(17)(C)
Amortization.......................................... 3,510 -- 2,260(I) 5,770
Interest.............................................. 7,782 258 2,284(J) 10,324
Minority interest..................................... 3,702 -- -- 3,702
------------ ----------- ----------- ------------
294,067 52,131 (2,035) 344,163
------------ ----------- ----------- ------------
Income (loss) before income taxes..................... 52,889 (415) (510) 51,964
Income tax expense (benefit).......................... 21,425 (1,702) 1,332(K) 21,055
------------ ----------- ----------- ------------
Net income (loss)..................................... $ 31,464 $ 1,287 $ (1,842) $ 30,909
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
EARNINGS PER SHARE:
Basic................................................. $ 0.93 $ 0.90
------------ ------------
------------ ------------
Diluted............................................... $ 0.87 $ 0.85
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic................................................. 33,984,517 320,676(X) 34,305,193
------------ ----------- ------------
------------ ----------- ------------
Diluted............................................... 36,208,762 146,896(X) 36,355,658
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
F-4
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
------------------------------------- ADJUSTMENTS FOR
DOPPELT RECENT ACQUISITIONS REINCORPORATION
ACQUISITION ACQUISITIONS AND THE AND IPO
COMPANY (W) (B) OFFERING ADJUSTMENTS PRO FORMA
--------- ------------- ----------- --------------- --------------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Property management services.... $ 87,756 $ -- $ 71,893 $ (2,074)(C) $ -- $ 157,575
Brokerage services.............. 91,053 -- 43,575 (1,842)(C) -- 132,786
Infrastructure management
services...................... 68,719 -- 2,793 -- -- 71,512
Development and construction
services...................... 40,054 -- 6,562 3,098(D) -- 49,024
(690)(C)
Retail services................. 5,318 4,975 -- -- -- 10,293
--------- ------ ----------- --------------- --------------- -----------
292,900 4,975 124,823 (1,508) -- 421,190
Income from investments in
unconsolidated subsidiaries... 512 -- -- -- -- 512
Gain on disposition of real
estate........................ 10,241 -- -- -- -- 10,241
Other income.................... 9,986 30 2,957 (24)(L) (147)(O) 12,802
--------- ------ ----------- --------------- --------------- -----------
313,639 5,005 127,780 (1,532) (147) 444,745
EXPENSES:
Salaries, wages and benefits.... 161,425 4,281 94,645 (2,484)(C) -- 257,739
383(F)
(1,511)(M)
1,000(H)
Non-recurring compensation
costs......................... 33,085 -- -- -- (33,085)(P) --
Commissions..................... 39,121 -- 3,996 (441)(C) -- 42,676
General and administrative...... 55,884 1,232 20,729 (504)(C) 642(Q) 73,434
(194)(N) (4,355)(P)
Profit sharing.................. 23,514 -- -- -- (22,917)(R) 597
Depreciation.................... 3,514 19 1,841 (1,062)(I) -- 4,276
(36)(C)
Amortization.................... 714 -- -- 6,124(I) -- 6,838
Interest........................ 5,515 -- 652 5,913(J) (343)(R) 10,497
(419)(S)
(593)(T)
(228)(U)
Royalty and consulting fees..... 6,212 -- -- -- (6,212)(R) --
Minority interest............... 2,042 -- -- -- -- 2,042
--------- ------ ----------- --------------- --------------- -----------
331,026 5,532 121,863 7,188 (67,510) 398,099
--------- ------ ----------- --------------- --------------- -----------
Income (loss) before income
taxes......................... (17,387) (527) 5,917 (8,720) 67,363 46,646
Income tax expense (benefit).... (3,367) -- 1,913 (3,245)(K) 23,079(V) 18,380
--------- ------ ----------- --------------- --------------- -----------
Net income (loss)............... $ (14,020) $ (527) $ 4,004 $ (5,475) $ 44,284 $ 28,266
--------- ------ ----------- --------------- --------------- -----------
--------- ------ ----------- --------------- --------------- -----------
EARNINGS (LOSS) PER SHARE:
Basic........................... $ (0.42) $ 0.83
--------- -----------
--------- -----------
Diluted......................... $ (0.42) $ 0.79
--------- -----------
--------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic........................... 33,583,467 448,504(X) 34,031,971
--------- --------------- -----------
--------- --------------- -----------
Diluted......................... 33,583,467 211,300(X) 2,161,032(X) 35,955,799
--------- --------------- --------------- -----------
--------- --------------- --------------- -----------
</TABLE>
F-5
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
- ------------------------------
(A) Certain revenues and expenses for the period ended September 30, 1998 have
been reclassified to conform to the presentation for the quarter and year
ended December 31, 1998. As a result, certain revenue and expense items
differ from the amounts reported in previously filed documents. These
reclassifications do not impact net income.
(B) Reflects the historical operations for the periods from January 1, 1998
through the date acquired by the Company and for the year ended December 31,
1997, of Tooley, Norman, Fallon, Hines & O'Connor, Core and Faison, which
were acquired by the Company in 1998.
(C) Adjustments to eliminate operations of a subsidiary of Faison that was not
acquired by the Company.
(D) Reflects development fees the Company would have received pursuant to the
purchase agreement with Faison.
(E) Reflects the elimination of gain on sale of limited partnership interests by
Tooley in connection with the acquisition.
(F) Reflects amortization of payments to certain employees of Faison in
conjunction with their employment agreements.
(G) Adjustment to eliminate non-recurring bonuses paid to employees of Tooley in
conjunction with the acquisition.
(H) Reflects the amortization to salaries expense of the 63,490 restricted
shares of Common Stock granted to certain employees of Faison who were
retained after the acquisition. These shares vest on July 2, 2000 if the
grantee has been continuously employed by the Company from the date of
closing.
(I) Reflects the additional depreciation and amortization resulting from the
allocation of purchase price of the acquired companies, including a decrease
in furniture and equipment and an increase in intangible assets to their
fair value and the recording of goodwill associated with the acquisitions.
Furniture and equipment are being depreciated over the estimated useful
lives (three to five years). The intangible assets are being amortized over
the lives of the related agreements (one to seven years). Goodwill is being
amortized over 30 years.
(J) Adjustments to record interest expense resulting from borrowings under the
Existing Credit Facility associated with the acquisitions, net of interest
expense of the acquired companies on debt not assumed.
(K) Adjustment reflects the increase/decrease in taxes due to the pro forma
adjustments for acquisitions.
(L) Reflects the decrease in interest income related to the Doppelt stockholder
loans which were not included in the acquisition.
(M) Reflects the reduction of historical salaries to the amounts payable under
an employment agreement entered into in connection with the Doppelt
Acquisition and the amortization of the $2.0 million payment to Mr. Doppelt
in conjunction with his employment agreement.
(N) Adjustment to eliminate non-recurring consulting fees paid by Tooley in
conjunction with the acquisition.
(O) Reflects the decrease in interest income resulting from the repayment of
loans owed to the Company by certain 1995 Profit Sharing Plan participants.
(P) Adjustment to eliminate non-recurring charges to: (1) compensation expense
for the difference between the Initial Public Offering price and the
exercise price of options granted in conjunction with the Reincorporation
Transactions and (2) general and administrative expenses for payment
obligations incurred in connection with settlement of claims made pursuant
to a terminated stock appreciation rights plan.
(Q) Reflects the additional costs of being a public company.
(R) Reflects the termination of the Company's policy of granting profit sharing
interest under the 1995 Profit Sharing Plan for key employees, including the
related interest expense on the retired 1995 Profit Sharing Plan
participants' balances, and the termination of royalty and consulting
agreements with affiliates of the Company. The profit sharing expense not
eliminated relates to project distributions for retired Profit Sharing Plan
participants which were not terminated.
(S) Reflects the reduction in interest expense related to the First Tennessee
credit facility repaid with proceeds from the Pre IPO Credit Facility.
(T) Reflects the decrease in interest expense due to the repayment of the Pre
IPO Credit Facility.
(U) Reflects the decrease in interest expense related to the repayment of
capitalization notes, lines of credits and other notes payable.
(V) Reflects the increase in taxes due to the pro forma adjustments to reflect
the Reincorporation Transactions and the Initial Public Offering.
(W) Reflects the historical operations from January 1, 1997 through August 22,
1997, the date acquired by the Company.
(X) Reflects the weighted average additional shares outstanding assuming the
following occurred on January 1, 1997: (1) the sale of Common Stock, the
grant of restricted shares of Common Stock and the issuance of stock options
to certain employees of acquired companies; (2) the exercise by certain
Selling Stockholders of options to purchase 320,676 shares of Common Stock
in connection with the Offering; and (3) the grant of options to purchase
Common Stock in connection with the Initial Public Offering.
F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Trammell Crow Company
We have audited the accompanying consolidated balance sheets of Trammell
Crow Company (a Delaware corporation; formerly a Texas close corporation) and
Subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Trammell Crow Company and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
March 4, 1998
F-7
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................... $ 96,747 $ 58,505
Accounts receivable, net of allowance for doubtful accounts of $955 in 1997 and $947 in
1996.................................................................................. 40,602 32,980
Receivables from affiliates............................................................. 926 2,275
Notes and other receivables............................................................. 4,007 4,936
Income taxes recoverable................................................................ 4,939 --
Deferred income taxes................................................................... 3,870 88
Real estate held for sale............................................................... 98,567 71,122
Other current assets.................................................................... 9,220 2,932
---------- ----------
Total current assets.................................................................. 258,878 172,838
Furniture and equipment, net.............................................................. 6,309 6,323
Deferred income taxes..................................................................... 14,397 7,796
Investments in unconsolidated subsidiaries................................................ 11,244 3,831
Goodwill, net............................................................................. 27,111 --
Other assets.............................................................................. 8,297 3,526
---------- ----------
$ 326,236 $ 194,314
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable........................................................................ $ 18,523 $ 12,426
Accrued expenses........................................................................ 56,270 36,128
Payables to affiliates.................................................................. 4,466 5,649
Income taxes payable.................................................................... -- 3,253
Current portion of long-term debt....................................................... 875 3,409
Notes payable on real estate held for sale.............................................. 76,623 67,810
Other current liabilities............................................................... 2,185 1,023
---------- ----------
Total current liabilities............................................................. 158,942 129,698
Long-term debt, less current portion...................................................... 1,555 8,952
Deferred compensation..................................................................... 8,391 20,963
Other liabilities......................................................................... 417 405
---------- ----------
Total liabilities..................................................................... 169,305 160,018
Minority interest......................................................................... 19,859 3,294
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; 33,892,038 shares issued
and outstanding in 1997............................................................... 339 --
Paid-in capital......................................................................... 150,647 24,084
Retained earnings (deficit)............................................................. (12,734) 16,312
Less: Stockholder loans................................................................. (1,180) (9,394)
---------- ----------
Total stockholders' equity................................................................ 137,072 31,002
---------- ----------
$ 326,236 $ 194,314
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-8
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
------------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Property management services............................................ $ 87,756 $ 90,179 $ 92,970
Brokerage services...................................................... 91,053 72,095 61,960
Infrastructure management services...................................... 68,719 50,836 38,681
Development and construction services................................... 40,054 22,732 20,382
Retail services......................................................... 5,318 2,393 1,510
------------- ---------- ----------
292,900 238,235 215,503
Income from investments in unconsolidated subsidiaries.................. 512 594 114
Gain on disposition of real estate...................................... 10,241 6,630 5,026
Other income............................................................ 9,986 9,996 6,559
------------- ---------- ----------
313,639 255,455 227,202
COSTS AND EXPENSES:
Salaries, wages and benefits............................................ 161,425 137,794 130,248
Non-recurring compensation costs........................................ 33,085 -- --
Commissions............................................................. 39,121 27,119 23,730
General and administrative.............................................. 55,884 41,421 40,671
Profit sharing.......................................................... 23,514 20,094 15,893
Depreciation............................................................ 3,514 3,196 3,841
Amortization............................................................ 714 -- --
Interest................................................................ 5,515 1,726 1,722
Royalty and consulting fees............................................. 6,212 3,959 2,443
Minority interest....................................................... 2,042 206 520
------------- ---------- ----------
331,026 235,515 219,068
------------- ---------- ----------
Income (loss) before income taxes......................................... (17,387) 19,940 8,134
Income tax expense (benefit).............................................. (3,367) 7,826 3,793
------------- ---------- ----------
Net income (loss)......................................................... $ (14,020) $ 12,114 $ 4,341
------------- ---------- ----------
------------- ---------- ----------
Pro forma loss per share (basic and diluted).............................. $ (.42) * *
------------- ---------- ----------
------------- ---------- ----------
Pro forma weighted average common shares outstanding...................... 33,583,467
-------------
-------------
</TABLE>
- ------------------------
* Information is not relevant due to change in capital structure.
See accompanying notes.
F-9
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON SHARES COMMON COMMON RETAINED
---------------------- STOCK STOCK PAR PAID-IN EARNINGS TREASURY
ISSUED TREASURY SUBSCRIBED VALUE(1) CAPITAL (DEFICIT) STOCK
--------- ----------- ------------- ------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995...... 9,350 675 $ 361 $ -- $ 9,293 $ 5,333 $ (914)
Net income.................... -- -- -- -- -- 4,341 --
Dividends..................... -- -- -- -- -- (2,475) --
Sale of common stock
previously subscribed....... 390 -- (361) -- 361 -- --
Purchase of common stock...... -- 774 -- -- -- -- (1,337)
Sale of common stock.......... -- (400) -- -- -- -- 691
--------- ----------- ----- ----- --------- ----------- -----------
Balance at December 31, 1995.... 9,740 1,049 -- -- 9,654 7,199 (1,560)
Net income.................... -- -- -- -- -- 12,114 --
Dividends..................... -- -- -- -- -- (2,890) --
Purchase of common stock...... -- 2,481 -- -- -- -- (3,943)
Sale of common stock.......... 9,634 (3,530) -- -- 14,430 (111) 5,503
--------- ----------- ----- ----- --------- ----------- -----------
Balance at December 31, 1996.... 19,374 -- -- -- 24,084 16,312 --
Net loss...................... -- -- -- -- -- (14,020) --
Dividends..................... -- -- -- -- -- (15,026) --
Purchase of stock............. -- 963 -- -- -- -- (2,388)
Repayment of stockholder
loans....................... -- -- -- -- -- -- --
Sale of stock in public
offering.................... 5,750,000 -- -- 58 100,567 -- --
Offering costs................ -- -- -- -- (10,420) -- --
Non-cash charge for August
1997 options................ -- -- -- -- 33,085 -- --
Issuance and exchange of
shares in reincorporation
transactions................ 27,779,807 -- -- 278 (278) -- --
Conversion of note payable
into common stock........... 342,857 -- -- 3 5,997 -- --
Retirement of treasury
shares...................... -- (963) -- -- (2,388) -- 2,388
--------- ----------- ----- ----- --------- ----------- -----------
Balance at December 31, 1997.... 33,892,038 -- $ -- $ 339 $ 150,647 $ (12,734) $ --
--------- ----------- ----- ----- --------- ----------- -----------
--------- ----------- ----- ----- --------- ----------- -----------
<CAPTION>
STOCKHOLDER
LOANS TOTAL
------------- ---------
<S> <C> <C>
Balance at January 1, 1995...... $ -- $ 14,073
Net income.................... -- 4,341
Dividends..................... -- (2,475)
Sale of common stock
previously subscribed....... -- --
Purchase of common stock...... -- (1,337)
Sale of common stock.......... -- 691
------------- ---------
Balance at December 31, 1995.... -- 15,293
Net income.................... -- 12,114
Dividends..................... -- (2,890)
Purchase of common stock...... -- (3,943)
Sale of common stock.......... (9,394) 10,428
------------- ---------
Balance at December 31, 1996.... (9,394) 31,002
Net loss...................... -- (14,020)
Dividends..................... -- (15,026)
Purchase of stock............. -- (2,388)
Repayment of stockholder
loans....................... 8,214 8,214
Sale of stock in public
offering.................... -- 100,625
Offering costs................ -- (10,420)
Non-cash charge for August
1997 options................ -- 33,085
Issuance and exchange of
shares in reincorporation
transactions................ -- --
Conversion of note payable
into common stock........... -- 6,000
Retirement of treasury
shares...................... -- --
------------- ---------
Balance at December 31, 1997.... $ (1,180) $ 137,072
------------- ---------
------------- ---------
</TABLE>
- ------------------------------
(1) Common stock par value for 1995 and 1996 rounds to less than $1.
See accompanying notes.
F-10
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................................................. $ (14,020) $ 12,114 $ 4,341
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation..................................................................... 3,514 3,196 3,841
Amortization..................................................................... 714 -- --
Minority interest................................................................ 2,042 206 520
Deferred income tax provision (benefit).......................................... (5,462) 1,602 (2,040)
Income from investments in unconsolidated subsidiaries........................... (512) (594) (114)
Gain on disposition of real estate............................................... (10,241) (6,630) (5,026)
Non-cash charge for August 1997 options.......................................... 33,085 -- --
Changes in operating assets and liabilities
Accounts receivable............................................................ (6,007) (6,757) (8,214)
Receivables from affiliates.................................................... 3,083 (1,585) 1,466
Notes receivable and other assets.............................................. (7,509) (2,286) (2,228)
Expenditures for real estate held for sale..................................... (109,068) (92,975) (37,641)
Proceeds from sale of real estate.............................................. 51,542 48,555 43,472
Proceeds from real estate notes payable........................................ 89,763 91,428 21,705
Payments on real estate notes payable.......................................... (45,550) (36,800) (31,438)
Accounts payable and accrued expenses.......................................... 20,159 4,558 17,277
Payables to affiliates......................................................... (1,275) 1,850 1,203
Income taxes recoverable/payable............................................... (8,192) 2,775 (454)
Deferred compensation.......................................................... (234) 5,750 4,416
Other liabilities.............................................................. (810) 741 (438)
--------- --------- ---------
Net cash provided by (used in) operating activities................................ (4,978) 25,148 10,648
--------- --------- ---------
INVESTING ACTIVITIES
Expenditures for furniture and equipment........................................... (3,469) (3,277) (2,077)
Acquisition of Doppelt and Company................................................. (22,658) -- --
Investments in unconsolidated subsidiaries......................................... (7,404) (2,305) (1,873)
Distributions from unconsolidated subsidiaries..................................... 6,912 1,408 170
Contributions from minority interest............................................... 10,350 11 3,631
Distributions to minority interest................................................. (5,053) (856) (497)
--------- --------- ---------
Net cash used in investing activities.............................................. (21,322) (5,019) (646)
--------- --------- ---------
FINANCING ACTIVITIES
Principal payments on debt......................................................... (47,467) (4,538) (5,688)
Proceeds from debt................................................................. 36,146 9,834 2,664
Payment on deferred financing fees................................................. (1,031) -- --
Purchase of common stock........................................................... (730) (3,943) (1,010)
Proceeds from sale of common stock................................................. 100,625 15 1,052
Stock offering costs............................................................... (10,420) (257) --
Collections of stockholder loans................................................... 2,445 -- --
Dividends paid..................................................................... (15,026) (2,890) (2,475)
--------- --------- ---------
Net cash provided by (used in) financing activities................................ 64,542 (1,779) (5,457)
--------- --------- ---------
Net increase in cash and cash equivalents.......................................... 38,242 18,350 4,545
Cash and cash equivalents, beginning of year....................................... 58,505 40,155 35,610
--------- --------- ---------
Cash and cash equivalents, end of year............................................. $ 96,747 $ 58,505 $ 40,155
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-11
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Trammell Crow Company, a Delaware corporation (the Company), was
incorporated on August 21, 1997 to become the successor to Trammell Crow
Company, a Texas close corporation (the Predecessor Company). In connection with
the Company's initial public offering, a wholly-owned subsidiary of the Company
was merged with and into the Predecessor Company (the Reincorporation Merger)
with the Predecessor Company surviving the merger as a wholly-owned subsidiary
of the Company. The Company provides commercial real estate services primarily
in the United States. Its principal lines of business include property
management, brokerage, infrastructure management, development and construction,
and retail services.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries, and other subsidiaries over which
the Company has control. Intercompany accounts and transactions have been
eliminated. The Company's investments in subsidiaries in which it has the
ability to exercise significant influence over operating and financial policies,
but does not have control, are accounted for on the equity method. Accordingly,
the Company's share of the earnings of these subsidiaries is included in
consolidated net income. Investments in other subsidiaries are carried at cost.
These unconsolidated subsidiaries primarily own real estate development
projects.
REVENUE RECOGNITION
The Company recognizes fees from property management services and
infrastructure management services over the terms of the respective management
contracts. Most of the property management contracts are cancelable at will or
with 30 days' notice. The infrastructure management contracts generally range
from three to five years. Brokerage service revenue relating to leasing services
and the related expense are generally recognized half upon the execution of a
lease contract and the remainder upon tenant occupancy. Sales brokerage revenue
is recognized upon closing. Development and construction services includes fees
from development and construction management projects and net construction
revenues, which are gross construction revenues net of subcontract costs. For
projects exceeding three months, fees are recognized using the
percentage-of-completion method. For contracts under three months, fees are
recognized upon completion of the contract. Gross construction revenues totaled
$61,837, $46,034 and $22,335 and subcontract costs totaled $52,853, $41,123 and
$19,397 in 1997, 1996 and 1995, respectively.
F-12
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term, highly liquid
investments with maturities of 90 days or less when purchased.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed using
the straight-line method over useful lives ranging from three to 10 years.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes result from temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
federal income tax purposes, and are measured using the enacted tax rates and
laws that will be in effect when the differences reverse.
PRO FORMA EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share. SFAS 128 replaced
primary and fully diluted earnings per share with basic and diluted earnings per
share.
In accordance with the requirements of the Securities and Exchange
Commission, the weighted average shares outstanding used to calculate basic and
diluted earnings per share included the shares issued in connection with the
Company's initial public offering and related transactions for the full year.
Options to purchase 4,788,046 shares of common stock were outstanding during a
portion of 1997 (see Note 8) but were not included in the computation of diluted
earnings per share because the Company incurred a net loss for the year and
therefore, the effect would be antidilutive.
CONCENTRATION OF CREDIT RISK
The Company provides services to owners of real estate assets primarily in
the United States. The Company performs credit evaluations of its customers and
generally does not require collateral. The risk associated with this
concentration is limited because of the large number of customers and their
geographic dispersion.
LONG-LIVED ASSETS
Long-lived assets, including goodwill, are evaluated when indicators of
impairment are present and provisions for possible losses are recorded when
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount.
F-13
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill reflects the excess of purchase price over the fair value of net
assets purchased. Goodwill is amortized on a straight-line basis over 30 years.
Accumulated amortization of goodwill was $384 and $23 at December 31, 1997 and
1996, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), which establishes standards for the way in which public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosure about products and services, and
major customers. This statement is effective for financial statements for
periods beginning after December 15, 1997. The Company is currently evaluating
the impact SFAS 131 will have on its financial statement disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.
2. REAL ESTATE HELD FOR SALE
The Company provides build-to-suit services for its customers and also
develops or purchases projects for investment purposes. Therefore, the Company
has ownership of real estate until such projects are sold. Real estate held for
sale is carried at the lower of cost or fair value less selling expenses. At
December 31, real estate held for sale consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land.................................................................... $ 40,269 $ 26,635
Buildings and improvements.............................................. 58,298 44,487
--------- ---------
$ 98,567 $ 71,122
--------- ---------
--------- ---------
</TABLE>
The estimated costs to complete the 17 projects under construction at
December 31, 1997, total $54,837. Projects are expected to be sold within one
year of completion. At December 31, 1997, the Company had commitments for the
sale of ten of the projects. Gains are recognized upon sale of the project.
In 1997, rental revenues, which are included in development and construction
services revenue, and net income relating to real estate held for sale was
$6,086 and $658, respectively. Operations from real estate held for sale were
insignificant in 1996 and 1995.
F-14
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Furniture and equipment, at cost...................................... $ 19,875 $ 18,097
Less: Accumulated depreciation........................................ (13,566) (11,774)
---------- ----------
Furniture and equipment, net $ 6,309 $ 6,323
---------- ----------
---------- ----------
</TABLE>
4. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
Summarized financial information for unconsolidated subsidiaries in which
the Company has an investment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
BALANCE SHEET:
Real estate held for sale.................................................. $ 179,973
Other assets............................................................... 52,687
--------
Total assets............................................................. $ 232,660
--------
--------
Notes payable on real estate held for sale................................. $ 122,267
Other liabilities.......................................................... 28,573
Equity..................................................................... 81,820
--------
Total liabilities and equity............................................. $ 232,660
--------
--------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
STATEMENT OF OPERATIONS:
Total revenues............................................................. $ 47,277
Total expenses............................................................. (44,154)
--------
Net income............................................................... $ 3,123
--------
--------
</TABLE>
F-15
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Profit sharing distributions............................................ $ 12,752 $ 10,931
Payroll and bonuses..................................................... 14,825 10,191
Commissions............................................................. 11,132 7,808
Stock Appreciation Rights Plan settlement............................... 4,228 --
Deferred income......................................................... 3,288 --
Insurance accrual....................................................... 1,128 901
Interest................................................................ 55 473
Other................................................................... 8,862 5,824
--------- ---------
$ 56,270 $ 36,128
--------- ---------
--------- ---------
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Long-term debt consists of the following at December 31:
Borrowings under a $150,000 line of credit with a bank; due December 1999, with
two 1-year extension options; bearing interest at (1) the greater of prime or
the Federal Funds Effective Rate plus 1/2% or (2) the Eurocurrency rate plus a
margin ranging from 1 1/4 to 1 3/4%; interest payable monthly.................. $ -- $ --
Borrowings under a $7,750 line of credit with a bank; bearing interest at 8.75%;
terminated in 1997............................................................. -- 7,750
Borrowings under revolving lines of credit with banks; totaling $3,300 and $2,800
in 1997 and 1996, respectively; expiring in 1998; bearing interest at rates
ranging from prime plus .5% to prime plus 1%; secured by certain assets........ -- 514
Note payable under a loan agreement with the majority stockholders; bearing
interest at 10.5%; paid in full in December 1997............................... -- 1,378
Capital lease obligations primarily for furniture and equipment; with maturity
dates ranging from 1998 to 2002; bearing interest at various rates ranging from
3.3% to 14% per annum in 1997; secured by the underlying assets and certain
accounts receivable............................................................ 1,579 2,719
Notes payable to former stockholders; due in 2000; bearing interest at 6.1%;
principal and interest payable upon maturity................................... 851 --
--------- ---------
Total long-term debt............................................................. 2,430 12,361
Less current portion of long-term debt........................................... 875 3,409
--------- ---------
$ 1,555 $ 8,952
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. LONG-TERM DEBT (CONTINUED)
The shares of certain wholly-owned subsidiaries having 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, having more than 5% of the
consolidated assets, revenues or earnings of the Company, are pledged as
security for the $150,000 line of credit.
The Company is subject to various covenants associated with the $150,000
line of credit such as maintenance of minimum equity and liquidity and certain
key financial data. In addition, the Company may not pay dividends exceeding 50%
of the previous year's net income before depreciation and amortization, and
there are certain restrictions on investments and acquisitions that can be made
by the Company. If certain financial ratios fall below a specified level, the
Company will be required to make payments equal to cash flow until such time as
the ratios reach the pre-established levels. At December 31, 1997, the Company
is in compliance with all debt covenants.
The covenants associated with the $150,000 line of credit 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 line of credit to an
amount less than the $150,000 commitment. At December 31, 1997, the Company has
$92,461 available under its $150,000 line of credit. Beginning March 1998, the
Company must pay a quarterly fee equal to .25% of the unused commitments under
the line.
The Company also has other revolving lines of credits with banks totaling
$3,300 at December 31, 1997, of which $2,876 is available.
Principal maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998................................................................................. $ 875
1999................................................................................. 459
2000................................................................................. 1,006
2001................................................................................. 85
2002................................................................................. 5
---------
$ 2,430
---------
---------
</TABLE>
Based on current rates available to the Company for debt with similar terms,
there is not a significant difference between the carrying amounts of the long-
term debt and their fair values.
7. NOTES PAYABLE ON REAL ESTATE HELD FOR SALE
The Company has loans secured by real estate held for sale (the majority of
which are construction loans) totaling $76,623 and $67,810 as of December 31,
1997 and 1996, respectively. Interest rates range from 8.25% to 12.0%.
Generally, interest only is payable on the real estate loans, with all unpaid
principal and interest due at maturity. The unused commitments on real estate
loans total $33,684 at December 31, 1997. All real estate loans have been
classified as current liabilities on the balance sheet since the loans are
expected to be repaid as the related projects are sold (see Note 2).
Capitalized interest in 1997 and 1996 totaled $1,642 and $539, respectively.
At December 31, 1997, $18,000 of the $76,623 real estate loans are recourse to
the Company.
F-17
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. NOTES PAYABLE ON REAL ESTATE HELD FOR SALE (CONTINUED)
Based on current rates available to the Company for debt with similar terms,
there is not a significant difference between the carrying amounts of the notes
payable on real estate held for sale and their fair values.
8. STOCKHOLDERS' EQUITY
Prior to the reincorporation transactions, the Predecessor Company had five
classes of common stock, all of which held the same voting rights, except for
voting rights with respect to certain specific actions.
In August 1996, the Predecessor Company completed a private offering to
Company employees and directors of 9,634 shares of Class E Common Stock. In
connection with the offering, the Company provided financing of $9,394 to
stockholders, which is reflected as a reduction of stockholders' equity. These
stockholder loans are to be repaid at prime plus .5% interest (9.0% at December
31, 1997). Principal and interest are payable annually and the notes mature in
March 2001. Principal and interest payments of $8,214 and $649, respectively,
were received in 1997.
The Company was capitalized with the issuance of 1,000 common shares to a
Predecessor Company stockholder. As a result of the Reincorporation Merger, the
outstanding shares of common stock of the Predecessor Company were exchanged for
25,502,964 shares of common stock of the Company. The Company also issued
2,295,217 shares of common stock to a Predecessor Company stockholder in
exchange for a trade name license.
On November 24, 1997, the Company's registration statement was declared
effective for its initial public offering of 5,750,000 shares of its common
stock (including exercise of the over-allotment option of 750,000 shares) at a
public offering price of $17.50 per share (the Offering). The proceeds to the
Company from the Offering were $90,205, net of offering expenses.
The holders of shares of the Company's common stock are entitled to one vote
for each share held on all matters submitted to a vote of common stockholders.
Each share of common stock is entitled to participate equally in dividends, when
and if declared, and in the distribution of assets in the event of liquidation,
dissolution or winding up of the Company, subject in all cases to any rights of
outstanding shares of preferred stock.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (FAS No. 123),
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, compensation expense is recognized
to the extent the market price of the underlying stock on the date of grant
exceeds the exercise price of the option.
In connection with the reincorporation transactions, the Company assumed the
Trammell Crow Company 1997 Option Plan (the Assumed Option Plan), which provided
for the issuance of up to 1,626 shares of the Predecessor Company's Class E
common stock. On August 1, 1997, the Predecessor Company granted to certain
employees options to acquire 1,626 shares of Class E common stock. In connection
with the reincorporation transactions, these options were converted into options
to purchase 2,423,769 shares of the Company's common stock at an exercise price
of $3.85 per share. The options
F-18
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
vested at the closing of the Offering and became exercisable 30 days after that
date. The options expire 10 years from the date of grant. The Company recognized
a non-cash, non-recurring charge to compensation of $33,085 for these options.
In connection with the Offering, the Company established the Trammell Crow
Company Long-Term Incentive Plan (the Long-Term Plan). The Long-Term Plan
provides for the issuance of up to 5,334,878 shares of common stock. In
connection with the Offering, the Company granted to certain employees options
to acquire 2,348,455 shares of common stock at an exercise price of $17.50 per
share. The options vest over a three-year period, with one-third vesting on each
of the three anniversaries of the grant date, and expire 10 years from the date
of grant. In December 1997, the Company granted to non-employee directors of the
Company options to acquire 15,822 shares of common stock at an exercise price of
$22.75 per share. The options vested immediately upon granting and expire 10
years from the date of grant.
The Long-Term Plan also provides for the awards of Stock Appreciation
Rights, Restricted Stock and Performance Units. No such awards have been made as
of December 31, 1997.
At December 31, 1997, common shares reserved for future issuance under the
Assumed Option Plan and the Long-Term Plan total 7,758,647 shares.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions: risk-free interest rates ranging
from 5.76% to 6.40%; a dividend yield of 0%; volatility factors of the expected
market price of the Company's common stock of 0.318; and a weighted-average
expected life of the options of 8 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
differently than those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For the purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. For the year
ended December 31, 1997, the Company's pro forma net loss is $18,473 and pro
forma loss per share (basic and diluted) is $.55. These pro forma disclosures
are not likely to be representative of the effects on reported net income for
future years since few options have vested at December 31, 1997.
F-19
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option activity, and related information,
for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE OF EXERCISE PRICE OF
$3.85 (BELOW $17.50 TO $22.75 (AT
MARKET PRICE AT MARKET
GRANT DATE) PRICE AT GRANT DATE) TOTAL
------------------ ------------------------- ----------
<S> <C> <C> <C>
OPTIONS OUTSTANDING:
Number of options at January 1, 1997.................. -- -- --
Granted............................................... 2,423,769 2,364,277 4,788,046
Exercised............................................. -- -- --
Forfeited............................................. -- -- --
Expired............................................... -- -- --
------------------ ----------- ----------
Number of options at December 31, 1997................ 2,423,769 2,364,277 4,788,046
------------------ ----------- ----------
------------------ ----------- ----------
Weighted-average exercise price....................... $ 3.85 $ 17.54
Weighted-average fair value of options granted........ $ 15.18 $ 8.79
Weighted-average remaining contractual life........... 9.6 years 9.9 years
OPTIONS EXERCISABLE:
Number of options..................................... 2,423,769 15,822 2,439,591
Weighted-average exercise price....................... $ 3.85 $ 22.75
</TABLE>
9. INCOME TAXES
Components of deferred income taxes are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Assets................................................................... $ 18,946 $ 8,047
Liabilities.............................................................. (679) (163)
--------- ---------
$ 18,267 $ 7,884
--------- ---------
--------- ---------
Current.................................................................. $ 3,870 $ 88
Noncurrent............................................................... 14,397 7,796
--------- ---------
$ 18,267 $ 7,884
--------- ---------
--------- ---------
</TABLE>
F-20
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset are summarized below as of
December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets
Deferred compensation.................................................. $ 4,395 $ 6,856
Bad debts.............................................................. 316 313
Depreciation........................................................... 507 546
Basis difference on real estate held for sale.......................... 2,012 --
Compensation expense relating to stock options......................... 12,559 --
Stock Appreciation Rights Plan Settlement.............................. 1,605 --
Other.................................................................. 64 332
--------- ---------
21,458 8,047
Less: Valuation allowance.............................................. (2,512) --
--------- ---------
Total deferred tax assets.............................................. 18,946 8,047
Deferred tax liabilities
State taxes............................................................ (523) --
Goodwill amortization.................................................. (115) --
Other.................................................................. (41) (163)
--------- ---------
Total deferred tax liabilities......................................... (679) (163)
--------- ---------
Net deferred tax asset................................................... $ 18,267 $ 7,884
--------- ---------
--------- ---------
</TABLE>
The provision (benefit) for income taxes consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal...................................................... $ 1,646 $ 5,202 $ 4,893
State........................................................ 449 1,022 940
--------- --------- ---------
2,095 6,224 5,833
Deferred
Federal...................................................... (4,862) 1,602 (2,040)
State........................................................ (600) -- --
--------- --------- ---------
(5,462) 1,602 (2,040)
--------- --------- ---------
$ (3,367) $ 7,826 $ 3,793
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-21
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. INCOME TAXES (CONTINUED)
The differences between the provisions for income taxes and the amounts
computed by applying the statutory federal income tax rates to income (loss)
before income taxes for the years ended December 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory rate applied to income (loss) before income
taxes......................................................... $ (5,912) $ 6,780 $ 2,766
State income taxes, net of federal tax benefit.................. (611) 674 589
Increase in taxes resulting from non-deductible meals,
entertainment and other....................................... 644 372 438
Valuation allowance............................................. 2,512 -- --
--------- --------- ---------
$ (3,367) $ 7,826 $ 3,793
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. OPERATING LEASES
The Company has commitments under operating leases for office space and
office equipment. During the years ended December 31, 1997, 1996 and 1995, rent
expense was $6,906, $7,814 and $7,255, including $1,770, $3,037 and $2,987,
respectively, paid to affiliates of the Company.
Minimum future rentals under noncancelable operating lease commitments in
effect at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
AFFILIATE NONAFFILIATE TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
1998........................................................ $ 936 $ 4,494 $ 5,430
1999........................................................ 935 2,971 3,906
2000........................................................ 882 1,994 2,876
2001........................................................ 759 1,401 2,160
2002........................................................ 696 1,145 1,841
Thereafter.................................................. -- 236 236
----------- ----------- ---------
$ 4,208 $ 12,241 $ 16,449
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
Rental amounts include fixed operating expense payments but do not include
increases for rate escalations.
11. EMPLOYEE BENEFIT PLANS
The Company's employees participate in a defined contribution savings plan,
which provides the opportunity for pretax contributions by employees. The
Company matches 50% of the employee's contributions up to 6% of the employee's
annual earnings or a maximum of $4.5 per annum. The Company's contribution
expense for 1997, 1996, and 1995 was $2,122, $1,741, and $2,154, respectively.
The Company has a profit sharing plan for key employees (the Profit Sharing
Plan). Each participant has a profit sharing account that is adjusted annually
for the participant's percentage of the earnings for a profit sharing unit, cash
distributions, tax rate changes, and other adjustments. Distributions to
participants
F-22
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
are limited to Available Cash, as defined. Any difference between the amount
expensed and the amount paid to the participants is recorded as deferred
compensation. The Company's management board approved the percentage of earnings
available to profit sharing participants. Such percentages were approximately
58%, 58% and 73% of earnings before profit sharing, as defined, in 1997, 1996,
and 1995, respectively. In connection with the Offering, the Company terminated
any future awards under the Profit Sharing Plan.
Effective January 1, 1993, the Company initiated the All Employee Cash
Profit Sharing Program whereby 3% of earnings, as defined, was paid as bonuses
to employees not participating in the key employee profit sharing plan. Expense
related to the program, which is included in salaries, wages and benefits, was
$1,577, $1,205, and $818 in 1997, 1996, and 1995, respectively. In connection
with the Offering, the Company terminated this program.
Effective March 1, 1998, the Company established the Trammell Crow Company
Employee Stock Purchase Plan (the ESPP), subject to stockholder approval.
Employees may elect to have monthly payroll deductions of 1% to 10%, which is
used to purchase, on a semi-annual basis, stock of the Company at a 15% discount
from market value. The ESPP is available to all employees. The Company has
reserved 1,000,000 shares of common stock for issuance under the ESPP. Shares
may also be issued from treasury, if available.
12. GAIN ON DISPOSITION OF REAL ESTATE
During 1997, the Company sold thirteen real estate projects for an aggregate
sale price of $51,542, resulting in a gain on sale of $10,241. During 1996, the
Company sold sixteen real estate projects for an aggregate sale price of
$48,555, resulting in a gain on sale of $6,630. During 1995, the Company sold
nine real estate projects for an aggregate sale price of $43,472, resulting in a
gain on sale of $5,026.
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.
13. ACQUISITIONS
In August 1997, the Company acquired substantially all of the assets of
Doppelt & Company (Doppelt), a Cleveland, Ohio-based company that specializes in
new store roll out strategies and problem real estate disposition services. The
Company paid $20,658 in cash, issued a promissory note of $6,000, which was
prepaid by the Company in November 1997 with 342,857 shares of common stock, and
granted the seller the right to receive an additional $2,000 of purchase price
if future commissions collected by the Company exceed $7,000, subject to certain
reductions. The Company also paid Mr. Doppelt $2,000 as consideration for an
employment agreement, which includes non-compete provisions. In connection with
the acquisition, which was accounted for using the purchase method of
accounting, the Company recorded goodwill of $27,416. The operations of Doppelt
are included in the Company's operations from the date of acquisition.
F-23
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. RELATED PARTY TRANSACTIONS
In 1997, 1996 and 1995, the Company derived 7%, 9%, and 11%, respectively,
of its total revenues from services provided principally to the stockholders of
the Company. The fees received are comparable to those charged to unaffiliated
customers.
Under certain agreements, two significant stockholders were entitled to
receive royalty and consulting fees totaling approximately 12% of Earnings
Before Profit Sharing, as defined. Accrued royalties and consulting fees at
December 31, 1997 and 1996, are included in payables to affiliates. These
agreements were terminated in connection with the Offering. The Company paid
$1,556 to one of the stockholders in January 1998 and has agreed to pay all
remaining unpaid amounts by April 15, 1998.
In conjunction with the issuance of stock in 1996, the Company issued tax
loans to the stockholders totaling $4,734 in order for the stockholders to pay
the incremental taxes related to the stock purchased. As of December 31, 1997
and 1996, $43 and $1,620, respectively, is outstanding and included in notes and
other receivables. These notes bear interest at 5.9% and are due in August 1999;
however, these loans may be repaid earlier based on cash available for profit
sharing distributions.
In January 1997, the Company formed a joint venture with an affiliate of one
of the stockholders to provide management information services. Both parties
share equally in any distributions from the joint venture (none through December
31, 1997). The Company entered into a 5-year management information system
agreement with the joint venture for related services and, in 1997, paid fees
totaling $4,135 for such services.
15. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company has guaranteed $37,250 of real estate
notes payable of others. These notes are collateralized by the underlying real
estate. The Company has outstanding letters of credit totaling $13,163 at
December 31, 1997, of which $4,663 was released through February 1998. The
remaining letter of credit expires in July 1999.
In addition, at December 31, 1997, the Company has several completion and
budget guarantees relating to development projects. Management does not expect
to incur any material losses under these guarantees.
On November 2, 1997 the Company settled claims asserted by certain former
employees arising out of the termination of the Company's Stock Appreciation
Rights Plan. In connection with the settlement, the Company paid $127 in 1997
and accrued $4,228 for additional payments which are due by May 1998.
The Company and its subsidiaries are defendants in other lawsuits that arose
in the normal course of business. In management's judgment, the ultimate
liability, if any, from such legal proceedings will not have a material effect
on the Company's financial position.
F-24
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
16. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized below for the three years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest paid................................................. $ 7,575 $ 1,520 $ 2,833
Income taxes paid............................................. 10,454 3,288 6,320
Profit sharing distributions paid............................. 21,927 12,021 7,722
Non cash activities for the three years ended December 31:
Assumption of stockholder loan............................ -- -- 327
Write-off of pursuit costs and intangibles................ -- -- 361
Conversion of deferred compensationbalances to stock...... -- 10,670 --
Stockholder loans......................................... -- 9,394 --
Payment of stockholder and tax loans with deferred
compensation balances................................... 12,338 -- --
Conversion of Doppelt note payable to stock............... 6,000 -- --
</TABLE>
17. UNAUDITED INTERIM FINANCIAL INFORMATION
Unaudited summarized financial information by quarter is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
1997:
Total revenues............................. $ 62,098 $ 69,344 $ 81,797 $ 100,400
Net income (loss).......................... 1,601 2,685 4,568 (22,874)
1996:
Total revenues............................. $ 56,397 $ 54,299 $ 65,515 $ 79,244
Net income................................. 1,876 2,093 3,673 4,472
</TABLE>
Quarterly net income (loss) per share is not relevant due to the change in
capital structure during the quarter ended December 31, 1997.
In the fourth quarter of 1997, the Company recognized a non-cash,
non-recurring charge to compensation of $33,085 for options granted prior to the
Offering at an exercise price substantially less than the fair value (see Note
8). The Company also expensed $4,355 in the fourth quarter relating to
settlement of litigation with participants under the Stock Appreciation Rights
Plan (see Note 15).
F-25
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
ASSETS
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.
F-26
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
REVENUES
Property management services...................................................... $ 81,897 $ 65,055
Brokerage services................................................................ 100,814 61,692
Infrastructure management services................................................ 74,008 47,954
Development and construction services............................................. 42,132 27,462
Retail services................................................................... 11,487 1,912
---------- ----------
310,338 204,075
Income from investments in unconsolidated subsidiaries............................ 7,151 1,467
Gain on disposition of real estate................................................ 23,455 1,566
Other income...................................................................... 6,012 6,131
---------- ----------
346,956 213,239
COSTS AND EXPENSES
Salaries, wages and benefits...................................................... 180,509 114,006
Commissions....................................................................... 43,808 25,379
General and administrative........................................................ 51,371 33,779
Profit sharing.................................................................... -- 15,417
Depreciation...................................................................... 3,385 2,682
Amortization...................................................................... 3,510 592
Interest.......................................................................... 7,782 3,336
Royalty and consulting fees....................................................... -- 3,167
Minority interest................................................................. 3,702 280
---------- ----------
294,067 198,638
---------- ----------
Income before income taxes.......................................................... 52,889 14,601
Income tax expense.................................................................. 21,425 5,747
---------- ----------
Net income.......................................................................... $ 31,464 $ 8,854
---------- ----------
---------- ----------
Earnings per share:
Basic............................................................................. $ .93 *
----------
----------
Diluted........................................................................... $ .87 *
----------
----------
</TABLE>
- ------------------------
* Information is not relevant due to change in capital structure.
See accompanying notes.
F-27
<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)
Collections of stockholder loans.......................................................... 152 1,918
Dividends paid............................................................................ -- (8,200)
---------- ----------
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.
F-28
<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 for the year ended December 31, 1997 included
herein. 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 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 provisions 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 were 33,984,517. Weighted average shares outstanding used to calculate
diluted earnings were 36,208,762. Employee stock options to purchase 2,224,245
shares of common stock were included in the weighted average shares outstanding
used to calculate diluted earnings per share.
F-29
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. GENERAL (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 presentation. Certain revenues and expenses for the period
ended September 30, 1998 have been reclassified to conform to the presentation
for the quarter and year ended December 31, 1998. As a result, certain revenue
and expense items differ from the amounts reported in previously filed
documents. These reclassifications do not impact net income.
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>
F-30
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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
$3.85 (BELOW MARKET $17.50 TO $36.00 (AT
PRICE MARKET PRICE
AT GRANT DATE) AT 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>
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 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.
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 located 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
F-31
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
5. ACQUISITIONS OF REAL ESTATE SERVICE COMPANIES (CONTINUED)
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 program whereby Faison Enterprises will be
given the opportunity to invest in, and provide the financing for, certain
retail 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 Company borrowed $37,105 under its credit facility to fund the
acquisition.
6. LONG-TERM DEBT
Long-term debt consists of the following at:
<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
F-32
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
7. FINANCIAL INSTRUMENTS (CONTINUED)
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 in aggregate
principal amount 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.
F-33
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
MARCH 9, 1999
4,500,000 SHARES
TRAMMELL CROW COMPANY
COMMON STOCK
--------------
SELLING STOCKHOLDERS ARE OFFERING ALL OF THE SHARES TO BE SOLD IN THE OFFERING.
WE WILL NOT RECEIVE ANY PROCEEDS FROM THE OFFERING. IN 1991, OUR REAL
ESTATE SERVICES BUSINESS WAS SEPARATED FROM THE COMMERCIAL REAL
ESTATE ASSET BASE OWNED BY OUR PREDECESSOR. WE CONTINUED
TO OPERATE THE REAL ESTATE SERVICES BUSINESS WHILE
OWNERSHIP OF THE COMMERCIAL REAL ESTATE
ASSET BASE WAS SEGREGATED INTO
SEPARATE ENTITIES WITH
INDEPENDENT
MANAGEMENT AND
OPERATIONS.
-------------------
THE COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"TCC."
ON MARCH 5, 1999, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON
THE NEW YORK STOCK EXCHANGE WAS $15.75 PER SHARE.
-------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS STOCKHOLDERS
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE
UP TO AN ADDITIONAL 675,000 SHARES TO COVER OVER-ALLOTMENTS. MORGAN STANLEY &
CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON ,
1999.
-------------------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
, 1999.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the various expenses payable by the Company and
the Selling Stockholders in connection with the sale and distribution of the
securities offered hereby, other than underwriting discounts and commissions.
All of the amounts shown are estimated except the Commission filing fee:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee..................... $ 28,574
NASD filing fee................................................... 30,500
Printing expenses................................................. 225,000
Legal fees and expenses........................................... 150,000
Accounting fees and expenses...................................... 150,000
Blue Sky fees and expenses........................................ 15,000
Custodian fees and expenses....................................... 12,000
Miscellaneous expenses............................................ 127,235
---------
Total......................................................... $ 738,309
---------
---------
</TABLE>
The Selling Stockholders, except for Crow Family and its affiliates, are
responsible for the payment of $525,750 of the total amount of the expenses of
issuance and distribution. The remaining amount will be paid by the Company.
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL ("Section 145") permits indemnification of
directors, officers, agents and controlling persons of a corporation under
certain conditions and subject to certain limitations. Article Twelfth of the
Certificate of Incorporation of the Company provides that the Company shall
indemnify its officers and directors to the maximum extent allowed by the DGCL.
Pursuant to Section 145, the Company generally has the power to indemnify its
present and former directors and officers against expenses and liabilities
incurred by them in connection with any suit to which they are, or are
threatened to be made, a party by reason of their serving in those positions so
long as they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the registrant, and with respect to
any criminal action, so long as they had no reasonable cause to believe their
conduct was unlawful. With respect to suits by or in the right of the
registrant, however, indemnification is generally limited to attorneys' fees and
other expenses and is not available if the person is adjudged to be liable to
the registrant, unless the court determines that indemnification is appropriate.
The statute expressly provides that the power to indemnify authorized thereby is
not exclusive of any rights granted under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise. The registrant also has
the power to purchase and maintain insurance for its directors and officers. The
Company maintains officers' and directors' liability insurance which insures
against liabilities that officers and directors of the Company may incur in such
capacities. Additionally, Article Twelve of the Certificate of Incorporation
provides that, in the event that an officer or director files suit against the
registrant seeking indemnification of liabilities or expenses incurred, the
burden will be on the registrant to prove that the indemnification would not be
permitted under the DGCL. The preceding discussion of the registrant's
Certificate of Incorporation and Section 145 of the DGCL is not intended to be
exhaustive and is qualified in its entirety by the Certificate of Incorporation
and Section 145 of the DGCL.
The Company has entered into indemnification agreements with the Company's
directors and officers. Pursuant to such agreements, the Company will, to the
extent permitted by applicable law, indemnify such persons against all expenses,
judgments, fines and penalties incurred in connection with the defense or
II-1
<PAGE>
settlement of any actions brought against them by reason of the fact that they
were directors or officers of the Company or assumed certain responsibilities at
the direction of the Company.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company for which indemnification is being sought nor
is the Company aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers, and by the Company and the Selling Stockholders of
the Underwriters, for certain liabilities arising under the Securities Act or
otherwise.
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(A) EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
2.1(2 ) Agreement and Plan of Merger dated August 22, 1997, among the Company, the
Predecessor Company, TCC Merger Sub, Inc. and certain other parties thereto
2.2(2 ) First Amendment to Agreement and Plan of Merger dated as of November 22, 1997
4.1(2 ) Form of certificate for shares of Common Stock of the Company
5.1* Opinion of Vinson & Elkins L.L.P. relating to the Common Stock
8.1* Opinion of Vinson & Elkins L.L.P. relating to Certain U.S. Federal Tax
Considerations for Non-U.S. Holders of Common Stock
10.1(3 ) Credit Agreement dated as of December 1, 1997, among the Company, NationsBank
of Texas, N.A. and Bankers Trust Company
10.2(4 ) First Amendment of Credit Agreement dated as of December 1, 1997 among the
Company, NationsBank of Texas, N.A. and Bankers Trust Company--January 29,
1998
10.3(4 ) Second Amendment of Credit Agreement dated as of December 1, 1997 among the
Company, NationsBank of Texas, N.A. and Bankers Trust Company--April 27,
1998
10.4(2 ) Form of License Agreement among the Company and CFH Trade-Names, L.P.
10.5(2 ) Form of Indemnification Agreement, with schedule of signatures
10.6(2 ) Predecessor Company's 1997 Stock Option Plan
10.7(2 ) Company's Long-Term Incentive Plan
10.8(2 ) Company's 1995 Profit Sharing Plan
10.9(5 ) Company's Employee Stock Purchase Plan
10.10(2 ) Acquisition Agreement dated August 15, 1997, among the Company, TCRS, Doppelt
and Jeffrey J. Doppelt
10.11* Master Loan Agreement dated December 22, 1998 between TCC NNN Trading, Inc.
and KeyBank National Association
10.12(2 ) Form of Stockholders' Agreement among the Company, Crow Family Partnership
L.P., CFH Trade-Names, L.P., J. McDonald Williams and certain other
signatories thereto
10.13(6 ) Employment Agreement for Henry J. Faison dated July 2, 1998
10.14* Master Construction Loan Agreement dated August 4, 1997 between Trammell Crow
BTS, Inc. and KeyBank National Association
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.15* First Modification to Master Construction Loan Agreement dated August 4, 1997
between Trammell Crow BTS, Inc. and KeyBank National Association--
September 15, 1997
10.16* Second Modification to Master Construction Loan Agreement dated August 4,
1997 between Trammell Crow BTS, Inc. and KeyBank National Association--May
12, 1998
10.17* Third Modification to Master Construction Loan Agreement dated August 4, 1997
between Trammell Crow BTS, Inc. and KeyBank National Association--June 9,
1998
10.18* Fourth Modification to Master Construction Loan Agreement dated August 4,
1997 between Trammell Crow BTS, Inc. and KeyBank National Association--
December 30, 1998
23.1* Consent of Ernst & Young LLP
23.2* Consent of Vinson & Elkins L.L.P. (included as part of Exhibit 5.1)
24.1(1 ) Power of Attorney
</TABLE>
- ------------------------
* Filed herewith.
(1) Previously filed.
(2) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File Number 333-34859) initially filed with the Securities and
Exchange Commission on September 3, 1997 and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997 and incorporated herein
by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998 and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8 (File Number 333-50578) filed with the Securities and Exchange
Commission on April 21, 1998 and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File Number 333-59387) initially filed with the Securities and
Exchange Commission on July 17, 1998 and withdrawn on October 9, 1998, and
incorporated herein by reference.
(B) SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
Report of Independent Auditors
Schedule III--Real Estate Investments and Accumulated Depreciation--Trammell
Crow Company and Subsidiaries.
All other schedules have been intentionally omitted because they are either
not required or the information has been included in the Notes to the
Consolidated Financial Statements included as part of this Registration
Statement.
17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public
II-3
<PAGE>
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act:
(1) the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) the filing each of the registrant's annual reports that is incorporated
by reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby further undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, State of Texas on the 9th day of March,
1999.
<TABLE>
<S> <C> <C>
TRAMMELL CROW COMPANY
By: /s/ WILLIAM P. LEISER
-----------------------------------
William P. Leiser
EXECUTIVE VICE PRESIDENT AND
TREASURER
</TABLE>
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
------------------------------ ------------------------------ ---------------
<C> <S> <C>
President, Chief Executive
* Officer and Director
------------------------------ (Principal Executive March 9, 1999
George L. Lippe Officer)
Executive Vice President,
* Chief Financial Officer and
------------------------------ Director (Principal March 9, 1999
Robert E. Sulentic Financial Officer)
/s/ WILLIAM P. LEISER Executive Vice President and
------------------------------ Treasurer (Principal March 9, 1999
William P. Leiser Accounting Officer)
*
------------------------------ Director March 9, 1999
Harlan R. Crow
*
------------------------------ Director March 9, 1999
J. McDonald Williams
*
------------------------------ Director March 9, 1999
James D. Carreker
*
------------------------------ Director March 9, 1999
William F. Concannon
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
------------------------------ ------------------------------ ---------------
<C> <S> <C>
*
------------------------------ Director March 9, 1999
James R. Erwin
*
------------------------------ Director March 9, 1999
Jeffrey M. Heller
*
------------------------------ Director March 9, 1999
Rowland T. Moriarty
* Executive Vice President and
------------------------------ Director March 9, 1999
Henry J. Faison
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ WILLIAM P. LEISER
-------------------------
William P. Leiser
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Trammell Crow Company
We have audited the consolidated financial statements of Trammell Crow
Company (a Delaware corporation; formerly a Texas close corporation) and
Subsidiaries as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
March 4, 1998 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
March 4, 1998
II-7
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST
--------------------------------------- COSTS
BUILDINGS FURNITURE SUBSEQUENT
RELATED AND FIXTURES & TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS EQUIPMENT ACQUISITION
- ------------------------------ ------------- -------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
RETAIL:
Diamond Bar--Diamond Bar,
CA.......................... $ 5,650 $ 1,475 $ 4,290 $-- $ --
Dry-Wadsworth--Arvada, CO..... -- 473 495 -- 76
Petsmart--Edmond, OK.......... 1,434 900 -- -- 587
Fairbanks--Fairbanks, AK...... 2,136 -- (A) -- -- 2,557
Gateway Plaza--Aurora, CO..... 6,574 1,018 5,793 -- 62
Lost Pines--Bastrop, TX....... 1,407 521 40 -- 1,214
Village Green--Yorba Linda,
CA.......................... 2,750 1,890 2,316 -- --
Walgreen's--Houston, TX....... 2,440 2,525 35 -- --
OFFICE:
Bowie--Austin, TX............. 1,785 442 1,767 -- 78
Kelley Clarke--Portland, OR... 1,955 530 -- -- 1,501
INDUSTRIAL:
349 Oyster Point--San
Francisco, CA............... 3,806 1,577 -- -- 2,670
Bolingbrook--Bolingbrook,
IL.......................... 6,239 1,406 -- -- 7,061
Centrepoint--Chino, CA........ 5,313 4,588 -- -- 692
CH-NW Place II--Houston, TX... 5,174 698 176 -- 4,292
Cooper--Reno, NV.............. 4,074 1,513 2,537 -- 23
Dunsirn BTS--Reno, NV......... 451 401 -- -- 38
McCormick--Irving, TX......... -- 496 -- -- 445
OCP II--Orlando, FL........... 2,478 499 1,751 -- 1,444
Peerless--Allen, TX........... 2,424 1,496 102 -- 1,761
TC Longmont--Longmont, CO..... 8,300 1,155 6,708 -- 136
Wooddale--Wooddale, IL........ 11,694 4,034 301 -- 7,804
LAND:
56th & Warner--Phoenix, AZ.... -- 1,578 -- -- 76
AEW #10--Mt. Laurel Township,
MJ.......................... -- 327 -- -- --
Andover--Andover, MA.......... -- 291 -- -- --
Chapel Hills--Colorado
Springs, CO................. 430 770 -- -- 35
Cleveland--Cleveland, OH...... -- 260 -- -- --
Freeport I--Irving, TX........ -- 2,746 -- -- --
Oxnard--Oxnard, CA............ -- 280 -- -- --
Quarry Crossing--San Antonio,
TX.......................... -- 2,557 -- -- --
Sadler--Memphis, TN........... -- 123 -- -- --
Silver Lake Pond--Charlotte,
NC.......................... 109 109 -- -- --
Summit Plaza--Orlando, FL..... -- 572 -- -- --
TC Riverside--Belcamp, MD..... -- 919 -- -- --
Westridge at Gateway-Dallas,
TX.......................... -- 1,535 -- -- --
------------- -------- ------------- ----- ----------
Total....................... $76,623 $ 39,704 $26,311 $-- $ 32,552
------------- -------- ------------- ----- ----------
------------- -------- ------------- ----- ----------
<CAPTION>
12/31/97 BALANCE
----------------------------------------------------
BUILDINGS FURNITURE
AND FIXTURES & DATE OF DATE DEPRECIABLE
DESCRIPTION LAND IMPROVEMENTS EQUIPMENT TOTAL(B) CONSTRUCTION ACQUIRED LIVES(C)
- ------------------------------ --------- ------------- ------------ --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL:
Diamond Bar--Diamond Bar,
CA.......................... $ 1,475 $ 4,290 $-- $ 5,765 1981 1997
Dry-Wadsworth--Arvada, CO..... 473 571 -- 1,044 1995 1995
Petsmart--Edmond, OK.......... 900 587 -- 1,487 1997 1997
Fairbanks--Fairbanks, AK...... -- 2,557 -- 2,557 1997 n/a
Gateway Plaza--Aurora, CO..... 1,018 5,855 -- 6,873 1984 1996
Lost Pines--Bastrop, TX....... 521 1,254 -- 1,775 1997 1997
Village Green--Yorba Linda,
CA.......................... 1,890 2,316 -- 4,206 1986 1997
Walgreen's--Houston, TX....... 2,525 35 -- 2,560 1997 1997
OFFICE:
Bowie--Austin, TX............. 442 1,845 -- 2,287 1986 1997
Kelley Clarke--Portland, OR... 530 1,501 -- 2,031 1997 1997
INDUSTRIAL:
349 Oyster Point--San
Francisco, CA............... 1,754 2,493 -- 4,247 1997 1997
Bolingbrook--Bolingbrook,
IL.......................... 1,406 7,061 -- 8,467 1995 1995
Centrepoint--Chino, CA........ 4,588 692 -- 5,280 1997/1998 1997
CH-NW Place II--Houston, TX... 698 4,468 -- 5,166 1997 1997
Cooper--Reno, NV.............. 1,513 2,560 -- 4,073 1992 1997
Dunsirn BTS--Reno, NV......... 401 38 -- 439 1997 1997
McCormick--Irving, TX......... 761 180 -- 941 1997 1997
OCP II--Orlando, FL........... 499 3,195 -- 3,694 1982 1997
Peerless--Allen, TX........... 1,508 1,851 -- 3,359 1997 1997
TC Longmont--Longmont, CO..... 1,155 6,844 -- 7,999 1979/1988 1997
Wooddale--Wooddale, IL........ 4,034 8,105 -- 12,139 1996/1997 1996
LAND:
56th & Warner--Phoenix, AZ.... 1,654 -- -- 1,654 n/a 1997
AEW #10--Mt. Laurel Township,
MJ.......................... 327 -- -- 327 n/a 1997
Andover--Andover, MA.......... 291 -- -- 291 n/a 1995
Chapel Hills--Colorado
Springs, CO................. 805 -- -- 805 n/a 1997
Cleveland--Cleveland, OH...... 260 -- -- 260 n/a 1996
Freeport I--Irving, TX........ 2,746 -- -- 2,746 n/a 1997
Oxnard--Oxnard, CA............ 280 -- -- 280 n/a 1996
Quarry Crossing--San Antonio,
TX.......................... 2,557 -- -- 2,557 n/a 1997
Sadler--Memphis, TN........... 123 -- -- 123 n/a 1997
Silver Lake Pond--Charlotte,
NC.......................... 109 -- -- 109 n/a 1997
Summit Plaza--Orlando, FL..... 572 -- -- 572 n/a 1997
TC Riverside--Belcamp, MD..... 919 -- -- 919 n/a 1997
Westridge at Gateway-Dallas,
TX.......................... 1,535 -- -- 1,535 n/a 1997
--------- ------------- ----- ---------
Total....................... $ 40,269 $58,298 $-- $ 98,567
--------- ------------- ----- ---------
--------- ------------- ----- ---------
</TABLE>
- ----------------------------------
(A) Property is subject to a ground lease.
(B) The aggregate cost for Federal income tax purposes is approximately $103
million.
(C) All real estate investments have been held for sale since acquisition and
are therefore not depreciated.
II-8
<PAGE>
TRAMMELL CROW COMPANY AND SUBSIDIARIES
NOTES TO SCHEDULE III--REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION
Changes in real estate investments and accumulated depreciation for the three
years ended December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year........................................................ $ 71,122 $ 20,274 $ 20,215
Additions and improvements........................................................ 104,147 92,975 38,549
Sales and transfers............................................................... (76,702 (A) (42,127) (38,490)
---------- ---------- ----------
Balance at end of year.............................................................. $ 98,567 $ 71,122 $ 20,274
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(A) Includes $35,400 contributed to a partnership in March 1997.
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
1.1* Form of Underwriting Agreement
2.1(2 ) Agreement and Plan of Merger dated August 22, 1997, among the Company, the
Predecessor Company, TCC Merger Sub, Inc. and certain other parties
thereto
2.2(2 ) First Amendment to Agreement and Plan of Merger dated as of November 22,
1997
4.1(2 ) Form of certificate for shares of Common Stock of the Company
5.1* Opinion of Vinson & Elkins L.L.P. relating to the Common Stock
8.1* Opinion of Vinson & Elkins L.L.P. relating to Certain U.S. Federal Tax
Considerations for Non-U.S. Holders of Common Stock
10.1(3 ) Credit Agreement dated as of December 1, 1997, among the Company,
NationsBank of Texas, N.A. and Bankers Trust Company
10.2(4 ) First Amendment of Credit Agreement dated as of December 1, 1997 among the
Company, NationsBank of Texas, N.A. and Bankers Trust Company--January
29, 1998
10.3(4 ) Second Amendment of Credit Agreement dated as of December 1, 1997 among
the Company, NationsBank of Texas, N.A. and Bankers Trust Company--
April 27, 1998
10.4(2 ) Form of License Agreement among the Company and CFH Trade-Names, L.P.
10.5(2 ) Form of Indemnification Agreement, with schedule of signatures
10.6(2 ) Predecessor Company's 1997 Stock Option Plan
10.7(2 ) Company's Long-Term Incentive Plan
10.8(2 ) Company's 1995 Profit Sharing Plan
10.9(5 ) Company's Employee Stock Purchase Plan
10.10(2 ) Acquisition Agreement dated August 15, 1997, among the Company, TCRS,
Doppelt and Jeffrey J. Doppelt
10.11* Master Loan Agreement dated December 22, 1998 between TCC NNN Trading,
Inc. and KeyBank National Association
10.12(2 ) Form of Stockholders' Agreement among the Company, Crow Family Partnership
L.P., CFH Trade-Names, L.P., J. McDonald Williams and certain other
signatories thereto
10.13(6 ) Employment Agreement for Henry J. Faison dated July 2, 1998
10.14* Master Construction Loan Agreement dated August 4, 1997 between Trammell
Crow BTS, Inc. and KeyBank National Association
10.15* First Modification to Master Construction Loan Agreement dated August 4,
1997 between Trammell Crow BTS, Inc. and KeyBank National Association--
September 15, 1997
10.16* Second Modification to Master Construction Loan Agreement dated August 4,
1997 between Trammell Crow BTS, Inc. and KeyBank National Association--
May 12, 1998
10.17* Third Modification to Master Construction Loan Agreement dated August 4,
1997 between Trammell Crow BTS, Inc. and KeyBank National
Association--June 9, 1998
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.18* Fourth Modification to Master Construction Loan Agreement dated August 4,
1997 between Trammell Crow BTS, Inc. and KeyBank National Association--
December 30, 1998
23.1* Consent of Ernst & Young LLP
23.2* Consent of Vinson & Elkins L.L.P. (included as part of Exhibit 5.1)
24.1(1 ) Power of Attorney
</TABLE>
- ------------------------
* Filed herewith.
(1) Previously filed.
(2) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File Number 333-34859) initially filed with the Securities and
Exchange Commission on September 3, 1997 and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997 and incorporated herein
by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998 and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8 (File Number 333-50578) filed with the Securities and Exchange
Commission on April 21, 1998 and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File Number 333-59387) initially filed with the Securities and
Exchange Commission on July 17, 1998 and withdrawn on October 9, 1998, and
incorporated herein by reference.
<PAGE>
[4,500,000] Shares
TRAMMELL CROW COMPANY
Common Stock
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
[_________], 1999
<PAGE>
[__________], 1999
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
BancBoston Robertson Stephens International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
Donaldson, Lufkin & Jenrette International
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Madames:
Certain stockholders of Trammell Crow Company, a Delaware corporation
(the "Company"), named in Schedules IA and IB hereto (the "Selling
Stockholders") propose to sell to the several Underwriters (as defined below) an
aggregate of [4,500,000] shares of the common stock, par value $.01 per share,
of the Company (the "Firm Shares"), each Selling Stockholder selling the number
of Firm Shares set forth opposite such Selling Stockholder's name in Schedules
IA and IB hereto.
It is understood that, subject to the conditions hereinafter stated,
[_________] Firm Shares (the "U.S. Firm Shares") will be sold to the several
U.S. Underwriters named in Schedule II hereto (the "U.S. Underwriters") in
connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and [________] Firm Shares (the "International Shares") will be
sold to the several International Underwriters named in Schedule III hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), BancBoston Robertson Stephens Inc., BT Alex. Brown Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation shall act as representatives
(the "U.S. Representatives") of the several U.S. Underwriters, and Morgan
Stanley & Co. International Limited, BancBoston Robertson Stephens International
Limited, BT Alex. Brown International, a division of Bankers Trust International
PLC, and Donaldson, Lufkin & Jenrette International shall act as
<PAGE>
representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the "Underwriters."
The Selling Stockholders also propose to sell to the several U.S.
Underwriters not more than an additional [675,000] shares of the Company's
common stock, par value $.01 per share (the "Additional Shares"), if and to the
extent that the U.S. Representatives shall have determined to exercise, on
behalf of the U.S. Underwriters, the right to purchase such shares of common
stock granted to the U.S. Underwriters in Section 3 hereof, with each Selling
Stockholder selling not more than the number of Additional Shares set forth
opposite such Selling Stockholder's name in Schedules IA and IB hereto. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "Shares." The shares of common stock, par value $.01 per share, of the
Company are hereinafter referred to as the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus." All
references to the Registration Statement or the Prospectus include documents
incorporated therein by reference. If the Company has filed an abbreviated
statement to register additional shares of Common Stock pursuant to Rule 462(b)
under the Securities Act (the "Rule 462 Registration Statement"), then any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462 Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act. The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to the
knowledge of the Company, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of
2
<PAGE>
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with
the Securities Act and the applicable rules and regulations of the
Commission thereunder, (iii) each document, if any, filed or to be filed
pursuant to the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") and incorporated by reference into the Prospectus
complied with or will comply when so filed in all material respects with
the Exchange Act and the applicable rules and regulations of the
Commission thereunder and (iv) the Prospectus does not contain and, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(d) Each "significant subsidiary" (as such term is defined in Rule
1-02 of Regulation S-X) of the Company, including but not limited to the
subsidiaries listed on Schedule IV to this Agreement (each a "Significant
Subsidiary" and, collectively, the "Significant Subsidiaries"), has been
duly incorporated or organized, is validly existing as a corporation or
partnership, as the case may be, in good standing under the laws of the
jurisdiction of its incorporation or organization, has the corporate or
partnership power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole; all of the issued shares of capital
stock of each Significant Subsidiary which is a corporation have been duly
and validly authorized and issued, are fully paid and non-assessable, all
of the partnership interests of each Significant Subsidiary which is a
partnership have been duly and validly authorized and issued, and all of
the shares of capital stock or partnership interests in any Significant
Subsidiary are owned directly or indirectly by the Company, free and clear
of all liens, encumbrances, equities or claims, except as described in or
contemplated by the Prospectus.
3
<PAGE>
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) All the outstanding shares of Common Stock (including the Shares
to be sold by the Selling Stockholders) have been (or will be prior to the
Closing Date) duly authorized and are (or will be prior to the Closing
Date) validly issued, fully paid and non-assessable.
(h) The financial statements (together with the related notes
thereto) of the Company included in the Registration Statement present
fairly the financial position of the Company and its subsidiaries as of the
respective dates of such financial statements, and the results of
operations and cash flows of the Company and its subsidiaries for the
respective periods covered thereby, all in conformity with generally
accepted accounting principles consistently applied throughout the periods
involved. The pro forma consolidated financial statements included in the
Prospectus have been prepared in accordance with Article 11 of
Regulation S-X with respect to pro forma financial statements, have been
properly compiled on the pro forma basis described therein, and, in the
opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate under the
circumstances.
(i) Neither the Company nor any of its subsidiaries is in violation
of its certificate of incorporation or certificate of partnership, as the
case may be, or its by-laws or partnership agreement, as the case may be,
or, except as would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole, in default in the performance or
observance of any obligation, agreement. covenant or condition contained in
any agreement or other instrument binding upon the Company or any of its
subsidiaries. The conduct of the business of the Company and its
subsidiaries is and has been in compliance with applicable foreign,
federal, state and local laws and regulations, except where the failure to
be in compliance would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation,
by-laws or other organizational documents of the Company or any of the
Significant Subsidiaries, or any agreement or other instrument binding upon
the Company or any of the Significant Subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
the Company or the Significant Subsidiaries and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by
4
<PAGE>
the securities or Blue Sky laws of the various states or of any
jurisdiction outside the United States in connection with the offer and
sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(l) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(m) Each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(n) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(o) The Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(p) At the time the Registration Statement became effective, the
Shares were registered under the Exchange Act. The Shares have been
approved for listing on the New York Stock Exchange upon official notice of
issuance.
(q) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety (including
occupational health and safety), the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"),
(ii) have received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any
such permit, license or approval, except
5
<PAGE>
where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would
not, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(r) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company (except for the Stockholders
Agreement (as defined in the Prospectus)), and there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to include such securities
with the Shares registered pursuant to the Registration Statement (except
for the Stockholders Agreement and the Doppelt Stockholders Agreement (as
defined in the Prospectus)).
(t) Except as described in the Registration Statement and the
Prospectus, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company and
its subsidiaries have not incurred any liability or obligation or entered
into any transaction not in the ordinary course of business, in each case,
that is material to the Company and its subsidiaries, taken as a whole;
(2) the Company has not purchased any of its outstanding capital stock, or
declared, paid or otherwise made any dividend or distribution of any kind
on its capital stock other than ordinary and customary dividends; and
(3) there has not been any change in the capital stock, short-term debt or
long-term debt of the Company and its subsidiaries, in each case, that is
material to the Company and its subsidiaries, taken as a whole.
(u) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them in each case which is material to the
business of the Company and its subsidiaries, taken as a whole, in each
case free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and proposed
to be made of such property by the Company and its subsidiaries, in each
case which is material to the business of the Company and its subsidiaries,
taken as a whole; and any real property and buildings held under lease by
any of the Company or its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material
to the Company and its subsidiaries, taken as a whole, or do not materially
interfere with the use made of
6
<PAGE>
such property and buildings by the Company and its subsidiaries, in each
case except as described in or contemplated by the Prospectus.
(v) The Company and its subsidiaries own, possess, have licensed for
use as described in the Registration Statement and the Prospectus, or can
acquire on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, in
each case which is material to the business of the Company and its
subsidiaries, taken as a whole, and none of the Company or its subsidiaries
has received any notice of infringement of or conflict with asserted rights
of others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(w) The Company and its subsidiaries have filed all foreign, federal
and state income and franchise tax returns and have paid all taxes shown as
due thereon, in each case which is material to the Company and its
subsidiaries, taken as a whole, and there is no tax deficiency that has
been asserted against the Company or its properties or assets that would
have a material adverse effect on the Company and its subsidiaries, taken
as a whole.
(x) No labor dispute with the employees of the Company or any of its
subsidiaries exists which is material to the business of the Company and
its subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus, or, to the knowledge of the Company, is imminent.
(y) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for to the extent that such
coverage would be prudent and customary in the business in which it is
engaged; and neither the Company nor any such subsidiary has any reason to
believe that they will not be able to renew their existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue their business at a
cost that would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(z) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(1) transactions are executed in accordance with management's general or
specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(3) access to assets is permitted only in accordance with management's
general or specific
7
<PAGE>
authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders represents and warrants to and agrees with each of
the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement and the Power of Attorney and Custody Agreement of such Selling
Stockholder will not contravene any provision of applicable law, or the
certificate of incorporation, bylaws or other organizational documents of
such Selling Stockholder (if such Selling Stockholder is a corporation,
partnership or trust), or any agreement or other instrument binding upon
such Selling Stockholder that is material to such Selling Stockholder or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over such Selling Stockholder, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such Selling
Stockholder of its obligations under this Agreement or the Power of
Attorney and Custody Agreement of such Selling Stockholder, except such as
may be required by the securities or Blue Sky laws of the various states or
of any jurisdiction outside the United States in connection with the offer
and sale of the Shares.
(c) Such Selling Stockholder has, and on the Closing Date (as defined
below), will have, valid title to the Shares to be sold by such Selling
Stockholder and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement, the Power of
Attorney and Custody Agreement of such Selling Stockholder and to sell,
transfer and deliver the Shares to be sold by such Selling Stockholder.
(d) The Shares to be sold by such Selling Stockholder pursuant to
this Agreement have been or will have been prior to the Closing Date duly
authorized and are validly issued, fully paid and non-assessable.
(e) The Power of Attorney and Custody Agreement of such Selling
Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder (and, if applicable, his/her spouse) and is a valid and
binding agreement of such Selling Stockholder, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally and general principles of
equity.
(f) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares to the
Underwriters free and clear of any security interests, claims, liens,
equities and other encumbrances.
8
<PAGE>
(g) The information relating to such Selling Stockholder furnished in
writing by or on behalf of such Selling Stockholder expressly for use in
the Registration Statement, any preliminary prospectus, the Prospectus or
any amendments or supplements thereto is correct and does not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
3. AGREEMENTS TO SELL AND PURCHASE. Each Selling Stockholder,
severally and not jointly, hereby agrees to sell to the several Underwriters the
number of Firm Shares set forth opposite such Selling Stockholder's name in
Schedules IA and IB hereto, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from such
Selling Stockholder the respective numbers of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) set forth in
Schedules II and III hereto opposite its name at U.S.$[____] a Share (the
"Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Stockholders
agree, severally and not jointly, to sell to the U.S. Underwriters the
Additional Shares, and the U.S. Underwriters shall have a one-time right to
purchase, severally and not jointly, up to [750,000] Additional Shares at the
Purchase Price as set forth on Schedules IA and IB. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the U.S. Underwriters and the
date on which such shares are to be purchased. Such date may be the same as the
Closing Date but not earlier than the Closing Date nor later than ten business
days after the date of such notice. Additional Shares may be purchased as
provided in Section 5 hereof solely for the purpose of covering over-allotments
made in connection with the offering of the Firm Shares. If any Additional
Shares are to be purchased, each U.S. Underwriter agrees, severally and not
jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule
II hereto opposite the name of such U.S. Underwriter bears to the total number
of U.S. Firm Shares.
The Company, each Selling Stockholder and certain other directors,
officers and employees of the Company have agreed that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, they will not,
during the period ending 6 months after the Closing Date (in the case of the
Company), the period ending 12 months after the Closing Date (in the case of the
Selling Stockholders named in Schedule IA hereto and the persons named in
Schedule V hereto) and the period ending 120 days after the Closing Date (in the
case of the Selling Stockholders named in Schedule IB hereto and the persons
named in Schedule VI hereto), (i) offer, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (ii) enter into any swap
or other arrangement
9
<PAGE>
that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the sale of the Shares to the Underwriters hereunder,
(B) the issuance by the Company of shares of Common Stock upon the exercise
of an option or a warrant or the conversion of a security outstanding on the
date of the Prospectus of which the Underwriters have been advised in
writing, (C) stock or stock option issuances by the Company pursuant to
existing employee benefit plans, (D) the bona fide pledge of shares of Common
Stock by a Selling Stockholder to secure loans extended to such Selling
Stockholder; (E) transactions relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
Offering (as defined in the Prospectus); (F) the contribution of Common Stock
to an exchange fund, capital fund or similar fund in exchange for securities
of such fund; (G) the issuance, grant or sale by the Company or any
subsidiary thereof of shares of Common Stock (or any option, right, warrant
or other interest in shares of Common Stock) to any person as consideration
for any acquisition or as an inducement to be employed by or to not compete
with the Company or any subsidiary thereof; (H) any charitable gift/donation
of shares of Common Stock; or (I) the transfer of shares of Common Stock to
the following: (i) if the Selling Stockholder is an individual, a member of
the immediately family of the Selling Stockholder, if any, or a trust whose
sole beneficiaries are members of the immediate family of the Selling
Stockholder, or a partnership whose sole partners are members of the
immediate family of the Selling Stockholder; and (ii) if the Selling
Stockholder is a trust, any member of the immediate family of the Selling
Stockholder that is the grantor or trustee of the trust; PROVIDED, however,
that the Selling Stockholder shall first require any transferee described in
clause (I)(i) or (I)(ii) to execute a similar "lock-up" agreement prior to
such permitted pledge or transfer.
4. TERMS OF PUBLIC OFFERING. The Company and the Selling
Stockholders are advised by you that the Underwriters propose to make a public
offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable. The Company and the Selling Stockholders are further
advised by you that the Shares are to be offered to the public initially at
U.S.$[_____] a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$[_____] a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$[____] a share, to any Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made
by wire transfer of immediately available funds to an account designated by
Chase Mellon Shareholder Services L.L.C. as the custodian (the "Custodian")
pursuant to the Irrevocable Powers of Attorney and Custody Agreements between
the Custodian and the Selling Stockholders (collectively, the "Power of Attorney
and Custody Agreements") (and in such capacity acting for the benefit of the
Selling Stockholders) against delivery of such Firm Shares for the respective
accounts of the several Underwriters at 10:00 A.M., New York City time, on
[____________], 1999, or at such other time on the same or such other date, not
later than [____________], 1999, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Closing
Date."
10
<PAGE>
Payment for any Additional Shares shall be made to the Custodian (for
the benefit of the Selling Stockholders) by wire transfer of immediately
available funds to an account designated by the Custodian against delivery of
such Additional Shares for the respective accounts of the several Underwriters
at [__________], New York City time, on the date specified in the notice
described in Section 3 or at such other time on the same or on such other date,
in any event not later than [____________], 1999, as shall be designated in
writing by the U.S. Representatives. The time and date of such payment are
hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO OBLIGATIONS. The several obligations of the
Selling Stockholders to sell the Shares to the Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the condition that the Registration Statement shall
have become effective not later than 5:30 p.m. (New York City time) on the date
hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
11
<PAGE>
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed on behalf of the Company by
an executive officer of the Company, (i) to the effect that the
representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has
complied with all of the agreements and satisfied all of the conditions on
their part to be performed or satisfied hereunder on or before the Closing
Date and (ii) setting forth all jurisdictions in which the conduct of the
Company's business or its ownership or leasing of property requires that
the Company or its subsidiaries be qualified to transact business, except
to the extent that the failure to be so qualified would not have a material
adverse effect on the Company, or its subsidiaries, taken as a whole.
(c) The Underwriters shall have received on the Closing Date an
opinion of Vinson & Elkins L.L.P., dated the Closing Date, in the form
attached hereto as Exhibit A.
(d) The Underwriters shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Underwriters, dated the
Closing Date, in form and substance satisfactory to you.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, letters dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young, independent public accountants with respect to the
Company and its subsidiaries, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial information
contained in, or incorporated by reference into, the Registration Statement
and the Prospectus; PROVIDED that the letters delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(f) The "lock-up" agreements between you and each of the Selling
Stockholders, the Company and the persons named in Schedules V and VI
hereto, each substantially in the form of Exhibit B hereto, relating to
sales and certain other dispositions of shares of Common Stock or certain
other securities, shall be in full force and effect on the Closing Date.
(g) The representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct as of the Closing
Date and each Selling Stockholder shall have complied with all of the
agreements and satisfied all of the conditions on its part to be performed
or satisfied hereunder on or before the Closing Date. The Underwriters
shall have received on the Closing Date certificates dated the Closing Date
and signed by the Selling Stockholders or by their attorneys-in-fact to the
effect set forth above.
(h) The Underwriters shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
12
<PAGE>
(i) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company and
other matters related to the sale of the Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, eight (8) signed copies of the
Registration Statement (including exhibits thereto and documents
incorporated by reference) and for delivery to each other Underwriter a
conformed copy of the Registration Statement (without exhibits thereto but
including documents incorporated by reference) and to furnish to you in New
York City, without charge, prior to 10:00 a.m. New York City time on the
business day next succeeding the date of this Agreement and during the
period mentioned in paragraph (c) below, as many copies of the Prospectus,
any documents incorporated by reference, and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
The terms "supplement" and "amendment" or "amend" as used in this Agreement
shall include all documents subsequently filed by the Company with the
Commission pursuant to the Exchange Act, that are deemed to be incorporated
by reference in the Prospectus.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
13
<PAGE>
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earnings statement covering the
twelve-month period ending December 31, 2000 that satisfies the provisions
of Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
8. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of the
Company's and the Selling Stockholders' obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's and
Selling Stockholders' counsel and the Company's accountants in connection with
the registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as provided in Section 7(d) hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the NASD, (v)
all fees and expenses incident to listing the Shares on the New York Stock
Exchange, (vi) the cost of printing certificates representing the Shares, (vii)
the costs and charges of any transfer agent, registrar, depositary or custodian,
(viii) the costs and expenses of the Company relating to investor presentations
on any "road show" undertaken in connection with the marketing of the offering
of the Shares, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show (less the
estimated cost of first-class air fare for representatives of the Underwriters
traveling on trips for which chartered aircraft were used), (ix) all expenses in
connection with any offer and sale of the Shares outside of the United States,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection with offers and sales outside of the United
States and (x) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 9 entitled "Indemnity and Contribution" and the last paragraph
of Section 11 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
14
<PAGE>
9. INDEMNITY AND CONTRIBUTION. (a)(1) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein; and (2) each Selling Stockholder agrees, severally
and not jointly, to indemnify and hold harmless each other Selling Stockholder,
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act and each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but only
with reference to information relating to such Selling Stockholder furnished in
writing by or on behalf of such Selling Stockholder expressly for use therein;
PROVIDED, HOWEVER, that the foregoing indemnity agreements with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such losses, claims, damages or liabilities, unless
such failure is the result of noncompliance by the Company or the Selling
Stockholders with Section 7(a) hereof. Notwithstanding the provisions of this
Section 9(a), the aggregate indemnification of each Selling Stockholder under
this Section 9(a) will not exceed the proceeds received by such Selling
Stockholder from the Shares sold by it.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Stockholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of either Section 15 of the Securities Act or Section
15
<PAGE>
20 of the Exchange Act from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9(a) or 9(b), such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Selling Stockholders and all persons, if any, who control
any Selling Stockholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by Morgan Stanley. In
the case of any such separate firm for the Company, and such directors, officers
and control persons of the Company, such firm shall be designated in writing by
the Company. In the case of any such separate firm for the Selling Stockholders
and such control persons of any Selling Stockholder, such firm shall be
designated in writing by the persons named as attorneys-in-fact for the Selling
Stockholders under the Power of Attorney and Custody Agreements. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such
16
<PAGE>
settlement or judgment. Notwithstanding the foregoing sentence, if at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 9(a) or
9(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(d)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other hand in connection with the offering of the Shares
shall be deemed to be in the same respective proportions as the net proceeds
from the offering of the Shares (before deducting expenses) received by each
Selling Stockholder and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate Public Offering Price of the
Shares. Notwithstanding the provisions of this Section 9(d), the aggregate
contribution of each Selling Stockholder under this Section 9(d) will not exceed
the proceeds received by such Selling Stockholder from the Shares sold by it and
such Selling Stockholder shall not be required to contribute under this Section
9(d) in respect of any costs, expenses, losses, damages or other liabilities
unless the same arise with reference to any information furnished to the Company
in writing by, or on behalf of such Selling Stockholder expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto. The relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
Selling Stockholders or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective
17
<PAGE>
obligations to contribute pursuant to this Section 9 are several in
proportion to the respective number of Shares they have purchased hereunder,
and not joint.
(e) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just or equitable if contribution pursuant to this Section
9 were determined by PRO RATA allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in Section 9(d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 9 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, any Selling Stockholder or any person
controlling any Selling Stockholder, or the Company, its respective officers or
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
10. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc. or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
18
<PAGE>
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase
Shares that it has or they have agreed to purchase hereunder on such date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of the Shares to be purchased on such date,
the other Underwriters shall be obligated severally in the proportions that
the number of Firm Shares set forth opposite their respective names in
Schedule II or Schedule III bears to the aggregate number of Firm Shares set
forth opposite the names of all such non-defaulting Underwriters, or in such
other proportions as you may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date; PROVIDED that in no event shall the number of Shares
that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If,
on the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Firm Shares to be purchased, and arrangements satisfactory to you, the
Company and the Selling Stockholders for the purchase of such Firm Shares are
not made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter, the Company
or the Selling Stockholders. In any such case either you or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional
Shares and the aggregate number of Additional Shares with respect to which
such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that
such non-defaulting Underwriters would have been obligated to purchase in the
absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of the Company or any
Selling Stockholder to comply with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Company or any Selling
Stockholder shall be unable to perform its obligations under this Agreement,
the Company will reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
19
<PAGE>
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
Very truly yours,
TRAMMELL CROW COMPANY
By:
---------------------------------
Name:
Title:
The Selling Stockholders named in
Schedules IA and IB hereto, acting
severally
By:
---------------------------------
Attorney-in-fact
20
<PAGE>
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Acting severally on behalf
of themselves and the
several U.S. Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. Incorporated
By
------------------------------
Name:
Title:
Morgan Stanley & Co. International Limited
BancBoston Robertson Stephens International Limited
BT Alex. Brown International, a division of Bankers Trust International PLC
Donaldson, Lufkin & Jenrette International
Acting severally on behalf
of themselves and the
several International Underwriters
named in Schedule III hereto.
By Morgan Stanley & Co. International Limited
By
------------------------------
Name:
Title:
21
<PAGE>
SCHEDULE IA
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Number of
Firm Shares Additional Shares
Name Selling Stockholder to be sold to be sold (1)
- ------------------------ ------------ -----------------
<S> <C> <C>
</TABLE>
- -----------------
(1) If the U.S. Underwriters purchase less than 675,000 Additional Shares the
individual allocations set forth in this column will be reduced as mutually
agreed by Morgan Stanley and the Attorneys-in-Fact under the Power of Attorney
and Custody Agreements.
<PAGE>
SCHEDULE IB
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Number of
Firm Shares Additional Shares
Name Selling Stockholder to be sold to be sold (2)
- ------------------------ ----------- -----------------
<S> <C> <C>
</TABLE>
- -----------------
(2) If the U.S. Underwriters purchase less than 675,000 Additional Shares the
individual allocations set forth in this column will be reduced as mutually
agreed by Morgan Stanley and the Attorneys-in-Fact under the Power of Attorney
and Custody Agreements.
<PAGE>
SCHEDULE II
U.S. UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
----------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
BT Alex. Brown Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Total U.S. Firm Shares
---------
---------
</TABLE>
<PAGE>
SCHEDULE III
INTERNATIONAL UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. International Limited
BancBoston Robertson Stephens
International Limited
BT Alex. Brown International, a division of
Bankers Trust International PLC
Donaldson, Lufkin & Jenrette International
---------
Total International Firm Shares
---------
---------
</TABLE>
<PAGE>
SCHEDULE IV
IDENTIFIED SIGNIFICANT SUBSIDIARIES OF THE COMPANY
Trammell Crow Corporate Services
Trammell Crow Operations Inc.
Trammell Crow SE Inc.
<PAGE>
SCHEDULE V
NAME
- ----
<PAGE>
SCHEDULE VI
NAME
- ----
<PAGE>
Exhibit A
---------
[FORM OF V&E OPINION]
<PAGE>
Exhibit B
---------
[FORM OF LOCK-UP LETTER]
<PAGE>
WRITER'S TELEPHONE WRITER'S FAX
(214) 220-7700 (214) 999-7716
March 9, 1999
Trammell Crow Company
2001 Ross Avenue
Dallas, Texas 75201
Ladies and Gentlemen:
We have acted as counsel for Trammell Crow Company, a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 (No. 333-72925) (as may hereafter be
amended, the "Registration Statement"), which has been filed by the Company
with the Securities and Exchange Commission for the purpose of registering
under the Securities Act of 1933 (the "1933 Act"), and the rules and
regulations thereunder the sale of up to 5,750,000 shares (the "Shares") of
the Company's Common Stock, $.01 par value per share ("Common Stock"). The
Shares will be offered and sold (the "Offering") pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into between the
Company, Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens
Inc., BT Alex. Brown Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation (the "U.S. Underwriters"), and each of Morgan Stanley & Co.
International Limited, BancBoston Robertson Stephens International Limited,
BT Alex. Brown International, a division of Bankers Trust International PLC,
and Donaldson, Lufkin & Jenrette International (the "International
Underwriters" and collectively with the U.S. Underwriters, the "Underwriters").
Before rendering the opinion hereinafter set forth, we examined, among
other things, (i) the proposed form of Underwriting Agreement, (ii) the
Registration Statement, (iii) the Company's Certificate of Incorporation,
(iv) the Company's Bylaws, (v) resolutions of the Company's Board of
Directors, and (vi) originals or photostatic or certified copies of all those
corporate records of the Company and of all those agreements, communications
and other instruments, certificates of public officials, certificates of
corporate officials and such other documents as we have deemed relevant and
necessary as basis for the opinions hereinafter set forth. As to factual
matters relevant to the opinion herein stated and with respect to which
information is in the possession of the Company, we have relied without
investigation upon certificates or representations made by the Company's duly
authorized representatives to the extent we deem such reliance proper.
Based upon the foregoing assumptions, and subject to the qualifications
set forth hereinafter, we are of the opinion that, when (i) the Registration
Statement becomes effective under the 1933
<PAGE>
Trammell Crow Company
March 9, 1999
Page 2
Act, (ii) the final terms of the Underwriting Agreement and the Offering have
been approved by the Board of Directors (or a duly constituted committee
thereof), (iii) the Underwriting Agreement has been duly executed and
delivered by each of the parties thereto and (iv) the Shares have been issued
and delivered in accordance with the terms of the Underwriting Agreement
(including the receipt by the Company of the consideration for the Shares
described therein), the Shares will be validly issued, fully paid and
non-assessable.
The opinion expressed above is subject to the following assumptions,
exceptions and qualifications:
(a) We have assumed that (i) all information contained in all documents
reviewed by us is true and correct, (ii) all signatures on all documents
reviewed by us are genuine, (iii) all documents submitted to us as originals
are true and complete, (iv) all documents submitted to us as copies are true
and complete copies of the originals thereof, (v) each natural person signing
any document reviewed by us had the legal capacity to do so, (vi) each
natural person signing in a representative capacity any document reviewed by
us had authority to sign in such capacity, (vii) the laws of any jurisdiction
other than Texas that govern any of the documents reviewed by us (other than
the Company's certificate of incorporation and bylaws) do not modify the
terms that appear in any such document and (viii) the consideration received
by the Company for each share of Common Stock was equal to or exceeded the
par value thereof.
(b) The opinion expressed in this letter is limited to the laws of the
State of Texas, the General Corporation Law of the State of Delaware, and the
federal laws of the United States of America. We are not admitted to the
practice of law in the State of Delaware.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement and the references to us under the heading "Legal
Matters" in the prospectus that forms a part of the Registration Statement.
We also consent to the incorporation by reference of this consent into any
subsequent registration statement filed pursuant to Rule 462(b) under the
1933 Act in connection with the Offering. In giving this consent, we do not
hereby admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
We express no opinion as to any matter other than is expressly set forth
above, and no opinion is to or may be inferred or implied herefrom. This
opinion is given as of the date hereof, and we undertake no, and hereby
disclaim any, obligation to advise the Company or anyone else of any change
in any matter set forth herein.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE>
WRITER'S TELEPHONE WRITER'S FAX
(214) 220-7700 (214) 999-7716
March 9, 1999
Trammell Crow Company
2001 Ross Avenue
Dallas, Texas 75201
Ladies and Gentlemen:
We participated in the preparation of Registration Statement No.
333-72925 on Form S-3 originally filed with the Securities and Exchange
Commission by Trammell Crow Company (the "Company") on February 25, 1999,
with respect to the sale of common shares of the Company (as thereafter
amended from time to time and together with exhibits thereto, the
"Registration Statement"), including the discussion set forth in the
Registration Statement under the heading "Certain U.S. Federal Tax
Considerations for Non-U.S. Holders of Common Stock." The discussion and the
legal conclusions with respect to United States federal income tax matters
set forth therein reflect our opinion, and we believe they are accurate and
complete in all material respects.
Our opinion is rendered as of the time the Registration Statement is
declared effective and is based and conditioned upon the initial and
continuing accuracy of the facts and assumptions set forth in the
Registration Statement. Our opinion is also based upon provisions of the
United States Internal Revenue Code of 1986, as amended, regulations
promulgated or proposed thereunder and interpretations thereof by the
Internal Revenue Service and the courts, all as of the date of the
Registration Statement, all of which are subject to change with prospective
or retroactive effect, and our opinion could be adversely affected or
rendered obsolete by any such change.
We hereby consent to the use of our name in the Registration Statement
and to the filing of this opinion as part of the Registration Statement.
This consent does not constitute an admission that we are "experts" within
the meaning of such term as used in the United States Securities Act of 1933.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE>
MASTER LOAN AGREEMENT
THIS MASTER LOAN AGREEMENT, dated as of this 22nd day of December, 1998
by and between TCC NNN TRADING, INC., a Delaware corporation, and KEYBANK
NATIONAL ASSOCIATION, a national banking association;
WITNESSETH:
The parties hereto, in consideration of their mutual covenants
hereinafter set forth and intending to be legally bound hereby, agree as
follows:
ARTICLE I
DEFINITIONS
1.01. CERTAIN DEFINITIONS. The following words and terms shall have the
following meanings, respectively, unless the context hereof clearly otherwise
requires:
"Adjusted LIBOR Interest Rate" shall mean a rate per annum equal
to the quotient obtained (rounded upwards, if necessary, to the nearest
1/100th of 1%) by dividing (i) the sum of the applicable LIBOR Interest
Rate by (ii) 1.00 minus the Reserve Percentage.
"Advance" shall mean an advance to the Borrower on the account of
Loan.
"Advance Maturity Date" shall have the meaning ascribed thereto in
Section 2.05 hereof.
"Agreement" shall mean this Master Loan Agreement, as the same may
be supplemented, modified or amended from time to time.
"Assignment" shall mean an Assignment in the form attached hereto
as EXHIBIT F, with blanks completed appropriately, given by the Borrower
to the Bank with respect to a Project as security for the Borrower's
obligation under the Loan, subject to such changes as may be required to
comply with the requirements of the law of the state in which such
Project is located, as the same may be supplemented, modified or amended
from time to time.
"Assignment of Rents" shall mean an Assignment of Rents and Leases
in the form attached hereto as EXHIBIT E, with blanks completed
appropriately, given by the Borrower to the Bank with respect to a
Project as security for the Borrower's obligations under the Loan,
subject to such changes as may be required to comply with the
requirements of the law of the state in which such Project is located, as
the same may be supplemented, modified or amended from time to time.
<PAGE>
"Bank" shall mean KeyBank National Association, a national banking
association, its successors and assigns.
"Borrower" shall mean TCC NNN Trading, Inc., a Delaware
corporation.
"Borrower's Affidavit" shall mean a Borrower's Closing Affidavit
in the form of EXHIBIT H attached hereto, with blanks completed
appropriately, given by the Borrower to the Bank with respect to a
Project.
"Closing" shall mean the execution and delivery by the Borrower to
the Bank of this Agreement and the Note.
"Closing Date" shall mean the date of the Closing.
"Collateral Assignment of Purchase Agreement" shall mean a
Collateral Assignment of Purchase Agreement in the form attached hereto
as EXHIBIT G, with blanks completed appropriately, given by the Borrower
to the Bank with respect to a Project as security for the Borrower's
obligations under the Loan, as the same may be supplemented, modified or
amended from time to time.
"Commitment Fee" shall mean an amount equal to Fifty Thousand
Dollars ($50,000) to be paid by the Borrower to the Bank in accordance
with the terms hereof.
"Conditional Default" shall mean any condition, event, act or
omission which, with the giving of notice or passage of time or both,
would constitute an Event of Default.
"Debt Service Coverage Ratio" shall mean the ratio of (i)
projected total annual income to be received under the Lease for an
applicable Project, defined as base rent, common area maintenance
payments, insurance and real estate tax payments or reimbursements made
by Tenant to Borrower and miscellaneous sources, less the projected total
annual expenses and non-capitalized costs of operating and maintaining
such Project, including any annual management fee paid by the Borrower in
respect of such Project, an annual charge of Ten Cents ($.10) per square
foot of such Project for a capital reserve, and expenses for common area
maintenance, insurance, real estate taxes and repairs actually paid by
the Borrower in respect of such Project, to (ii) the projected total
annual sum of all interest payments and principal payments on the Advance
made in respect of such Project which would be due and payable assuming
the level amortization of such Advance over a period equal to the lesser
of (a) twenty (20) years or (b) the remaining term of the applicable
Lease, plus five (5) years, at a per annum interest rate equal to the
lesser of (y) Seven and One-Half Percent (7-1/2%) or (z) Two Percent (2%)
above the most recent weekly average yield on United States Treasury
Securities adjusted to a constant maturity of ten (10) years.
"Default Rate" shall mean a rate of interest from time to time
which is Two Percent (2%) per annum above the applicable Interest Rates
otherwise then in effect.
2
<PAGE>
"Deposit" shall mean an earnest money deposit made by a buyer
under a Purchase Agreement and held by a Title Company or by the
Borrower.
"Disbursement Request" shall mean a statement of the Borrower
setting forth the amount of an Advance being requested and containing
such other information as is required by Paragraph (a) of Section 5.01
hereof.
"Environmental Indemnity Agreement" shall mean an Environmental
Indemnity Agreement in the form attached hereto as EXHIBIT I, with blanks
completed appropriately, to be executed and delivered with respect to a
Project by the Borrower and the Guarantor to the Bank, as the same may be
supplemented, modified or amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, which together with the Borrower would be treated as a
single employer under ERISA.
"Event of Default" shall mean any of the events of default
described in Section 8.01 hereof.
"FEMA" shall mean the Federal Emergency Management Agency, or any
successor entity.
"Fixtures" shall mean all personal property now or hereafter owned
by the Borrower and now or hereafter affixed to, incorporated into or to
be incorporated into, or used or useful in connection with, a Project or
any part thereof, all replacements thereof, additions thereto and
substitutions therefor.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time as promulgated by
the Financial Standards Accounting Board and recognized and interpreted
by the American Institute of Certified Public Accountants.
"Governmental Authorities" shall mean the United States of
America, the state and local jurisdictions in which a Project is located
and any political subdivision thereof, and any agency, department,
commission, board, bureau or instrumentality of any of them.
"Governmental Requirement" shall mean any law, ordinance, order,
rule or regulation of any Governmental Authority, including but not
limited to laws, ordinances, orders, rules or regulations with regard to
zoning, subdivision, building, safety, fire protection or environmental
matters applicable to a Project.
"Guarantor" shall mean Trammell Crow Company, a Delaware
corporation.
3
<PAGE>
"Guarantor's $150,000,000 Credit Agreement" shall mean that
certain Credit Agreement, dated as of December 1, 1997, among the
Guarantor, the Lenders listed therein, NationsBank of Texas, N.A. and
Bankers Trust Company, without amendment or modification. Nothing herein
shall prohibit or be deemed to prohibit Guarantor from entering into or
agreeing to any modification or amendment to such Credit Agreement.
However, no reference to any such modification or amendment shall be made
for purposes of this definition.
"Hazardous Constituent" shall have the meaning assigned thereto
under 40 C.F.R. Section 260.10.
"Hazardous Materials" shall mean, collectively, Hazardous
Substances, Hazardous Constituent and Solid Wastes.
"Hazardous Materials Laws" shall mean all laws, statutes,
ordinances, rules, regulations, permits, licenses, judgments, writs,
injunctions, decrees, orders, determinations, directives and standards
promulgated by any governmental authority concerning Hazardous Materials
or concerning the protection of, or regulation of the discharge of
substances into, the environment or concerning the health or safety of
persons with respect to environmental hazards, and includes, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Sections 9601 et seq., Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of
1976 and Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. Sections
6901 et seq., Federal Water Pollution Control Act, as amended by the
Clean Water Act of 1977, 33 U.S.C. Sections 1251 et seq., Clean Air Act
of 1966, as amended, 42 U.S.C. Sections 7401 et seq., Toxic Substances
Control Act of 1976, 15 U.S.C. Sections 2601 et seq., Occupational Safety
and Health Act of 1970, as amended, 29 U.S.C. Sections 651 et seq.,
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
Sections 11001 et seq., National Environmental Policy of 1975, 42 U.S.C.
Sections 4321 et seq., Safe Drinking Water Act of 1974, as amended, 42
U.S.C. Section 300(f) et seq., the Hazardous Materials Transportation
Act, 42, U.S.C. Section 1801 et seq., the Federal Insecticide, Fungicide,
and Rodenticide Act, U. S.C. Section 7401 et seq., and any similar or
implementing law of the state in which a Project is located, and all
amendments, rules, and regulations promulgated thereunder or implementing
the same.
"Hazardous Substances" shall mean at any time any substance,
waste, pollutant, contaminant or material, in solid, liquid or gaseous
form, which: (i) is a substance regulated or defined or designated as
hazardous, extremely or imminently hazardous, objectionable, dangerous,
or toxic pursuant to any law, by any local, state, territorial or federal
governmental authority; (ii) is a substance with respect to which such a
governmental authority otherwise requires environmental compliance,
investigation, monitoring, reporting, or remediation; including but not
limited to, (A) all substances, wastes, pollutants, contaminants and
materials regulated, or defined or designated as hazardous, extremely or
imminently hazardous, dangerous, objectionable or toxic, under any
Hazardous Materials Law; (B) petroleum and petroleum based products
including crude oil, used oil and any fractions thereof; (C) natural gas,
synthetic gas, and any mixtures thereof; (D) radon; (E)
4
<PAGE>
radioactive substances and materials; (F) asbestos; (G) urea
formaldehyde; (H) polychlorinated biphenyls; (I) lead; (J) methane;
(K) flammable substances and materials; and (L) explosives.
"Improvements" shall mean the improvements portion of a Project.
"Inspecting Architect" shall mean an independent architectural or
engineering firm employed by the Bank with respect to a Project. The
Borrower may submit to the Bank a list of suggested architectural and
engineering firms for consideration by the Bank. The Bank shall not,
however, be obligated to select or retain an Inspecting Architect from
such list.
"Interest Rate" shall mean, as to each Advance, a rate per annum
equal to (i) for Prime Advances, the Prime Interest Rate and (ii) for
LIBOR Advances, the Adjusted LIBOR Interest Rate.
"Lease" shall mean a lease of a Project (excluding any incidental
real estate which is contiguous to the leased real estate and
improvements and which the Borrower is or was required to purchase as
part of the acquisition of the leased real estate and improvements) by
and between the Borrower, as landlord, and a Tenant, as tenant.
"LIBOR" shall mean the average (rounded upward to the nearest
1/16 of 1%) of the per annum rates at which deposits in immediately
available funds in U.S. dollars for the applicable LIBOR Interest Period
and in the amount of the applicable LIBOR Advance are offered to the Bank
by prime banks in the London interbank Eurodollar market, determined as
of 11:00 a.m. London time (or as soon thereafter as practicable) two (2)
London Banking Days prior to the beginning of the applicable LIBOR
Interest Period;
"LIBOR Advance" shall mean any Advance which is determined with
reference to the Adjusted LIBOR Interest Rate;
"LIBOR Interest Period" shall mean a period of one (1) month,
three (3) months or six (6) months, as selected by the Borrower;
"LIBOR Interest Rate" shall mean a rate per annum equal to One and
Three Quarters Percent (1-3/4%) above LIBOR.
"Loan" shall mean a revolving loan from the Bank to the Borrower
in a principal amount not to exceed Twenty Million Dollars ($20,000,000)
at any time outstanding.
"Loan Commitment Expiration Date" shall mean December 22, 2000.
"Loan Documents" shall mean, this Agreement, the Note, and all
Project Agreements, Mortgages, Assignments of Rents, Assignments,
Collateral Assignments of Purchase Agreement, Transaction Guaranties,
Borrower's Affidavits, Environmental Indemnities and other documents
executed and/or delivered by or on behalf of the Borrower or the
Guarantor
5
<PAGE>
in connection with the Loan or any Advance which are in effect from
time to time, as the same may be supplemented, modified or amended
from time to time.
"London Banking Day" shall mean a day on which commercial banks
are open for business in London, England, and quoting deposit rates for
U.S. dollar deposits.
"Material Adverse Effect" shall mean any event, circumstance or
condition that could reasonably be expected to have a material adverse
effect on (a) the business, operations, financial condition or properties
of the Borrower taken as a whole, (b) the ability of the Borrower to
repay the Loan or perform all other material obligations under the Loan
Documents, (c) the validity or enforceability of any of the Loan
Documents, or any material provision thereof or any transaction
contemplated thereby, or (d) the rights and remedies of the Bank under
any of the Loan Documents.
"Monetary Event of Default" shall mean an Event of Default under
Section 8.01(a) hereof or any other Event of Default which can be cured
by the payment of money.
"Mortgage" shall mean a Real Estate Mortgage and Security
Agreement in the form of EXHIBIT D-1 attached hereto, with blanks
completed appropriately, or a Deed of Trust and Security Agreement in the
form of EXHIBIT D-2 attached hereto, with blanks completed
appropriately, given by the Borrower to the Bank with respect to a
Project as security for the Borrower's obligations under the Loan,
subject to such changes as may be required to comply with the
requirements of the laws of the state in which the Project is located, as
the same may be supplemented, modified or amended from time to time.
"Mortgage Release Price" shall mean with respect to a Project, an
amount equal to (a) if when such Project is sold no Event of Default is
then continuing, the amount of the Advance made in respect of such
Project, less any principal payment previously made in respect of such
Advance, or (b) if when such Project is sold a Non-Monetary Event of
Default is then continuing, the greater of (i) the amount described in
subsection (a) of this definition and (ii) the Net Sales Price of such
Project; or (c) if when such Project is sold, a Monetary Event of Default
is then continuing, the amount described in subsection (a) of this
definition, plus that portion of the Net Sales Proceeds Excess which is
necessary to fully cure all Monetary Events of Default then continuing,
provided that, if the application of all of the Net Sales Proceeds Excess
would not cure all Non-Monetary Events of Default then continuing, the
Mortgage Release Price under this subsection (c) for such Project will be
the Net Sales Price of such Project.
"Net Sales Price" shall mean with respect to a Project, an amount
equal to One Hundred Percent (100%) of the gross sales price of such
Project, less closing costs payable by the Borrower in respect of the
sale of such Project, provided such closing costs are in a reasonable
amount and are of a type customarily paid by a Seller in the area in
which such Project is located. Such closing costs shall include without
limitation, pro rations for property taxes, costs of survey and title
insurance and the cost of any brokerage commissions or fees payable in
respect of such sale; provided, however, that a brokerage fee or
commission
6
<PAGE>
payable to an affiliate of the Borrower or the Guarantor shall not be
permitted as a closing cost in calculating the Net Sales Price of such
project.
"Net Sales Proceeds Excess" shall mean the amount by which the Net
Sales Price for a Project exceeds the amount of the Advance made in
respect of such Project which is outstanding as of the closing of the
sale of such Project.
"Non-Monetary Event of Default" shall mean any Event of Default,
other than a Monetary Event of Default.
"Non-Pre-Approved Tenant" shall mean any tenant having an S & P
Rating of less than BBB- and any tenant which would use a Project for a
restaurant operation, a fast food operation or any other food service
operation.
"Note" shall mean the Revolving Credit Note in the form of
EXHIBIT C attached hereto, with blanks completed appropriately, executed
by the Borrower payable to the order of the Bank to evidence the Loan, as
the same may be renewed, extended, supplemented, modified or amended from
time to time.
"OfficeMax" shall mean OfficeMax, Inc., an Ohio corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to ERISA, or any successor entity.
"Personal Property" shall mean all tangible personal property
owned by the Borrower and now or at any time hereafter located on or at a
Project owned by the Borrower or used in connection therewith or with the
improvements forming a part of such Project.
"Plan" shall mean an Employee Benefit Plan which is covered by
Title 4 of ERISA or subject to the minimum lending standards under
Section 412 of the Internal Revenue Service as to which the Borrower may
have any liability.
"Plans and Specifications" shall mean the plans and specifications
for the construction of the Improvements forming part of an applicable
Project prepared by the architect therefor.
"Prime Advance" shall mean any Advance which is determined with
reference to the Prime Rate.
"Prime Interest Rate" shall mean a rate per annum equal to the
Prime Rate.
"Prime Rate" shall mean the interest rate per annum announced from
time to time by the Bank as its prime rate. Each interest rate determined
by reference to the Prime Rate shall change automatically from time to
time, effective as of the effective date of each change in the Prime
Rate. The Bank's Prime Rate is not necessarily the rate at which the Bank
lends its funds. The Prime Rate is only an index rate from which interest
rates actually charged to the
7
<PAGE>
Bank's customers may be measured. The use of the Prime Rate does not
constitute a commitment by the Bank to lend money at a preferred rate.
"Prohibited Transaction" shall have the meaning ascribed thereto
by ERISA.
"Project" shall mean the real estate and all improvements thereon
which will be owned by the Borrower and leased to a Tenant under a Lease,
together with any incidental real estate which is contiguous to the
leased real estate and improvements and which the Borrower is or was
required to purchase as part of the acquisition of the leased real estate
and improvements.
"Project Agreement" shall mean a Project Agreement in the form of
EXHIBIT A attached hereto, with blanks completed appropriately, to be
entered into by the Bank and the Borrower, pursuant to which the Bank
approves an Advance for funding hereunder as required by Section 2.02, as
the same may be supplemented, modified or amended from time to time.
"Project Costs" shall mean with respect to a Project, the purchase
price paid by the Borrower for its acquisition of a Project (including
ordinary closing costs therefor paid by the Borrower which increase the
purchase price (including, without limitation, pro-rated property taxes,
brokers commissions and title insurance)), the Project Fee for the
Advance made in respect of such Project, the legal fees, survey charges
and appraisal fees incurred in respect of such Advance, and the
Inspecting Architect's fees for such Project.
"Project Fee" shall mean an amount equal to One Quarter of One
Percent (1/4 of 1%) of the principal amount of an Advance.
"Project Purchase Agreement" shall mean with respect to a Project,
a purchase agreement between the Borrower and a buyer not affiliated with
the Borrower or the Guarantor which is approved by the Bank in a form
reasonably acceptable to the Bank, pursuant to which agreement the
Borrower agrees to sell, and such buyer agrees to purchase, a Project.
Such purchase agreement shall require the buyer thereunder to deposit a
Deposit with the Borrower or a Title Company or other escrow agent.
"Project Site" shall mean the real estate portion of a Project.
"Rating" shall mean the rating from time to time established by
S & P for senior, unsecured, non-credit-enhanced long-term debt of a
Tenant.
"Regulation U" shall mean Regulation U of the Board of Governors
of the Federal Reserve System, as amended from time to time.
"Reportable Event" shall have the meaning ascribed thereto by
ERISA.
"Reserve Percentage" shall mean for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by
the Board of Governors of the Federal
8
<PAGE>
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, all basic, supplemental,
marginal and other reserves and taking into account any transitional
adjustments or other scheduled changes in reserve requirements) for a
member of the Federal Reserve System in Cleveland, Ohio, in respect
of "Eurocurrency Liabilities." The Adjusted LIBOR Interest Rate shall
be adjusted automatically on and as of the effective date of any
change in the Reserve Percentage;
"Solid Wastes" shall have the meaning assigned thereto in
40 C.F.R. Section 261.2.
"S & P" shall mean Standard & Poor's Ratings Services, a division
of McGraw-Hill Companies, Inc., or if S & P no longer publishes ratings,
then another ratings agency acceptable to the Bank.
"Storage Containers" shall mean existing and future containers for
Hazardous Materials and above ground and underground storage tank systems
(including underground piping, conduits or sumps).
"Subordination, Non-Disturbance and Attornment Agreement" shall
mean a Subordination, Non-Disturbance and Attornment Agreement in the
form of EXHIBIT K attached hereto, with blanks completed appropriately,
entered into by the Bank, the Borrower and a Tenant with respect to a
Project, subject to such changes as may be required to comply with the
requirements of the law of the state in which the Project is located, as
the same may be supplemented, modified or amended from time to time.
"Tenant" shall mean Office Max, Inc., any tenant (other than a
tenant which would use a Project for a restaurant operation, a fast food
operation or any other food service operation) having an S & P rating of
BBB- or higher, and any other retail tenant which the Bank approves in
its sole discretion.
"Title Company" shall mean with respect to a Project, Chicago
Title Insurance Company or any other title insurer designated by the
Borrower and approved by the Bank which agrees to insure the priority of
the lien of the Mortgage on such Project.
"Title Policy" shall mean with respect to a Project, the policy of
title insurance issued by a Title Company to the Bank insuring the
priority of the lien of the Mortgage on such Project.
"Transaction Guaranty" shall mean a Transaction Guaranty in the
form attached hereto as EXHIBIT J, with blanks completed appropriately,
given to the Bank by the Guarantor with respect to an Advance, pursuant
to which the Guarantor guarantees the Borrower's obligations in respect
of such Advance, as the same may be supplemented, modified or amended
from time to time.
"Wetlands" shall mean any wetlands area or other area which is
subject to the regulatory jurisdiction of the United States Environmental
Protection Agency and/or Army
9
<PAGE>
Corps of Engineers and/or any other Governmental Authority, under any
Governmental Requirement, including, without limitation, the Clean
Water Act, 33 U.S.C. Section 1251, ET. SEQ.
"Year 2000 Issues" shall mean the anticipated costs, problems and
uncertainties associated with the inability of certain computer
applications to effectively handle data including dates on and after
January 1, 2000, as it affects the business, operations, and financial
condition of the Borrower.
Unless the context clearly otherwise requires, the foregoing definitions
shall be equally applicable to both the singular and plural forms.
1.02 SECTION 8.01(p). All defined terms used in Section 8.01(p) hereof,
but not defined herein, shall have the meanings assigned to such terms in
Guarantor's $150,000,000 Credit Agreement. All provisions and defined terms in
the Guarantor's $150,000,000 Credit Agreement are incorporated herein by
reference to the extent such provisions and terms are necessary for the
interpretation or construction of any defined terms used in Section 8.01(p).
Reference shall continue to be made to the Guarantor's $150,000,000 Credit
Agreement for defined terms which are used in Section 8.01(p) hereof, but not
defined herein, even upon the termination or cancellation thereof.
ARTICLE II
THE LOAN
2.01. LOAN. Subject to the terms and conditions hereof, and relying
upon the representations and warranties herein set forth, the Bank agrees to
make the Loan to the Borrower. The Bank's commitment to make Advances shall
expire on the Loan Commitment Expiration Date. In no event shall the Bank be
obligated to make any Advance on or after the Loan Commitment Expiration Date.
The proceeds of the Loan will be used solely for the acquisition by the Borrower
of Projects approved by the Bank in accordance with the terms of Section 2.02
hereof. The proceeds of the Loan will be advanced to the Borrower in accordance
with and subject to the requirements and limitations set forth herein. Proceeds
of the Loan shall be allocated to the Projects by the Borrower in such manner as
the Borrower shall determine and the Bank may approve pursuant to Section 2.02
hereof. If prior to the Loan Commitment Expiration Date, the Borrower repays
any Advance(s), or any portion thereof, Loan proceeds in an amount equal to the
amount of the repayment will again be made available to the Borrower for
Advances, subject to the terms and conditions hereof.
2.02. PROJECT APPROVAL. In connection with a request for approval for
an Advance, the Borrower shall submit to the Bank those materials identified in
EXHIBIT B attached hereto. If the Project for which an Advance is requested is
or will be leased to a Non Pre-Approved Tenant, the Borrower shall submit to the
Bank such other information as the Bank deems reasonable, appropriate and
necessary with respect to such Advance and the Project to be acquired with the
proceeds thereof. The Bank may not withhold its approval for an Advance for a
Project if the Project will be leased to Office Max or a tenant which will lease
the Property for a retail operation and has a Rating of BBB- or higher;
provided, however, Bank may withhold, in its sole discretion, its approval for
an Advance for a Project to be leased to OfficeMax or a tenant which will lease
the Property for a retail
10
<PAGE>
operation and has a Rating of BBB- or higher, if the Borrower will not own
fee simple title to such Project at the time of the Advance therefor. If the
Bank approves an Advance for a Project which the Borrower will not own fee
simple to (e.g., a Project in which the Borrower owns only a leasehold estate
or a subleasehold estate) at the time of the Advance therefor, the Bank may
impose requirements regarding such Advance in addition to those set forth
herein. The Bank may withhold, in it sole discretion, its approval for an
Advance for a Project if the Project will be leased to a Non-Pre-Approved
Tenant. The Bank covenants and agrees to use its best efforts to approve or
disapprove an Advance for a Project to be leased to a Non-Pre-Approved Tenant
within five (5) business days following receipt of a request for approval by
the Borrower. In connection with the approval of an Advance for a Project
leased to a Non-Pre-Approved Tenant, the Bank may impose requirements
regarding disbursement of such Advance in addition to those set forth herein.
Such additional requirements will be set forth in the Project Agreement to be
executed by the Bank and the Borrower in respect of such Project, which
Project Agreement, when executed, shall be deemed to be a modification and
amendment of this Agreement as to the particular Advance.
2.03. PROJECT NOTE. The Loan and all Advances thereunder shall be
evidenced by the Borrower's receipts and the Note.
2.04. RATE OF INTEREST. During the term of the Loan, the unpaid
principal amount thereof shall, subject to the terms and conditions hereinafter
set forth, bear interest on a basis selected by the Borrower from the following
interest rate selections: (a) the Adjusted LIBOR Interest Rate; and (b) the
Prime Interest Rate.
Each Advance shall be made as either a Prime Advance or a LIBOR Advance,
as selected by the Borrower. The Borrower may have Prime Advances and LIBOR
Advances outstanding simultaneously; provided, however, the Borrower may not
have more than five (5) LIBOR Advances in existence at any time and each LIBOR
Advance must be in an amount which is greater than or equal to $1,000,000. The
Borrower may convert any Prime Advances aggregating at least $100,000 in
principal amount into a LIBOR Advance on the first day of a calendar month. At
the end of the LIBOR Interest Period applicable to a LIBOR Advance, the Borrower
may renew the LIBOR Advance or may convert the LIBOR Advance to a Prime Advance.
If the Borrower fails to renew any LIBOR Advance or if the Borrower shall
receive any new Advance without designating whether such Advance is a LIBOR
Advance or a Prime Advance, such Advance shall automatically be deemed to be a
Prime Advance. At any time that the Borrower desires a LIBOR Advance or intends
to renew a LIBOR Advance or convert a Prime Advance into a LIBOR Advance, the
Borrower must notify the Bank at least three (3) London Banking Days prior to
the day on which the Borrower desires such Advance, renewal or conversion to be
effective. The Borrower shall have no right to designate a new Advance as, or
convert an existing Prime Rate Advance to, a LIBOR Advance if an Event of
Default is then continuing. The Borrower shall have no right to select a LIBOR
Interest Period for a LIBOR Advance if such LIBOR Interest Period would extend
beyond the Advance Maturity Date therefor.
While and so long as no Event of Default is continuing, interest shall
accrue at the applicable Interest Rates upon the daily principal balance of the
Loan, based on a three hundred sixty (360) day year, for the actual number of
days elapsed since the date to which interest has been paid. While and so long
as an Event of Default is continuing, interest shall accrue at the applicable
Default Rates upon
11
<PAGE>
the daily principal balance of the Loan, based on a three hundred sixty (360)
day year, for the actual number of days elapsed since the date to which
interest has been paid.
If the Bank shall determine, after the date hereof, that the adoption of
any applicable law, rule, regulation or guideline regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank (or
its lending office) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital (or on the capital of the Bank's holding company) as a
consequence of the Loan to a level below that the Bank (or its holding company)
could have achieved but for such adoption, change or compliance (taking into
consideration the Bank's policies or the policies of its holding company with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then from time to time, within fifteen (15) days after demand by the Bank, the
Borrower shall either (a) pay to the Bank such additional amount or amounts as
will compensate the Bank (or its holding company) for such reduction, or (b)
convert all LIBOR Advances to a Prime Advance. If the Borrower elects the
option provided in the foregoing subparagraph (b), the Borrower shall not be
subject to the requirement hereunder that the Borrower reimburse the Bank for
any loss, cost or expense incurred by the Bank as a result of the Borrower
paying a LIBOR Advance prior to the end of the applicable LIBOR Interest Period,
provided, however, thereafter the Borrower may not elect for any Advances to be
LIBOR Advances. The Bank will designate a different lending office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of the Bank, be otherwise disadvantageous to the
Bank. In determining such amount, the Bank may use any reasonable averaging and
attribution methods. Failure on the part of the Bank to demand compensation for
any reduction in return on capital with respect to any period shall not
constitute a waiver of the Bank's rights to demand compensation for any
reduction in return on capital in such period or in any other period. The
protection of this Section shall be available to the Bank regardless of any
possible contention of the invalidity of the law, regulation or other condition
which shall have been imposed.
2.05. PRINCIPAL PAYMENT OF ADVANCE. An Advance shall be due and payable
upon the earlier of (the "Advance Maturity Date"): (a) twelve (12) months from
the funding thereof; or (b) the sale of the Project in respect of which such
Advance was made, unless such Advance is sooner paid or payable pursuant to the
terms hereof.
2.06. INTEREST PAYMENTS. The Borrower shall pay interest at the
applicable Interest Rates on the outstanding principal balance of the Loan on
the first (1st) day of each calendar month while proceeds of the Loan remain
outstanding, commencing on the first (1st) day of the first (1st) calendar month
following the first Advance.
2.07. PRINCIPAL PAYMENTS. If an Advance has not been fully repaid by
the One Hundred Eighty-First day (181st) day following the funding thereof, the
Borrower shall pay to the Bank on such date an amount equal to Ten Percent (10%)
of the original amount of such Advance, which payment shall be applied in
reduction of the principal balance of such Advance. Upon the sale of a Project,
the Borrower shall pay to the Bank an amount equal to the Mortgage Release Price
payable in respect thereof, and such Mortgage Release Price payment when
received by the Bank, shall be
12
<PAGE>
applied in reduction of the principal balance of the Advance which was made
in respect of such Project. Notwithstanding the foregoing provisions, during
the continuance of an Event of Default, any Mortgage Release Price payment
received by the Bank may be applied, in the discretion of the Bank, in
reduction of any accrued and unpaid interest on the Loan or any outstanding
Advance made pursuant to Section 5.01(c) hereof, so long as the Bank provides
to Borrower all documents necessary to release the Project being sold. The
Borrower shall pay to the Bank a reasonable service fee, not to exceed Fifty
Dollars ($50.00), for the processing of the requested release of a Mortgage.
Upon the Bank's receipt of the Mortgage Release Price payment made in respect
of a Project, the Bank will release the Mortgage and all other security of
the Bank encumbering such Project.
At the request of the Bank, the Borrower will furnish to the Bank
copies of any closing statement, purchase agreement and similar documents
relating to the sale of a Project prior to the release by the Bank of its
security with respect to such Project.
2.08. LOAN PREPAYMENTS. The Borrower may prepay the principal amount of
any Prime Advance in whole or in part from time to time without any prepayment
penalty. The Borrower may not prepay any LIBOR Advance before the expiration of
the LIBOR Interest Period applicable to such LIBOR Advance, except upon the
payment of the amount provided for below.
If any LIBOR Advance becomes due and payable or is prepaid prior to the
last day of the applicable LIBOR Interest Period (including any prepayment
resulting from the acceleration of the Loan by the Bank as a consequence of an
Event of Default), the Borrower also promises to reimburse the Bank on demand
for any resulting loss, cost, or expense incurred by the Bank as a result
thereof including, without limitation, any loss incurred in obtaining,
liquidating, or employing deposits from third parties, but excluding the Bank's
loss of margin for the period after any such payment; provided, however, the
Borrower shall not be required to reimburse the Bank for any loss, cost or
expenses incurred by the Bank as a result of the prepayment of a LIBOR Advance
prior to the last day of the applicable LIBOR Interest period if such LIBOR
Advance is paid in full and such prepayment results from the sale of the Project
in respect of which such LIBOR Advance was made. If, because of the
introduction of or any change in, or because of any judicial, administrative, or
other governmental interpretation of, any law or regulation, there shall be any
increase in the cost to the Bank of making, funding, maintaining, or allocating
capital to LIBOR Advances, then from time to time, within fifteen (15) days
after demand by the Bank, the Borrower shall either (a) pay to the Bank
additional amounts sufficient to compensate the Bank for such increased cost; or
(b) convert all LIBOR Advances to a Prime Advance. If the Borrower elects the
option provided in the foregoing subparagraph (b), the Borrower shall not be
subject to the requirement hereunder that the Borrower reimburse the Bank for
any loss, cost or expense incurred by the Bank as a result of the Borrower
paying a LIBOR Advance prior to the end of the applicable LIBOR Interest Period;
provided, however, thereafter the Borrower may not elect for any Advances to be
LIBOR Advances. If, because of the introduction of or any change in, or because
of any judicial, administrative, or other governmental interpretation of, any
law or regulation, it becomes unlawful for the Bank to make, fund, or maintain
any LIBOR Advance, then the Bank's obligation to make, fund, or maintain any
LIBOR Advance shall terminate.
2.09. LATE FEE. If any sum of principal or interest in respect of the
Loan is not paid within five (5) days after the date when due, then, in addition
to and not in lieu of any other rights or
13
<PAGE>
remedies available to the Bank, the Borrower shall pay to the Bank, on
demand, a late fee in an amount equal to the greater of five percent (5%) of
such sum or Twenty-Five Dollars ($25.00), but not to exceed Two Hundred Fifty
Dollars ($250.00). In no event, however, shall a late fee be payable under
this Section 2.09 in respect of an Advance and the interest therein if the
Borrower fails to pay such Advance and interest on the Advance Maturity Date
therefor or on the date on which such Advance and interest are payable as a
result of the acceleration of the Loan pursuant to the terms of this
Agreement.
2.10. NON-USE FEE. The Borrower agrees to pay to the Bank a non-use
fee (the "Non-Use Fee") calculated at the rate of 0.20% per annum on the daily
unborrowed portion of the Loan (which is equal to the daily average of the
difference between the maximum principal amount of the Loan (i.e., $20,000,000)
and the then outstanding balance of the Loan owed during any calculation period)
from the Closing Date to and including the Loan Commitment Expiration Date,
payable quarterly in arrears on the last day of each calendar quarter hereafter.
Notwithstanding the foregoing, all accrued Non-Use Fees shall be payable on the
effective date of any termination of the Bank to make Advances. The Non-Use Fee
shall be calculated based on a year of 360 days.
2.11. EXCULPATION. Notwithstanding anything to the contrary contained
herein or in the other Loan Documents, it is intended that the obligations of
the Borrower under this Loan Agreement, the Note and the other Loan Documents
shall be payable only out of the Projects encumbered by Mortgages in effect from
time to time, the enforcement of the provisions contained in such Mortgages or
any other Loan Documents and out of any other property, security or guaranties
securing or given for such obligations (the "Additional Property"), and,
accordingly, except as hereafter provided, no liability shall be asserted or be
enforceable against the Borrower, its successors and assigns, or their assets
and estates (other than such Projects and the Additional Property) because of or
in respect of the Loan or any other obligations of the Borrower under the Loan
Documents, all such liability, if any, being expressly waived by the Bank. The
foregoing provisions shall not limit or be construed to limit or impair the
Bank's rights against the Borrower for costs or damages arising from (the
following being referred to as the "Non-Recourse Exceptions"): (a) fraud or
material misrepresentations made by the Borrower in connection with the Note,
any Mortgage or any other Loan Document; (b) the misapplication by the Borrower
of insurance proceeds or condemnation awards paid in connection with a Project
prior to foreclosure of the Mortgage encumbering the same or conveyance of such
Project by a power of sale or a deed in lieu of foreclosure; (c) the
misapplication by Borrower of gross receipts from rental of a Project encumbered
by a Mortgage applicable to the period after an Event of Default and prior to
the foreclosure of such Mortgage or conveyance of such Project by a power of
sale or a deed in lieu of foreclosure after an Event of Default, (d) the
unauthorized removal by Borrower of any portion of a Project encumbered by a
Mortgage; (e) waste committed by the Borrower with respect to a Project
encumbered by a Mortgage; (f) the failure by the Borrower to provide the
insurance coverage or to pay taxes or assessments required by a Mortgage; or (g)
the misapplication by Borrower of proceeds of the Loan in violation of the
provisions of the Loan Documents.
Nothing herein shall be deemed a waiver by the Bank of any right which
the Bank may have pursuant to the Bankruptcy Code of the United States of
America or any similar state law to file a claim for the full amount of the
indebtedness and other obligations of the Borrower under the Loan Documents or
to require that all collateral or security for such indebtedness and obligations
shall
14
<PAGE>
continue to secure the entire amount of such indebtedness and obligations in
accordance with the Loan Documents. In addition, nothing herein contained
shall affect or impair the liability or obligation of the Guarantor under
any Transaction Guaranty or of any other guarantor or co-maker or other
person who by separate instrument shall be or become liable upon or
obligated for any of the indebtedness and other obligations of the Borrower
under the Loan Documents or any of the covenants or agreements contained in
the Loan Documents, and nothing herein contained shall limit the Borrower's
personal liability under Section 6.09 hereof and under Section 4.10 of any
Mortgage from the Borrower to the Bank or the Borrower's and the Guarantor's
personal liability under any Environmental Indemnity Agreement from the
Borrower and the Guarantor to the Bank.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank that as of the Closing
Date:
3.01. ORGANIZATION AND QUALIFICATION. The Borrower is a duly formed and
validly existing corporation under the laws of the State of Delaware. The
Guarantor is a duly formed and validly existing corporation under the laws of
the State of Delaware.
3.02. RIGHT AND POWER; CORPORATE AUTHORITY. The Borrower has full
right, power and authority to execute and deliver this Agreement and the Note
and to perform its obligation thereunder. The Borrower has taken the necessary
corporate action to authorize the execution and delivery of the Agreement and
the Note and the borrowings thereunder.
3.03. CONFLICT WITH OTHER INSTRUMENTS. The execution and delivery of
this Agreement and the Note, the consummation of the transactions contemplated
thereby, and the compliance with the terms, conditions and provisions thereof
will not conflict with or result in a breach of any of the terms, conditions or
provisions of the articles or certificate of incorporation or by-laws of the
Borrower, or, to the Borrower's actual knowledge, any law or any regulation,
order, writ, injunction or decree of any court or Governmental Authority or any
agreement or instrument to which the Borrower is a party or by which the
Borrower or its properties or assets are subject to or bound, or constitute a
default thereunder or result in the creation or imposition of any lien, charge,
security interest or encumbrance of any nature whatsoever upon any of the
property of the Borrower pursuant to the terms of any such agreement or
instrument, except as created by the Loan Documents.
3.04. AUTHORITY, VALIDITY AND BINDING EFFECT. The execution and
delivery of this Agreement and the Note, and the making of the borrowings
contemplated by the provisions hereof and thereof, have been duly authorized by
all necessary action on the part of the Borrower, and no authorization, approval
or consent by, or filing with, any Governmental Authority or public regulatory
authority is necessary therefor. This Agreement and the Note have been duly and
validly executed and delivered by the Borrower and constitute a legal, valid and
binding obligation of the Borrower, enforceable in accordance with their terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency or
other laws of general application affecting the enforcement of creditors' rights
generally and by principles of equity.
15
<PAGE>
3.05. FINANCIAL CONDITION. The financial statements of the Borrower, if
any, and the Guarantor furnished to the Bank are complete and correct in all
material respects. Such financial statements were prepared in accordance with
GAAP consistently applied. The financial statements of the Borrower and the
Guarantor fairly present their respective financial condition at the respective
dates indicated therein. Since the dates of such financial statements, there
has been no material adverse change in the assets, liabilities or financial
condition of the Borrower and the Guarantor from that reflected thereon.
3.06. LITIGATION. There are no actions, suits or proceedings pending
or, to the Borrower's actual knowledge, threatened, against or affecting the
Borrower or the Guarantor before any court or Governmental Authority which might
have a Material Adverse Effect on the Borrower or the Guarantor or their
operations or financial condition.
3.07 ERISA. The Borrower and each ERISA Affiliate is in compliance in
all material respects with all applicable provisions of ERISA, and neither the
Borrower nor any ERISA Affiliate has incurred any liability to the PBGC.
Neither a Reportable Event nor a Prohibited Transaction, has occurred under, nor
has there occurred any complete or partial withdrawal from, nor has there
occurred any other event which would constitute grounds for termination of or
the appointment of a trustee to administer any "employee benefit plan"
(including any "multi-employer plan") maintained for employees of Borrower or
any ERISA Affiliate, all within the meanings ascribed by ERISA.
3.08 REGULATION U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U) and the Borrower does not hold any margin stock (as
defined in Regulation U).
3.09 INVESTMENT COMPANY ACT. Neither the Borrower nor the Guarantor
is an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
3.10 PUBLIC UTILITY HOLDING COMPANY. Neither the Borrower nor the
Guarantor is a "holding company" or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
3.11 INSOLVENCY. Neither the Borrower nor the Guarantor is "insolvent"
within the meaning of that term as defined in the Federal Bankruptcy Code and
the Borrower and the Guarantor are each able to pay their debts as they mature.
3.12 YEAR 2000 COMPLIANCE. The Borrower is in the process of making a
full and complete assessment of the Year 2000 Issues and will use commercially
reasonable efforts to develop a realistic and achievable program for remediating
the Year 2000 Issues on a timely basis. Based on this assessment and program,
the Borrower does not reasonably anticipate any Material Adverse Effect as a
result of Year 2000 Issues. To the Borrower's actual knowledge, the Borrower
does not reasonably anticipate any Material Adverse Effect as a result of Year
2000 Issues that affect the
16
<PAGE>
Borrower's and its tenants, customers, suppliers, third party payors
(including Governmental Authorities) or vendors.
The representations and warranties contained above and in the other Loan
Documents shall be true on and as of the date of each Advance with the same
effect as though such representations and warranties had been made on and as of
each such date.
By acceptance of an Advance, the Borrower warrants and represents that:
3.13. ORGANIZATION AND QUALIFICATION. To the extent required by
Governmental Requirement, the Borrower is duly qualified to conduct business in
the state in which the Project in respect of which such Advance is being made is
located.
3.14 RIGHT AND POWER; CORPORATE AUTHORITY. The Borrower has full
right, power and authority to execute and deliver the Loan Documents
contemplated by the provisions hereof for such Advance and to perform its
obligation thereunder. The Borrower has taken the necessary corporate action to
authorize the execution and deliver of such Loan Documents.
3.15. CONFLICT WITH OTHER INSTRUMENTS. The execution and delivery of
the Loan Documents contemplated by the provisions hereof for such Advance, the
consummation of the transactions contemplated thereby, and the compliance with
the terms, conditions and provisions thereof will not conflict with or result in
a breach of any of the terms, conditions or provisions of the articles or
certificate of incorporation or by-laws of the Borrower, or, to the Borrower's
actual knowledge, any law or any regulation, order, writ, injunction or decree
of any court or Governmental Authority or any agreement or instrument to which
the Borrower is a party or by which the Borrower or its properties or assets are
subject to or bound, or constitute a default thereunder or result in the
creation or imposition of any lien, charge, security interest or encumbrance of
any nature whatsoever upon the Project in respect of which such Advance is being
made or any other property of the Borrower pursuant to the terms of any such
agreement or instrument, except as created by the Loan Documents.
The execution and delivery of the Transaction Guaranty in respect of such
Advance, the Guarantor's guarantee contemplated thereby, and the compliance
with the terms, conditions and provisions thereof will not conflict with or
result in a breach of any of the terms, conditions or provisions of the
articles or certificate of incorporation or by-laws of the Guarantor, or, to the
Guarantor's actual knowledge, any law or any regulation, order, writ, injunction
or decree of any court or Governmental Authority or any agreement or instrument
to which the Guarantor is a party or by which the Guarantor or its properties or
assets are subject to or bound, including, without limitation, the Guarantor's
$150,000,000 Credit Agreement, or constitute a default thereunder or result in
the creation or imposition of any lien, charge, security interest or encumbrance
of any nature whatsoever upon any of the property of the Guarantor pursuant to
the terms of any such agreement or instrument.
3.16. AUTHORITY, VALIDITY AND BINDING EFFECT. The execution and
delivery of the Loan Documents contemplated by the provisions hereof for such
Advance, have been duly authorized by all necessary action on the part of the
Borrower, and no authorization, approval or consent by, or
17
<PAGE>
filing with, any Governmental Authority or public regulatory authority is
necessary therefor. Such Loan Documents have been duly and validly executed
and delivered by the Borrower and constitute legal, valid and binding
obligations of the Borrower, enforceable in accordance with their terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency
or other laws of general application affecting the enforcement of creditors'
rights generally and by principles of equity.
3.17 LITIGATION. There are no actions, suits or proceedings pending
or, to the Borrower's actual knowledge, threatened, against or affecting the
Project in respect of which such Advance is being made before any court or
Governmental Authority which might have a Material Adverse Effect on the
Borrower or such Project.
3.18 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The intended use of
the Project in respect of which such Advance is being made complies in all
material respects with all applicable Governmental Requirements, as the same may
be modified by any applicable variances and exceptions, and all material
provisions of any applicable restrictive covenants, and the Borrower has
obtained all material required permits with respect to the operation and use of
such Project.
3.19 UTILITY SERVICES. All utility services necessary for the use and
operation of the Project in respect of which such Advance is being made
contemplated by the Lease for such Project are available at the boundaries of
the Project and are located within a public right of way adjacent to the Project
or within an easement benefiting the Project, which easement is contiguous to
the Project and a public right of way, and, to the actual knowledge of Borrower,
such utilities have sufficient capacity to serve such Project.
3.20 HAZARDOUS MATERIALS; STORAGE CONTAINERS; WETLANDS. The Borrower
has not used Hazardous Materials on, from or affecting the Project in respect of
which such Advance is being made in any manner which violates any Governmental
Requirements or Hazardous Materials Laws, and, to the best of the Borrower's
knowledge, except as disclosed in any written reports and data provided to the
Bank, no prior owner of such Project or prior occupant thereof, has used
Hazardous Materials on, from or affecting the Project in any manner which
violates any Governmental Requirements or Hazardous Materials Laws. The
Borrower further represents to the Bank that, except as disclosed in any written
reports and data provided to the Bank, the Borrower has not received any notice
of any violations of Governmental Requirements or Hazardous Materials Laws
governing the use, storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of Hazardous Materials at such Project and, to
the best of the Borrower's knowledge, there have been no actions commenced or
threatened by any party for non-compliance with any such laws or regulations at
such Project. The Borrower further represents that, except as disclosed in any
written reports and data provided to the Bank, no Storage Containers are located
on or under such Project, except in compliance with all applicable Hazardous
Materials Laws, and the Project does not contain any Wetlands.
3.21 COVENANTS AND RESTRICTIONS. There are no covenants, conditions or
restrictions of record or of which the Borrower has knowledge that prohibit the
Project in respect of which such Advance is being made from being used and
operated as contemplated by the Lease for such Project.
18
<PAGE>
3.22 FLOOD HAZARD. Except as may be disclosed in any survey or flood
hazard certificate provided to the Bank, no part of the Improvements forming a
part of the Project in respect of which such Advance is being made are located
in or on an "area having special flood hazards" ("SFHA"), as that term is
defined in the Flood Disaster Protection Act of 1973, as amended by the 1994
National Flood Insurance Reform Act, and as otherwise amended. If such
Improvements (or any portion thereof) are located in an SFHA, the building floor
elevations of such Improvements are located at the height prescribed (if any) by
Governmental Requirements above the designated flood plain elevation for the
SFHA, as determined by FEMA. For purposes of this Paragraph 3.22, the defined
term Improvements shall include only walled and roofed buildings.
ARTICLE IV
CONDITIONS OF LENDING
The Borrower agrees that the obligation of the Bank to make an Advance is
subject to the accuracy in all material respects, as of the date hereof and the
date of such Advance of the representations and warranties contained herein and
under the other Loan Document, to performance by the Borrower of its agreements
to be performed hereunder and under the other Loan Document on or before the
date of such Advance, and to the satisfaction of the following further
conditions:
4.01. INITIAL ADVANCE. Prior to the initial Advance by the Bank:
a. ORGANIZATIONAL DOCUMENTS. There shall have been furnished
to the Bank by the Borrower:
i. A copy of the articles or certificate of incorporation
of the Borrower, together with any and all amendments thereto,
filed with the appropriate Governmental Authorities of the State
of Delaware;
ii. A copy of the by-laws of the Borrower, together with
any and all amendments thereto;
iii. An original or a copy of a Certificate of Existence for
the Borrower issued by the Secretary of State of Delaware bearing
a recent date;
iv. A copy of the resolutions of the Board of Directors
of the Borrower authorizing the Loan and the execution of this
Agreement and the Note;
v. A copy of the articles or certificate of
incorporation for the Guarantor, together with any and all
amendments thereto;
vi. A copy of the by-laws of the Guarantor, together
with any and all amendments thereto; and
19
<PAGE>
vii. An original or a copy of a Certificate of Existence
for the Guarantor issued by the Secretary of State of Delaware
bearing a recent date.
b. BORROWER'S COUNSEL OPINION. The Borrower shall furnish to
the Bank an opinion of counsel for the Borrower and the Guarantor in form
and substance similar to that attached hereto as EXHIBIT L-1, with blanks
appropriately completed.
c. NOTE. The Borrower shall have executed and delivered to
the Bank the Note with blanks appropriately completed.
d. COMMITMENT FEE. The Borrower shall have paid to the Bank
the Commitment Fee. The Commitment Fee shall be paid on the Closing
Date.
4.02 ADVANCE FOR A SPECIFIC PROJECT. Concurrently with or prior to an
Advance in respect of a specific Project, the Borrower shall have satisfied each
of the following conditions:
a. ORGANIZATIONAL DOCUMENTS. There shall have been furnished
to the Bank by the Borrower:
i. A certificate of the Borrower, certifying that no
amendments or modifications have been made to the articles of
incorporation or by-laws of the Borrower furnished to the Bank
pursuant to Section 4.01(a) hereof, other than such amendments or
modifications as have been furnished to the Bank pursuant to
Section 6.14 hereof.
ii. An original or copy of a Certificate of Existence
for the Borrower issued by the Secretary of State of Delaware
bearing a recent date;
iii. To the extent required by Governmental Requirement,
an original or copy of a Certificate of Authority for the Borrower
as a foreign corporation doing business in the state in which the
Project in respect of which such Advance is being made is located;
iv. A copy of the resolutions of the Board of Directors
of the Borrower authorizing the Advance and the execution of the
Loan Documents contemplated by the provisions hereof for such
Advance;
v. A certificate of the Guarantor certifying that no
amendments or modifications have been made to the articles of
incorporation or by-laws of the Guarantor furnished to the Bank
pursuant to Section 4.01(a) hereof, other than such amendments or
modifications as have been furnished to the Bank pursuant to
Section 6.14 hereof;
vi. An original or copy of a Certificate of Existence
for the Guarantor issued by the Secretary of State of Delaware
bearing a recent date; and
20
<PAGE>
vii. A copy of the resolutions of the Board of Directors
of the Guarantor authorizing the Transaction Guaranty for such
Advance or for all Advances made pursuant to this Agreement.
b. BORROWER'S COUNSEL OPINION. The Borrower shall furnish to
the Bank the opinions of counsel for the Borrower and the Guarantor in
form and substance similar to that attached hereto as EXHIBIT L-2, with
blanks appropriately completed, and EXHIBIT L-3, with blanks completed
appropriately.
c. PROJECT AGREEMENT. The Bank and the Borrower shall have
entered into a satisfactory Project Agreement in respect of such Advance.
d. SECURITY DOCUMENTS. There shall have been executed and
delivered to the Bank the following security documents with respect to
such Project:
i. a Mortgage which shall constitute a first
mortgage or deed of trust lien, as applicable, on the
Borrower's fee simple interest in such Project;
ii. an Assignment of Rents and Leases pursuant to
which the Borrower shall have collaterally assigned to the
Bank all the right, title and interest of the Borrower as
landlord in and to all existing and future leases of space
in such Project, including, without limitation, the Lease
for such Project, and all rentals and other monies due and
to become due under said leases;
iii. an Assignment pursuant to which the Borrower
shall have collaterally assigned to the Bank all the right,
title and interest of the Borrower in and to the permits,
licenses, warranties and other agreements in respect of
such Project;
iv. If the Borrower has then entered into a
Project Purchase Agreement for such Project, a Collateral
Assignment of Purchase Agreement pursuant to which the
Borrower shall have collaterally assigned to the Bank all
the right, title and interest of the Borrower in, to and
under such Project Purchase Agreement and the Deposit made
thereunder; and
v. Such financing statements as are deemed
necessary by the Bank to perfect the security interests
granted under the Loan Documents executed in respect of
such Project, which financing statements shall be on forms
prescribed by the laws of the state in which such Project
is located and which financing statements will have
attached thereto a legal description of such Project and an
exhibit in the form and substance similar to that attached
hereto as EXHIBIT M.
21
<PAGE>
Each of the above-described collateral documents shall be properly
completed and reflect only such further changes as may be necessary to
comply with the requirements of the jurisdiction in which such Project is
located.
e. TRANSACTION GUARANTY. The Guarantor shall have executed
and delivered to the Bank a Transaction Guaranty in respect of such
Advance pursuant to which the Guarantor shall have guaranteed the
obligations of the Borrower in respect of such Advance in accordance with
the terms thereof. Such Transaction Guaranty shall provide that the
amount guaranteed thereunder shall be limited to an amount equal to the
sum of (A) the product of (1) the Guarantor's Percentage, MULTIPLIED by
(2) the outstanding principal balance from time to time of the Advance;
PLUS (B) all interest outstanding in respect of such Advance from time to
time; PLUS (C) the costs of collection in respect of such Transaction
Guaranty. For purposes of a Transaction Guaranty, "Guarantor's
Percentage" shall be equal to (a) Ten Percent (10%), if the Tenant under
the Lease for the Project in respect of which such Advance is being made
has a Rating of A- or higher; (b) Twenty Five Percent (25%) if the Tenant
under the Lease for such Project has a Rating of BBB- or higher, but less
than A-; (c) Forty Percent (40%), if the Tenant under the Lease for such
Project has a Rating of BB+ or lower; and (d) Thirty Five Percent (35%),
if the Tenant under the Lease for such Project is Office Max (no matter
its Rating); provided, however, if no Event of Default is then
continuing, at such time as the Borrower provides to the Bank an executed
Project Purchase Agreement for such Project, together with evidence that
the Deposit required thereunder has been made, and the Borrower executes
and delivers to the Bank a Collateral Assignment of Purchase Agreement
with respect to such Purchase Agreement, "Guarantor's Percentage" for
purposes of such Transaction Guaranty shall be reduced to (a) Zero, if
the Tenant under the Lease for such Project has a Rating of A- or higher;
or (b) Ten Percent (10%) if the Tenant under the Lease for such Project
is Office Max or has a Rating of less than A-. The Bank will provide a
letter to the Borrower and the Guarantor to evidence each such reduction
in the Guarantor's Percentage. If prior to the payment in full of such
Advance, such Purchase Agreement is terminated for any reason, or the
closing thereunder does not occur, Guarantor's Percentage shall revert to
the percentage which would have been in effect had the Borrower not
provided to the Bank such Purchase Agreement.
f. BORROWER'S AFFIDAVIT. The Borrower shall have furnished to
the Bank an executed Borrower's Affidavit with respect to such Project.
g ENVIRONMENTAL INDEMNITY. The Borrower and the Guarantor
shall have furnished to the Bank an executed Environmental Indemnity
Agreement with respect to such Project.
h. TITLE POLICY. A Title Company shall have issued and
delivered to the Bank a policy of title insurance acceptable to the Bank
insuring the priority of the lien of the Mortgage encumbering such
Project in the amount of the Advance made in respect of such Project.
The Title Policy shall have an effective date of no earlier than the date
of such Advance, shall provide extended coverage (i.e., all preprinted
or standard exceptions shall be deleted), a 3.0 zoning endorsement (if
such endorsement is selected by the Borrower pursuant to Section
4.01(j)(i) hereof to evidence proper zoning of the Project), an access
22
<PAGE>
endorsement, a comprehensive endorsement, a subdivision endorsement
(where necessary), a last dollar endorsement, a contiguity endorsement
(if needed), a revolving credit endorsement and affirmative coverage with
respect to filed or unfiled mechanic's lien (where available at
reasonable cost) and shall be subject only to such exceptions as may be
reasonably approved by the Bank.
i. SURVEY. The Borrower shall have furnished to the Bank an
Urban Class ALTA/ACSM Minimum Standard Detail Survey (including Items
1,3,4,6,7,8,9,10,11 and 13 of Table A thereof) of the Project Site
forming a part of such Project, made by a registered engineer or surveyor
licensed by the state in which such Project is located and reasonably
satisfactory to the Bank and the Title Company and certified to each of
them as of a date not more than sixty (60) days prior to the date of the
Advance made in respect of such Project showing the boundaries of such
Project Site, the actual location of the Improvements located on such
Project Site, all building setback lines, easements, rights of way and
encroachments affecting such Project Site and other matters apparent
thereon and the relation of such Project Site to public thoroughfares for
access purposes, certifying that the Improvements (excluding Improvements
that are not walled and roofed buildings) located on the Project Site are
not located within a special flood hazard area as defined by the Flood
Disaster Protection Act of 1973, and showing the number of the Flood
Insurance Rate Map on which such Project Site is shown and the date of
such map, and shall specify the flood hazard zone in which such Project
Site is situated. Such survey shall be reasonably acceptable to the Bank
and shall not disclose, in the Bank's reasonable opinion, any facts or
circumstances which affect or could affect the marketability of such
Project Site or the Borrower's ability to sell or finance such Project;
j. APPROVALS AND PERMITS. The Borrower shall submit to the
Bank evidence reasonably satisfactory to the Bank to the effect that:
i. The Project Site forming a part of such
Project is presently zoned to permit its use and operation
as contemplated by the Lease for such Project, which
evidence may be a 3.0 zoning endorsement issued by the
Title Company or a satisfactory opinion of counsel admitted
to practice in the state in which such Project is located
or a zoning confirmation letter of the Governmental
Authority having zoning jurisdiction over such Project;
ii. The Borrower has obtained such access
easements and utility easements, if any, as may be
reasonably necessary for the contemplated use of such
Project and such easements are insured under the Title
Policy;
iii. All required permits, licenses and approvals
for the use and operation of such Project (including a
permanent occupancy permit or a certificate of occupancy,
if issued by the jurisdiction in which such Project is
located) have been obtained from the applicable
Governmental Authorities; and
23
<PAGE>
iv. All utility services necessary for the
operation of such Project are available at the boundaries
of the Project Site forming a part of such Project and are
located within a public right of way adjacent to the
Project or within an easement benefiting the Project, which
easement is contiguous to the Project and a public right of
way, and all such utilities have the capacity necessary to
provide service to such Project.
k. INSURANCE. The Borrower shall have furnished to the Bank
the insurance required by the Mortgage encumbering such Project, together
with evidence of payment in full of the premiums thereon.
l. PLANS AND SPECIFICATIONS. To the extent the same are in
the Borrower's or its agent's possession, the Borrower shall have
furnished to the Bank for its review and reasonable approval the Plans
and Specifications for such Project.
m. APPRAISAL. The Bank shall have received a written
appraisal in the form of a limited summary report of the leased fee
market value and fee simple market value of such Project (a "Project
Appraisal"), which Project Appraisal shall use the self comparison
approach and the income capitalization approach. Such Project Appraisal
must disclose that the leased fee market value of such Project (excluding
the value of the Project allocable to any incidental real estate which is
contiguous to the leased real estate and improvements which the Borrower
is or was required to purchase as part of the acquisition of the leased
real estate and improvements) is not less than the Project Costs of such
Project. The appraiser providing a Project Appraisal will be selected
and directly engaged by the Bank. The cost of a Project Appraisal will
be charged to the Borrower and paid by the Borrower upon the funding of
the applicable Advance, or if such Advance does not fund, upon the
Borrower's receipt of an invoice therefor. Each Project Appraisal shall
be prepared in accordance with the Uniform Standards of Professional
Appraisal Practice applicable to Federally Related Transactions as set
out in Appendix A to the real estate appraisal regulations adopted by the
Office of the Comptroller of the Currency pursuant to the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (Sub-part C of
12 C.F.R. 34) and shall be prepared in response to an engagement letter
to be issued by the Bank. Prior to the initial Advance hereunder the
Bank and the Borrower shall agree upon a list of appraisers from which
the Bank shall select appraisers to provide the Appraisals required
hereunder.
n. INSPECTING ARCHITECT'S REPORT. If requested by the Bank,
the Bank shall have received a satisfactory report of an Inspecting
Architect for such Project. If the Bank has not received a report for
such Project within twenty (20) days after the Bank's receipt from the
Borrower of the materials identified on EXHIBIT B attached hereto for
such Project, this condition shall be deemed waived by the Bank with
respect to such Project.
o. PROJECT FEE. The Borrower shall have paid to the Bank the
Project Fee in respect of such Advance.
p. ENVIRONMENTAL REPORT. The Borrower shall have furnished to
the Bank a copy of an environmental report by an environmental
consulting company reasonably acceptable
24
<PAGE>
to the Bank (the "Environmental Report") showing that the
environmental condition of such Project is reasonably acceptable to
the Bank. The Environmental Report shall be addressed to the Bank,
or, in the alternative, the Borrower shall provide to the Bank a
letter of the consulting company that prepared the Environmental
Report pursuant to which such consulting company authorizes the Bank
to rely on the Environmental Report.
q. LEASE. The Borrower shall have furnished to the Bank an
executed Lease for such Project which Lease shall be a "triple net lease"
shall have a remaining term of not less than six (6) years (excluding
optional extension or renewal periods) and shall be in a form and content
reasonably acceptable to the Bank in all other respects, including rental
amounts payable thereunder. Such Lease or a separate document from the
Tenant which is party thereto shall include the agreement of such Tenant
to subordinate its interest thereunder to any first mortgage or deed of
trust on such Project upon the request of the mortgagee or the
beneficiary thereunder (a "Mortgagee") and to attorn to such Mortgagee or
any purchaser of such Project at a foreclosure sale or a sale made under
any power of sale or pursuant to a deed in lieu of foreclosure, provided
the Bank agrees to reasonable non-disturbance provisions if the Tenant
under such Lease is not in default beyond any applicable cure period
thereunder.
The Borrower shall use reasonable efforts to attempt to obtain the
following provisions in such Lease or separate document:
i. The Tenant party thereto shall agree to give
a Mortgagee by registered or certified mail, a copy of any
notice of default served upon the landlord, provided that
prior to such notice of default such Tenant has been
notified in writing, of the existence of such mortgage or
deed of trust and the address of such Mortgagee;
ii. A Mortgagee shall have sixty (60) days after
its receipt from such Tenant of written notice of a default
by the landlord under the such Lease to correct or cure
such default; and
iii. Such Tenant shall comply with all Hazardous
Materials Laws, and shall not store any Hazardous Materials
in, on or under such Project, except in accordance with
Hazardous Materials Laws.
r. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT.
The Borrower shall have furnished to the Bank a Subordination,
Non-Disturbance and Attornment Agreement for such Project, executed by
the Borrower, the Bank and the Tenant leasing such Project.
s. DEBT SERVICE COVERAGE. The Debt Service Coverage for such
Project shall be no less than 1.05 to 1.0.
25
<PAGE>
t. NO EVENT OF DEFAULT. On the date of such Advance no Event
of Default shall have occurred and be continuing.
u. DAMAGE. On the date of such Advance, such Project such
shall not have been materially injured or damaged by fire or other
casualty.
v. TENANT ESTOPPEL. The Borrower shall have furnished to the
Bank a tenant estoppel letter in respect of such Project executed by the
Tenant leasing such Project in a form which is reasonably satisfactory to
the Bank and such Tenant, stating that the Lease is in full force and
effect, that landlord is not in default and that Tenant is not aware of
any amounts it could setoff against rent and including such other
statements as are reasonably required by the Bank.
w. PURCHASE AGREEMENT FOR ACQUISITION OF PROJECT. The
Borrower shall have furnished to the Bank a copy of the executed purchase
agreement pursuant to which the Borrower has acquired or will acquire
such Project and a copy of the closing statement therefor.
x. SFHA. If the Improvements (or any portion thereof) forming
a part of such Project (excluding Improvements that are not walled and
roofed buildings) are located in an SFHA:
i. The Borrower shall have furnished
evidence satisfactory to the Bank that the building
floor elevations of such Improvements are located at
the height (if any) prescribed by Governmental
Requirements above the designated flood plain
elevation for the SFHA, as determined by FEMA; and
ii. The Borrower shall have provided to
the Bank either: (A) the flood insurance required
by the Mortgage encumbering such Project, together
with evidence of payment in full of the premium
thereon, or (B) a copy of a Letter of Map Revision
("LOMR") issued by FEMA, removing such Project from
the SFHA as determined by FEMA.
y. LEGAL MATTERS. All legal matters incident to the making of
such Advance shall be reasonably satisfactory to the Bank and its
counsel.
The Borrower shall furnish each of the items required under Section
4.02(h), (i), (j),(p) and (q) at least ten (10) days prior to the making of such
Advance.
4.03. PROCEEDINGS AND DOCUMENTS. All legal details and proceedings in
connection with the transactions contemplated by this Agreement shall be in form
and substance reasonably satisfactory to counsel for the Bank, and the Bank
shall have received all such counterpart originals or certified or other copies
of such documents and proceedings in connection with such transactions, in form
and
26
<PAGE>
substance, as to certification and otherwise, reasonably satisfactory to such
counsel, as the Bank or its counsel may request.
ARTICLE V
DISBURSEMENTS
5.01. ADVANCES. Subject to the terms and conditions hereof, and relying
upon the representations and warranties herein set forth, the Bank agrees to
make Advances to the Borrower in accordance with, and subject to the following
requirements and limitations:
a. REQUESTS FOR LOAN ADVANCES. Not less than five (5)
business days prior to the making of an Advance of a Project, the
Borrower shall submit to the Bank a Request for Advance in such form as
the Bank may require setting forth the total amount of the Advance which
is requested. Each Request for Advance and each receipt of the Advance
requested thereby shall constitute a certification by the Borrower that
the representations and warranties contained in Article III hereof are
true and correct on the date of such Request for Advance or such receipt,
as the case may be. The Borrower shall be entitled to only one (1)
Advance per Project.
b. BORROWING LIMITATIONS. No proceeds of the Loan may be used
to acquire properties constructed or financed with the proceeds of any
"Project Loan" made by the Bank under the terms of that certain Master
Construction Loan Agreement between the Bank and Trammell Crow BTS, Inc.,
dated August 4, 1997, as the same has been or is amended, restated,
modified or replaced.
c. ADVANCES TO CURE DEFAULTS; ETC. Notwithstanding the
foregoing provisions of this Section 5.01, and without receiving Requests
for Advances for such Advances, the Bank may at any time or from time to
time (i) make Advances to cure any Event of Default or Conditional
Default, (ii) make Advances to pay interest on the Loan, (iii) make
Advances to pay the reasonable fees and expenses of counsel for the Bank;
and (iv) make Advances to pay the reasonable fees and expenses payable to
a Title Company for the issuance of a Title Policy. Any Advances made
pursuant to this subparagraph (c) shall be evidenced by the Note, as
fully as if made to the Borrower, and shall be paid by the Borrower upon
demand by the Bank. The Bank shall provide written notice to the
Borrower of each Advance made under this subparagraph (c).
d. ADVANCE AMOUNT. Notwithstanding any other provision
contained herein to the contrary, the maximum principal amount of the
Advance for a Project shall not exceed an amount equal to the lesser of:
(a) Ninety Percent (90%) of the Project Costs for such Project, if the
Tenant under the Lease for such Project has a Rating of BBB- or higher;
(b) or Eighty Percent (80%) of the Project Costs for such Project, if the
Tenant under the Lease for such Project is Office Max or has a Rating of
BB+ or lower.
e. ADVANCE LIMIT. An Advance for a specific Project shall not
be less than Five Hundred Thousand Dollars ($500,000) or more than Five
Million Dollars ($5,000,000).
27
<PAGE>
f. BORROWER'S INVESTMENT. No Advance shall be made by the
Bank for a Project until such time as the Borrower has furnished
satisfactory evidence to the Bank that the Borrower has sufficient funds
to pay the excess, if any, of the Project Costs for such Project over
the amount of such Advance.
g. CREDIT RATINGS. Notwithstanding any other provisions
contained herein to the contrary, the aggregate amount of Advances
outstanding in respect of Projects leased to Tenants having a Rating of
below BBB- shall not exceed Ten Million Dollars ($10,000,000). For
purposes of this subparagraph (g), the Rating of a Tenant shall be its
Rating as of the date of the Advance for the Project leased to such
Tenant.
h. GEOGRAPHIC LIMITATION. Notwithstanding any other
provisions contained herein to the contrary, the aggregate amount of
Advances outstanding in respect of Projects located in a single
Metropolitan Statistical Area (as determined by reference to the Census
Bureau's Survey of Metropolitan Statistical Areas) shall not exceed Ten
Million Dollars ($10,000,000).
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
The Borrower covenants that until payment in full of the Loan and
performance of all of the Borrower's other obligations under the Loan Documents:
6.01. FINANCIAL STATEMENTS. The Borrower will deliver or cause to be
delivered to the Bank:
a. As soon as practicable, but in any event within ninety (90)
days after the close of each fiscal year of Borrower, financial
statements of Borrower, prepared by Borrower, including a balance sheet,
statement of income and retained earnings and a statement of cash flows.
Such financial statements shall be accompanied by a certification of
accuracy by an authorized officer of the Borrower.
b. As soon as practicable, but in any event within sixty (60)
days after the end of each fiscal quarter (excluding the fiscal quarter
ending at the fiscal year end) of the Borrower, financial statements of
Borrower prepared by Borrower, including a balance sheet, statement of
income and retained earnings, a statement of cash flows. Such financial
statements shall be accompanied by a certification of accuracy by an
authorized officer of the Borrower;
c. As soon as practicable, but in any event within sixty (60)
days after the end of each fiscal quarter of Borrower, a Project
inventory status report which shall list each Project in respect of which
an Advance has been made and remains outstanding, the location of such
Project, the Tenant for such Project, the rent payable by such Tenant and
the takeout status of such Project;
28
<PAGE>
d. Within sixty (60) days after the end of each Fiscal Quarter
(as defined in the Guarantors $150,000,000 Credit Agreement) of the
Guarantor a covenant compliance worksheet in a form approved by the Bank
for the Bank's use in determining the Guarantor's compliance with the
financial covenants set forth in Section 8.01(p) hereof;
e. As soon as possible, but in any event within ten (10) days
after the Borrower becomes aware thereof, a written statement signed by
the chief executive officer or the chief financial officer of the
Borrower describing any Reportable Event or Prohibited Transaction which
has occurred with respect to any Plan and the action which the Borrower
proposes to take with respect thereto; and
f. The Borrower will with reasonable promptness furnish to the
Bank such additional financial and other information respecting the
financial condition, business or operations of the Borrower as the Bank
may from time to time reasonably request.
All such financial statements shall be prepared in accordance with GAAP
applied on a basis consistent with prior practice unless otherwise specifically
noted thereon. The Borrower will with reasonable promptness furnish to the Bank
such additional financial and other information respecting the financial
condition, business or operations of the Borrower as the Bank may from time to
time reasonably request.
6.02. NOTICES. The Borrower will promptly give the Bank written notice
of:
a. the occurrence or existence of any Event of Default of
which the Borrower has actual knowledge, together with a written
statement of the action being taken by the Borrower to remedy such Event
of Default; and
b. all litigation or proceedings before any court or
Governmental Authority affecting the Borrower or its properties that the
Borrower reasonably determines may have a Material Adverse Effect or that
affects the use or operation of a Project in respect of which an Advance
has been made and is outstanding.
6.03. ACCESS TO BOOKS AND INSPECTION. The Borrower will give any
officer or representative of the Bank access to, and permit such representative
to examine, copy or make extracts from, any and all books, records and documents
in the possession of the Borrower relating to the Projects financed with
proceeds of the Loan and to inspect such Projects (provided such inspections
shall not interfere with a Tenant's use of a Project), all at such reasonable
times and as often as the Bank may reasonably request; provided, however, that
the Bank shall have no obligation to make any such inspections nor have any
responsibility to the Borrower or any person, firm or corporation for any
defects or deficiency which may be or which would have been revealed by any such
inspection, whether or not discovered by the Bank.
6.04. GOVERNMENTAL REQUIREMENTS. The Borrower will comply with all
Governmental Requirements (including ERISA) and all material terms of
restrictive covenants applicable to the Projects in respect of which Advances
have been made and are outstanding.
29
<PAGE>
6.05. MAINTENANCE. The Borrower will maintain each Project in respect
of which an Advance has been made and is outstanding in good repair and safe
condition at all times and indemnify and defend and hold the Bank harmless from
any and all claims relative to the use and occupancy of such Projects.
6.06. INSURANCE. The Borrower will maintain such insurance on each
Project as is required by the Mortgage encumbering such Project.
6.07. FURTHER ASSURANCES. The Borrower will execute, acknowledge when
appropriate, and deliver from time to time at the request of the Bank, such
instruments and documents as in the reasonable opinion of the Bank are necessary
or desirable to perfect the security interests required herein.
6.08. FAILURE TO PERFORM. If the Borrower neglects or refuses to pay
the costs, premiums, liabilities or other charges incurred in connection with
the Loan or otherwise fails to perform its covenants hereunder, the Bank may do
so and may add the cost thereof to the Loan as indebtedness evidenced by the
Note, and may collect the same from the Borrower upon demand with interest
thereon at the highest Default Rate until paid thereunder.
6.09. ENVIRONMENTAL. The Borrower covenants and agrees to keep or cause
each Project in respect of which an Advance has been made and remains
outstanding to be kept free of Hazardous Materials in violation of any
Governmental Requirement and, without limiting the foregoing, the Borrower shall
not cause or permit any such Project to be used to generate, manufacture,
refine, transport, treat, store, handle, dispose of, transfer, produce or
process Hazardous Materials, except in compliance with all applicable
Governmental Requirements, nor shall the Borrower cause or permit, as a result
of any intentional or unintentional act or omission on the part of the Borrower
or any tenant, subtenant or occupant, a release of Hazardous Materials in
violation of any Governmental Requirement onto any such Project or onto any
other property.
If Hazardous Materials are present at a Project in violation of the
requirements of this Section 6.09, the Borrower shall:
a. conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions necessary to
clean up and remove all Hazardous Materials on, under or from such
Project in accordance with all applicable federal, state and local laws,
ordinances, rules, regulations and policies (including, without
limitation, Hazardous Materials Laws), to the reasonable satisfaction of
the Bank, and in accordance with the orders and directives of all
Governmental Authorities;
b. defend, indemnify and hold harmless the Bank, its
employees, agents, officers and directors (the "Bank Indemnified
Parties") from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses of whatever kind or
nature, known or unknown, contingent or otherwise, arising out of or in
any way related to ("Environmental Losses").
30
<PAGE>
i. the presence, disposal, release or threatened
release of any Hazardous Materials on, over, under, from or
affecting such Project or the soil, water, vegetation,
buildings, personal property, persons or animals thereon;
ii. any personal injury (including wrongful
death) or property damage (real or personal) arising out of
or related to such Hazardous Materials;
iii. any lawsuit brought or threatened, settlement
reached or government order relating to such Hazardous
Materials; and/or
iv. any violation of laws, orders, regulations,
requirements or demands of Governmental Authorities, which
are based upon or in any way related to such Hazardous
Materials, including, without limitation, attorney's and
consultant's fees, investigation and laboratory fees, court
costs and litigation expenses.
Notwithstanding any provision hereof, the Borrower does not indemnify the
Bank Indemnified Parties against any Environmental Losses (i) caused by any Bank
Indemnified Party, (ii) arising from the breach, violation or threatened
violation of any applicable Hazardous Materials Laws which first occurs after
the Bank takes actual possession of a Project pursuant to a foreclosure of the
Mortgage encumbering the same or pursuant to a transfer pursuant to a power of
sale or deed in lieu of foreclosure thereof; or (iii) any release, discharge,
disposal or presence of Hazardous Materials caused by a receiver of a Project or
which first occurs while a receiver is in possession of such Project. The
Borrower's obligations under this Section 6.09 with respect to a Project shall
be terminated two (2) years after the payment in full of the Advance made in
respect of such Project; provided, however, the Borrower shall remain liable and
obligated hereunder with respect to any claim asserted in writing against the
Borrower by the Bank hereunder with respect to such Project prior to the
expiration of such two (2) year period.
6.10. PERSONAL PROPERTY. Except for the security interest granted by
the Mortgage encumbering a Project, the Borrower will be the sole owner of all
Personal Property and Fixtures incorporated into such Project, free from any
adverse lien, security interest, encumbrance or adverse claims thereon of any
kind whatsoever. The Borrower will notify the Bank of, and will defend such
Personal Property and Fixtures against, all claims and demands of all persons at
any time claiming the same or any interest therein. Such Personal Property and
Fixtures will not be used or bought for personal, family or household purposes.
Such Personal Property and Fixtures will be kept on or at such Project and the
Borrower will not remove such Personal Property or Fixtures from such Project
without the prior written consent of the Bank, except such portions or items of
such Personal Property or fixtures which are consumed or worn out in ordinary
usage, all of which shall be promptly replaced by the Borrower. All covenants
and obligations of the Borrower contained herein and in the Loan Document shall
be deemed to apply to such Personal Property or Fixtures whether or not
expressly referred to herein or therein.
31
<PAGE>
6.11. FINANCING STATEMENTS. At the request of the Bank, the Borrower
will join the Bank in executing one or more financing statements and renewals
and amendments thereof pursuant to the Uniform Commercial Code of the state in
which a Project is located in form satisfactory to the Bank, and will pay the
cost of filing the same in all public offices wherever filing is deemed by the
Bank to be necessary or desirable.
6.12. PROJECT PURCHASE AGREEMENT. If after the funding of an Advance,
the Borrower enters into a Project Purchase Agreement for the Project in respect
of which such Advance was made, the Borrower shall provide to the Bank:
a. A copy of such Project Purchase Agreement, together
with evidence that the Deposit required thereunder has been made;
and
b. An executed Collateral Assignment of Purchase
Agreement pursuant to which the Borrower shall have collaterally
assigned to the Bank all right, title and interest of the Borrower
in, to and under such Project Purchase Agreement.
6.13 BORROWER'S CORPORATE EXISTENCE. The Borrower shall preserve its
corporate existence.
6.14 ORGANIZATIONAL DOCUMENTS. The Borrower shall provide to the Bank
copies of any amendments or modifications to, or replacements of, the Borrower's
certificate or articles of incorporation or by-laws. The Borrower shall cause
to be provided to the Bank copies of any amendments or modifications to, or
replacements of, the Guarantor's certificate or articles of incorporation or
by-laws.
ARTICLE VII
BORROWER'S NEGATIVE COVENANTS
The Borrower covenants that until payment in full of Loan and performance
of all of the Borrower's other obligations under the Loan Documents:
7.01. PROHIBITION UPON TRANSFER, SECONDARY FINANCING. The Borrower
shall not convey, sell (other than pursuant to a Project Purchase Agreement),
lease (other than pursuant to a Lease) or otherwise dispose of all or any part
of a Project in respect of which an Advance has been made and remains
outstanding or any interest therein (legal or equitable), or grant any security
interest with respect to such Project without the prior written consent of the
Bank, unless in connection therewith the outstanding principal balance of such
Advance is fully paid.
7.02. EASEMENTS. The Borrower will not enter into any easement
affecting the Project Site forming a part of a Project in respect of which an
Advance has been made and remains outstanding without first obtaining the Bank's
written approval of such easement and the terms and conditions thereof;
provided, however, no such approval shall be required if such easement is
granted in the ordinary course of business and provides reasonable benefit to
such Project. The Borrower shall
32
<PAGE>
provide to the Bank an executed copy of any easement entered into in respect
of a Project in respect of which an Advance has been made and remains
outstanding.
7.03. LEASE/PROJECT PURCHASE AGREEMENT. The Borrower will not modify,
amend, alter, terminate or cancel the Lease for a Project in respect of which an
Advance has been made and remains outstanding, or assign, transfer, pledge or
encumber any of its right, title or interest thereunder, without the Bank's
prior written consent. The Bank shall not unreasonably withhold or delay its
consent to a modification, amendment or alteration to such a Lease. If the
Borrower enters into a Project Purchase Agreement for a Project in respect of
which an Advance has been made and remains outstanding, the Borrower will not
assign, transfer, pledge or encumber any of its right, title or interest
thereunder, without the Bank's written consent, nor will the Borrower modify,
amend, alter, terminate or cancel such Project Purchase Agreement, without the
Bank's prior written consent, which consent shall not be unreasonably withheld
or delayed; provided, however, the Borrower may, without the prior written
consent of the Bank, (a) amend such Project Purchase Agreement to extend the
closing date thereunder so long as the closing date thereunder is at least ten
(10) days before the Advance Maturity Date for such Advance, and (b) amend such
Project Purchase Agreement to adjust the purchase price thereunder and provide
for adjustments thereunder so long as the Net Sales Price resulting from the
sale of such Project is not less than the amount of the Advance made in respect
of such Project. The Borrower shall provide notice to the Bank of the
termination or cancellation of such a Project Purchase Agreement within two (2)
business days after the effect thereof. The Borrower shall provide to the Bank
copies of any amendment or modification to a Project Purchase Agreement within
two (2) business days after the execution thereof.
7.04 MARGIN STOCK. The Borrower shall not use or cause or permit any
of the proceeds of the Loan to be used, either directly or indirectly, for the
purpose whether immediate, incidental or remote of purchasing or carrying any
margin stock within the meaning of Regulation U or of extending credit to others
for the purpose of purchasing or carrying any margin stock, and the Borrower
shall furnish to the Bank, upon its request, a statement in conformity with the
requirements of Federal Reserve Board Form U-1 referred to in Regulation U.
Further, no part of the proceeds of the Loan will be used for any purpose that
violates, or which is inconsistent with, the provisions of Regulations G, T, U
or X of the Board of Governors of the Federal Reserve System.
7.05 CHANGE NAME AND PLACE OF BUSINESS. The Borrower shall not change
its corporate name or principal place of business, except on not less than
fifteen (15) days' prior written notice to the Bank.
7.06 BENEFIT PLANS. The Borrower shall not permit any condition to
exist in connection with any employee benefit plan which might constitute
grounds for the PBGC to institute proceedings to have the employee benefit plan
terminated or a trustee appointed to administer the employee benefit plan; or
engage in, or permit to exist or occur any other condition, event or transaction
with respect to any employee benefit plan which could result in the Borrower
incurring any material liability, fine or penalty.
7.07 RESTRICTIVE AGREEMENTS. The Borrower shall not enter into any
agreement prohibiting the ability of the Borrower to amend or otherwise modify
this Agreement or any other Loan Document.
33
<PAGE>
ARTICLE VIII
DEFAULTS
8.01. EVENTS OF DEFAULT. The Borrower agrees each of the following
described events shall constitute an "Event of Default" hereunder:
a. The Borrower shall fail to make any payment under the Note
within ten (10) days after the date the same is due and payable; or
b. Any representation or warranty made by the Borrower herein,
in any other Loan Document or in any certificate, financial statement or
other document furnished by the Borrower pursuant to the provisions
hereof, shall prove to have been materially false or misleading as of the
time made or furnished, and the Borrower does not, within thirty (30)
days after the earlier of receiving written notice from the Bank or the
Borrower's own determination that such representation or warranty is
false or misleading, commence and complete such actions as are necessary
to make such warranty or representation true and accurate; provided,
however, that the Borrower shall not be entitled to the foregoing cure
period if, the Borrower had actual knowledge that such representation or
warranty was false or misleading when made; or
c. The Borrower shall default in the performance or observance
of the covenant contained in Section 7.06 hereof, and such default has
not been cured or corrected within thirty (30) days following written
notice from the Bank to the Borrower; provided, however, that if such
default is of such a nature that it cannot be cured or corrected within
such thirty (30) day period, the Borrower shall be entitled to such
additional time as may be necessary to cure or correct such default if
the Borrower promptly commences such cure or corrective action and
diligently pursues such cure or corrective action to completion; or
d. The Borrower shall default in the performance or observance
of any other covenant contained in Article VII; or
e. The Borrower shall default in the performance or observance
of any other covenant, condition or provision herein contained, and such
default has not been cured or corrected within thirty (30) days
following written notice from the Bank to the Borrower; provided,
however, that if such default is of such a nature that it cannot be cured
or corrected within such thirty (30) day period, the Borrower shall be
entitled to such additional time as may be necessary to cure or correct
such default if the Borrower promptly commences such cure or corrective
action and diligently pursues such cure or corrective action to
completion; or
f. The Borrower shall default in the performance or observance
of any covenant, condition or provision contained in any other Loan
Document to which the Borrower is a party, and such default shall
continue uncured after any applicable cure or grace period, or if such
Loan Document does not contain an applicable cure period, such default
has not been cured or corrected within thirty (30) days following written
notice from the Bank to the
34
<PAGE>
Borrower; provided, however, that if such default is of such a nature
that it cannot be cured or corrected within such thirty (30) day period,
the Borrower shall be entitled to such additional time as may be
necessary to cure or correct such default if the Borrower promptly
commences such cure or corrective action and diligently pursues such
cure or corrective action to completion; or
g. The Borrower shall neglect, refuse or fail to keep in full
force and effect any permit or approval issued by any Governmental
Authority required for the occupancy or use of a Project in respect of
which an Advance has been made and remains outstanding and the same is
not reinstated within thirty (30) days after the Borrower receives notice
(from any source) that such permit or approval is no longer in full force
and effect; or
h. A Project in respect of which an Advance has been made and
remains outstanding, or any part thereof shall be condemned or damaged by
fire or other casualty in such manner as to preclude, in the Bank's sole
reasonable judgment, the restoration of the Improvements forming a part
of such Project by the Advance Maturity Date for the Advance made in
respect of such Project, and the Borrower fails to provide to the Bank
within thirty (30) days after such condemnation or damage evidence
reasonably satisfactory to the Bank of the Borrower's ability to repay
such Advance by the Advance Maturity Date therefor; or
i. An accurate survey of a Project Site at any time shall show
that any of the Improvements constructed thereon materially encroach upon
any street, easement, right of way or adjoining property or violate any
set back requirement, unless such encroachment or violation is
satisfactorily insured against under the Title Policy issued in respect
of such Project Site, or that any adjoining structure materially
encroaches on a Project Site, unless such encroachment is cured within
sixty (60) days following receipt of notice thereof by the Borrower; or
j. There is any material adverse change in the financial
condition of the Borrower or the Guarantor which is not cured within
thirty (30) days following written notice from the Bank to the Borrower;
or
k. A writ of execution or attachment or any similar process
shall be issued or levied against all or any part of or interest in a
Project in respect of which an Advance has been made and remains
outstanding, or any judgment involving monetary damages shall be entered
against the Borrower which shall become a lien on a Project in respect of
which an Advance has been made and remains outstanding or any portion
thereof or interest therein and such execution, attachment or similar
process or judgment is not released, bonded, satisfied, vacated or stayed
within sixty (60) days after its entry or levy; or
l. The Borrower or the Guarantor shall file a voluntary
petition in bankruptcy or shall file any petition or answer seeking or
acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under
any present or future federal, state or other statute, law or regulation
relating to bankruptcy, insolvency or other relief for debtors; or shall
seek or consent to or acquiesce in the appointment of any trustee,
receiver, liquidator, assignee, custodian, sequestrator (or other similar
official) of the
35
<PAGE>
Borrower or the Guarantor, or of all or any part of a Project in
respect of which an Advance has been made and remains outstanding, or
of any or all of the royalties, revenues, rents, issues or profits
thereof, or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts,
as the case may be, generally as they become due, or shall become
insolvent or unable to pay its debts as they mature, or shall make a
general assignment for the benefit of creditors, or shall voluntarily
suspend transaction of its business or take any corporate action in
furtherance of the foregoing; or
m. A court of competent jurisdiction shall enter an order,
judgment or decree adjudicating the Borrower or the Guarantor as bankrupt
or insolvent or approving a petition filed against the Borrower or the
Guarantor seeking any reorganization, dissolution or similar relief under
any present or future federal, state or other statute, law or regulation
relating to bankruptcy, insolvency, or other relief for debtors, and such
order, judgment or decree shall remain unvacated and unstayed for an
aggregate of sixty (60) days (whether or not consecutive) from the first
date of entry thereof; or any trustee, receiver or liquidator of the
Borrower or the Guarantor or of all or any part of a Project in respect
of which an Advance has been made and remains outstanding, or of any or
all of the royalties, revenues, rents, issues or profits thereof, shall
be appointed without the consent or acquiescence of the Borrower or the
Guarantor, as the case may be, and such appointment shall remain
unvacated and unstayed for an aggregate period of sixty (60) days
(whether or not consecutive); or
n. The Borrower has breached or defaulted under the Lease for
a Project in respect of which an Advance has been made and is
outstanding, and such breach or default has not been cured or corrected
within any applicable cure period provided under such Lease; or
o. Any shareholder of the Borrower, sells, assigns,
hypothecates, pledges or otherwise transfers its interest as a
shareholder of the Borrower; provided however, it shall not be an Event
of Default if a shareholder of Borrower transfers or assigns its interest
as a shareholder of the Borrower to Guarantor or any entity of which
Guarantor is and remains the general partner or managing member or of
which Guarantor owns more than a Fifty Percent (50%) ownership and voting
interest.
p. Guarantor shall:
i. Permit the Equity Value, as of the end of any Fiscal
Quarter, to be less than Two Hundred Fifty Million Dollars
($250,000,000);
ii. Permit the Total Leverage Ratio, as of the end of
any Fiscal Quarter to exceed 4.0 to 1.0;
iii. Permit the Interest Coverage Ratio, as of the end of
any Fiscal Quarter, to be less than 3.0 to 1.0;
iv. Permit Liquid Assets, as of the end of any Fiscal
Quarter, to be less than Fifteen Million Dollars ($15,000,000); or
36
<PAGE>
v. Permit the ratio of Current Assets to Current
Liabilities, as of the end of any Fiscal Quarter, to be less than
1.5 to 1.0., or
q. there occurs a Reportable Event or a Prohibited Transaction
under, or any complete or partial withdrawal from, or any other event
which would constitute grounds for termination of or the appointment of a
trustee to administer, any "plan" maintained by the Borrower or any ERISA
Affiliate for the benefit of its "employees" (as such terms are defined
in ERISA) which could have a Material Adverse Effect.
If any Event of Default described in 8.01(l) or (m) occurs the Bank shall
be under no further obligation to make any Advances and the Loan and all
interest accrued thereon and any penalty or premium thereunder and all other
liabilities of the Borrower hereunder, thereunder and under the other Loan
Documents shall thereupon become and be immediately due and payable without any
election or action on the part of the Bank, and without presentment, demand,
protest, or notice of any kind, all of which are hereby expressly waived, and if
any other Event of Default described in Section 8.01 occurs, the Bank may
terminate its commitment to make Advances hereunder and declare the Loan and all
interest accrued thereon and any penalty or premium thereunder pursuant to
Section 2.08 hereof and all other liabilities of the Borrower hereunder,
thereunder and under the other Loan Documents to be due and payable, whereupon
the same shall become and be immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived.
8.02. SPECIAL REMEDIES. If an Event of Default shall exist, the Bank
shall have the right, in addition to any rights or remedies available to it
under the Loan Documents or otherwise available to it at law or in equity, to
enter upon and take possession of the Projects in respect of which Advances have
been made and are then outstanding. For purposes of this Section 8.03, the
Borrower agrees that the Bank shall have the right, and hereby irrevocably
constitutes and appoints the Bank its true and lawful attorney-in-fact, coupled
with an interest, with full power of substitution, to (i) prosecute and defend
all actions or proceedings in connection with the Projects in respect of which
Advances have been made and are then outstanding and to take such action and
require such performance as the Bank deems necessary in connection therewith;
and (ii) generally do any and every act with respect to the occupancy and use of
such Projects as the Borrower may do in its own behalf. Should the unadvanced
portion of the Loan be insufficient to pay the sums expended or incurred by the
Bank for any of the foregoing purposes, the amount of the deficiency shall be
added to the indebtedness evidenced by the Note and in all events shall be
secured by the lien of the Loan Documents and shall be paid by the Borrower to
the Bank on demand with interest thereon at the respective Default Rates until
paid.
ARTICLE IX
MISCELLANEOUS
9.01. NO IMPLIED WAIVER; CUMULATIVE REMEDIES; WRITING REQUIRED. No
delay or failure of the Bank in exercising any right, power or privilege
hereunder (or under any Loan Document) shall affect such right, power or
privilege, nor shall any single or partial exercise thereof or any
37
<PAGE>
abandonment or discontinuance of steps to enforce such a right, power or
privilege preclude any further exercise thereof or of any other right, power
or privilege. The rights and remedies of the Bank hereunder and under the
other Loan Documents are cumulative and not exclusive of any rights or
remedies which it would otherwise have. Any waiver, permit, consent or
approval of any kind or character on the part of the Bank of any breach or
default under this Agreement or any other Loan Document, or any waiver by the
Bank of any provision or condition of this Agreement or any other Loan
Document, must be in writing and shall be effective only to the extent as may
be specifically set forth in such writing.
9.02. TAXES. The Borrower shall pay any and all stamp, document,
mortgage, intangibles, transfer and recording taxes, fees (including notary fees
and mortgage/deed of trust release fees) and similar impositions payable or
hereafter determined to be payable in connection with the execution, delivery
and/or recording and release of the Loan Documents, and the Borrower agrees to
save the Bank harmless from and against any and all present or future claims or
liabilities with respect to, or resulting from, any delay in paying or omitting
to pay any such taxes, fees or similar impositions.
9.03. MODIFICATIONS AND AMENDMENTS. Upon execution thereof, each
Project Agreement shall automatically be deemed to be an amendment of this
Agreement, which amendment shall apply, however, only to the Project which is
the subject of such Project Agreement.
9.04. HOLIDAYS. Except as otherwise provided herein, whenever any
payment or action to be made or taken under any of the Loan Documents shall be
stated to be due or to be performed on a day which is not a business day, such
payment or action shall be made or taken on the next-following business day and
such extension of time shall be included in computing interest or fees, if any,
in connection with such payment or action.
9.05. NOTICES. All notices, statements, requests and demands given to
or made upon either party hereto in accordance with the provisions of this
Agreement shall be deemed to have been given or made three (3) days after the
same are deposited in the United States mail, postage prepaid, or immediately
upon receipt, if delivered by courier, addressed as follows:
If to the Bank: KeyBank National Association
10 West Market Street
9th Floor
Indianapolis, Indiana 46266
Attention: Jane E. Butler
If to the Borrower: TCC NNN Trading, Inc.
c/o Trammell Crow Company
7535 East Hampden Avenue
Suite 650
Denver, Colorado 80231
ATTN: Peter Tippen
With a copy to: Lynda A. McNeive
38
<PAGE>
Brownstein Hyatt Farber & Strickland, P.C.
Twenty Second Floor
410 Seventeenth Street
Denver, Colorado 80202-4437
or in accordance with the latest unrevoked written direction from either party
to the other party hereto. Failure of Bank to furnish the Borrower's attorney
with a copy of any notice provided to the Borrower hereunder shall not be deemed
a failure of the Bank to provide the Borrower with such notice and shall not
affect, or in any way prevent or estop the Bank from exercising, any right or
remedy of the Bank hereunder or under any of the other Loan Documents.
9.06. REIMBURSEMENT FOR CERTAIN EXPENSES. All costs incidental to the
Loan and all Advances thereof, including, but not limited to, title insurance
premiums, survey charges, appraisal fees, insurance premiums, inspecting
engineers' and/or architects' fees, attorneys' costs and fees and any and all
other incidental expenses of the Bank, shall be paid by the Borrower. All such
fees and expenses shall be paid upon the receipt of a statement therefor.
9.07. NO THIRD PARTY RIGHTS. Nothing in this Agreement, whether express
or implied, shall be construed to give to any person other than the parties
hereto any legal or equitable right, remedy or claim under or in respect of this
Agreement or any other Loan Document, which is intended for the sole and
exclusive benefit of the parties hereto and thereto.
9.08. INTEREST LIMITATION. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, the obligations of the
Borrower to the Bank under this Agreement and any other Loan Documents are
subject to the limitation that payments of interest to the Bank shall not be
required to the extent that receipt by the Bank of any such payment by the
Borrower would be contrary to provisions of governmental requirements applicable
to the Bank which limit the maximum rate of interest which may be charged or
collected by the Bank.
9.09. SEVERABILITY. The provisions of this Agreement are intended to be
severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
9.10. GOVERNING LAW. THE BORROWER AGREES WITH BANK THAT, EXCEPT AS
EXPRESSLY SET FORTH IN THE MORTGAGES AND THE ASSIGNMENTS OF RENTS AND ANY OTHER
LOAN DOCUMENTS, THE LAW OF THE STATE OF INDIANA SHALL GOVERN ALL MATTERS
RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ALL OF THE
INDEBTEDNESS OR OBLIGATIONS OF THE BORROWER ARISING HEREUNDER OR THEREUNDER.
THE BORROWER (a) SHALL BE SUBJECT TO PERSONAL JURISDICTION IN THE STATE OF
INDIANA AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN STATE
OF INDIANA (AND ANY APPELLATE COURTS TAKING APPEALS THEREFROM) FOR THE
ENFORCEMENT OF THE BORROWER'S OBLIGATIONS HEREUNDER AND UNDER THE OTHER LOAN
DOCUMENTS AND (b) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW
39
<PAGE>
OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN INDIANA FOR THE PURPOSES
OF SUCH ACTION, SUIT, PROCEEDING OR LITIGATION TO ENFORCE SUCH OBLIGATIONS OF
THE BORROWER. THE BORROWER WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE IN
ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS (x) THAT IT IS NOT SUBJECT TO SUCH JURISDICTION OR
THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT
MAINTAINABLE IN THOSE COURTS OR THAT THIS AGREEMENT AND SUCH OTHER LOAN
DOCUMENTS MAY NOT BE ENFORCED IN OR BY THOSE COURTS OR THAT IT IS EXEMPT OR
IMMUNE FROM EXECUTION, (y) THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, OR (z) THAT THE VENUE OF THE ACTION, SUIT OR
PROCEEDING IS IMPROPER. NOTHING IN THIS SECTION 9.10 SHALL BE DEEMED TO
PRECLUDE BANK FROM FILING ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF THIS
AGREEMENT OR SUCH OTHER LOAN DOCUMENTS IN THE STATE IN WHICH THE BORROWER HAS
ITS CHIEF EXECUTIVE OFFICE OR THE FEDERAL COURTS OF THE UNITED STATES OF
AMERICA LOCATED IN THE STATE IN WHICH THE BORROWER HAS ITS CHIEF EXECUTIVE
OFFICE, OR, WITH RESPECT TO A SPECIFIC ADVANCE, THE STATE IN WHICH THE
PROJECT BEING ACQUIRED WITH SUCH ADVANCE IS LOCATED OR THE FEDERAL COURTS OF
THE UNITED STATES OF AMERICA LOCATED IN THE STATE IN WHICH THE PROJECT BEING
ACQUIRED WITH SUCH ADVANCE IS LOCATED.
9.11 CERTAIN FEES. No broker's or finder's fee or commission will be
payable with respect to the Loan, this Agreement, or the other Loan Documents,
or any of the transactions contemplated hereby, and the Borrower hereby
indemnifies the Bank against, and agrees that it will hold the Bank harmless
from, any claim, demand, or liability for any such broker's or finder's fee or
commission alleged to have been incurred in connection herewith or therewith and
any expenses (including reasonable fees, expenses, and disbursements of counsel)
arising in connection with any such claim, demand, or liability.
9.12. SURVIVAL. All representations, warranties, covenants, agreements
and obligations of the Borrower contained in this Agreement, as amended or
supplemented from time to time, shall survive the making of Advances and shall
continue in full force and effect so long as the Loan is outstanding and until
payment and performance in full of all of the Borrower's obligation thereunder
and under the Loan Documents.
9.13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed and delivered by the parties, shall constitute an
original but all such counterparts together constituting but one and the same
instrument.
9.14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the Bank, the Borrower and their respective
successors and assigns, except that the Borrower may not assign or transfer its
rights and obligations hereunder or any interest herein without the prior
written consent of the Bank.
40
<PAGE>
9.15 TIME OF ESSENCE. Time is of the essence under the Loan Documents.
9.16 NO JOINT VENTURE. Notwithstanding anything to the contrary herein
contained or implied, the Bank, by this Agreement, or by any action pursuant
hereto, shall not be deemed to be a partner of, or a joint venturer with, the
Borrower, and the Borrower hereby indemnifies and agrees to defend and hold the
Bank harmless, including the payment of reasonable attorneys' fees, from any
loss resulting from any judicial construction of the parties' relationship as
such.
9.17. BANK NOT IN CONTROL. None of the covenants or other provisions
contained in the Loan Documents shall, or shall be deemed to, give the Bank the
rights or power to exercise control over the affairs and/or management of the
Borrower, the power of the Bank being limited to the right to exercise the
rights and remedies provided to it in the Loan Documents.
9.18. WAIVER OF JURY TRIAL. The Borrower and the Bank, after consulting
or having had the opportunity to consult with counsel, knowingly, voluntarily
and intentionally waives any right they may have to a trial by jury in any
litigation based upon or arising out of the Loan, this Agreement or any other
Loan Document or any of the transactions contemplated hereby or by any other
Loan Document or any course of conduct, dealing, statements, whether oral or
written, or actions of the Borrower or the Bank. Neither the Borrower nor the
Bank shall seek to consolidate, by counterclaim or otherwise, any action in
which a jury trial has been waived with any other action in which a jury trial
cannot be or has not been waived. These provisions shall not be deemed to have
been modified in any respect or relinquished by the Bank or the Borrower except
by written instrument executed by both the Borrower and the Bank.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
"BORROWER"
TCC NNN Trading, INC.,
a Delaware corporation
By: /s/ Lucy L. Dineen
---------------------------------
Printed: Lucy L. Dineen
----------------------------
Title: Vice President
------------------------------
41
<PAGE>
"BANK"
KEYBANK NATIONAL ASSOCIATION, a
national banking association
By: /s/ Theodore J. Lewis
---------------------------------
Printed: Theodore J. Lewis
----------------------------
Title: Vice President
------------------------------
42
<PAGE>
MASTER CONSTRUCTION LOAN AGREEMENT
THIS MASTER CONSTRUCTION LOAN AGREEMENT, dated as of this 4th day of
August, 1997 by and between TRAMMELL CROW BTS, INC., a Delaware corporation,
and KEYBANK NATIONAL ASSOCIATION, a national banking association;
WITNESSETH:
The parties hereto, in consideration of their mutual covenants
hereinafter set forth and intending to be legally bound hereby, agree as
follows:
ARTICLE I
DEFINITIONS
1.01. CERTAIN DEFINITIONS. The following words and terms shall have
the following meanings, respectively, unless the context hereof clearly
otherwise requires:
"Advance" shall mean an advance to a Borrower on the account of a
Project Loan made by the Bank from time to time pursuant to this
Agreement.
"Agreement" shall mean this Master Construction Loan Agreement, as
the same may be supplemented, modified or amended from time to time.
"Applicable Rate" shall mean the Prime Rate Option and the LIBOR
Rate Option, as applicable.
"Architect" shall mean the design architect for a Project.
"Architect's Letter" shall mean a letter in the form attached
hereto as EXHIBIT O furnished to the Bank by the Architect for a Project.
"Architectural Agreement" shall mean, with respect to a Project,
the agreement between the Borrower owning such Project and the Architect
for such Project, as the same may be supplemented, modified or amended
from time to time.
"Assignment of Rents" shall mean an Assignment of Rents and Leases
in the form attached hereto as EXHIBIT E, with blanks completed
appropriately, given by a Borrower to the Bank with respect to a Project
as security for the Borrower's obligations under the Project Loan made in
respect of such Project, subject to such changes as may be required to
comply with the requirements of the law of the state in which such
Project is located, as the same may be supplemented, modified or amended
from time to time.
<PAGE>
"Bank" shall mean KeyBank National Association, a national banking
association.
"Banking Day" shall mean a day on which banks are open for
commercial business in Indianapolis, Indiana and for dealings in
Eurodollars in London, England.
"Borrower" shall mean a limited liability company which will be
the owner of a Project and the borrower under the Project Loan made in
respect of such Project. The managing member of each Borrower shall be
Developer.
"Building Contracts" shall mean for a Project the Construction
Contract and the Architectural Agreement.
"Change Order" shall mean any amendment, modification, or revision
to the Plans and Specifications or a Building Contract for a Project.
"Closing" shall mean with respect to a Project Loan, the execution
and delivery of the Project Loan Document in respect thereof by the
Borrower thereunder to the Bank.
"Closing Date" shall mean with respect to a Project Loan, the date
of the Closing thereof.
"Collateral Assignment of Certificate of Deposit" shall mean a
Collateral Assignment and Security Agreement in the form attached hereto
as EXHIBIT G given by a Borrower to the Bank as security for the
Borrower's obligations under a Project Loan, as the same may be
supplemented, modified or amended from time to time.
"Collateral Assignment of Purchase Agreement" shall mean a
Collateral Assignment of Purchase Agreement in the form attached hereto
as EXHIBIT I, with blanks completed appropriately, given by a Borrower to
the Bank with respect to a Project as security for the Borrower's
obligations under the Project Loan made in respect of such Project, as
the same may be supplemented, modified or amended from time to time.
"Collateral Pledge Agreement" shall mean a Collateral Pledge
Agreement in the form attached hereto as EXHIBIT H given by a Borrower to
the Bank as security for the Borrower's obligations under a Project Loan,
as the same may be supplemented, modified or amended from time to time.
"Commitment Fee" shall mean an amount equal to One Half of One
Percent (1/2 of 1%) of the principal amount of a Project Loan to be paid
by the Borrower thereunder to the Bank.
"Completion Date" shall mean with respect to a Project, the date
set forth in the Project Agreement relating to such Project.
"Conditional Default" shall mean any condition, event, act or
omission which, with the giving of notice or passage of time or both,
would constitute an Event of Default.
2
<PAGE>
"Construction Contract" shall mean with respect to a Project, the
construction contract between the Borrower owning such Project and the
Contractor for such Project, as the same may be supplemented, modified or
amended from time to time.
"Contract Assignment" shall mean an Assignment in the form
attached hereto as EXHIBIT F with blanks completed appropriately, given
by a Borrower to the Bank with respect to a Project as security for such
Borrower's obligation under the Project Loan made in respect of such
Project, subject to such changes as may be required to comply with the
requirements of the law of the state in which such Project is located, as
the same may be supplemented, modified or amended from time to time.
"Contractor" shall mean the general contractor for a Project, as
approved by the Bank.
"Contractor's Letter" shall mean the letter in the form attached
hereto as EXHIBIT Q furnished to the Bank by the Contractor for a
Project.
"Conversion Date" means any date on which a Project Loan or any
portion thereof is converted from the Prime Rate Option to the LIBOR Rate
Option.
"Cost Breakdown" shall mean the cost breakdown of all Project
Costs furnished by a Borrower to the Bank with respect to a Project, as
the same may be supplemented, modified or amended from time to time.
"Debt Service Coverage Ratio" shall mean the ratio of (i)
projected total annual income to be received under an OfficeMax Lease for
an applicable Project, defined as base rent, common area maintenance
payments, insurance and real estate tax reimbursements and miscellaneous
sources, less projected total annual expenses for such Project, defined
as an annual management fee in an amount equal to Three Percent (3%) of
the projected total annual income of such Project, an annual charge of
Ten Cents ($.10) per square foot of such Project for a capital reserve
and expense of common area maintenance, insurance, real estate taxes, and
non-capitalized repairs, to (ii) the projected total annual sum of all
interest payments and principal payments on the applicable Project Loan
which would be due and payable assuming the level amortization of such
Project Loan over a period equal to the lesser of (a) twenty (20) years
or (b) the term of the applicable OfficeMax Lease, plus five (5) years,
at a per annum interest rate equal to One and Three Quarters Percent
(1.75%) above the most recent weekly average yield on United States
Treasury Securities adjusted to a constant maturity of ten (10) years.
"Default Rate" shall mean a rate of interest from time to time
which is Two Percent (2%) per annum above the Applicable Rate.
"Deposit" shall mean a One Hundred Thousand Dollar ($100,000)
earnest money deposit made by a buyer under a Project Purchase Agreement
and held by the Title Company.
"Developer" shall mean Trammell Crow BTS, Inc., a Delaware
corporation.
3
<PAGE>
"Developer Guaranty" shall mean an Unconditional Guaranty in the
form attached hereto as EXHIBIT J, with blanks completed appropriately,
given to the Bank with respect to a Project Loan by the Developer,
pursuant to which the Developer guarantees the Borrower's obligations
under such Project Loan, as the same may be supplemented, modified or
amended from time to time.
"Direct Costs" shall mean for a Project, all cost and expense
incurred or to be incurred by the Borrower owning such Project for work,
labor or Materials furnished in connection with the construction of such
Project.
"Disbursement Request" shall mean a statement of a Borrower
setting forth the amount of an Advance being requested and containing
such other information as is required by Paragraph (a) of Section 5.01
hereof.
"Environmental Indemnity Agreement" shall mean an Environmental
Indemnity Agreement in the form attached hereto as EXHIBIT N, with blanks
completed appropriately, to be executed and delivered with respect to a
Project by the Borrower under the Project Loan made in respect of such
Project and the Developer to Bank, as the same may be supplemented,
modified or amended from time to time.
"Event of Default" shall mean any of the events of default
described in Section 8.01 hereof.
"Fixtures" shall mean all personal property now or hereafter owned
by a Borrower and now or hereafter affixed to, incorporated into or to be
incorporated into, or used or useful in connection with, the Project
owned by such Borrower or any part thereof, all replacements thereof,
additions thereto and substitutions therefor.
"Governmental Authorities" shall mean the United States of
America, the state and local jurisdiction in which a Project is located
and any political subdivision thereof, and any agency, department,
commission, board, bureau or instrumentality of any of them.
"Governmental Requirement" shall mean any law, ordinance, order,
rule or regulation of any Governmental Authority, including but not
limited to laws, ordinances, orders, rules or regulations with regard to
zoning, subdivision, building, safety, fire protection or environmental
matters applicable to a Project.
"Guarantors" shall mean Developer and Trammell Crow MW.
"Hazardous Materials" shall mean any flammable explosives,
radioactive materials, hazardous or toxic chemicals, materials, wastes,
by-products, pollutants, contaminants, compounds, products or substances,
including, without limitation, asbestos, polychlorinated biphenyls,
wastes, hydrocarbon or petroleum products, hazardous, regulated or toxic
substances or related materials defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended (42 USC Section 9601, ET SEQ.), the Hazardous Materials
Transportation Act, as amended (49 USC Section 1801, ET SEQ.), the
Resource
4
<PAGE>
Conservation and Recovery Act, as amended (42 USC Section 6901, ET SEQ.)
and in the regulations adopted and publications promulgated pursuant
thereto, or any other federal, state or local governmental law,
ordinance, rule or regulation, and any other material, the exposure to,
or manufacture, possession, presence, use, generation, storage,
transportation, release, disposal, abatement, clean up, removal,
remediation or handling of which is prohibited, controlled or regulated
by any Governmental Requirement.
"Improvements" shall mean an OfficeMax retail facility to be
constructed by a Borrower upon a Project Site in accordance with the
applicable Plans and Specifications.
"Indirect Costs" shall mean for a Project, all cost and expense
for, incurred or to be incurred by the Borrower owning such Project in
connection with or incidental to the construction of such Project other
than Direct Costs, including, without limitation, the costs of
acquisition of a Project Site, costs of title examination and insurance,
costs of surveys, mortgage recording fees, real estate taxes and
assessments, water and sewer rents, insurance premiums, fees of the
Architect and Inspecting Architect for such Project, attorneys' fees, and
the Commitment Fee for, and interest on, the Project Loan for such
Project.
"Inspecting Architect" shall mean the independent architectural or
engineering firm employed by the Bank with respect to a Project.
"LIBOR Rate" for any day shall mean with respect to each Segment
of a proposed or existing LIBOR Rate Portion of a Project Loan
corresponding to a proposed or existing LIBOR Rate Interest Period the
rate per annum determined by the Bank to be the interest rate at which
deposits in dollars in the amount of any Advance made to a Borrower
pursuant to its Project Note, are offered by prime banks to the Bank for
the applicable LIBOR Rate Interest Period in the London interbank market
at approximately 11:00 a.m. (London time) on the day two (2) Banking Days
prior to the commencement of any LIBOR Rate Interest Period.
"LIBOR Rate Interest Period" shall mean: (a) initially the one
(1), two (2), three (3) or six (6) month period commencing initially on a
Conversion Date for a Project Loan with respect to any given election
made pursuant to Section 2.05(a) hereof and having a duration of one (1),
two (2), three (3) or six (6) months as selected by the Borrower of such
Project Loan by telephonic notice to the Bank as provided in Section
2.05(a) hereof; provided that the foregoing is subject to adjustment
pursuant to Section 2.05(c) hereof and is further subject to the
following:
i. the first LIBOR Interest Period for any
advance under a Project Loan following a conversion from
the Prime Rate Option to the LIBOR Rate Option shall
commence on the date of such conversion and end on the last
day of the then current LIBOR Interest Period; and
ii. any LIBOR Interest Period that begins on the
last Banking Day of a calendar month (or on a day for which
there is no numerically
5
<PAGE>
corresponding day in the calendar month at the end of such
LIBOR Interest Period) shall end on the last Banking Day of a
calendar month.
"LIBOR Rate Option" shall mean a rate per annum equal to Two and
One-Quarter Percent (2 1/4%) above the LIBOR Rate.
"LIBOR Rate Portion" shall mean at any time the portion, including
the whole, of a Project Loan bearing interest at such time under the
LIBOR Rate Option.
"LIBOR Rate Reserve Requirement" means, solely to the extent that
such requirement is imposed or incurred by the Bank or any participant in
a Project Loan and solely to the extent of the Bank and such
participant's respective participatory shares in the Project Loan, for
any day, the maximum effective percentage (expressed as a decimal
fraction, rounded upward to the nearest 1/100 of 1%), as determined in
good faith by the Bank (which determination shall be conclusive), which
is in effect on such day as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirements (including without limitation supplemental, marginal
and emergency reserve requirements) for a member bank of the Federal
Reserve System in respect of "eurocurrency liabilities" (or in respect of
any other category of liabilities which includes deposits by reference to
which the LIBOR Rate is determined or any category of extensions of
credit or other assets which includes loans by non-United States offices
of any lender to United States residents). The LIBOR Rate shall be
adjusted automatically with respect to any LIBOR Rate Portion of the Loan
outstanding on the effective date of any change in the LIBOR Rate Reserve
Requirement, as of such effective date.
"Loan" shall mean the aggregate amount of the Project Loans
approved by Bank pursuant to this Agreement, which amount shall in no
event exceed the principal sum of Ten Million Dollars ($10,000,000)
outstanding at any time.
"Major Contractor" shall mean the party furnishing materials,
labor or services to a Borrower under a Major Contract.
"Major Contract" shall mean a contract in respect of a Project
entered into by the Borrower owning such Project or a Contractor for the
furnishing of Materials, labor or services for such Project for a cost in
excess of Fifty Thousand Dollars ($50,000).
"Materials" shall mean all materials, supplies, chattels,
fixtures, machinery, equipment or other articles of property furnished or
to be furnished in connection with the construction of, and incorporated
or to be incorporated into, a Project, and shall include all replacements
thereof, additions thereto and substitutions therefor.
"Mortgage" shall mean a Real Estate Mortgage and Security
Agreement in the form of EXHIBIT D attached hereto, with blanks completed
appropriately, or a deed of trust given by a Borrower to the Bank with
respect to a Project as security for the Borrower's obligations under the
Project Loan made in respect of such Project, subject to such changes
6
<PAGE>
as may be required to comply with the requirements of the laws of the
state in which the Project is located, as the same may be supplemented,
modified or amended from time to time.
"Mortgagor's Affidavit" shall mean a Mortgagor's Closing Affidavit
in the form of EXHIBIT M attached hereto, with blanks completed
appropriately, given by a Borrower to the Bank with respect to a Project.
"OfficeMax" shall mean OfficeMax, Inc., an Ohio corporation.
"OfficeMax Lease" shall mean a lease of a Project by and between
the Borrower owning such Project, as landlord, and OfficeMax, as tenant.
"OfficeMax Subordination, Non-Disturbance and Attornment
Agreement" shall mean a Subordination, Non-Disturbance and Attornment
Agreement in the form of EXHIBIT P attached hereto, with blanks completed
appropriately, entered into by the Bank, a Borrower and OfficeMax with
respect to the Project owned by such Borrower, subject to such changes as
may be required to comply with the requirements of the law of the state
in which the Project is located, as the same may be supplemented,
modified or amended from time to time.
"Option" shall mean the interest rate option applicable to a
Project Loan (or a portion thereof) selected by the Borrower thereunder
from the LIBOR Rate Option and the Prime Rate Option.
"Personal Property" shall mean all tangible personal property
owned by a Borrower and now or at any time hereafter located on or at the
Project Site owned by such Borrower or used in connection therewith or
with the Improvements constructed or to be constructed thereon.
"Plans and Specifications" shall mean the plans and specifications
for the construction of the Improvements on an applicable Project Site
prepared by the Architect therefor and approved on or prior to the date
of the initial Advance for the applicable Project by the Borrower, the
Bank, OfficeMax and the Contractor, including all working drawings and
shop drawings prepared for use in connection therewith, as the same may
be finalized, supplemented, modified or amended from time to time by
Change Orders permitted hereunder.
"Prime Rate" shall mean the interest rate per annum announced from
time to time by KeyBank National Association as its prime rate. Each
interest rate determined by reference to the Prime Rate shall change
automatically from time to time, effective as of the effective date of
each change in the Prime Rate. The Bank's Prime Rate is not necessarily
the rate at which the Bank lends its funds. The Prime Rate is only an
index rate from which interest rates actually charged to the Bank's
customers may be measured. The use of the Prime Rate does not constitute
a commitment by the Bank lend money at a preferred rate.
"Prime Rate Option" shall mean a rate per annum equal to the Prime
Rate.
7
<PAGE>
"Prime Rate Portion" shall mean at any time the portion, including
the whole, of a Project Loan bearing interest at such time under the
Prime Rate Option.
"Project Agreement" shall mean a Project Agreement in the form of
EXHIBIT A attached hereto, with blanks completed appropriately, to be
entered into by the Bank and a Borrower, pursuant to which Bank approves
a Project for funding hereunder as required by Section 2.02, as the same
may be supplemented, modified or amended from time to time.
"Project" shall mean a Project Site and the Improvements to be
constructed thereon.
"Project Certificate of Deposit" shall mean a certificate of
deposit in the amount of One Hundred Thousand Dollars ($100,000) issued
by the Bank or a financial institution reasonably acceptable to the Bank
in the name of a Borrower, which certificate of deposit shall serve as
security for the Borrower's obligations under the Project Loan for which
such certificate of deposit is issued.
"Project Costs" shall mean for a Project, the Direct Costs and
Indirect Costs for such Project.
"Project Letter of Credit" shall mean an unconditional irrevocable
standby letter of credit in the amount of One Hundred Thousand Dollars
($100,000) issued for the benefit of the Bank by a financial institution
reasonably acceptable to the Bank, which letter of credit shall have an
expiry of no earlier than seven (7) days after the Project Loan Maturity
Date for the Project Loan for which such Project Letter of Credit was
issued. Such letter of credit shall serve a security for the Borrower's
obligation under such Project Loan.
"Project Loan" shall mean for a Project the amount of the Loan
approved by the Bank and allocated to pay Project Costs for such Project,
as shown on the Cost Breakdown for such Project and reflected in the
Project Note and the Project Agreement for such Project.
"Project Loan Commitment Expiration Date" shall mean ___________
[one (1) year from the date hereof].
"Project Loan Documents" shall mean with respect to a Project
Loan, this Agreement, the Project Agreement, the Project Note, the
Mortgage, the Assignment of Rents, the Contract Assignment, the
Collateral Assignment of Certificate of Deposit (if executed in
connection therewith), the Collateral Assignment of Purchase Agreement,
the Collateral Pledge Agreement, the Developer Guaranty, the Trammell
Crow MW Transaction Guaranty (if executed in connection therewith), the
Trammell Crow MW Completion Guaranty (if executed in connection
therewith), the Mortgagor's Affidavit, the Environmental Indemnity and
any and all other documents executed and/or delivered by or on behalf of
the Borrower under such Project Loan and the Developer in connection
therewith, as the same may be supplemented, modified or amended from time
to time.
"Project Loan Maturity Date" shall have the meaning ascribed
thereto in Section 2.06 hereof.
8
<PAGE>
"Project Note" shall mean a Mortgage Note in the form of EXHIBIT C
attached hereto, with blanks completed appropriately, executed by a
Borrower payable to the order of the Bank evidencing a Project Loan, as
supplemented, modified or amended from time to time.
"Project Purchase Agreement" shall mean with respect to a Project,
a purchase agreement between the Borrower owning such Project and a buyer
approved by the Bank in a form reasonably acceptable to Bank, pursuant to
which agreement such Borrower agrees to sell, and such buyer agrees to
purchase, such Project. Such purchase agreement shall require the buyer
thereunder to deposit with such Borrower a Deposit.
"Project Site" shall mean the real estate designated by a Borrower
or the Developer and approved by the Bank for the location and
construction of an OfficeMax retail facility.
"Retainage" shall mean the percentage required by the Bank to be
withheld from the interim payments to the Contractor pursuant to
Paragraph (n) of Section 4.01.
"Segment" of the LIBOR Rate Portion of a Project Loan at any time
shall mean the entire principal amount of that part of the LIBOR Rate
Portion of such Project Loan to which at such time there is applicable a
LIBOR Rate Interest Period beginning on a particular day and ending on
another particular day. (By definition, the LIBOR Rate Portion of a
Project Loan is at all times composed of an integral number of discrete
Segments and the sum of the principal amounts of all Segments of the
LIBOR Rate Portion of a Project Loan at any time equals the principal
amount of the LIBOR Rate Portion of such Project Loan at such time.)
"Title Company" shall mean with respect to a Project, a title
insurer designated by a Borrower or the Developer and approved by the
Bank which agrees to insure the priority of the lien of the Mortgage on
such Project.
"Title Policy" shall mean with respect to a Project, the policy of
title insurance issued by a Title Company to the Bank insuring the
priority of the lien of the Mortgage on such Project.
"Trammell Crow MW" shall mean Trammell Crow MW, Inc. a Delaware
corporation.
"Trammell Crow MW Completion Guaranty" shall mean a Guaranty of
Completion of Improvements pursuant to Construction Loan Agreement in the
form attached hereto as EXHIBIT K, with blanks completed appropriately,
given to the Bank with respect to a Project Loan by Trammell Crow MW,
pursuant to which Trammell Crow MW guarantees the timely and lien-free
completion of the Improvements in respect of which such Project Loan is
being made, as the same may be supplemented, modified or amended from
time to time.
"Trammell Crow MW Transaction Guaranty" shall mean a Transaction
Guaranty in the form attached hereto as EXHIBIT L, with blanks completed
appropriately, given to the Bank with respect to a Project Loan by
Trammell Crow MW, pursuant to which Trammell Crow MW guarantees the
obligations of the Borrower under such Project Loan, as provided in
9
<PAGE>
Section 4.01(e)(vii) hereof, as the same may be supplemented, modified or
amended from time to time.
Unless the context clearly otherwise requires, the foregoing definitions
shall be equally applicable to both the singular and plural forms.
ARTICLE II
THE LOAN
2.01. PROJECT LOAN. Subject to the terms and conditions hereof, and
relying upon the representations and warranties herein set forth, the Bank
agrees to make Project Loans to the Borrower(s) from time to time in an
aggregate principal amount not to exceed Ten Million Dollars ($10,000,000)
outstanding at any time. The Bank's commitment to make Project Loans shall
expire on the Project Loan Commitment Expiration Date. In no event shall the
Bank be obligated to make any Project Loan on or after the Project Loan
Commitment Expiration Date. Notwithstanding the foregoing, subject to the
terms and conditions hereof, the Bank shall fund after the Project Loan
Commitment Expiration Date any Project Loan for which the Closing has
occurred prior to the Project Loan Commitment Expiration Date. The proceeds
of a Project Loan will be advanced to the Borrower thereunder as acquisition
and construction of the Project in respect of which such Project Loan is made
progresses, in accordance with and subject to the requirements and
limitations set forth herein and in the other Project Loan Document for such
Project Loan. Proceeds of the Loan shall be allocated to the Projects by the
Developer in such manner as the Developer shall determine and the Bank may
approve pursuant to Section 2.02 below. If prior to the Project Loan
Commitment Expiration Date, a Borrower repays a Project Loan, Loan proceeds
in an amount equal to the amount of the repaid Project Loan will again be
made available to the Borrower(s) for Project Loans, subject to the terms and
conditions hereof.
2.02. PROJECT APPROVAL. In connection with a request for approval
for a Project Loan, Developer shall submit to the Bank those materials
identified in EXHIBIT B attached hereto together with such other information
as the Bank deems reasonable, appropriate and necessary with respect to such
Project Loan and the Project to be acquired and constructed with the proceeds
thereof. Bank covenants and agrees to use its best efforts to approve or
disapprove a Project Loan within fifteen (15) business days following receipt
of a request for approval by a Borrower. In connection with the approval of
a Project Loan, Bank may impose requirements regarding disbursement of
Project Loan proceeds in addition to those set forth herein. Such additional
requirements will be set forth in the Project Agreement to be executed by the
Bank and the Borrower in respect of such Project, which Project Agreement,
when executed, shall be deemed to be a modification and amendment of this
Agreement as to the particular Project Loan.
2.03. PROJECT NOTE. Advances of a Project Loan shall be evidenced by
borrower's receipts and a Project Note executed and delivered by the Borrower
thereunder dated the date of the Closing of such Project Loan.
2.04. PROJECT LOAN RATE OF INTEREST. During the term of a Project
Loan, the unpaid principal amount thereof shall, subject to the terms and
conditions hereinafter set forth, bear interest on a basis
10
<PAGE>
selected by the Borrower of such Project Loan from the following interest
rate options, it being understood that subject to the provisions hereof such
Borrower may select both of such options to apply simultaneously to different
parts of such Project Loan and may select up to six (6) Segments to apply
simultaneously to different parts of the LIBOR Rate Portion of such Project
Loan: (a) a rate per annum equal to the Prime Rate Option; or (b) a rate per
annum equal to the LIBOR Rate Option.
After maturity (whether by declaration, acceleration or otherwise),
the unpaid principal balance of a Project Loan shall bear interest at a rate
per annum equal to the Default Rate until such Project Loan is paid in full,
principal and interest. All interest on a Project Loan shall be calculated
on the unpaid principal balance of such Project Loan at the time of
reference, based on a year of 360 days and on the actual number of days
elapsed in each calendar year.
2.05. PROJECT LOAN INTEREST RATE OPTIONS.
a. The Borrower under a Project Loan (i) shall designate at
least two (2) Banking Days prior to the end of each LIBOR Interest Period
the interest rate Option or Options which it is selecting to apply
(whether renewal of the LIBOR Rate Option, conversion to the Prime Rate
Option or a combination of the two) to the corresponding Segment of the
LIBOR Rate Portion of such Project Loan commencing on the day after the
end of such LIBOR Interest Period and (ii) may, on two (2) Banking Days
prior notice, convert all or part of the Prime Rate Portion of such
Project Loan to the LIBOR Rate Option, such notice to state the date of
Conversion, which shall be a Banking Day. Such designation or notice
shall be irrevocable and shall be made by giving the Bank telephonic
notice on the day such designation or notice is required of (x) the
principal amounts of the Prime Rate Portion and each Segment of the LIBOR
Rate Portion as the case may be, of such Project Loan to be converted
from or renewed, (y) the interest rate Option or Options selected and the
principal amounts of the Prime Rate Portion and each Segment of the LIBOR
Rate Portion, as the case may be, of such Project Loan to be converted
to, and (z) with respect to each Segment of the LIBOR Rate Portion of
such Project Loan to be converted to or renewed, the LIBOR Interest
Period selected to apply to such Segment. In the absence of the receipt
of a telephonic notice from such Borrower required by clause (i) above,
such Borrower shall be deemed to have selected the Prime Rate Option.
Each new Advance under such Project Loan made by the Bank shall
automatically bear interest at the Prime Rate Option until a selection
under clause (ii) above is made. A Borrower shall have no right to
select the LIBOR Rate Option in respect of its Project Loan or any
portion thereof if an Event of Default exists hereunder and shall have no
right to select a LIBOR Interest Period which would extend beyond the
Maturity Date for such Project Loan. Maker may not have more than six
(6) Segments of the LIBOR Rate Portion of such Project Loan in existence
at any time and each such Segment shall be in an amount which is greater
than or equal to One Hundred Thousand Dollars ($100,000).
b. If any law or any governmental regulation, guideline or
order or interpretation or application thereof issued by any governmental
authority charged with the interpretation or administration thereof or
compliance with any request or directive of any central bank or other
governmental authority (whether or not having the force of law)(i)
subjects the Bank to any tax or changes the basis of taxation with
respect to a Project Loan or payments by the
11
<PAGE>
Borrower thereunder of principal, interest or other amounts due from
such Borrower thereunder (except for taxes on the overall net income of
the Bank imposed by the jurisdictions in which the Bank's principal
executive office is located), (ii) imposes, modifies or deems applicable
any reserve, special deposit or similar requirement against assets held
by, credit extended by, deposits with or for the account of, or other
acquisition of funds by, the Bank (other than requirements expressly
included herein in the determination of the LIBOR Rate hereunder), or
(iii) imposes upon the Bank any other condition or expense with respect
to the making, maintenance or funding of any part of such Project Loan
or any security therefor; and the result of any of the foregoing is to
increase the cost to, reduce the income receivable by, or impose any
expense upon the Bank with respect to the LIBOR Rate Portion of such
Project Loan or the making, maintenance or funding of any part thereof
by an amount which the Bank deems to be material, the Bank shall from
time to time notify such Borrower (which notification shall be made
reasonably promptly after discovery by the Bank of the causing
circumstances) of the amount determined in good faith (using any
averaging and attribution methods employed in good faith) by the Bank to
be necessary to compensate the Bank for such increase in cost, reduction
in income or additional expense, which additional expense shall not
exceed the difference between the Prime Rate and the LIBOR Rate. In
the event the Bank determines any such amount shall be due and payable
pursuant to the foregoing, the Bank shall give written notice thereof to
such Borrower and such Borrower shall within ten (10) days after such
notice either (iv) pay to the Bank the amount determined by the Bank to
be due and payable from and after the date of such notice through the
last day of the applicable LIBOR Interest Period; or (v) prepay the
applicable LIBOR Rate Portion of such Project Loan together with any
amounts due and payable under Section 2.05(c) hereof.
c. In addition to the compensation required by Section 2.05(b)
hereof, the Borrower of a Project Loan shall indemnify the Bank (on a net
basis) against any loss or expense which the Bank has sustained or
incurred as a consequence of any (i) payment or conversion of any Segment
of the LIBOR Rate Portion of such Project Loan on a day other than the
last day of the corresponding LIBOR Interest Period (whether or not such
payment or conversion is mandatory or automatic and whether or not such
payment is then due), (ii) attempt by such Borrower to revoke (expressly,
by later inconsistent notices or otherwise) in whole or in part any
notice stated herein to be irrevocable (the Bank having in its sole
discretion the option to give effect to such attempted revocation and
obtain indemnity under this Section 2.05(c) or to treat such attempted
revocation as having no force or effect, as if never made), or (iii)
acceleration of such Project Loan as a result of the occurrence of an
event of default by such Borrower in the performance or observance of any
covenant or condition contained in the Project Loan Document for such
Project Loan, including, without limitation, any failure of such Borrower
to pay when due (by acceleration or otherwise) any principal, interest or
any other amount due hereunder or under such Project Loan Document. If
the Bank sustains or incurs any such loss or expense it shall from time
to time notify such Borrower of the amount determined in good faith by
the Bank to be necessary to indemnify the Bank for such loss or expense.
Such amount shall be due and payable by such Borrower to the Bank, within
ten (10) days after such notice is given.
12
<PAGE>
Any amounts due from a Borrower pursuant to the foregoing
indemnification shall be applicable only to the extent necessary to
compensate the Bank for a reduction in income or additional expense
incurred because of payment or conversion of a Segment of a LIBOR Rate
Portion on a day other than the last day of the corresponding LIBOR
Interest Period.
2.06. PROJECT MATURITY DATE. The term of a Project Loan shall expire
upon the earlier of (the "Project Loan Maturity Date"): (a) nine (9) months
from its Closing Date; or (b) the sale of the Project in respect of which
such Project Loan was made pursuant to the Purchase Agreement for such
Project, unless such Project Loan is sooner paid pursuant to the terms hereof.
2.07. PROJECT LOAN PAYMENTS. Principal of and interest on a Project
Loan shall be due and payable as follows:
a. The Borrower under such Project Loan shall pay interest at
the applicable rate(s) on the outstanding principal balance of such
Project Loan on the first (1st) day of each calendar month during the
term of such Project Loan, commencing on the first (1st) day of the first
(1st) calendar month following the first Advance under such Project Loan
and continuing on the first (1st) day of each calendar month thereafter
until such Project Loan is paid in full;
b. In any and all events, the entire outstanding principal
balance of such Project Loan, together with all accrued and unpaid
interest thereon, shall be due and payable on its Project Maturity Date.
2.08. PROJECT LOAN PREPAYMENTS. The Borrower of a Project Loan may
prepay its Project Loan in whole at any time, or in part from time to time,
without premium or penalty.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
By acceptance of a Project Loan, the Borrower thereunder shall be
deemed to represent and warrant to Bank that:
3.01. ORGANIZATION AND QUALIFICATION. Such Borrower is a duly formed
and validly existing limited liability company under the laws of the State of
Delaware and is duly qualified to conduct business in the state in which the
Project in respect of which such Project Loan is being made is located. The
managing member of such Borrower is the Developer. Developer is duly formed
and validly existing corporation under the laws of the State of Delaware and
is duly qualified to conduct business in the state in which such Project is
located. Trammell Crow MW is a duly formed and validly existing corporation
under the laws of the State of Delaware and is duly qualified to conduct
business in the state in which such Project is located.
3.02. RIGHT AND POWER. Such Borrower has full right, power and
authority to execute and deliver each of the Project Loan Document for such
Project Loan to which it is a party.
13
<PAGE>
3.03. CONFLICT WITH OTHER INSTRUMENTS. Neither the execution and
delivery of the Project Loan Document for such Project Loan to which it is a
party, nor consummation of the transactions contemplated thereby, nor
compliance with the terms, conditions and provisions thereof will conflict
with or result in a breach of any of the terms, conditions or provisions of
the articles of organization or operating agreement of such Borrower, or, to
Borrower's actual knowledge, any law or any regulation, order, writ,
injunction or decree of any court or Governmental Authority or any agreement
or instrument to which such Borrower is a party or by which such Borrower or
its properties or assets (including the Project in respect of which such
Project Loan is being made) are subject to or bound, or constitute a default
thereunder or result in the creation or imposition of any lien, charge,
security interest or encumbrance of any nature whatsoever upon any of the
property of such Borrower (including the Project in respect of which such
Project Loan is being made) pursuant to the terms of any such agreement or
instrument, except as created by such Project Loan Documents.
3.04. AUTHORITY, VALIDITY AND BINDING EFFECT. The execution and
delivery of the Project Agreement for such Project Loan, the making of the
borrowings contemplated by the provisions thereof and hereof, the execution,
issuance and delivery of the Project Note to evidence such borrowings, and
the execution and delivery of the other Project Loan Document for such
Project Loan to which such Borrower is a party have been duly authorized by
all necessary action on the part of such Borrower, and no authorization,
approval or consent by, or filing with, any Governmental Authority or public
regulatory authority is necessary therefor. Each Project Document to which
such Borrower is a party has been duly and validly executed and delivered by
such Borrower and constitutes a legal, valid and binding obligation of such
Borrower, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or other laws
of general application affecting the enforcement of creditors' rights
generally and by principles of equity.
3.05. FINANCIAL CONDITION. The financial statements of such Borrower
and the Guarantor(s) for such Project Loan furnished to the Bank are complete
and correct in all material respects. Such financial statements were
prepared in accordance with generally accepted accounting principles
consistently applied. The financial statements of such Borrower and the
Guarantor(s) for such Project Loan fairly present their respective financial
condition at the respective dates indicated therein. Since the dates of such
financial statements, there has been no material adverse change in the
assets, liabilities or financial condition of such Borrower and the Developer
from that reflected thereon.
3.06. LITIGATION. There are no actions, suits or proceedings pending
or, to Borrower's actual knowledge, threatened, against or affecting such
Borrower or the Developer of before any court or Governmental Authority which
might have a material adverse affect on such Borrower or the Guarantor(s) for
such Project Loan or their operations or financial condition, or on the
construction or operation of the Project in respect of which such Project
Loan is being made.
3.07. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The construction of
the Improvements constituting a part of the Project in respect of which such
Project Loan is being made as contemplated by the Plans and Specifications
therefor and the intended use of such Improvements will comply with all
applicable Governmental Requirements and all applicable restrictive
covenants. To the extent required by applicable law, such Plans and
Specifications have been approved by all
14
<PAGE>
Governmental Authorities and such Borrower has obtained all required permits
with respect to construction of such Improvements.
3.08. UTILITY SERVICES. All utility services necessary for the
construction of the Project in respect of which such Project Loan is being
made and the operation thereof as a retail facility are available at the
boundaries of the Project Site, or off-site utility services can be extended
to the boundaries of the Project Site and the cost of extending such utility
services is reflected in the Cost Breakdown for such Project, and the
Borrower has obtained all permits from all Governmental Authorities necessary
for such extension and such utilities have sufficient capacity to serve such
Project.
3.09. HAZARDOUS MATERIALS. Such Borrower has not used Hazardous
Materials on, from or affecting the Project Site in respect of which such
Project Loan is being made in any manner which violates federal, state or
local laws, ordinances, rules, regulations or policies governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials, and, to the best of such
Borrower's knowledge, no prior owner of such Project Site or prior occupant
thereof, has used Hazardous Materials on, from or affecting the Project Site
in any manner which violates federal, state or local laws, ordinances, rules,
regulations or policies governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or disposal of
Hazardous Materials. Such Borrower further represents to the Bank that such
Borrower has not received any notice of any violations of federal, state or
local laws, ordinances, rules, regulations or policies governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials at such Project Site and, to
the best of such Borrower's knowledge, there have been no actions commenced
or threatened by any party for non-compliance with any such laws or
regulations at the Project Site.
3.10. COVENANTS AND RESTRICTIONS. There are no covenants, conditions
or restrictions of record or of which such Borrower has knowledge that
prohibit the construction of the Improvement to be constructed with the
proceeds of such Project Loan on the Project Site.
3.11. FLOOD HAZARD. The Improvements to be constructed with the
proceeds of such Project Loan will not be located in or on an "area of
special flood hazard," as that term is defined in the Flood Disaster
Protection Act of 1973.
ARTICLE IV
CONDITIONS OF LENDING
By acceptance of a Project Loan, the Borrower thereunder agrees that
the obligation of the Bank to make an Advance in respect of such Project Loan
is subject to the accuracy in all material respects, as of the date hereof
and the date of each Advance in respect of such Project Loan, of the
representations and warranties contained herein and under the Project Loan
Document for such Project Loan, to the performance by the Borrower under such
Project Loan of its agreements to be performed hereunder and under the
Project Loan Document for such Project Loan on or before the date of each
Advance, and to the satisfaction of the following further conditions:
15
<PAGE>
4.01. INITIAL PROJECT LOAN ADVANCE. Prior to the initial Advance by
Bank with respect to such Project Loan:
a. ORGANIZATIONAL DOCUMENTS. There shall have been furnished
to the Bank by such Borrower:
i. A copy of the articles of organization of
such Borrower, together with any amendments to such
agreement, filed with the appropriate Governmental
Authorities of the State of Delaware and a copy of the
operating agreement of such Borrower, together with any
amendments to such agreement;
ii. An original Certificate of Existence for such
Borrower issued by the Secretary of State of Delaware
bearing a recent date;
iii. An original Certificate of Qualification as a
foreign limited liability company doing business in the
state in which the Project in respect of which such Project
Loan is being made is located issued the by the Secretary
of State of such state;
iv. A copy of the articles of incorporation for
Developer, together with any and all amendments thereto;
v. A copy of the by-laws of Developer, together
with any and all amendments thereto;
vi. An original Certificate of Existence for
Developer issued by the Secretary of State of Delaware
bearing a recent date;
vii. An original Certificate of Qualification for
Developer as a foreign corporation doing business in the
state in which the Project in respect of which such Project
Loan is being made issued by the Secretary of State of such
state;
viii. A copy of the resolutions of the Board of
Directors of Developer authorizing the execution of the
Project Loan Document for such Project Loan by Developer on
behalf of such Borrower and the execution of the Developer
Guaranty and the Environmental Indemnity Agreement for such
Project by Developer in its individual capacity;
ix. A copy of the articles of incorporation for
Trammell Crow MW, together with any and all amendments
thereto;
x. A copy of the by-laws of Trammell Crow MW,
together with any and all amendments thereto;
16
<PAGE>
xi. An original Certificate of Existence for
Trammell Crow MW issued by the Secretary of State of
Delaware bearing a recent date; and
xii. A copy of the resolutions of the Board of
Directors of Trammell Crow MW authorizing the execution of
the Trammell Crow MW Completion Guaranty and the Trammell
Crow MW Transaction Guaranty by Trammell Crow MW in its
individual capacity.
Such Borrower shall be required to provide the organizational documents
listed in Section 4.01(a)(ix-xii) only if such Borrower elects to provide
a Trammell Crow MW Completion Guaranty and Trammell Crow MW Transaction
Guaranty in accordance with Section 4.01(z) hereof.
b. BORROWER'S COUNSEL OPINION. Such Borrower shall furnish to
the Bank an opinion of counsel for such Borrower and the Guarantor(s) for
such Project Loan in form and substance similar to that attached hereto
as EXHIBIT R, with blanks appropriately completed, and if the Project is
located in a state other than Indiana Bank shall receive, at such
Borrower's expense, an opinion of counsel licensed to practice law in
such state in form and substance similar to that attached hereto as
EXHIBIT S.
c. PROJECT AGREEMENT. The Bank, Developer and such Borrower
shall have entered into a satisfactory Project Agreement in respect of
such Project Loan.
d. PROJECT NOTE. Such Borrower shall execute and deliver to
Bank a Project Note with respect to such Project Loan with blanks
appropriately completed.
e. SECURITY DOCUMENTS. There shall have been executed and
delivered to the Bank the following security documents with respect to
the Project in respect of which such Project Loan is being made:
i. a Mortgage which shall constitute a first
mortgage lien on such Borrower's fee simple interest in
such Project;
ii. an Assignment of Rents and Leases pursuant to
which such Borrower shall have collaterally assigned to the
Bank all the right, title and interest of such Borrower as
landlord in and to all existing and future leases of space
in such Project, including, without limitation, the
OfficeMax Lease for such Project, and all rentals and other
monies due and to become due under said leases;
iii. a Contract Assignment pursuant to which such
Borrower shall have collaterally assigned to the Bank all
the right, title and interest of such Borrower in and to
the Construction Contract, the Architect's Agreement and
the Plans and Specifications for such Project;
17
<PAGE>
iv. if such Borrower provides a Project Certificate
of Deposit to the Bank for such Project Loan in accordance
with Paragraph 4.01(z) hereof, a Collateral Assignment of
Certificate of Deposit pursuant to which such Borrower
shall have collaterally assigned to the Bank such Project
Certificate of Deposit;
v. A Collateral Pledge Agreement pursuant to
which such Borrower shall have collaterally assigned to the
Bank all of the right, title and interest of such Borrower
in and to the Deposit made under the Project Purchase
Agreement for such Project;
vi. A Collateral Assignment of Purchase Agreement
pursuant to which such Borrower shall have collaterally
assigned to the Bank all the right, title and interest of
such Borrower in, to and under the Purchase Agreement for
such Project;
vii. If such Borrower elects to provide the same
in accordance with Section 4.01(z) hereof, a Trammell Crow
MW Completion Guaranty, pursuant to which Trammell Crow MW
shall have guaranteed the timely lien free completion of
the Improvements forming a part of such Project;
vii. A Developer Guaranty, pursuant to which the
Developer shall have guaranteed all obligations of such
Borrower in respect of such Project Loan;
ix. If such Borrower elects to provide the same
in accordance with Section 4.01(z) hereof, a Trammell Crow
MW Transaction Guaranty pursuant to which Trammell Crow MW
shall have guaranteed the obligations of the Borrower in
respect of such Project Loan in accordance with the terms
thereof. Such Trammell Crow MW Transaction Guaranty shall
provide that the amount guaranteed thereunder shall be
limited to an amount equal to the sum of (A) the product of
(1) Thirty-Three Percent (33%), MULTIPLIED by (2) the
outstanding balance from time to time of such Project Loan,
principal and interest; PLUS (B) the costs of collection in
respect of such Trammell Crow MW Transaction Guaranty. The
payment by Developer under its Developer Guaranty for such
Project Loan shall not be deemed to reduce the outstanding
balance of such Project Loan for the purpose of determining
the outstanding balance from time to time of such Project
Loan for the purposes of such Trammell Crow MW Transaction
Guaranty and Trammell Crow MW's obligations thereunder,
except to the extent that such Project Loan is repaid as a
result of the payment by Developer under its Developer
Guaranty for such Project Loan; and
x. such financing statements as are deemed
necessary by the Bank to perfect the security interests
granted under the Project Loan Document for such Project
Loan.
18
<PAGE>
Each of the above-described collateral documents shall be properly
completed and reflect only such further changes as may be
necessary to comply with the requirements of the jurisdiction in
which such Project is located.
f. MORTGAGOR'S AFFIDAVIT. Such Borrower shall have furnished
to the Bank an executed Mortgagor's Affidavit with respect to such
Project Loan.
g. ENVIRONMENTAL INDEMNITY. Such Borrower and the Guarantor(s)
for such Project Loan shall have furnished to the Bank an executed
Environmental Indemnity Agreement in respect of the Project in respect of
which the Project Loan is being made.
h. TITLE POLICY. The Title Company shall have issued and
delivered to the Bank a policy of title insurance acceptable to the Bank
insuring the priority of the lien of the Mortgage securing such Project
Loan in the amount thereof, and such portion thereof as shall be advanced
from time to time. The Title Policy shall provide a 3.0 zoning
endorsement (if available) and affirmative coverage with respect to filed
or unfiled mechanic's lien and shall be subject only to such exceptions
as may be reasonably approved by the Bank.
i. SURVEY. Such Borrower shall have furnished to the Bank an
ALTA/ACSM Minimum Standard Detail Survey (or such other survey as may be
sufficient for the Title Company to delete the standard survey exception
in the Title Policy) of the Project Site forming a part of such Project,
made by a registered engineer or surveyor licensed by the state in which
such Project is located and reasonably satisfactory to the Bank and the
Title Company and certified to each of them as of a date not more than
thirty (30) days prior to the Closing Date for such Project Loan showing
the boundaries of such Project Site, all building setback lines,
easements, rights of way and encroachments affecting such Project Site
and other matters apparent thereon and the relation of such Project Site
to public thoroughfares for access purposes, certifying that such Project
Site is not located within a special flood hazard area as defined by the
Flood Disaster Protection Act of 1973, and showing the number of the
Flood Insurance Rate Map on which such Project Site is shown and the date
of such map, and shall specify the flood hazard zone in which such
Project Site is situated. Upon completion of the foundation for such
Improvements, at the request of the Bank, such Borrower shall furnish to
the Bank, one of the following, which shall be selected by such Borrower:
(i) a similar survey which shall show the actual location of the
foundation for the Improvements located on such Project Site, or (ii) a
letter from the surveyor or engineer preparing the survey for the Closing
of such Project Loan, or such other surveyor or engineer as is acceptable
to Bank, stating that the foundation for such Improvements is located
entirely within the boundary of such Project Site and does not encroach
on any building set-back line or easement encumbering such Project Site;
j. APPROVALS AND PERMITS. Such Borrower shall submit to the
Bank evidence reasonably satisfactory to the Bank to the effect that:
i. The Project Site forming a part of the
Project in respect of which such Project Loan is being made
is presently zoned to permit its use as a retail facility,
which evidence may be a 3.0 zoning endorsement issued by
the
19
<PAGE>
Title Company or a satisfactory opinion of counsel
admitted to practice in the state in which such Project
Site is located or a zoning confirmation letter of the
Governmental Authority having zoning jurisdiction over such
Project;
ii. Such Borrower has obtained such access
easements and utility easements, if any, as may be
reasonably necessary for the contemplated use of such
Project and such easements are insured under the Title
Policy;
iii. All required permits, licenses and approvals
for the construction of such Project have been obtained
from the applicable Governmental Authorities;
iv. All utility services necessary for the
construction of such Project and the operation thereof as a
retail facility are available at the boundaries of such
Project Site or off-site utilities can be extended to the
boundaries of such Project Site at the cost thereof
reflected in the Cost Breakdown for such Project and all
necessary permits have been obtained and all such utilities
have the capacity necessary to provide service to such
Project; and
v. All work contemplated by the Plans and
Specifications for such Project will conform to all
applicable Governmental Requirements.
k. COST BREAKDOWN. Such Borrower shall have furnished to the
Bank for its review and approval a Cost Breakdown reflecting all Project
Costs for the Project in respect of which such Project Loan is being
made.
l. INSURANCE. Such Borrower shall have furnished to the Bank
the insurance required by the Mortgage securing such Project Loan,
together with evidence of payment in full of the premiums thereon.
m. PLANS AND SPECIFICATIONS. Such Borrower shall have
furnished to the Bank for its review and reasonable approval the Plans
and Specifications for the Project in respect of which such Project Loan
is being made.
n. CONSTRUCTION CONTRACT. Such Borrower shall have furnished
to the Bank for its review and approval a copy of the executed
Construction Contract for the construction of the Improvements forming a
part of the Project in respect of which such Project Loan is being made
in accordance with the Plans and Specifications therefor for a maximum
fixed price not exceeding an amount approved by the Bank. Such Borrower
shall also furnish to the Bank copies of all other Major Contracts in
respect of such Project. Such Major Contracts shall be subject to
reasonable approval by the Bank.
Such Construction Contract shall further provide:
20
<PAGE>
i. A provision that with final payment such
Contractor shall deliver to such Borrower a complete
release of liens signed by such Contractor and all
subcontractors;
ii. A provision that no change orders involving
an increase in costs of Fifty Thousand Dollars ($50,000) or
more for a single change order or One Hundred Thousand
Dollars ($100,000) or more in the aggregate shall be
effective without the prior written consent of the Bank
and, to the extent required under the OfficeMax Lease for
such Project, the prior written consent of OfficeMax (this
requirement shall be satisfied if the provision is included
in the Contractor's Letter for such Project);
iii. A provision for not less than Ten Percent
(10%) retainage in connection with interim payments to each
subcontractor (but not for payments to suppliers unless
Bank determines in its reasonable discretion that such
retainage as to suppliers is appropriate) until the
Improvements forming a part of such Project are
substantially completed; and
iv. If provided for under the laws of the state
in which such Project is located, a no-lien provision.
o. ARCHITECT'S LETTER. Such Borrower shall have furnished to
the Bank an executed copy of an Architect's Letter for the Project in
respect of which such Project Loan is being made.
p. CONTRACTOR'S LETTER. Such Borrower shall have furnished to
the Bank an executed copy of a Contractor's Letter for the Project in
respect of which of such Project Loan is being made.
q. APPRAISAL. The Bank shall have received an appraisal of
the discounted sellout value and fair market value of the Project in
respect of which of such Project Loan is being made(including interest
carry), on an assumed completion basis (the "Appraisal"). The Appraisal
shall be made by an appraiser approved by Bank, shall be in form and
substance satisfactory to Bank and shall be in compliance with all
applicable laws, rules and regulations;
r. ARCHITECT'S REPORT. The Bank shall have received a
satisfactory report of the Inspecting Architect for the Project in
respect of which of such Project Loan is being made, with respect to the
Plans and Specifications and the Cost Breakdown for such Project.
s. COMMITMENT FEE. Such Borrower shall have paid to the Bank
the Commitment Fee in respect of such Project Loan.
t. SOILS REPORT. Such Borrower shall have submitted to the
Bank a satisfactory geotechnical report of the Project Site forming a
part of the Project in respect of which such Project Loan is being made.
21
<PAGE>
u. ENVIRONMENTAL REPORT. Such Borrower shall have furnished
to the Bank a copy of an environmental report by an environmental
consulting company acceptable to the Bank giving satisfactory evidence
that the Project Site forming a part of the Project in respect of which
Project Loan is being made is free of Hazardous Materials, that such
Project Site is not in violation of and does not cause such Borrower as
owner or operator of such Project Site to be in violation of any state,
federal or local environmental, health, or safety law (the "Environmental
Report). The Environmental Report shall be addressed to the Bank, or, in
the alternative, such Borrower shall provide to the Bank a letter of the
consulting company that prepared the Environmental Report pursuant to
which such consulting company authorizes the Bank to rely on the
Environmental Report.
v. OFFICEMAX LEASE. Such Borrower shall have furnished to the
Bank an executed OfficeMax Lease for the Project in respect of which such
Project Loan is being made having a term of not less than fifteen (15)
years and in a form and content acceptable to the Bank in all other
respects, including rental amounts payable thereunder. Such OfficeMax
Lease shall include the agreement of OfficeMax to subordinate its
interest thereunder to any first mortgage on such Project upon the
request of the mortgagee thereunder and to attorn to such mortgagee, or
any purchaser of such Project at a foreclosure sale or pursuant to a deed
in lieu of foreclosure, provided the Bank agrees to reasonable
non-disturbance provisions if the Tenant is not in default beyond any
applicable cure period thereunder.
Such Borrower shall use reasonable efforts to attempt to obtain
the following provisions in such OfficeMax Lease:
i. OfficeMax shall agree to give any mortgagee
in respect of such Project (a "Mortgagee") by registered or
certified mail, a copy of any notice of default served upon
the landlord, provided that prior to such notice of default
tenant has been notified in writing, of the existence of
such mortgage and the address of such Mortgagee;
ii. A Mortgagee shall have sixty (60) days after
its receipt from OfficeMax of written notice of a default
by landlord under the OfficeMax Lease to correct or cure
such default;
iv. OfficeMax shall comply with all state and
federal environmental and hazardous materials statutes and
regulations, and shall not improperly store any hazardous
materials in, on or under such Project.
w. OFFICEMAX SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
AGREEMENT. Such Borrower shall have furnished to the Bank an OfficeMax
Subordination, Non-Disturbance and Attornment Agreement for the Project
in respect of which such Project Loan is being made, executed by such
Borrower and OfficeMax.
22
<PAGE>
y. PROJECT PURCHASE AGREEMENT. Such Borrower shall have
furnished to the Bank an executed Purchase Agreement for the Project in
respect of which such Project Loan is being made, together with evidence
that the Deposit required thereunder has been made.
z. ADDITIONAL COLLATERAL. Such Borrower shall have furnished
to the Bank additional collateral for such Project Loan selected by
such Borrower from the following options: (i) a Project Certificate of
Deposit; (ii) a Project Letter of Credit; or (iii) a Trammell Crow MW
Completion Guaranty and a Trammell Crow MW Transaction Guaranty.
aa. DEBT SERVICE COVERAGE. The Debt Service Coverage for the
Project in respect of which such Project Loan is being made is no less
than 1.05 to 1.0.
4.02. SUBSEQUENT ADVANCES. Prior to any Advance by Bank with respect
to such Project Loan:
a. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in Article III hereof and in the other Project Loan
Document for such Project Loan shall be true on and as of the date of
each Advance with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such
date no Event of Default under such Project Loan shall have occurred and
be continuing or shall exist.
b. DAMAGE. On the date of each Advance of such Project Loan,
the Improvements in respect of which such Advance is being made shall not
have been materially injured or damaged by fire or other casualty, unless
sufficient funds or other collateral satisfactory to the Bank in cash or
cash equivalents for the restoration thereof have been deposited with the
Bank pursuant to the Mortgage securing such Project Loan.
c. TITLE POLICY ENDORSEMENT. On the date of each Advance of
such Project Loan, the Bank shall have received an endorsement to the
Title Policy issued with respect to the Project for which such Advance is
requested: (i) indicating that since the date of the last Advance of such
Project Loan there has been no change in the state of title, except those
matters approved by the Bank, (ii) updating the Title Policy to the date
of such Advance, (iii) increasing the coverage of the Title Policy by an
amount equal to such Advance if the Title Policy does not by its own
terms provide for such an increase.
d. CONTRACTOR RECEIPTS. On or prior to the date of each
Advance of such Project Loan, such Borrower shall have provided to the
Bank receipts or lien waivers from the Contractor for the Project for
which the Advance is requested and lien waivers from all contractors,
subcontractors, materialmen and suppliers relating to the last requested
Advance for such Project Loan.
4.03. LAST ADVANCE. On or prior to the date of the last Advance for
Direct Costs of the Project in respect of which such Project Loan is being
made the Bank shall have received:
23
<PAGE>
a. ARCHITECT'S CERTIFICATE. A certificate from the Architect
and the Inspecting Architect for such Project that the Improvements
forming a part thereof have been completed substantially in accordance
with the Plans and Specifications therefor, all applicable Governmental
Requirements and all applicable restrictive covenants, and such
Improvements are ready and suitable for occupancy.
b. RELEASE OF LIENS. A final affidavit and sworn statement of
the Contractor for such Project and a complete release of liens signed by
such Contractor, and every other Major Contractor for such Project.
c. GOVERNMENTAL APPROVALS. Evidence of approval (including
permanent occupancy permits or a certificate of occupancy, if required,
and/or other permits, if required) by all Governmental Authorities whose
approval is required of the completed Improvements, the permanent
occupancy thereof and the intended uses thereof.
d. TENANT ESTOPPEL. A tenant estoppel letter in respect of
such Project executed by OfficeMax in a form which is satisfactory to the
Bank and OfficeMax.
4.04. PROCEEDINGS AND DOCUMENTS. All legal details and proceedings
in connection with the transactions contemplated by this Agreement shall be
in form and substance reasonably satisfactory to counsel for the Bank, and
the Bank shall have received all such counterpart originals or certified or
other copies of such documents and proceedings in connection with such
transactions, in form and substance, as to certification and otherwise,
reasonably satisfactory to such counsel, as the Bank or its counsel may
request.
ARTICLE V
DISBURSEMENTS
5.01. ADVANCES. Subject to the terms and conditions hereof, and
relying upon the representations and warranties herein set forth, the Bank
agrees to make Advances of a Project Loan to the Borrower thereof in
accordance with, and subject to the requirements and limitations set forth
in, this Article V. By acceptance of a Project Loan, the Borrower thereunder
agrees that Advances of such Project Loan shall be made in accordance with
the following requirements and limitations:
a. REQUESTS FOR LOAN ADVANCES. Not less than five (5)
business days prior to the making of any Advance of such Project
Loan, such Borrower shall submit to Bank a Request for Advance in
such form as the Bank may require setting forth the total amount
of Project Costs for which such Advance is requested, broken down
by the categories identified in the Cost Breakdown for the Project
in respect of which such Project Loan is being made, together with
(i) receipted bills, bills, invoices, paid invoices, payroll
records or other evidence satisfactory to the Bank supporting each
item of the Project Costs covered by such Request for Advance,
(ii) if the Request for Advance includes Direct Costs, a
certificate of such Borrower and the Contractor for such Project
to the effect that (x) the construction to date of the
Improvements forming a part of such Project has been performed in
a good and workmanlike manner and in accordance with the Plans and
Specifications for such Project, (y) the amount
24
<PAGE>
of the Direct Costs for which such Advance is requested either has
been paid by such Borrower and/or is justly due to such Contractor
for work, labor or Materials furnished for the construction of such
Improvements insofar as actually incorporated therein (but
including Materials suitably stored on the Project Site in
compliance with Sections 6.06 and 7.02 hereof) up to the date of
such Request for Advance (in the case of the first Request for
Advance) or to the date of such Request for Advance from the date
of the previous Request for Advance (in the case of any subsequent
Request for Advance), and (z) no part of the Project Costs
described in such Request for Advance has been made the basis for
any previous Advance, and (iii) if the Request for Advance
includes Direct Costs, a certificate of the Inspecting Architect
for such Project (x) to the effect that the construction of such
Improvements has been performed in a good and workmanlike manner
and in accordance with the Plans and Specifications for such
Project and in compliance with all applicable Governmental
Requirements, (y) specifying the stage and percentage of
completion which has been achieved by each of the various trades
engaged in the construction of such Improvements, and (z) to the
effect that the aggregate amount of such Advance is not greater
than the actual value of work and labor done in such Improvements
and Materials incorporated in such Improvements (or suitably
stored on the Project Site in compliance with Sections 6.06 and
7.02 hereof), less Retainage, up to the date of such certificate
(in the case of the first such certificate) or to the date of such
certificate from the date of the previous certificate (in the case
of any subsequent such certificate). The Bank shall not be
required to make Advances of a Project Loan more frequently than
once each month. Each Request for Advance and each receipt of the
Advance requested thereby shall constitute a certification by the
Borrower of such Advance that the representations and warranties
contained in Article III hereof are true and correct on the date
of such Request for Advance or such receipt, as the case may be.
b. BORROWING LIMITATIONS. Advances of such Project
Loan for the payment of Project Costs for the Project in respect
of which such Project Loan is being made in each category of cost
in the Cost Breakdown for such Project shall be limited to the
amount shown for such category in the column entitled "Balance to
Disburse." Advances of such Project Loan shall be made only to
defray Project Costs attributable to such Project and described in
the Cost Breakdown for such Project and actually incurred by such
Borrower. The aggregate amount of Advances of such Project Loan
for payment of Direct Costs for such Project shall be further
limited to the lesser of (i) the actual cost of work and labor
done on such Improvements and Materials incorporated in such
Improvements (or suitably stored on the Project Site in compliance
with Sections 6.06 and 7.02 hereof), less Retainage, or (ii) the
percentage of completion reasonably determined by the Inspecting
Architect of work and labor done on such Improvements and
Materials incorporated in such Improvements (or suitably stored on
the Project Site in compliance with Sections 6.06 and 7.02
hereof), less Retainage.
c. DEFICIENCY IN COST CATEGORY AMOUNTS. If any amount
allocated for Project Costs for the Project in respect of which
such Project Loan is being made in
25
<PAGE>
any category in the Cost Breakdown for such Project is at any time
not sufficient in the reasonable judgment of the Bank to pay in full
such Project Costs in such category, the Bank shall not be obligated
to make further Advances of such Project Loan and such Borrower shall
promptly pay such amounts as may be required so that the sum of the
unadvanced portion of "Balance to Disburse," for such category is
sufficient to pay such Project Costs in full. Any previously achieved
savings (as determined by the Bank) in any completed category of
such Cost Breakdown shall be added to the "Contingency" category
in such Cost Breakdown and the amount of such savings may be used
to pay the costs of any other category in such Cost Breakdown.
Except as specifically set forth in the preceding sentence, the
Bank shall not be required to advance amounts from the category of
such Cost Breakdown entitled "Contingency"; provided, however,
Bank agrees that it will not unreasonably deny a request from
Borrower for an advance from such "Contingency" category. The
Bank shall have no obligation to make advances of Project Loan for
development fees.
d. DEFICIENCY IN TOTAL COST AMOUNT. At all times the
sum of the unadvanced portion of such Project Loan shall be
sufficient in the reasonable judgment of the Bank or the
Inspecting Architect for the Project in respect of which such
Project Loan is being made to pay all Project Costs of such
Project remaining unpaid. If at any time such sum is not
sufficient in the reasonable judgment of Bank to pay all such
unpaid Project Costs, such Borrower shall immediately upon request
by the Bank deposit with the Bank either cash or satisfactory
letters of credit in an amount equal to such deficiency.
e. PAYMENT OF ADVANCES. Advances of such Project Loan
shall be credited to such Borrower's account with the Bank; if,
however, there is then a Conditional Default or Event of Default
pending, or if Bank determines that payment to such party or
parties is reasonably necessary to protect Bank's interest in or
security for such Project Loan, then Advances may be paid by the
Bank directly to the party or parties who have actually supplied
labor, Materials or services in connection with or incidental to
the construction of the Improvements in respect of which such
Project Loan is being made or to the party or parties to whom
payment of any other Project Costs specified in the Request for
Advance is due. If the Bank elects to make a direct payment it
shall do so only after giving such Borrower at least two (2) days
prior telephone notice of its intention to do so. If Bank elects
to make a direct payment to a party supplying labor, materials or
services permitted by this Section 5.01(e), Bank shall use
reasonable efforts to obtain from such party the receipt and/or
lien waiver required under Section 4.02(d) hereof. Any such
direct payment shall satisfy PRO TANTO the obligations of the Bank
hereunder and shall be deemed an Advance of such Project Loan
evidenced by the Project Note and secured by the Mortgage and the
other Project Loan Document for such Project Loan as fully as if
made to such Borrower, regardless of the actual disposition
thereof by the party or parties to whom such payment is made if
such payment was made to the party and in the amount specified in
the Request for Advance. The making of any such Advance shall not
be deemed an acceptance or approval by the Bank (for the benefit
of such Borrower or any third party) of any work done or
Improvements constructed or
26
<PAGE>
Materials furnished or installed in connection with the construction
of such Improvements. An Advance shall be made within ten (10) days
after Bank's receipt of all items and information which Borrower is
required to provide to Bank in respect of such Advance in accordance
with the terms hereof.
f. ADVANCES TO CURE DEFAULTS; ETC. Notwithstanding the
foregoing provisions of this Section 5.01, and without receiving
Requests for Advances for such Advances, the Bank may at any time
or from time to time (i) make Advances of such Project Loan to
satisfy any condition hereof with respect to such Project Loan or
to cure any Event of Default or Conditional Default with respect
to such Project Loan, (ii) make Advances of such Project Loan to
pay interest on such Project Loan, (iii) make Advances of such
Project Loan to pay the reasonable fees and expenses of counsel
for the Bank and the Inspecting Architect for the Project in
respect of which such Project Loan is being made; and (iv) make
Advances of such Project Loan to pay the reasonable fees and
expenses payable to the Title Company for endorsements to the
Title Policy for such Project Loan as required herein. Any
Advances made pursuant to this paragraph (f) shall be evidenced by
the Project Note for such Project Loan and secured by the Mortgage
and the other Project Loan Document for such Project, as fully as
if made to such Borrower.
g. PROJECT LOAN AMOUNT. Notwithstanding any other
provision contained herein to the contrary, the maximum principal
amount of a Project Loan shall not exceed an amount equal to the
lesser of: (a) Ninety Percent (90%) of the appraised value of the
Project (as determined by the Appraisal therefor)in respect of
which such Project Loan is being made; (b) the purchase price
payable by the buyer under the Project Purchase Agreement for such
Project; and (c) the Project Costs (excluding any development fee)
for such Project.
h. BORROWER'S INVESTMENT. No Advance of such Project
Loan shall be made by the Bank until such time as such Borrower
has furnished satisfactory evidence to the Bank that such Borrower
has invested an amount equal to not less than the total Project
Costs for the Project in respect of which such Project Loan is
being made, less, the amount of the Project Loan, as evidenced by
copies of canceled checks, paid receipts, lien waivers or other
documentary evidence acceptable to Bank, or until such time as
such Borrower has deposited with the Bank in escrow an amount
equal to the difference between such Project Costs and the amount
of the Project Loan. In the event such Borrower elects to deposit
such amounts with the Bank, such deposit shall earn interest at
prevailing interest rates and shall be disbursed by the Bank to
pay Project Costs in accordance with the disbursement procedures
of this Agreement governing the disbursement of proceeds of such
Project Loan.
27
<PAGE>
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
By acceptance of a Project Loan, the Borrower thereunder covenants
that until payment in full of such Project Loan and performance of all of
such Borrower's other obligations under the Project Loan Document for such
Project Loan:
6.01. FINANCIAL STATEMENTS. Such Borrower covenants that, during the
term of such Project Loan, will deliver or cause to be delivered to the Bank:
a. as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of such Borrower, financial
statements of such Borrower for such year, as of the end of such year,
all in reasonable detail and satisfactory in scope to the Bank and
certified as to accuracy by the managing member of such Borrower; and
b. Such Borrower will with reasonable promptness furnish to
the Bank such additional financial and other information respecting the
financial condition, business or operations of such Borrower as the Bank
may from time to time reasonably request.
All such financial statements shall be prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior practice unless otherwise specifically noted thereon.
6.02. NOTICES. Such Borrower will promptly give the Bank written
notice of:
a. the occurrence or existence of any Event of Default under
such Project Loan, together with a written statement of the action being
taken by such Borrower to remedy such Event of Default;
b. all litigation or proceedings before any court or
Governmental Authority affecting such Borrower or the Project in respect
of which such Project Loan is being made; and
c. any difficulty encountered by such Borrower in obtaining
labor or Materials in a timely manner or any other manner which would
substantially impair such Borrower's ability to complete construction of
such Project in accordance with the Plans and Specifications therefor by
the Completion Date therefor.
6.03. ACCESS TO BOOKS AND INSPECTION. Such Borrower will give any
officer or representative of the Bank access to, and permit such
representative to examine, copy or make extracts from, any and all books,
records and documents in the possession of such Borrower relating to the
Project in respect of which such Project Loan is being made and the
construction of the Improvements forming a part of such Project, and to
inspect such Improvements and all Materials to be used in the construction
thereof (provided such inspections shall not interfere with Borrower's
construction of the Project), all at such times and as often as the Bank may
reasonably request;
28
<PAGE>
provided, however, that the Bank shall have no obligation to make any such
inspections nor any responsibility to such Borrower, the Developer or any
person, firm or corporation for any deficiency in construction or variance
from the Plans and Specifications therefor which may be or which would have
been revealed by any such inspection, whether or not discovered by the Bank.
6.04. GOVERNMENTAL REQUIREMENTS. Such Borrower will comply with all
Governmental Requirements and all restrictive covenants applicable to the
Project in respect of which such Project Loan is being made.
6.05. CONSTRUCTION OF THE IMPROVEMENTS. Such Borrower will prosecute
the construction of the Improvements forming a part of the Project in respect
of which such Project Loan is being made with diligence and continuity to
completion, and will cause such Improvements to be completed in a good and
workmanlike manner in accordance with the Plans and Specifications therefor
and in compliance with all applicable Governmental Requirements and all
applicable restrictive covenants, free and clear of all liens or claims of
liens for Materials supplied or work performed in connection therewith. Upon
demand of the Bank, such Borrower will correct any structural defect in such
Improvements or any departure from the Plans and Specifications therefor,
which materially decreases the value of such Improvements or which, if
uncorrected, would result in a default under the OfficeMax Lease for such
Project. Borrower will commence construction of such Improvements by the
deadline for such commencement set forth in such OfficeMax Lease. Borrower
shall complete such Improvements on or before the Completion Date therefor.
6.06. MATERIALS. Such Borrower will cause all Materials acquired or
furnished in connection with the construction of, but not incorporated into,
the Improvements forming a part of the Project in respect of which such
Project Loan is being made to be stored at the Project Site or in bonded
warehouses to be selected by such Borrower and reasonably approved by the
Bank or at such other place as the Bank may reasonably approve under adequate
insurance and under adequate safeguards to minimize the possibility of loss,
theft, damage or commingling with other materials or projects, and shall
deliver to the Bank, on demand, copies of any contracts, bills of sale,
statements, receipted vouchers or agreements under which such Borrower claims
title to any Materials used in the construction of, or incorporated or to be
incorporated into, such Improvements.
6.07. MAINTENANCE. Such Borrower will maintain the Project in
respect of which such Project Loan is being made in good repair and safe
condition at all times and indemnify and defend and hold the Bank harmless
from any and all claims relative to the use and occupancy of such Project.
6.08. INSURANCE. Such Borrower will maintain such insurance on the
Project as is required by the Mortgage securing such Project Loan or this
Agreement.
6.09. FURTHER ASSURANCES. Such Borrower will execute, acknowledge
when appropriate, and deliver from time to time at the request of the Bank,
such instruments and documents as in the reasonable opinion of the Bank are
necessary or desirable to perfect the security interests required herein.
6.10. FAILURE TO PERFORM. If such Borrower neglects or refuses to
pay the costs, premiums, liabilities or other charges incurred in connection
with such Project Loan or the Project in respect to
29
<PAGE>
which such Project Loan is being made, or otherwise fails to perform its
covenants hereunder, the Bank may do so and may add the cost thereof to such
Project Loan as indebtedness evidenced by the Project Note therefor, and may
collect the same from such Borrower upon demand with interest thereon at the
Default Rate until paid thereunder.
6.11. ENVIRONMENTAL. During the term of such Project Loan, such
Borrower covenants and agrees to keep or cause such Project in respect of
which such Project Loan is being made to be kept free of Hazardous Materials
in violation of any Governmental Requirement and, without limiting the
foregoing, Borrower shall not cause or permit such Project to be used to
generate, manufacture, refine, transport, treat, store, handle, dispose of,
transfer, produce or process Hazardous Materials, except in compliance with
all applicable Governmental Regulations, nor shall Borrower cause or permit,
as a result of any intentional or unintentional act or omission on the part
of such Borrower or any tenant, subtenant or occupant, a release of Hazardous
Materials in violation of any Governmental Requirement onto such Project or
onto any property.
If Hazardous Materials are present at such Project in violation of the
requirements of this Section 6.11, such Borrower shall:
a. conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions necessary to
clean up and remove all Hazardous Materials on, under or from the Project
Site in accordance with all applicable federal, state and local laws,
ordinances, rules, regulations and policies, to the reasonable
satisfaction of the Bank, and in accordance with the orders and
directives of all the federal, state and local governmental authorities;
b. defend, indemnify and hold harmless the Bank, its
employees, agents, officers and directors from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs or
expenses of whatever kind or nature, known or unknown, contingent or
otherwise, arising out of or in any way related to:
i. the presence, disposal, release or threatened
release of any Hazardous Materials on, over, under, from or
affecting such Project or the soil, water, vegetation,
buildings, personal property, persons or animals thereon;
ii. any personal injury (including wrongful
death) or property damage (real or personal) arising out of
or related to such Hazardous Materials;
iii. any lawsuit brought or threatened, settlement
reached or government order relating to such Hazardous
Materials; and/or
iv. any violation of laws, orders, regulations,
requirements or demands of Governmental Authorities, which
are based upon or in any way related to such Hazardous
Materials, including, without limitation, attorney's
30
<PAGE>
and consultant's fees, investigation and laboratory fees,
court costs and litigation expenses.
6.12. PERSONAL PROPERTY. Except for the security interest granted by
the Mortgage for such Project Loan, such Borrower is, and as to portions of
the Personal Property forming a part of the Project in respect of which such
Project Loan is being made to be acquired after the date hereof will be, the
sole owner of such Personal Property, free from any adverse lien, security
interest, encumbrance or adverse claims thereon of any kind whatsoever. Such
Borrower will notify the Bank of, and will defend such Personal Property
against, all claims and demands of all persons at any time claiming the same
or any interest therein. Such Personal Property will not be used or bought
for personal, family or household purposes. Such Personal Property will be
kept on or at such Project and such Borrower will not remove such Personal
Property from such Project without the prior written consent of the Bank,
except such portions or items of such Personal Property which are consumed or
worn out in ordinary usage, all of which shall be promptly replaced by such
Borrower. All covenants and obligations of such Borrower contained herein
and in the Project Loan Document for such Project Loan shall be deemed to
apply to such Personal Property whether or not expressly referred to herein
or therein.
6.13. FINANCING STATEMENTS. At the request of the Bank, such
Borrower will join the Bank in executing in respect of such Project Loan one
or more financing statements and renewals and amendments thereof pursuant to
the Uniform Commercial Code of the state in which the Project in respect of
which such Project Loan is being made is located in form satisfactory to the
Bank, and will pay the cost of filing the same in all public offices wherever
filing is deemed by the Bank to be necessary or desirable.
ARTICLE VII
BORROWER'S NEGATIVE COVENANTS
By acceptance of a Project Loan, the Borrower thereunder covenants
that until payment in full of such Project Loan and performance of all of
such Borrower's other obligations under the Project Loan Document for such
Project Loan:
7.01. PROHIBITION UPON TRANSFER, SECONDARY FINANCING. Such Borrower
shall not convey, sell (other than pursuant to a Project Purchase Agreement),
lease (other than pursuant to an OfficeMax Lease) or otherwise dispose of all
or any part of the Project in respect of which such Project Loan is being
made or any interest therein (legal or equitable), or grant any security
interest with respect to such Project without the prior written consent of
the Bank unless in connection therewith the outstanding principal balance of
such Project Loan, together with all accrued and unpaid interest thereon is
fully paid.
7.02. MATERIALS. Such Borrower will not purchase any Materials to be
incorporated into the Project in respect of which such Project Loan is being
made in any manner that will result in the ownership thereof not vesting
unconditionally in such Borrower, free from all liens, charges, encumbrances
and security interests upon delivery of such Materials to the Project Site
forming a part
31
<PAGE>
of such Project, or, if the only condition to such title is payment of the
purchase price therefor, upon the making of an Advance of such Project Loan
therefor.
7.03. CONSTRUCTION CONTRACT. Such Borrower will not modify the
Construction Contract for the Project in respect of which such Project Loan
is being made without the Bank's consent, except pursuant to Change Orders
permitted under Section 7.04 hereof. Such Borrower will not assign or pledge
any of its right, title or interest in the Building Contracts for such
Project to anyone other than the Bank and such right, title and interest
shall not be subject to any other liens, claims, encumbrances or security
interests.
7.04. CHANGE ORDERS. Without the Bank's prior written consent, such
Borrower will not execute, or permit the performance of work on the Project
in respect of which such Project Loan is being made, or the furnishing of
Materials therefor pursuant to any Change Order involving an increase in the
Direct Costs of such Project of Fifty Thousand Dollars ($50,000) or more for
single Change Orders or One Hundred Thousand Dollars ($100,000) or more in
the aggregate or involving any fundamental change in the architectural,
mechanical or structural design of any portion of the Improvements forming a
part of such Project, or involving any materially adverse change in the
quality of workmanship or Materials in such Improvements or causing any delay
in completion of construction of such Improvements beyond the Completion Date
therefor. Such Borrower will deliver copies of all Change Orders to the Bank
promptly following their execution. Such Borrower will not execute or permit
the performance of work on such Project or the furnishing of Materials
therefor pursuant to a Change Order without the prior written consent of
OfficeMax, if such consent is required under the OfficeMax Lease for such
Project.
7.05. EASEMENTS. Such Borrower will not enter into any easement
affecting the Project Site forming a part of the Project in respect of which
such Project Loan is being made without first obtaining the Bank's written
approval of such easement and the terms and conditions thereof.
7.06. OFFICEMAX LEASE\PROJECT PURCHASE AGREEMENT. Such Borrower
will not modify, amend, alter, terminate or cancel the OfficeMax Lease for
the Project in respect of which such Project Loan is being made, or assign,
transfer, pledge or encumber any of its right, title or interest thereunder,
without the Bank's prior written consent. Such Borrower will not modify,
amend, alter, terminate or cancel the Project Purchase Agreement for such
Project, or assign, transfer, pledge or encumber any of its right, title or
interest thereunder, without the Bank's prior written consent.
ARTICLE VIII
DEFAULTS
8.01. EVENTS OF DEFAULT. By acceptance of a Project Loan, the
Borrower thereunder agrees if one or more of the following described events
shall occur (an "Event of Default") and be continuing or shall exist:
a. Such Borrower shall fail to make any payment under the
Project Note evidencing such Project Loan within ten (10) days after the
date the same is due and payable; or
32
<PAGE>
b. Any representation or warranty made by such Borrower
herein, in any other Project Loan Document to which such Borrower is a
party or in any certificate, financial statement or other document
furnished by such Borrower pursuant to the provisions hereof, shall prove
to have been false or misleading as of the time made or furnished, and
such Borrower does not, within fifteen (15) days after the earlier of
receiving written notice from Bank or such Borrower's own determination
that such representation or warranty is false or misleading, commence and
complete such actions as are necessary to make such warranty or
representation true and accurate; provided, however, that such Borrower
shall not be entitled to the foregoing cure period if, such Borrower had
actual knowledge that such representation or warranty was false or
misleading when made; or
c. Such Borrower shall default in the performance or
observance of any covenant contained in Article VI hereof, and such
default has not been cured or corrected within thirty (30) days
following written notice from the Bank to such Borrower; provided,
however, that if such default is of such a nature that it cannot be cured
or corrected within such thirty (30) day period, such Borrower shall be
entitled to such additional time as may be necessary to cure or correct
such default if such Borrower promptly commences such cure or corrective
action and diligently pursues such cure or corrective action to
completion; or
d. Such Borrower shall default in the performance or
observance of any covenant contained in Article VII; or
e. Such Borrower shall default in the performance or
observance of any other covenant, condition or provision herein
contained, and such default has not been cured or corrected within
thirty (30) days following written notice from the Bank to such Borrower;
provided, however, that if such default is of such a nature that it
cannot be cured or corrected within such thirty (30) day period, such
Borrower shall be entitled to such additional time as may be necessary to
cure or correct such default if such Borrower promptly commences such
cure or corrective action and diligently pursues such cure or corrective
action to completion; or
f. Such Borrower shall default in the performance or
observance of any covenant, condition or provision contained in any other
Project Loan Document to which such Borrower is a party, and such default
shall continue uncured after any applicable cure or grace period; or
g. Any party shall obtain an order or decree in any court of
competent jurisdiction enjoining or delaying the construction of any of
the Improvements being constructed with such Project Loan or enjoining or
prohibiting the carrying out of the terms and conditions hereof, and such
order or decree shall remain undismissed or unstayed and in effect for a
period of Thirty (30) days; or
h. Such Borrower shall neglect, refuse or fail to keep in full
force and effect any permit or approval issued by any Governmental
Authority required for the continuation of the construction, occupancy or
use of the Project in respect of which such Project Loan is being
33
<PAGE>
made and the same is not reinstated within thirty (30) days after such
Borrower receives notice (from any source) that such permit or approval
is no longer in full force and effect; or
i. Such Borrower shall be unable to satisfy any condition to
its right to the receipt of an Advance under such Project Loan for a
period in excess of sixty (60) days beyond the date of the Request for
such Advance; or
j. Such Borrower shall deliberately abandon construction of
the Improvements being constructed with such Project Loan and as a result
of such abandonment the Bank reasonably concludes that completion of
construction will not occur on or before the Completion Date therefor; or
k. The Improvements being constructed with such Project Loan,
shall not have been substantially completed in accordance with the Plans
and Specifications therefor by the Completion Date therefor; or
l. The Improvements being constructed with such Project Loan,
shall not have been completed in accordance with the Plans and
Specifications therefor, by the required completion date for such
Improvements pursuant to the OfficeMax Lease for such Project; or
m. The Project in respect of which such Project Loan is being
made, or any part thereof shall be condemned or damaged by fire or other
casualty in such manner as to preclude, in the Bank's sole reasonable
judgment, the completion or restoration of the Improvements forming a
part of such Project by the Maturity Date for such Project Loan or by the
required completion date for such Improvements pursuant to the OfficeMax
Lease for such Project; or
n. An accurate survey of the Project Site at any time shall
show that any of the Improvements being constructed with such Project
Loan encroach upon any street, easement, right of way or adjoining
property or violate any set back requirement, unless such encroachment or
violation is satisfactorily insured against under the Title Policy issued
in respect of such Project Loan, or that any adjoining structure
encroaches on the Project Site to an extent deemed material by the Bank,
unless such encroachment is cured within 30 days following receipt of
notice thereof by Borrower; or
o. There is any material adverse change in the financial
condition of such Borrower or any Guarantor for such Project Loan; or
p. A writ of execution or attachment or any similar process
shall be issued or levied against all or any part of or interest in the
Project in respect of which such Project Loan is being made, or any
judgment involving monetary damages shall be entered against such
Borrower which shall become a lien on such Project or any portion thereof
or interest therein and such execution, attachment or similar process or
judgment is not released, bonded, satisfied, vacated or stayed within
sixty (60) days after its entry or levy; or
34
<PAGE>
q. Such Borrower or any Guarantor for such Project Loan shall
file a voluntary petition in bankruptcy or shall file any petition or
answer seeking or acquiescing in any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief for
itself under any present or future federal, state or other statute, law
or regulation relating to bankruptcy, insolvency or other relief for
debtors; or shall seek or consent to or acquiesce in the appointment of
any trustee, receiver, liquidator, assignee, custodian, sequestrator (or
other similar official) of such Borrower or such Guarantor, or of all or
any part of the Project in respect of which such Project Loan is being
made, or of any or all of the royalties, revenues, rents, issues or
profits thereof, or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts, as
the case may be, generally as they become due, or shall become insolvent
or unable to pay its debts as they mature, or shall make a general
assignment for the benefit of creditors, or shall voluntarily suspend
transaction of its or his business or take any corporate action in
furtherance of the foregoing; or
r. A court of competent jurisdiction shall enter an order,
judgment or decree adjudicating such Borrower or any Guarantor for such
Project Loan as bankrupt or insolvent or approving a petition filed
against such Borrower or such Guarantor seeking any reorganization,
dissolution or similar relief under any present or future federal, state
or other statute, law or regulation relating to bankruptcy, insolvency,
or other relief for debtors, and such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of sixty (60) days
(whether or not consecutive) from the first date of entry thereof; or any
trustee, receiver or liquidator of such Borrower or such Guarantor or of
all or any part of the Project in respect of which such Project Loan is
being made, or of any or all of the royalties, revenues, rents, issues or
profits thereof, shall be appointed without the consent or acquiescence
of such Borrower or such Guarantor, as the case may be, and such
appointment shall remain unvacated and unstayed for an aggregate period
of sixty (60) days (whether or not consecutive); or
s. Such Borrower has breached or defaulted under the OfficeMax
Lease for the Project in respect of which such Project Loan is being
made, and such breach or default has not been cured or corrected within
any applicable cure period provided under such OfficeMax Lease;
then, and upon the occurrence of any such event, the Bank shall be under no
further obligation to make any Advances under such Project Loan and such
Project Loan and interest accrued thereon and any penalty or premium
thereunder and all other liabilities of such Borrower hereunder, thereunder
and under the other Project Loan Document in respect of such Project Loan
shall thereupon become and be immediately due and payable without
presentment, demand, protest, or notice of any kind and without relief from
valuation and appraisement laws, all of which are hereby expressly waived.
8.02. RIGHTS OF SET-OFF. If an Event of Default shall exist under a
Project Loan, the Bank shall have the right, in addition to all other rights
and remedies available to it, to set-off against and to appropriate and apply
to the unpaid balance of such Project Loan and all other obligations of the
Borrower thereunder or under any other Project Loan Document executed by such
Borrower in connection therewith, any debt owing to, and any other funds held
in any manner for the account of,
35
<PAGE>
such Borrower by the Bank, including, without limitation, all funds in all
deposit accounts (general or special) now or hereafter maintained by such
Borrower with the Bank. Such right shall exist whether or not the Bank shall
have made demand under this Agreement or such Project Loan and whether or not
such Project Loan or such other obligations are matured or unmatured. A
Borrower, by its acceptance of a Project Loan, hereby confirms the foregoing
arrangements and the Bank's right of banker's lien and set-off and nothing in
this Agreement shall be deemed a waiver of the Bank's right of the banker's
lien or set-off.
8.03. SPECIAL REMEDIES. If an Event of Default shall exist under a
Project Loan, the Bank shall have the right, in addition to any rights or
remedies available to it under the Project Loan Document for such Project
Loan or otherwise available to it at law or in equity, to enter upon and take
possession of the Project in respect of which such Project Loan is being
made, (and any Materials not yet incorporated into the Improvements forming a
part of such Project) and, to complete or cause to be completed such
Improvements, and all sums so expended by the Bank shall be deemed to be
Advances under such Project Loan to such Borrower and shall be allocated to
such Project. All such Advances shall be evidenced by the Project Note
evidencing such Project Loan and secured by the lien of the Project Loan
Document for such Project Loan. For purposes of this Section 8.03, such
Borrower agrees that the Bank shall have the right, and hereby irrevocably
constitutes and appoints the Bank its true and lawful attorney-in-fact,
coupled with an interest, with full power of substitution, to (i) use any
funds of such Borrower (including any funds which may be held in escrow and
any funds which may remain unadvanced hereunder) for the purpose of
completing such Improvements; (ii) make such additions and changes to and
corrections of the Plans and Specifications for such Improvements, as may be
necessary or desirable to complete such Improvements substantially in the
manner contemplated by such Plans and Specifications; (iii) employ such
contractors, subcontractors, agents, architects, watchmen and inspectors as
shall be required in connection with such Project; (iv) pay, settle or
compromise all existing bills and claims which are or may be liens against
such Project; (v) execute all applications and certificates in the name of
such Borrower which may be required by the Construction Contract for such
Project; (vi) prosecute and defend all actions or proceedings in connection
with such Project and to take such action and require such performance as the
Bank deems necessary in connection therewith; and (vii) generally do any and
every act with respect to the construction, occupancy and use of such
Improvements and such Project as such Borrower may do in its own behalf.
Should the unadvanced portion of a Project Loan be insufficient to pay the
sums expended or incurred by the Bank for any of the foregoing purposes, the
amount of the deficiency shall be added to the indebtedness evidenced by the
Project Note for such Project Loan and in all events shall be secured by the
lien of the Project Loan Document executed by such Borrower in connection
with such Project Loan and shall be paid by such Borrower to the Bank on
demand with interest thereon at the Default Rate(s) until paid.
8.04. SPECIAL REMEDIES/PROJECT LETTER OF CREDIT. If a Borrower shall
have furnished a Project Letter of Credit to the Bank in respect of a Project
Loan, and an Event of Default shall occur under such Project Loan, the Bank
shall have the right, in addition to any other rights or remedies available
to it under the Project Loan Document for such Project Loan, or available to
it at law or equity, to draw upon such Letter of Credit and apply the
proceeds thereof at its discretion as follows: (a) in payment of such
Project Loan as outstanding from time to time; or (b) for the costs of
completing the Project in respect of which such Project Loan was made. As
used herein, "costs of completing the Project" means payment of sums required
to be paid under the terms of the Construction Contract
36
<PAGE>
for such Project in order for the Contractor thereunder to complete the work
specified in such Construction Contract (including the payment of any unpaid
bills or invoices that are outstanding thereunder), or in the event such
Construction Contract has been terminated, payment of sums required to be
paid to a replacement contractor furnishing work that was covered by such
terminated Construction Contract.
ARTICLE IX
MISCELLANEOUS
9.01. NO IMPLIED WAIVER; CUMULATIVE REMEDIES; WRITING REQUIRED. No
delay or failure of the Bank in exercising any right, power or privilege
hereunder shall affect such right, power or privilege, nor shall any single
or partial exercise thereof or any abandonment or discontinuance of steps to
enforce such a right, power or privilege preclude any further exercise
thereof or of any other right, power or privilege. The rights and remedies
of the Bank hereunder and under the Project Loan Document are cumulative and
not exclusive of any rights or remedies which it would otherwise have. Any
waiver, permit, consent or approval of any kind or character on the part of
the Bank of any breach or default under this Agreement or any other Project
Document, or any waiver by the Bank of any provision or condition of this
Agreement or any other Project Document, must be in writing and shall be
effective only to the extent as may be specifically set forth in such writing.
9.02. TAXES. A Borrower shall pay any and all stamp, document,
transfer and recording taxes, fees and similar impositions payable or
hereafter determined to be payable in connection with the execution, delivery
and/or recording of the Project Loan Document to which it is party, and such
Borrower agrees to save the Bank harmless from and against any and all
present or future claims or liabilities with respect to, or resulting from,
any delay in paying or omitting to pay any such taxes, fees or similar
impositions.
9.03. MODIFICATIONS AND AMENDMENTS. Upon execution thereof, each
Project Agreement shall automatically be deemed to be an amendment of this
Agreement, which amendment shall apply, however, only to the Project and the
Project Loan which is the subject of such Project Agreement.
9.04. HOLIDAYS. Except as otherwise provided herein, whenever any
payment or action to be made or taken under any of the Project Loan Document
shall be stated to be due or to be performed on a day which is not a business
day, such payment or action shall be made or taken on the next-following
business day and such extension of time shall be included in computing
interest or fees, if any, in connection with such payment or action.
9.05. NOTICES. All notices, statements, requests and demands given
to or made upon either party hereto in accordance with the provisions of this
Agreement shall be deemed to have been given or made two (2) days after the
same are deposited in the United States mail, postage prepaid, or immediately
upon personal delivery, addressed as follows:
37
<PAGE>
If to the Bank: KeyBank National Association
10 West Market Street
9th Floor
Indianapolis, Indiana 46266, and
Attention:___________________
If to the Developer
or a Borrower: c/o Trammell Crow BTS, Inc.
2001 Ross Avenue, Suite 3400
Dallas, Texas 75201
Attention: Debbie Oaks
or in accordance with the latest unrevoked written direction from either
party to the other party hereto.
9.06. REIMBURSEMENT FOR CERTAIN EXPENSES. All costs incidental to a
Project Loan, including, but not limited to, title insurance premiums, survey
charges, appraisal fees, insurance premiums, inspecting engineers' and/or
architects' fees, attorneys' costs and fees and any and all other incidental
expenses of the Bank, shall be paid by the Borrower thereunder and the
Developer. All such fees and expenses shall be paid upon the latter of
receipt of a statement therefor or the closing of such Project Loan.
9.07. NO THIRD PARTY RIGHTS. Nothing in this Agreement, whether
express or implied, shall be construed to give to any person other than the
parties hereto any legal or equitable right, remedy or claim under or in
respect of this Agreement or any other Project Loan Document, which is
intended for the sole and exclusive benefit of the parties hereto and thereto.
9.08. SIGN. The Bank may, at its option and expense, (i) erect
signs on a Project in locations and in a manner acceptable to the Borrower
owning the same and the Bank indicating that the Bank has provided financing
with respect to such Project; and (ii) otherwise publicize its involvement in
such Project.
9.09. INTEREST LIMITATION. Notwithstanding anything to the contrary
contained herein or in any of the other Project Loan Document, the
obligations of a Borrower to the Bank under this Agreement and any other
Project Loan Document to which such Borrower is a party, are subject to the
limitation that payments of interest to the Bank shall not be required to the
extent that receipt of any such payment by such Borrower would be contrary to
provisions of governmental requirements applicable to the Bank which limit
the maximum rate of interest which may be charged or collected by the Bank.
9.10. SEVERABILITY. The provisions of this Agreement are intended to
be severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall,
as to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
38
<PAGE>
9.11. GOVERNING LAW. BY ACCEPTANCE OF A PROJECT LOAN, THE BORROWER
THEREUNDER AGREES WITH BANK THAT, EXCEPT AS EXPRESSLY SET FORTH IN THE DEED
OF TRUST AND THE ASSIGNMENT OF RENTS AND THE OTHER PROJECT LOAN DOCUMENTS FOR
SUCH PROJECT LOAN, THE LAW OF THE STATE OF INDIANA SHALL GOVERN ALL MATTERS
RELATING TO THIS AGREEMENT AND THE OTHER PROJECT LOAN DOCUMENTS IN RESPECT OF
SUCH PROJECT LOAN AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS OF SUCH BORROWER
ARISING HEREUNDER OR THEREUNDER. SUCH BORROWER BY ITS ACCEPTANCE OF SUCH
PROJECT LOAN (a) SHALL BE SUBJECT TO PERSONAL JURISDICTION IN THE STATE OF
INDIANA AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN
STATE OF INDIANA (AND ANY APPELLATE COURTS TAKING APPEALS THEREFROM) FOR THE
ENFORCEMENT OF SUCH BORROWER'S OBLIGATIONS HEREUNDER AND UNDER THE OTHER
PROJECT LOAN DOCUMENTS FOR SUCH PROJECT LOAN AND (b) WAIVES ANY AND ALL
PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT TO JURISDICTION
WITHIN SUCH STATE FOR THE PURPOSES OF SUCH ACTION, SUIT, PROCEEDING OR
LITIGATION TO ENFORCE SUCH OBLIGATIONS OF such BORROWER. BY ACCEPTANCE OF ITS
PROJECT LOAN, SUCH BORROWER WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE IN
ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE OTHER PROJECT LOAN DOCUMENTS FOR SUCH PROJECT LOAN (x) THAT IT IS NOT
SUBJECT TO SUCH JURISDICTION OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT
BE BROUGHT OR IS NOT MAINTAINABLE IN THOSE COURTS OR THAT THIS AGREEMENT AND
SUCH OTHER PROJECT LOAN DOCUMENTS MAY NOT BE ENFORCED IN OR BY THOSE COURTS
OR THAT IT IS EXEMPT OR IMMUNE FROM EXECUTION, (y) THAT THE ACTION, SUIT OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, OR (z) THAT THE VENUE OF THE
ACTION, SUIT OR PROCEEDING IS IMPROPER. NOTHING IN THIS SECTION 9.11 SHALL
BE DEEMED TO PRECLUDE BANK FROM FILING ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF THIS AGREEMENT OR SUCH OTHER PROJECT LOAN DOCUMENTS IN THE STATE
OF TEXAS OR THE STATE WHERE SUCH PROJECT IS LOCATED OR THE FEDERAL COURTS OF
THE UNITED STATES OF AMERICA LOCATED IN THE STATE OF TEXAS OR THE STATE WHERE
SUCH PROJECT IS LOCATED.
9.12. SURVIVAL. All representations, warranties, covenants,
agreements and obligations of a Borrower contained in this Agreement made in
respect of the Project Loan to such Borrower, as amended or supplemented from
time to time, shall survive the making of Advances of such Project Loan and
shall continue in full force and effect so long as such Project Loan is
outstanding and until payment and performance in full of all of such
Borrower's obligation thereunder and under the Project Loan Documents in
respect of such Project Loan.
9.13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed and delivered by the parties, shall
constitute an original but all such counterparts together constituting but
one and the same instrument.
39
<PAGE>
9.14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the Bank, the Developer, the Borrower(s)
and their respective successors and assigns, except that the Developer and
the Borrower(s) may not assign or transfer their rights and obligations
hereunder or any interest herein without the prior written consent of the
Bank.
9.15. PROJECT AGREEMENT. Upon the execution of a Project Agreement
by a Borrower, all of the terms and conditions hereof applicable to a
"Borrower" and a "Project Loan" shall be incorporated into such Project
Agreement and shall apply to the Borrower thereunder and the Project Loan
governed thereby, and such Borrower shall be deemed to have accepted such
Project Loan subject to the terms and conditions of this Agreement.
9.16. DEVELOPER'S COVENANTS. Developer covenants that from the date
hereof through the Project Loan Commitment Expiration Date and thereafter
until all Project Loans have been paid in full:
a. Developer will not develop or construct, or guarantee any
indebtedness in respect of, any build to suit retail project (other than
the projects contemplated by this Agreement), unless such project is One
Hundred Percent (100%) pre-leased to a bona-fide third party;
b. Developer shall maintain a net worth (as determined
pursuant to generally accepted accounting principles) of not less than
Five Hundred Thousand Dollars ($500,000);
c. Developer shall not create, incur, assume, suffer to exist,
guarantee or otherwise become liable as a guarantor or as a surety of,
any Indebtedness, except for that certain Twenty Million Dollar
($20,000,000) revolving credit facility from Bank One Arizona, N.A. to
Developer, and any renewal, extension or modification thereof. For the
purposes hereof, Indebtedness shall mean: (a) all indebtedness or other
obligations of Developer for borrowed money or for the deferred purchase
price of property or services, (b) all recourse indebtedness or other
obligations of Developer for borrowed money or for the deferred purchase
price of property or services, the payment or collection of which
Developer is guaranteeing or in respect of which Developer is liable,
contingent or otherwise, including without limitation, liability by way
of agreement to purchase, to provide funds for payment, to supply funds
or otherwise to invest in such another person, or to assure a creditor
against lost, (c) all indebtedness or other obligations of Developer for
borrowed money or for the deferred purchase price of property or services
secured by, or for which the holder of such indebtedness has an existing
right, contingent or otherwise to be secured by any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance
upon or on property owned by Developer, whether or not Developer has
assumed to become liable for the payment of such indebtedness or such
obligations; and (d) capitalized lease obligations of Developer.
d. Developer will furnish to Bank within ninety (90) days
after the end of each fiscal year of Developer, annual financial
statements of Developer, which financial statements shall be reviewed by
certified public accountants acceptable to Lender and certified as to
accuracy by an officer thereof, and shall include a balance sheet,
statement of income and
40
<PAGE>
retained earnings and a statement of cash flows, with accompanying
notes to financial statements, shall be prepared in accordance with
generally accepted accounting principles on a basis consistent with
prior years and shall otherwise be in form satisfactory to the Bank.
In addition, Developer covenants that from the Closing Date of the
second Project Loan made hereunder through the Project Loan Commitment
Expiration Date and thereafter until all Project Loans have been paid in
full, Developer shall maintain a minimum cash or cash equivalent balance of
Two Hundred Fifty Thousand Dollars ($250,000).
9.17. WAIVER OF JURY TRIAL. The Developer and the Bank, after
consulting or having had the opportunity to consult with counsel, knowingly,
voluntarily and intentionally waives any right they may have to a trial by
jury in any litigation based upon or arising out of the Loan, any Project
Loan, this Agreement or any other Project Loan Document or any of the
transactions contemplated hereby or by any other Project Loan Document or any
course of conduct, dealing, statements, whether oral or written, or actions
of the Developer or the Bank. Neither the Developer nor the Bank shall seek
to consolidate, by counterclaim or otherwise, any action in which a jury
trial has been waived with any other action in which a jury trial cannot be
or has not been waived. These provisions shall not be deemed to have been
modified in any respect or relinquished by the Bank or the Developer except
by written instrument executed by both the Developer and the Bank.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
"DEVELOPER"
TRAMMELL CROW BTS, INC.,
a Delaware corporation
By: /s/ Richard H. Coe
------------------------------------
Printed: Richard H. Coe
-------------------------------
Title: Vice President
---------------------------------
41
<PAGE>
"BANK"
KEYBANK NATIONAL ASSOCIATION, a
national banking association
By: /s/ Theodore J. Lewis
------------------------------------
Printed: Theodore J. Lewis
-------------------------------
Title: Vice President
---------------------------------
42
<PAGE>
FIRST MODIFICATION OF MASTER CONSTRUCTION LOAN AGREEMENT
THIS FIRST MODIFICATION, dated and effective as of September 15, 1997, is
made and entered into by and between TRAMMELL CROW BTS, INC., a Delaware
corporation having a notice address of 2001 Ross Avenue, Suite 3400, Dallas,
Texas 75201 ("Developer"), and KEYBANK NATIONAL ASSOCIATION, a national banking
association having a notice address of 10 West Market Street, 9th Floor,
Indianapolis, Indiana 46204 ("Bank").
RECITALS:
A. Developer and Bank entered into that certain Master Construction Loan
Agreement, dated August 4, 1997 (the "Loan Agreement").
B. The parties hereto desire to modify the Loan Agreement in accordance
with the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, for and in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged the parties hereto agree as follows:
1. PARAGRAPH 1.01 OF THE LOAN AGREEMENT. Paragraph 1.01 of the Loan
Agreement is hereby modified by:
a. Adding the following defined terms:
"Approved Retail Facility" shall mean the retail facility of an
Approved Tenant.
"Approved Tenant" shall mean OfficeMax, Inc. and any other tenant
set forth on SCHEDULE I attached hereto.
"Lease" shall mean a lease of a Project by and between the
Borrower owning such Project, as landlord, and an Approved Tenant, as
tenant.
"Subordination, Non-Disturbance and Attornment Agreement" shall
mean a Subordination, Non-Disturbance and Attornment Agreement in the
form of EXHIBIT P attached hereto or such other form reasonably
approved by Bank and Borrower, with blanks completed appropriately,
entered into by the Bank, a Borrower and an Approved Tenant with
respect to the Project
<PAGE>
owned by such Borrower, subject to such changes as may be required to
comply with the requirements of the law of the state in which the Project
is located, as the same may be supplemented, modified or amended from
time to time.
b. Substituting the following in lieu of the existing like
definition:
"Debt Service Coverage Ratio" shall mean the ratio of (i)
projected total annual income to be received under a Lease for an
applicable Project, defined as base rent, common area maintenance
payments, insurance and real estate tax reimbursements and
miscellaneous sources, less projected total annual expenses for such
Project, defined as an annual management fee in an amount equal to
Three Percent (3%) of the projected total annual income of such
Project, an annual charge of Ten Cents ($.10) per square foot of such
Project for a capital reserve and expense of common area maintenance,
insurance, real estate taxes, and non-capitalized repairs, to (ii) the
projected total annual sum of all interest payments and principal
payments on the applicable Project Loan which would be due and payable
assuming the level amortization of such Project Loan over a period
equal to the lesser of (a) twenty (20) years or (b) the term of the
applicable Lease, plus five (5) years, at a per annum interest rate
equal to One and Three Quarters Percent (1.75%) above the most recent
weekly average yield on United States Treasury Securities adjusted to
a constant maturity of ten (10) years.
"Improvements" shall mean an Approved Retail Facility to be
constructed by a Borrower upon a Project Site in accordance with the
applicable Plans and Specifications.
"Project Site" shall mean the real estate designated by a
Borrower or the Developer and approved by the Bank for the location
and construction of any Approved Retail Facility.
c. Deleting the defined terms "OfficeMax Lease" and "OfficeMax
Subordination, Non-Disturbance and Attornment Agreement."
2. SUBPARAGRAPH 4.01(v) OF THE LOAN AGREEMENT. Paragraph 4.01(v) of the
Loan Agreement is modified in its entirety to read as follows:
<PAGE>
v. LEASE. Such Borrower shall have furnished to the Bank an
executed Lease for the Project in respect of which such Project Loan
is being made having a term of not less than fifteen (15) years and in
a form and content acceptable to the Bank in all other respects,
including rental amounts payable thereunder. Such Lease shall include
the agreement of the Approved Tenant party thereto subordinate its
interest thereunder to any first mortgage on such Project upon the
request of the mortgagee thereunder and to attorn to such mortgagee,
or any purchaser of such Project at a foreclosure sale or pursuant to
a deed in lieu of foreclosure, provided the Bank agrees to reasonable
non-disturbance provisions if the Tenant is not in default beyond any
applicable cure period thereunder.
Such Borrower shall use reasonable efforts to attempt to
obtain the following provisions in such Lease:
i. The Approved Tenant party thereto shall agree to give
any mortgagee in respect of such Project (a "Mortgagee") by
registered or certified mail, a copy of any notice of default
served upon the landlord, provided that prior to such notice of
default tenant has been notified in writing, of the existence of
such mortgage and the address of such Mortgagee;
ii. A Mortgagee shall have sixty (60) days after its
receipt from such approved Tenant of written notice of a default
by landlord under the OfficeMax Lease to correct or cure such
default;
iii. Such Approved Tenant shall comply with all state and
federal environmental and hazardous materials statutes and
regulations, and shall not improperly store any hazardous
materials in, on or under such Project.
3. SUBPARAGRAPH 4.01(w) OF THE LOAN AGREEMENT. Paragraph 4.01(w) of the
Loan Agreement is modified in its entirety to read as follows:
w. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT.
Such Borrower shall have furnished to the Bank a Subordination,
Non-Disturbance and Attornment Agreement for the Project in respect of
which such Project Loan is being made, executed by such Borrower and
the Approved Tenant leasing such Project.
3
<PAGE>
4. SUBPARAGRAPH 4.03(d) OF THE LOAN AGREEMENT. Paragraph 4.03(d) of the
Loan Agreement is modified in its entirety to read as follows:
d. TENANT ESTOPPEL. A tenant estoppel letter in respect of
such Project executed by the Approved Tenant leasing such Project in a
form which is satisfactory to the Bank and such Approved Tenant.
5. PARAGRAPH 7.01 OF THE LOAN AGREEMENT. Paragraph 7.01 of the Loan
Agreement is modified in its entirety to read as follows:
7.01. PROHIBITION UPON TRANSFER, SECONDARY FINANCING. Such
Borrower shall not convey, sell (other than pursuant to a Project
Purchase Agreement), lease (other than pursuant to a Lease) or
otherwise dispose of all or any part of the Project in respect of
which such Project Loan is being made or any interest therein (legal
or equitable), or grant any security interest with respect to such
Project without the prior written consent of the Bank unless in
connection therewith the outstanding principal balance of such Project
Loan, together with all accrued and unpaid interest thereon is fully
paid.
6. PARAGRAPH 7.06 OF THE LOAN AGREEMENT. Paragraph 7.06 of the Loan
Agreement is modified in its entirety to read as follows:
7.06. LEASE\PROJECT PURCHASE AGREEMENT. Such Borrower will
not modify, amend, alter, terminate or cancel the Lease for the
Project in respect of which such Project Loan is being made, or
assign, transfer, pledge or encumber any of its right, title or
interest thereunder, without the Bank's prior written consent. Such
Borrower will not modify, amend, alter, terminate or cancel the
Project Purchase Agreement for such Project, or assign, transfer,
pledge or encumber any of its right, title or interest thereunder,
without the Bank's prior written consent.
7. SUBPARAGRAPH 8.01(m) OF THE LOAN AGREEMENT. Paragraph 8.01(m) of the
Loan Agreement is modified in its entirety to read as follows:
m. The Project in respect of which such Project Loan is being
made, or any part thereof shall be condemned or damaged by fire or
other casualty in such manner as to preclude, in the Bank's sole
reasonable judgment, the completion or restoration of the Improvements
forming a part of such Project by the Maturity Date for such Project
Loan or by the required completion date for such Improvements pursuant
to the Lease for such Project; or
4
<PAGE>
8. SUBPARAGRAPH 8.01(s) OF THE LOAN AGREEMENT. Paragraph 8.01(s) of the
Loan Agreement is modified in its entirety to read as follows:
s. Such Borrower has breached or defaulted under the Lease for
the Project in respect of which such Project Loan is being made, and
such breach or default has not been cured or corrected within any
applicable cure period provided under such Lease;
9. SCHEDULE I. Schedule I to the Loan Agreement shall be SCHEDULE I
attached to this Modification.
10. FAIRBANKS PROJECT UNCONDITIONAL GUARANTY. The second to last
paragraph of Paragraph 6 of that certain Unconditional Guaranty (Fairbanks
Project) executed by Developer in favor of Bank, dated August 4, 1997, is
deleted in its entirety.
11. REPRESENTATIONS AND WARRANTIES. Developer hereby represents and
warrants to Bank that there does not presently exist any default under the Loan
Agreement or any event which with the notice or lapse of time or both would
constitute a default under the Loan Agreement and that each of the
representations and warranties set forth in the Loan Agreement remain true and
correct as of the date hereof, except to the extent said representations and
warranties specifically apply to those items explicitly modified by or otherwise
disclosed in this Modification, and each of said representations and warranties
is hereby incorporated herein by reference and modified as necessary to apply to
and cover the undertakings of Developer evidenced by this Modification.
12. CONTINUING EFFECT. All other terms, conditions, provisions,
representations and warranties set forth in the Loan Agreement not specifically
relating to those items explicitly modified by or otherwise disclosed in this
Modification shall remain unchanged and shall continue in full force and effect.
This Modification shall, wherever possible, be construed in a manner consistent
with the Loan Agreement; provided, however, in the event of any irreconcilable
inconsistency between the terms of this Modification and the terms of the Loan
Agreement, the terms of this Modification shall control.
13. WAIVER. No provision hereof shall constitute a waiver of any of the
terms or conditions of the Loan Agreement, other than those terms or conditions
explicitly modified or otherwise affected hereby.
IN WITNESS WHEREOF, Developer and Bank have caused this First Modification
of Master Construction Loan Agreement to be duly executed as of the date and
year first above written.
5
<PAGE>
"DEVELOPER"
TRAMMELL CROW BTS, INC.,
a Delaware corporation
By: /s/ Lucy L. Dineen
-------------------------------
Printed: Lucy L. Dineen
--------------------------
Title: Vice President
----------------------------
"BANK"
KEYBANK NATIONAL ASSOCIATION
By: /s/ Theodore J. Lewis
-------------------------------
Printed: Theodore J. Lewis
--------------------------
Title: Vice President
----------------------------
6
<PAGE>
CONSENT OF BORROWER
The undersigned, being a Borrower under the Project Loan (as each such term
is defined in the Master Construction Loan Agreement (as defined in the
foregoing First Modification of Master Construction Loan Agreement)) from Bank
to undersigned hereby consents and agrees to the modifications to the Master
Construction Loan Agreement set forth in the foregoing First Modification of
Master Construction Loan Agreement and agrees to be bound thereby.
TCC-BTS
L.L.C., a Delaware
limited liability company
By: Trammell Crow BTS, Inc.,
a Delaware corporation,
Its Managing Member
By: /s/ Lucy L. Dineen
----------------------------
Printed: Lucy L. Dineen
------------------------
Title: Vice President
-------------------------
<PAGE>
REAFFIRMATION OF GUARANTY
The undersigned ("Guarantor"), as the guarantor of the Project Loan (as
defined in the Master Construction Loan Agreement (as defined in the foregoing
First Modification of Master Construction Loan Agreement)) made prior to the
date hereof, hereby consents to the foregoing First Modification of Master
Construction Loan Agreement and agrees that the execution and the performance of
such First Modification of Master Construction Loan Agreement shall not in any
way affect, impair, discharge, relieve or release the obligations of the
undersigned under its contract of guaranty in respect of such Project Loan,
which contract of guaranty is hereby ratified, confirmed and reaffirmed in all
respects and is hereby extended upon its same terms consistent with such First
Modification of Master Construction Loan Agreement. Said contract of guaranty
shall continue in full force and effect until all obligations in respect of such
Project Loan are fully paid and performed.
Executed effective as of the 15th day of September, 1997.
TRAMMELL CROW MW, INC.,
A DELAWARE CORPORATION
By: /s/ Richard H. Coe
----------------------------------
Printed Name: Richard H. Coe
------------------------
Title: Vice President
-------------------------------
<PAGE>
- -------------------------------------------------------------------------------
SCHECDULE I
PetsMart, Inc. shall be an Approved Tenant only for one PetsMart facility in
Edmon, Oklahoma.
<PAGE>
SECOND MODIFICATION OF MASTER CONSTRUCTION LOAN AGREEMENT
THIS SECOND MODIFICATION, dated and effective as of May 12, 1998, is made
and entered into by and between TRAMMELL CROW BTS, INC., a Delaware corporation
having a notice address of 2001 Ross Avenue, Suite 3400, Dallas, Texas 75201
("Developer"), and KEYBANK NATIONAL ASSOCIATION, a national banking association
having a notice address of 10 West Market Street, 9th Floor, Indianapolis,
Indiana 46204 ("Bank").
RECITALS:
A. Developer and Bank entered into that certain Master Construction Loan
Agreement, dated August 4, 1997, as modified by that certain First Modification
of Master Construction Loan Agreement, dated September 15, 1997 (collectively,
the "Loan Agreement").
B. The parties hereto desire to further modify the Loan Agreement in
accordance with the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, for and in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged the parties hereto agree as follows:
1. PARAGRAPH 1.01 OF THE LOAN AGREEMENT. Paragraph 1.01 of the Loan
Agreement is hereby modified by:
a. Adding the following defined terms:
"Affiliate Guarantor" shall mean each of Trammell Crow MW and Trammell
Crow.
"Affiliate Guarantor Completion Guaranty" shall mean a Trammell Crow
Completion Guaranty or a Trammell Crow MW Completion Guaranty, as the
context hereunder requires.
"Affiliate Guarantor Transaction Guaranty" shall mean Trammell Crow
Transaction Guaranty or a Trammell Crow MW Transaction Guaranty, as the
context hereunder requires.
"Trammell Crow" shall mean Trammell Crow Company, a Delaware
corporation.
"Trammell Crow Completion Guaranty" shall mean a Guaranty of
Completion of Improvements pursuant to Construction Loan Agreement in the
form attached hereto as EXHIBIT K, with blanks completed appropriately,
given to the Bank with respect to a Project Loan by Trammell Crow, pursuant
to which Trammell Crow guarantees the timely and lien-
<PAGE>
free completion of the Improvements in respect of which such Project Loan
is being made, as the same may be supplemented, modified or amended from
time to time.
"Trammell Crow Transaction Guaranty" shall mean a Transaction Guaranty
in the form attached hereto as EXHIBIT L, with blanks completed
appropriately, given to the Bank with respect to a Project Loan by Trammell
Crow, pursuant to which Trammell Crow guarantees the obligations of the
Borrower under such Project Loan, as the same may be supplemented, modified
or amended from time to time.
b. Substituting the following in lieu of the existing like defined
terms:
"Borrower" shall mean a limited liability company or a corporation
which will be the owner of a Project and the borrower under the Project
Loan made in respect of such Project. The managing member or sole
shareholder, as the case may be, of each Borrower, shall be Developer.
"Guarantors" shall mean Developer, Trammell Crow MW and Trammell Crow.
"Project Loan Documents" shall mean this Agreement, the Project
Agreement, the Project Note, the Mortgage, the Assignment of Rents, the
Contract Assignment, the Collateral Assignment of Purchase Agreement, the
Collateral Pledge Agreement, the Developer Guaranty, the Affiliate
Guarantor Transaction Guaranty executed in connection therewith, the
Affiliate Guarantor Completion Guaranty executed in connection therewith,
the Mortgagor's Affidavit, the Environmental Indemnity and any and all
other documents executed and/or delivered in connection with a Project
Loan.
"Trammell Crow MW Transaction Guaranty" shall mean a Transaction
Guaranty in the form attached hereto as EXHIBIT L, with blanks completed
appropriately, given to the Bank with respect to a Project Loan by Trammell
Crow MW, pursuant to which Trammell Crow MW guarantees the obligations of
the Borrower under such Project Loan, as the same may be supplemented,
modified or amended from time to time.
c. Deleting the following defined terms:
"Collateral Assignment of Certificate of Deposit"
"Collateral Assignment of Purchase Agreement"
"Project Certificate of Deposit"
"Project Letter of Credit"
2. EXHIBITS. The Loan Agreement is hereby modified by:
a. Substituting EXHIBIT K attached to this Modification for
EXHIBIT K attached to the Loan Agreement.
b. Substituting EXHIBIT L attached to this Modification for
EXHIBIT L attached to the Loan Agreement.
<PAGE>
3. SECTION 2.06 OF THE LOAN AGREEMENT. Section 2.06 of the Loan
Agreement is hereby modified in its entirety to read as follows:
2.06. PROJECT MATURITY DATE. The term of a Project Loan shall
expire upon the earlier of (the "Project Loan Maturity Date"): (a)
nine (9) months from its Closing Date, if such Closing Date occurs
before May 1, 1998, and twelve (12) months from its Closing Date if
such Closing Date occurs on or after May 1, 1998; or (b) the sale of
the Project in respect of which such Project Loan was made pursuant to
the Purchase Agreement for such Project, unless such Project Loan is
sooner paid pursuant to the terms hereof.
4. SECTION 3.01 OF THE LOAN AGREEMENT. Section 3.01 of the Loan
Agreement is hereby modified in its entirety to read as follows:
3.01. ORGANIZATION AND QUALIFICATION. Such Borrower is a
duly formed and validly existing limited liability company or
corporation, as the case may be, under the laws of the State of
Delaware and is duly qualified to conduct business in the state in
which the Project in respect of which such Project Loan is being made
is located. If the Borrower is a limited liability company, the
managing member of such Borrower is the Developer. If the Borrower
is a corporation, the sole shareholder of such Borrower is the
Developer. Developer is a duly formed and validly existing
corporation under the laws of the State of Delaware. The Affiliate
Guarantor guaranteeing such Project Loan is a duly formed and validly
existing corporation under the laws of the State of Delaware.
5. SECTION 3.03 OF THE LOAN AGREEMENT. Section 3.03 of the Loan
Agreement is hereby modified in its entirety to read as follows:
3.03. CONFLICT WITH OTHER INSTRUMENTS. Neither the execution
and delivery of the Project Loan Document for such Project Loan to
which it is a party, nor consummation of the transactions contemplated
thereby, nor compliance with the terms, conditions and provisions
thereof will conflict with or result in a breach of any of the terms,
conditions or provisions of the articles of organization or operating
agreement of such Borrower if such Borrower is a limited liability
company, or the certificate of incorporation or by-laws of such
Borrower if Borrower is a corporation, whichever the case may be, or,
to Borrower's actual knowledge, any law or any regulation, order,
writ, injunction or decree of any court or Governmental Authority or
any agreement or instrument to which such Borrower is a party or by
which such Borrower or its properties or assets (including the Project
in respect of which such Project Loan is being made) are subject to or
bound, or constitute a default thereunder or result in the creation or
imposition of any lien, charge, security interest or encumbrance of
any nature whatsoever upon any of the property of such Borrower
(including the Project in respect of which such Project Loan is being
made) pursuant to the terms of any such agreement or instrument,
except as created by such Project Loan Documents.
3
<PAGE>
6. SUBPARAGRAPH 4.01(a) OF THE LOAN AGREEMENT. Subparagraph 4.01(a) of
the Loan Agreement is hereby modified in its entirety to read as follows:
i. If such Borrower is a limited liability company, a copy
of the articles of organization of such Borrower, together with
any amendments to such agreement, filed with the appropriate
Governmental Authorities of the State of Delaware, or if such
Borrower is a corporation, a copy of the certificate of
incorporation of such Borrower, together with any amendments to
such agreement, filed with the appropriate Governmental
Authorities of the State of Delaware;
ii. If such Borrower is a limited liability company, a copy
of the operating agreement of such Borrower, together with any
amendments to such agreement, or if such Borrower is a
corporation, a copy of the by-laws of such Borrower, together
with any amendments to such by-laws;
iii. An original Certificate of Existence for such Borrower
issued by the Secretary of State of Delaware bearing a recent
date;
iv. An original Certificate of Qualification for such
Borrower as a foreign limited liability company or corporation,
whichever the case may be, doing business in the state in which
the Project in respect of which such Project Loan is being made
is located issued by the Secretary of State of such state;
v. A copy of the articles of incorporation for Developer,
together with any and all amendments thereto;
vi. A copy of the by-laws of Developer, together with
any and all amendments thereto;
vii. An original Certificate of Existence for Developer
issued by the Secretary of State of Delaware bearing a recent
date;
viii. A copy of the resolutions of the Board of Directors of
Developer authorizing the execution of the Project Loan Document
for such Project Loan by Developer on behalf of such Borrower and
the execution of the Developer Guaranty and the Environmental
Indemnity Agreement for such Project by Developer in its
individual capacity;
ix. A copy of the certificate of incorporation for the
Affiliate Guarantor guaranteeing such Project Loan, together with
any and all amendments thereto, filed with the appropriate
Governmental Authorities of the State of Delaware;
4
<PAGE>
x. A copy of the by-laws of the Affiliate Guarantor
guaranteeing such Project Loan, together with any and all
amendments thereto;
xi. An original Certificate of Existence for the Affiliate
Guarantor guaranteeing such Project Loan issued by the Secretary
of State of Delaware bearing a recent date; and
xii. A copy of the resolutions of the Board of Directors of
the Affiliate Guarantor guaranteeing such Project Loan
authorizing the execution of the Affiliate Guarantor Completion
Guaranty and the Affiliate Guarantor Transaction Guaranty by such
Affiliate Guarantor in its individual capacity.
7. SUBPARAGRAPH 4.01 (e)(iv) OF THE LOAN AGREEMENT. Section 4.01 of the
Loan Agreement is hereby amended by deleting Subparagraph 4.01 (e)(iv) of the
Loan Agreement.
8. SUBPARAGRAPH 4.01(e)(vii) AND SUBPARAGRAPH 4.01 (e)(ix) OF THE LOAN
AGREEMENT. Subparagraph 4.01 (e)(vii) and Subparagrah 4.01(e)(ix) of the Loan
Agreement are hereby modified in their entirety to read as follows:
vii. If the Closing of such Project Loan occurs prior to May
1, 1998, a Trammell Crow MW Completion Guaranty, pursuant to
which Trammell Crow MW shall have guaranteed the timely lien free
completion of the Improvements forming a part of such Project, or
if the Closing of such Project Loan occurs on or after May 1,
1998, a Trammell Crow Completion Guaranty pursuant to which
Trammell Crow shall have guaranteed the timely lien free
completion of the Improvements forming a part of such Project.
ix. If the Closing of such Project Loan occurs prior to May
1, 1998, a Trammell Crow MW Transaction Guaranty pursuant to
which Trammell Crow MW shall have guaranteed the obligations of
the Borrower in respect of such Project Loan in accordance with
the terms thereof, or if the Closing of such Project Loan occurs
on or after May 1, 1998, a Trammell Crow Transaction Guaranty
pursuant to which Trammell Crow shall have guaranteed the
obligations of the Borrower in respect of such Project Loan in
accordance with the terms thereof.
9. SECTION 4.01(z) OF THE LOAN AGREEMENT. Section 4.01 of the Loan
Agreement is hereby modified by deleting subparagraph (z) thereof.
10. SECTION 8.01 OF THE LOAN AGREEMENT. Section 8.01 of the Loan
Agreement is hereby amended to add the following subparagraph 8.01 (t):
t. Developer sells, assigns, hypothecates or otherwise
transfers its interest in such Borrower.
5
<PAGE>
11. SECTION 8.04 OF THE LOAN AGREEMENT. Section 8.04 of the Loan
Agreement is hereby deleted in its entirety.
12. SECTION 9.05 OF THE LOAN AGREEMENT. The notice address for developer
and the Borrower is hereby amended to: c/o Trammell Crow BTS, Inc., 7535 East
Hampden Road, Suite 650, Denver, Colorado 80231-4845.
13. SECTION 9.11 OF THE LOAN AGREEMENT. Section 9.11 of the Loan
Agreement is hereby modified in its entirety to read as follows:
9.11. GOVERNING LAW. BY ACCEPTANCE OF A PROJECT LOAN, THE
BORROWER THEREUNDER AGREES WITH BANK THAT, EXCEPT AS EXPRESSLY SET
FORTH IN THE DEED OF TRUST AND THE ASSIGNMENT OF RENTS AND THE OTHER
PROJECT LOAN DOCUMENTS FOR SUCH PROJECT LOAN, THE LAW OF THE STATE OF
INDIANA SHALL GOVERN ALL MATTERS RELATING TO THIS AGREEMENT AND THE
OTHER PROJECT LOAN DOCUMENTS IN RESPECT OF SUCH PROJECT LOAN AND ALL
OF THE INDEBTEDNESS OR OBLIGATIONS OF SUCH BORROWER ARISING HEREUNDER
OR THEREUNDER. SUCH BORROWER BY ITS ACCEPTANCE OF SUCH PROJECT LOAN
(a) SHALL BE SUBJECT TO PERSONAL JURISDICTION IN THE STATE OF INDIANA
AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN
STATE OF INDIANA (AND ANY APPELLATE COURTS TAKING APPEALS THEREFROM)
FOR THE ENFORCEMENT OF SUCH BORROWER'S OBLIGATIONS HEREUNDER AND UNDER
THE OTHER PROJECT LOAN DOCUMENTS FOR SUCH PROJECT LOAN AND (b) WAIVES
ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY OTHER STATE TO OBJECT
TO JURISDICTION WITHIN SUCH STATE FOR THE PURPOSES OF SUCH ACTION,
SUIT, PROCEEDING OR LITIGATION TO ENFORCE SUCH OBLIGATIONS OF SUCH
BORROWER. BY ACCEPTANCE OF ITS PROJECT LOAN, SUCH BORROWER WAIVES AND
AGREES NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER PROJECT LOAN
DOCUMENTS FOR SUCH PROJECT LOAN (x)THAT IT IS NOT SUBJECT TO SUCH
JURISDICTION OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE
BROUGHT OR IS NOT MAINTAINABLE IN THOSE COURTS OR THAT THIS AGREEMENT
AND SUCH OTHER PROJECT LOAN DOCUMENTS MAY NOT BE ENFORCED IN OR BY
THOSE COURTS OR THAT IT IS EXEMPT OR IMMUNE FROM EXECUTION, (y) THAT
THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, OR
(z) THAT THE VENUE OF THE ACTION, SUIT OR PROCEEDING IS IMPROPER.
NOTHING IN THIS SECTION 9.11 SHALL BE DEEMED TO PRECLUDE BANK FROM
FILING ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF THIS AGREEMENT OR
SUCH OTHER PROJECT LOAN DOCUMENTS IN THE STATE OF COLORADO OR THE
STATE WHERE SUCH PROJECT IS LOCATED OR THE FEDERAL COURTS OF THE
UNITED
6
<PAGE>
STATES OF AMERICA LOCATED IN THE STATE OF COLORADO OR THE STATE
WHERE SUCH PROJECT IS LOCATED.
14. SECTION 9.16 OF THE LOAN AGREEMENT. Section 9.16 of the Loan
Agreement is hereby modified in its entirety to read as follows:
9.16. DEVELOPER'S COVENANTS. Developer covenants that from
the date hereof through the Project Loan Commitment Expiration Date
and thereafter until all Project Loans have been paid in full,
Developer will furnish to Bank within ninety (90) days after the end
of each fiscal year of Developer, annual financial statements of
Developer, which financial statements shall be reviewed by certified
public accountants acceptable to Lender and certified as to accuracy
by an officer thereof, and shall include a balance sheet, statement of
income and retained earnings and a statement of cash flows, with
accompanying notes to financial statements, shall be prepared in
accordance with generally accepted accounting principles on a basis
consistent with prior years and shall otherwise be in form
satisfactory to the Bank.
15. EXPENSES. Borrower shall pay all costs incidental to this
Modification, including but not limited to title insurance, survey charges,
reasonable attorneys' fees, appraisals, insurance, inspecting engineers' and/or
architect's fees, environmental fees, and all other incidental expenses of Bank.
16. REPRESENTATIONS AND WARRANTIES. Developer hereby represents and
warrants to Bank that there does not presently exist any default under the Loan
Agreement or any event which with the notice or lapse of time or both would
constitute a default under the Loan Agreement and that each of the
representations and warranties set forth in the Loan Agreement remain true and
correct as of the date hereof, except to the extent said representations and
warranties specifically apply to those items explicitly modified by or otherwise
disclosed in this Modification, and each of said representations and warranties
is hereby incorporated herein by reference and modified as necessary to apply to
and cover the undertakings of Developer evidenced by this Modification.
17. CONTINUING EFFECT. All other terms, conditions, provisions,
representations and warranties set forth in the Loan Agreement not specifically
relating to those items explicitly modified by or otherwise disclosed in this
Modification shall remain unchanged and shall continue in full force and effect.
This Modification shall, wherever possible, be construed in a manner consistent
with the Loan Agreement; provided, however, in the event of any irreconcilable
inconsistency between the terms of this Modification and the terms of the Loan
Agreement, the terms of this Modification shall control.
18. WAIVER. No provision hereof shall constitute a waiver of any of the
terms or conditions of the Loan Agreement, other than those terms or conditions
explicitly modified or otherwise affected hereby.
IN WITNESS WHEREOF, Developer and Bank have caused this Second Modification
of Master Construction Loan Agreement to be duly executed as of the date and
year first above written.
7
<PAGE>
"DEVELOPER"
TRAMMELL CROW BTS, INC.,
a Delaware corporation
By: /s/ Lucy L. Dineen
-----------------------------------
Printed: Lucy L. Dineen
------------------------------
Title: Vice President
--------------------------------
8
<PAGE>
"BANK"
KEYBANK NATIONAL ASSOCIATION
By: /s/ Theodore J. Lewis
-----------------------------------
Printed: Theodore J. Lewis
-------------------------------
Title: Vice President
---------------------------------
9
<PAGE>
THIRD MODIFICATION OF MASTER CONSTRUCTION LOAN AGREEMENT
THIS THIRD MODIFICATION, dated and effective as of June 9, 1998, is made
and entered into by and between TRAMMELL CROW BTS, INC., a Delaware corporation
having a notice address of 2001 Ross Avenue, Suite 3400, Dallas, Texas 75201
("Developer"), and KEYBANK NATIONAL ASSOCIATION, a national banking association
having a notice address of 10 West Market Street, 9th Floor, Indianapolis,
Indiana 46204 ("Bank").
RECITALS:
A. Developer and Bank entered into that certain Master Construction Loan
Agreement, dated August 4, 1997, as modified by that certain First Modification
of Master Construction Loan Agreement between Developer and Bank, dated
September 15, 1997, and as modified by that certain Second Modification of
Master Construction Loan Agreement between Developer and Bank, dated May 12,
1998 (collectively, the "Loan Agreement").
B. The parties hereto desire to further modify the Loan Agreement in
accordance with the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, for and in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged the parties hereto agree as follows:
1. PARAGRAPH 1.01 OF THE LOAN AGREEMENT. Paragraph 1.01 of the Loan
Agreement is hereby modified by substituting the following in lieu of the
existing like defined terms:
"Loan" shall mean the aggregate amount of the Project Loans approved
by Bank pursuant to this Agreement, which amount shall in no event exceed
the principal sum of Twenty Million Dollars ($20,000,000) outstanding at
any time.
"Project Loan Documents" shall mean this Agreement, the Project
Agreement, the Project Note, the Mortgage, the Assignment of Rents, the
Contract Assignment, the Collateral Assignment of Purchase Agreement (if
executed in connection therewith), the Collateral Pledge Agreement (if
executed in connection therewith), the Developer Guaranty, the Affiliate
Guarantor Transaction Guaranty executed in connection therewith, the
Affiliate Guarantor Completion Guaranty executed in connection therewith,
the Mortgagor's Affidavit, the Environmental Indemnity and any and all
other documents executed and/or delivered in connection with a Project
Loan.
"Project Loan Commitment Expiration Date" shall mean May 31, 1999.
2. EXHIBIT L. The Loan Agreement is hereby modified by substituting
EXHIBIT L attached to this Modification for EXHIBIT L attached to the Loan
Agreement.
<PAGE>
3. SECTION 2.01 OF THE LOAN AGREEMENT. Section 2.01 of the Loan
Agreement is hereby modified in its entirety to read as follows:
2.01. PROJECT LOAN. Subject to the terms and conditions
hereof, and relying upon the representations and warranties herein set
forth, the Bank agrees to make Project Loans to the Borrower(s) from
time to time in an aggregate principal amount not to exceed Twenty
Million Dollars ($20,000,000) outstanding at any time. In no event
shall the Bank be obligated to make a Project Loan in respect of a
Project for which there is not then in effect a Project Purchase
Agreement, if by making such Project Loan, the aggregate amount of
Project Loans (including the Project Loan at issue) in respect of
Projects for which there are not then in effect Project Purchase
Agreements would be greater than Fifteen Million Dollars
($15,000,000). For purposes of calculating the aggregate amount of
Project Loans in the preceding sentence, the maximum principal amounts
available thereunder shall be used, and not the then outstanding
principal balances thereof. In no event shall the Bank be obligated
to make any Project Loan on or after the Project Loan Commitment
Expiration Date. Notwithstanding the foregoing, subject to the terms
and conditions hereof, the Bank shall fund after the Project Loan
Commitment Expiration Date any Project Loan for which the Closing has
occurred prior to the Project Loan Commitment Expiration Date.
4. SUBPARAGRAPHS 4.01(e)(v) AND 4.01(e)(vi) OF THE LOAN AGREEMENT.
Subparagraphs 4.01(e)(v) and (e)(vi) of the Loan Agreement are hereby modified
in their entirety to read as follows:
v. If such Borrower has then entered into a Project
Purchase Agreement for the Project in respect of which such
Project Loan is being made, a Collateral Pledge Agreement
pursuant to which such Borrower shall have collaterally assigned
to the Bank all of the right, title and interest of such Borrower
in and to the Deposit made under such Project Purchase Agreement;
vi. If such Borrower has then entered into a Project
Purchase Agreement for the Project in respect of which such
Project Loan is being made, a Collateral Assignment of Purchase
Agreement pursuant to which such Borrower shall have collaterally
assigned to the Bank all the right, title and interest of such
Borrower in, to and under such Purchase Agreement;
5. SECTION 4.01 (y) OF THE LOAN AGREEMENT. Section 4.01 (y) of the Loan
Agreement is hereby modified in its entirety to read as follows:
y. PROJECT PURCHASE AGREEMENT. If such Borrower has then entered
into a Project Purchase Agreement for the Project in respect of which such
Project loan is being made, such Borrower shall have furnished to the Bank
an executed copy of such Purchase Agreement together with evidence that the
Deposit required thereunder has been made.
2
<PAGE>
6. SECTION 6.14 OF THE LOAN AGREEMENT. The Loan Agreement is hereby
modified to add the following Section 6.14.
6.14 PROJECT PURCHASE AGREEMENT. If after the Closing of such
Project Loan, such Borrower enters into a Project Purchase Agreement for
the Project in respect of which such Project Loan is being made, such
Borrower shall provide to the Bank:
a. A copy of such Project Purchase Agreement, together with
evidence that the Deposit required thereunder has been made;
b. An executed Collateral Assignment of Purchase Agreement
pursuant to which such Borrower shall have collaterally assigned to
the Bank all the right, title and interest of such Borrower in, to and
under such Project Purchase Agreement; and
c. An executed Collateral Pledge Agreement pursuant to which
such Borrower shall have collaterally assigned to the Bank all of the
right, title and interest of such Borrower in and to the Deposit made
under such Project Purchase Agreement.
7. SECTION 7.06 OF THE LOAN AGREEMENT. Section 7.06 of the Loan
Agreement is hereby modified in its entirety to read as follows:
7.06 LEASE/PROJECT PURCHASE AGREEMENT. Such Borrower will not
modify, amend, alter, terminate or cancel the Lease for the Project in
respect of which such Project Loan is being made, or assign, transfer,
pledge or encumber any of its right, title or interest thereunder,
without the Bank's prior written consent. If such Borrower enters into
a Project Purchase Agreement for such Project, such Borrower will not
modify, amend, alter, terminate or cancel such Project Purchase
Agreement, or assign, transfer, pledge or encumber any of its right,
title or interest thereunder, without the Bank's prior written consent.
8. SECTION 8.04 OF THE LOAN AGREEMENT. The Loan Agreement is hereby
modified to add the following Section 8.04:
8.04. SPECIAL REMEDY/AFFILIATE GUARANTOR TRANSACTION GUARANTY. If
Trammell Crow has executed an Affiliate Guarantor Transaction Guaranty in
connection with a Project Loan, and Trammell Crow breaches or is in default
under any financial covenant set forth in Section 18 of such Affiliate
Guarantor Transaction Guaranty, then within sixty (60) days after the date
of the occurrence of such breach or default, unless such Project Loan is an
Exempt Project Loan (as hereinafter defined):
a. the amount of such Project Loan available for borrowing
shall be permanently reduced by an amount equal to (a) Ten Percent
(10%), MULTIPLIED by (b) the prospective value upon completion and
prospective value upon stabilization by the income capitalization
approach of the Project in respect of which such Project Loan is being
made, as determined pursuant to the Appraisal furnished to the Bank on
such Project pursuant to Section 4.01(a) of this Loan Agreement, and
upon such
3
<PAGE>
reduction, the Borrower under such Project Loan shall comply with the
terms of Section 5.01(d) of this Loan Agreement; or
b. the Borrower under such Project Loan shall enter into a
Project Purchase Agreement for the Project in respect of which such
Project Loan is being made, which Project Purchase Agreement shall be
reasonably satisfactory to Bank, and satisfy the requirements of
Section 6.14 of this Loan Agreement.
For the purposes hereof, an "Exempt Project Loan" is a Project Loan which
is designated by Developer as an Exempt Project Loan. There may be no more than
two (2) Exempt Project Loans at any time. Developer shall not be entitled to
designate a Project Loan as an Exempt Project Loan if an Event of Default is
then continuing under such Project Loan.
9. EXPENSES. Borrower shall pay all costs incidental to this
Modification, including but not limited to title insurance, survey charges,
reasonable attorneys' fees, appraisals, insurance, inspecting engineers' and/or
architect's fees, environmental fees, and all other incidental expenses of Bank.
10. REPRESENTATIONS AND WARRANTIES. Developer hereby represents and
warrants to Bank that there does not presently exist any default under the Loan
Agreement or any event which with the notice or lapse of time or both would
constitute a default under the Loan Agreement and that each of the
representations and warranties set forth in the Loan Agreement remain true and
correct as of the date hereof, except to the extent said representations and
warranties specifically apply to those items explicitly modified by or otherwise
disclosed in this Modification, and each of said representations and warranties
is hereby incorporated herein by reference and modified as necessary to apply to
and cover the undertakings of Developer evidenced by this Modification.
11. CONTINUING EFFECT. All other terms, conditions, provisions,
representations and warranties set forth in the Loan Agreement not specifically
relating to those items explicitly modified by or otherwise disclosed in this
Modification shall remain unchanged and shall continue in full force and effect.
This Modification shall, wherever possible, be construed in a manner consistent
with the Loan Agreement; provided, however, in the event of any irreconcilable
inconsistency between the terms of this Modification and the terms of the Loan
Agreement, the terms of this Modification shall control.
12. WAIVER. No provision hereof shall constitute a waiver of any of the
terms or conditions of the Loan Agreement, other than those terms or conditions
explicitly modified or otherwise affected hereby.
4
<PAGE>
IN WITNESS WHEREOF, Developer and Bank have caused this Third Modification
of Master Construction Loan Agreement to be duly executed as of the date and
year first above written.
"DEVELOPER"
TRAMMELL CROW BTS, INC.,
a Delaware corporation
By: /s/ Richard H. Coe
-------------------------------------
Printed: Richard H. Coe
--------------------------------
Title: Vice President
----------------------------------
"BANK"
KEYBANK NATIONAL ASSOCIATION
By: /s/ Theodore J. Lewis
-------------------------------------
Printed: Theodore J. Lewis
--------------------------------
Title: Vice President
----------------------------------
5
<PAGE>
CONSENT OF BORROWER
The undersigned, being a Borrower under the Project Loan (as each such term
is defined in the Master Construction Loan Agreement (as defined in the
foregoing Third Modification of Master Construction Loan Agreement)) from Bank
to undersigned hereby consents and agrees to the modifications to the Master
Construction Loan Agreement set forth in the foregoing Third Modification of
Master Construction Loan Agreement and agrees to be bound thereby.
Executed effective as of the 9th day of June, 1998.
TCC-BTS SAVANNAH L.L.C., a Delaware
limited liability company
By: Trammell Crow, BTS, Inc., a Delaware
corporation, Its Managing Member
By: /s/ Richard H. Coe
-----------------------------------
Printed: Richard H. Coe
------------------------------
Title: Vice President
--------------------------------
<PAGE>
CONSENT OF BORROWER
The undersigned, being a Borrower under the Project Loan (as each such term
is defined in the Master Construction Loan Agreement (as defined in the
foregoing Third Modification of Master Construction Loan Agreement)) from Bank
to undersigned hereby consents and agrees to the modifications to the Master
Construction Loan Agreement set forth in the foregoing Third Modification of
Master Construction Loan Agreement and agrees to be bound thereby.
Executed effective as of the 9th day of June, 1998.
TCC-BTS COEUR D'ALENE OM, INC., a Delaware
corporation
By: /s/ Richard H. Coe
--------------------------------
Printed: Richard H. Coe
---------------------------
Title: Vice President
-----------------------------
<PAGE>
CONSENT OF BORROWER
The undersigned, being a Borrower under the Project Loan (as each such term
is defined in the Master Construction Loan Agreement (as defined in the
foregoing Third Modification of Master Construction Loan Agreement)) from Bank
to undersigned hereby consents and agrees to the modifications to the Master
Construction Loan Agreement set forth in the foregoing Third Modification of
Master Construction Loan Agreement and agrees to be bound thereby.
Executed effective as of the 9th day of June, 1998.
TCC-BTS PONCE L.L.C., a Delaware limited liability
company
By: Trammell Crow, BTS, Inc., a Delaware
corporation, Its Managing Member
By: /s/ Richard H. Coe
------------------------------------
Printed: Richard H. Coe
-------------------------------
Title: Vice President
---------------------------------
<PAGE>
REAFFIRMATION OF GUARANTY
The undersigned ("Guarantor"), as the guarantor of the Project Loan (as
defined in the Master Construction Loan Agreement (as defined in the foregoing
Third Modification of Master Construction Loan Agreement)) made prior to the
date hereof to TCC-BTS Savannah L.L.C., hereby consents to the foregoing Third
Modification of Master Construction Loan Agreement and agrees that the execution
and the performance of such Third Modification of Master Construction Loan
Agreement shall not in any way affect, impair, discharge, relieve or release the
obligations of the undersigned under its (i) Transaction Guaranty, dated
February 18, 1998 (the "Transaction Guaranty") and (ii) Guaranty of Completion
of Improvements Pursuant to Loan Agreement, dated February 18, 1998 (the
"Completion Guaranty") in respect of such Project Loan, which Transaction
Guaranty and Completion Guaranty are hereby ratified, confirmed and reaffirmed
in all respects and are hereby extended upon its same terms consistent with such
Third Modification of Master Construction Loan Agreement. Said Transaction
Guaranty and Completion Guaranty shall continue in full force and effect until
all obligations in respect of such Project Loan are fully paid and performed.
Executed effective as of the 9th day of June, 1998.
TRAMMELL CROW MW, INC.,
A DELAWARE CORPORATION
By: /s/ Richard H. Coe
-------------------------------------
Printed Name: Richard H. Coe
----------------------------
Title: Vice President
-----------------------------------
<PAGE>
REAFFIRMATION OF GUARANTY
The undersigned ("Guarantor"), as the guarantor of the Project Loans (as
defined in the Master Construction Loan Agreement (as defined in the foregoing
Third Modification of Master Construction Loan Agreement)) made as of the date
hereof, hereby consents to the foregoing Third Modification of Master
Construction Loan Agreement and agrees that the execution and the performance of
such Third Modification of Master Construction Loan Agreement shall not in any
way affect, impair, discharge, relieve or release the obligations of the
undersigned under its contracts of guaranty in respect of such Project Loan,
which contracts of guaranty are hereby ratified, confirmed and reaffirmed in all
respects and are hereby extended upon the same terms consistent with such Third
Modification of Master Construction Loan Agreement. Said contracts of guaranty
shall continue in full force and effect until all obligations in respect of such
Project Loans are fully paid and performed.
Executed effective as of the 9th day of June, 1998.
TRAMMELL CROW BTS, INC.,
A DELAWARE CORPORATION
By: /s/ Richard H. Coe
-------------------------------------
Printed Name: Richard H. Coe
---------------------------
Title: Vice President
----------------------------------
<PAGE>
REAFFIRMATION AND MODIFICATION OF GUARANTY
The undersigned ("Guarantor"), as the guarantor of the Project Loan (as
defined in the Master Construction Loan Agreement (as defined in the foregoing
Third Modification of Master Construction Loan Agreement)) made to TCC-BTS Ponce
L.L.C., hereby consents to the foregoing Third Modification of Master
Construction Loan Agreement and agrees that the execution and the performance of
such Third Modification of Master Construction Loan Agreement shall not in any
way affect, impair, discharge, relieve or release the obligations of the
undersigned under its (i) Transaction Guaranty, dated June 1, 1998 (the
"Transaction Guaranty") and (ii) Guaranty of Completion of Improvements Pursuant
to Loan Agreement, dated June 1, 1998 (the "Completion Guaranty") in respect of
such Project Loan, which Transaction Guaranty and Completion Guaranty are hereby
ratified, confirmed and reaffirmed in all respects and are hereby extended upon
its same terms consistent with such Third Modification of Master Construction
Loan Agreement. Said Transaction Guaranty and Completion Guaranty shall
continue in full force and effect until all obligations in respect of such
Project Loan are fully paid and performed.
Guarantor hereby agrees that the Transaction Guaranty is hereby modified to
add the following paragraph 18:
18. Guarantor agrees that, while and so long as this Guaranty remains
outstanding:
a. Guarantor shall not permit Equity Value, as of the end of any
Fiscal Quarter, to be less than Two Hundred Fifty Million Dollars
($250,000,000);
b. Guarantor shall not permit the Total Leverage Ratio, as of the
end of any Fiscal Quarter, to exceed 4.0 to 1.0;
c. Guarantor shall not permit the Interest Coverage Ratio, as of the
end of any Fiscal Quarter, to be less than 3.0 to 1.0.
d. Guarantor shall not permit Liquid Assets, as of the end of any
Fiscal Quarter, to be less than Fifteen Million Dollars ($15,000,000); and
e. Guarantor shall not permit the ratio of Current Assets to Current
Liabilities, as of the end of any Fiscal Quarter, to be less than 1.5 to
1.0.
Guarantor shall provide to Bank within sixty (60) days after the end of
each Fiscal Quarter of Guarantor a covenant compliance worksheet in a form
approved by Bank for Bank's use in determining Guarantor's compliance with the
above-referenced covenants. All defined terms used in this Paragraph 18, but
not defined in this Guaranty, shall have the meanings assigned to such terms in
that certain Credit Agreement, dated as of December 1, 1997, among Guarantor,
the Lenders listed therein, NationsBank of Texas, N.A. and Bankers Trust Company
as amended from time to time (collectively, the "Guarantor's $150,000,000 Credit
Agreement"). All defined terms in Section 1.1 of the Guarantor's $150,000,000
Credit Agreement are incorporated herein by reference to the extent such terms
are necessary for the interpretation of any defined terms used in this Paragraph
18.
<PAGE>
Executed effective as of the 9th day of June, 1998.
TRAMMELL CROW COMPANY,
A DELAWARE CORPORATION
By: /s/ Richard H. Coe
--------------------------------------
Printed Name: Richard H. Coe
----------------------------
Title: Executive Vice President
-----------------------------------
By: /s/ WM P. Leiser
--------------------------------------
Printed Name: WM P. Leiser
----------------------------
Title: Executive Vice President/Treasurer
-----------------------------------
<PAGE>
REAFFIRMATION AND MODIFICATION OF GUARANTY
The undersigned ("Guarantor"), as the guarantor of the Project Loan (as
defined in the Master Construction Loan Agreement (as defined in the foregoing
Third Modification of Master Construction Loan Agreement)) made to TCC-BTS Coeur
D'Alene OM, Inc., hereby consents to the foregoing Third Modification of Master
Construction Loan Agreement and agrees that the execution and the performance of
such Third Modification of Master Construction Loan Agreement shall not in any
way affect, impair, discharge, relieve or release the obligations of the
undersigned under its (i) Transaction Guaranty, dated May 12, 1998 (the
"Transaction Guaranty") and (ii) Guaranty of Completion of Improvements Pursuant
to Loan Agreement, dated May 12, 1998 (the "Completion Guaranty") in respect of
such Project Loan, which Transaction Guaranty and Completion Guaranty are hereby
ratified, confirmed and reaffirmed in all respects and are hereby extended upon
its same terms consistent with such Third Modification of Master Construction
Loan Agreement. Said Transaction Guaranty and Completion Guaranty shall
continue in full force and effect until all obligations in respect of such
Project Loan are fully paid and performed.
Guarantor hereby agrees that the Transaction Guaranty is hereby modified to
add the following paragraph 18:
18. Guarantor agrees that, while and so long as this Guaranty remains
outstanding:
a. Guarantor shall not permit Equity Value, as of the end of any
Fiscal Quarter, to be less than Two Hundred Fifty Million Dollars
($250,000,000);
b. Guarantor shall not permit the Total Leverage Ratio, as of the
end of any Fiscal Quarter, to exceed 4.0 to 1.0;
c. Guarantor shall not permit the Interest Coverage Ratio, as of the
end of any Fiscal Quarter, to be less than 3.0 to 1.0.
d. Guarantor shall not permit Liquid Assets, as of the end of any
Fiscal Quarter, to be less than Fifteen Million Dollars ($15,000,000); and
e. Guarantor shall not permit the ratio of Current Assets to Current
Liabilities, as of the end of any Fiscal Quarter, to be less than 1.5 to
1.0.
Guarantor shall provide to Bank within sixty (60) days after the end of
each Fiscal Quarter of Guarantor a covenant compliance worksheet in a form
approved by Bank for Bank's use in determining Guarantor's compliance with the
above-referenced covenants. All defined terms used in this Paragraph 18, but
not defined in this Guaranty, shall have the meanings assigned to such terms in
that certain Credit Agreement, dated as of December 1, 1997, among Guarantor,
the Lenders listed therein, NationsBank of Texas, N.A. and Bankers Trust Company
as amended from time to time (collectively, the "Guarantor's $150,000,000 Credit
Agreement"). All defined terms in Section 1.1 of the Guarantor's $150,000,000
Credit Agreement are incorporated herein by reference to the extent such terms
are necessary for the interpretation of any defined terms used in this Paragraph
18.
<PAGE>
Executed effective as of the 9th day of June, 1998.
TRAMMELL CROW COMPANY,
A DELAWARE CORPORATION
By: /s/ Richard H. Coe
--------------------------------------
Printed Name: Richard H. Coe
----------------------------
Title: Executive Vice President
-----------------------------------
By: /s/ WM P. Leiser
--------------------------------------
Printed Name: WM P. Leiser
----------------------------
Title: Executive Vice President/Treasurer
-----------------------------------
<PAGE>
FOURTH MODIFICATION OF MASTER CONSTRUCTION LOAN AGREEMENT
THIS FOURTH MODIFICATION, dated and effective as of December 30th, 1998, is
made and entered into by and between TRAMMELL CROW BTS, INC., a Delaware
corporation having a notice address of 7535 East Hampden Avenue, Suite 650,
Denver, Colorado 80231-4845 ("Developer"), and KEYBANK NATIONAL ASSOCIATION, a
national banking association having a notice address of 10 West Market Street,
9th Floor, Indianapolis, Indiana 46204 ("Bank").
RECITALS:
A. Developer and Bank entered into that certain Master Construction Loan
Agreement, dated August 4, 1997, as modified by that certain First Modification
of Master Construction Loan Agreement between Developer and Bank, dated
September 15, 1997, and as modified by that certain Second Modification of
Master Construction Loan Agreement between Developer and Bank, dated May 12,
1998, and as modified by that certain Third Modification of Master Construction
Loan Agreement between Developer and Bank, dated June 9, 1998 (collectively, the
"Loan Agreement").
B. The parties hereto desire to further modify the Loan Agreement in
accordance with the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, for and in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged the parties hereto agree as follows:
1. SCHEDULE 1 OF THE LOAN AGREEMENT. The Loan Agreement is hereby
modified by substituting SCHEDULE I attached to this Modification for SCHEDULE I
attached to the Loan Agreement.
2. SECTION 9.05 OF THE LOAN AGREEMENT. Section 9.05 of the Loan
Agreement is hereby in its entirety to read as follows:
9.05. NOTICES. All notices, statements, requests and demands
given to or made upon either party hereto in accordance with the
provisions of this Agreement shall be deemed to have been given or
made two (2) days after the same are deposited in the United States
mail, postage prepaid, or immediately upon personal delivery,
addressed as follows:
If to the Bank: KeyBank National Association
10 West Market Street
9th Floor
Indianapolis, Indiana 46266, and
Attention: Theodore J. Lewis, Vice President
<PAGE>
If to the Developer
or a Borrower: c/o Trammell Crow BTS, Inc.
7535 East Hampden Avenue, Suite 650
Denver, Colorado 80231-4845
Attention: Gregory B. Ham
or in accordance with the latest unrevoked written direction from either party
to the other party hereto.
3. EXPENSES. Borrower shall pay all costs incidental to this
Modification, including but not limited to title insurance, survey charges,
reasonable attorneys' fees, appraisals, insurance, inspecting engineers' and/or
architect's fees, environmental fees, and all other incidental expenses of Bank.
4. REPRESENTATIONS AND WARRANTIES. Developer hereby represents and
warrants to Bank that there does not presently exist any default under the Loan
Agreement or any event which with the notice or lapse of time or both would
constitute a default under the Loan Agreement and that each of the
representations and warranties set forth in the Loan Agreement remain true and
correct as of the date hereof, except to the extent said representations and
warranties specifically apply to those items explicitly modified by or otherwise
disclosed in this Modification, and each of said representations and warranties
is hereby incorporated herein by reference and modified as necessary to apply to
and cover the undertakings of Developer evidenced by this Modification.
5. CONTINUING EFFECT. All other terms, conditions, provisions,
representations and warranties set forth in the Loan Agreement not specifically
relating to those items explicitly modified by or otherwise disclosed in this
Modification shall remain unchanged and shall continue in full force and effect.
This Modification shall, wherever possible, be construed in a manner consistent
with the Loan Agreement; provided, however, in the event of any irreconcilable
inconsistency between the terms of this Modification and the terms of the Loan
Agreement, the terms of this Modification shall control.
6. WAIVER. No provision hereof shall constitute a waiver of any of the
terms or conditions of the Loan Agreement, other than those terms or conditions
explicitly modified or otherwise affected hereby.
2
<PAGE>
IN WITNESS WHEREOF, Developer and Bank have caused this Fourth Modification
of Master Construction Loan Agreement to be duly executed as of the date and
year first above written.
"DEVELOPER"
TRAMMELL CROW BTS, INC.,
a Delaware corporation
By: /s/ Gregory B. Ham
------------------------------------------
Printed: Gregory B. Ham
-------------------------------------
Title: Executive Vice President
---------------------------------------
"BANK"
KEYBANK NATIONAL ASSOCIATION, a national banking
association
By: /s/ Theodore J. Lewis
-----------------------------------------
Printed: Theodore J. Lewis
------------------------------------
Title: Vice President
--------------------------------------
3
<PAGE>
SCHEDULE I
PetsMart, Inc. shall be an Approved Tenant for one PetsMart facility in
Savannah, Georgia and for one PetsMart facility in Arvada, Colorado.
Stater Bros. shall be an Approved Tenant for one Stater Bros. grocery retail
facility in Murrieta, California.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts,"
"Selected Consolidated Financial Data," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Recent Developments,"
and to the use of our reports dated March 4, 1998 included and incorporated by
reference, in Amendment No. 1 to the Registration Statement (Form S-3 No.
333-72925) and related Prospectus of Trammell Crow Company dated March 9, 1999.
ERNST & YOUNG LLP
Dallas, Texas
March 2, 1999
