<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997
REGISTRATION NO. 333-25741
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LASALLE PARTNERS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 6531 36-4150422
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
---------------
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
(312) 782-5800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
WILLIAM E. SULLIVAN
EXECUTIVE VICE PRESIDENT
LASALLE PARTNERS INCORPORATED
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
(312) 782-5800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
WITH COPIES TO:
CHARLES W. MULANEY, JR., ESQ. THOMAS A. COLE, ESQ.
RODD M. SCHREIBER, ESQ. SIDLEY & AUSTIN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM ONE FIRST NATIONAL PLAZA
(ILLINOIS) CHICAGO, ILLINOIS 60603
333 WEST WACKER DRIVE, SUITE 2100 (312) 853-7000
CHICAGO, ILLINOIS 60606
(312) 407-0700
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be used
in connection with a United States offering (the "U.S. Prospectus") and one to
be used in connection with a concurrent international offering (the
"International Prospectus"). The U.S. Prospectus and the International
Prospectus are identical except that they contain different front cover pages.
The form of U.S. Prospectus is included herein and the front cover page of the
International Prospectus which is labeled "International Cover Page" follows
the back cover page for the U.S. Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued July 11, 1997
4,000,000 Shares
LOGO
COMMON STOCK
-----------
ALL OF THE 4,000,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
THE COMPANY. OF THE 4,000,000 SHARES OF COMMON STOCK BEING OFFERED,
3,200,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND
CANADA BY THE U.S. UNDERWRITERS AND 800,000 SHARES ARE BEING OFFERED
INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THIS
OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF
THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
OFFERING PRICE PER SHARE OF COMMON STOCK WILL BE BETWEEN $19
AND $21. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
-----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "LAP," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses of the Offering payable by the Company,
estimated at $2,000,000.
(3) The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 600,000 additional shares of Common Stock at the price to
public, less underwriting discounts and commissions, for the purpose of
covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, and proceeds to the Selling Stockholder will be $ ,
$ and $ , respectively. The Company will not receive any proceeds
from the exercise of the over-allotment option. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Sidley & Austin, counsel for the Underwriters. It is expected that the
delivery of the Shares will be made on or about , 1997 at the offices of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
WILLIAM BLAIR & COMPANY
MONTGOMERY SECURITIES
, 1997
<PAGE>
[Inside Front Cover]
Diagram depicting organizational structure and representative clients.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
[Inside Front Cover Foldout]
Map of United States depicting locations of
principal offices of LaSalle Partners Incorporated and
pictures of buildings for which the
Company provides management services,
corporate and financial services and
investment management services.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
----------------
For investors outside of the United States: No action has been or will be
taken in any jurisdiction by the Company or any Underwriter that would permit
a public offering of the Common Stock or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any restrictions as to the offering of the Common Stock
and the distribution of this Prospectus.
----------------
In this Prospectus references to "dollar" and "$" are to United States
dollars, and the term "United States" or "U.S." means the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................ 4
Risk Factors...................... 10
Background of the Company......... 16
Incorporation Transactions........ 17
Use of Proceeds................... 18
Dividend Policy................... 18
Capitalization.................... 19
Dilution.......................... 20
Selected Financial Data........... 21
Pro Forma Consolidated Financial
Statements....................... 23
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business........................... 40
Management......................... 54
Principal and Selling Stockholders. 60
Certain Relationships and Related
Transactions...................... 62
Description of Capital Stock....... 63
Shares Eligible for Future Sale.... 67
Certain U.S. Federal Tax
Considerations for Non-U.S.
Holders of Common Stock........... 69
Underwriters....................... 72
Legal Matters...................... 76
Experts............................ 76
Additional Information............. 76
Index to Financial Statements...... F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere
herein, including information under the heading "Risk Factors." Unless
otherwise indicated, all information in this Prospectus: (i) assumes no
exercise of the Underwriters' over-allotment option; (ii) reflects the
contribution of all of the partnership interests in LaSalle Partners Limited
Partnership ("LPL") and LaSalle Partners Management Limited Partnership
(together with LPL, the "Predecessor Partnerships") to the Company (the
"Contribution"), which will be completed immediately prior to the closing of
the offering of the Company's Common Stock (the "Offering"), and (iii) reflects
the amendment and restatement of the Company's Articles of Incorporation
immediately prior to the closing of the Offering. Following the Contribution,
the operations of the Predecessor Partnerships will be contributed to
subsidiaries of the Company as described under the caption "Incorporation
Transactions." Throughout this Prospectus, except where the context otherwise
requires, references to the "Company" or "LaSalle Partners" mean the
Predecessor Partnerships, including The Galbreath Company ("Galbreath") from
and after the merger of Galbreath with the Predecessor Partnerships, and their
subsidiaries as of and for the periods prior to the closing of the Offering
and, thereafter, collectively LaSalle Partners Incorporated and its
subsidiaries. See "Incorporation Transactions."
THE COMPANY
COMPANY OVERVIEW
LaSalle Partners is a leading full-service real estate firm that provides
management services, corporate and financial services and investment management
services to corporations and other real estate owners, users and investors
worldwide. By offering a broad range of real estate products and services, and
through its extensive knowledge of domestic and international real estate
markets, the Company is able to serve as a single source provider of solutions
for its clients' full range of real estate needs. Based on published industry
data and its industry knowledge, the Company believes that it holds a leading
market position in each of its primary businesses. For example, the Company
believes it is the largest property manager of office buildings in the United
States, one of the largest outsource service providers for corporate occupied
facilities and the third largest manager of institutional equity capital
invested in domestic real estate assets and securities. The Company is also the
fourth largest manager of institutional real estate equity investments in the
United Kingdom. Founded in 1968, the Company is headquartered in Chicago,
Illinois, and maintains corporate offices in 10 United States cities and four
international markets. The Company also maintains over 300 property and other
offices throughout the United States. In 1996, the Company generated total
revenue of $176.0 million, representing an increase of 15.9% from the prior
year's results.
On April 22, 1997, Galbreath, a property management, facility management and
development management company, merged with LaSalle Partners. Based on the 1996
Commercial Property News survey of property managers (the "1996 CPN Survey"),
the combination of Galbreath and the Company would have ranked the Company as
the third largest property manager in the United States. The Company's
principal objectives for the merger were to expand the Company's geographic
presence, add additional client relationships and provide the potential for
significant economic synergies with the Company's Management Services group. As
a result of the merger, the Company assumed management responsibility for an
additional 71 million square feet of commercial space.
COMPETITIVE ADVANTAGES
The Company believes that it has several competitive advantages which have
established it as a leader in the real estate services and investment
management industries. These advantages include the Company's:
. Relationship Orientation. The Company's client-driven focus enables the
Company to develop long-term relationships with owners and users of real
estate. By developing such relationships, the Company generates repeat
business and creates recurring revenue sources; 87% of the Company's 1996
revenue
4
<PAGE>
was derived from clients for which the Company provided services in prior
years. The Company's relationship orientation is supported by an employee
compensation system which it believes is unique in the real estate
industry. LaSalle Partners compensates its professionals with a salary,
bonus and stock ownership plan which is designed to reward client
relationship building, teamwork and quality performance, rather than on a
commission basis which is typical in the industry.
. Full Range of Services. By offering a wide range of high quality,
complementary services, the Company can combine its services to develop
and implement real estate strategies that meet the increasingly complex
needs of its clients. The Company's product and service capabilities
include property management and leasing, facility management, development
management, tenant representation, investment banking, land acquisition
and development, and investment management.
. Geographic Reach. With 10 corporate offices and over 300 property and
other offices throughout the United States, LaSalle Partners possesses
in-depth knowledge of local markets and can provide its full range of
real estate services throughout the country. In addition, the Company's
four international offices give the Company the ability to serve its
clients' needs in key international markets. The international offices
also serve as the platform from which the Company will expand its
international presence.
. Reputation. Based on its industry knowledge, commissioned marketing
surveys, industry publications and number of long-standing client
relationships, the Company believes that it is widely recognized by large
corporations and institutional owners and users of real estate as a
provider of high quality, professional real estate services and
investment management products. The Company believes its name recognition
and reputation for quality services are significant advantages when
pursuing new business opportunities.
. Experienced Management/Employee Equity Incentives. The Company's senior
management team has an average of approximately 18 years of experience in
the real estate services industry and, with the exception of Lizanne
Galbreath who joined the Company on April 22, 1997 in connection with the
Galbreath merger, has been with LaSalle Partners for an average of
approximately 16 years. The Company uses equity-based incentive
compensation and bonus plans and minimum stock ownership guidelines to
foster employee commitment and align employee and stockholder interests.
Immediately following the Offering, the Company's senior management team
will indirectly own approximately 21.4% of the outstanding Common Stock
and total employee ownership will be approximately 47.5%.
BUSINESS
To meet the diverse needs of its clients, the Company provides its full range
of real estate services through three principal business groups: Management
Services, Corporate and Financial Services and Investment Management.
Management Services. The Company's Management Services group develops and
implements property level strategies to increase investment value for real
estate owners and optimize occupancy costs for corporate owners and users of
real estate. The Management Services group provides three primary service
capabilities: (i) property management and leasing for property owners; (ii)
facility management for properties occupied by corporate owners and users; and
(iii) development management for both investors and real estate users seeking
to develop new buildings or renovate existing facilities. As of March 31, 1997,
the Management Services group had property management, leasing or facility
management responsibility for approximately 132.7 million square feet of
commercial space.
Corporate and Financial Services. The Company's Corporate and Financial
Services group provides transaction and advisory services through three primary
service capabilities: (i) tenant representation for corporations and
professional service firms; (ii) investment banking services to address the
financing, acquisition and disposition needs of real estate owners; and (iii)
land acquisition and development services for owners, users and developers of
land. The Corporate and Financial Services group executed over 250 tenant
representation assignments in 1996, representing approximately seven million
square feet, and completed institutional property sales, debt and equity
financings and portfolio advisory activities on assets and portfolios valued at
approximately $4.9 billion.
5
<PAGE>
Investment Management. The Company's Investment Management group provides
real estate investment management services to institutional investors,
corporations and high net worth individuals. The Company offers its clients a
broad range of private investments (i.e., purchases of real estate assets) and
public investments such as real estate investment trusts ("REITs") and
commercial mortgage-backed securities ("CMBS"). Private real estate investments
have been made on a direct basis and through fund investments in portfolios of
assets. Investments in public REITs and CMBS are generally managed through
investment funds or client-specific portfolios. As of March 31, 1997, the
Company had approximately $15.1 billion of real estate assets under management,
of which approximately $2.5 billion consisted of public real estate securities.
GROWTH STRATEGY
The Company is pursuing a growth strategy which capitalizes on existing
client relationships and emerging industry trends. Key components of its growth
strategy include:
. Expanding Client Relationships. The Company intends to utilize its broad
real estate services capabilities to increase the range of services
provided to existing clients as well as to develop new client
relationships.
. Broadening International Presence. The Company intends to grow its
existing international operations and enter new markets to meet the
increasingly global needs of its clients.
. Selectively Pursuing Strategic Acquisitions. As the industry
consolidation among real estate service providers continues, the Company
intends to selectively pursue strategic acquisitions which expand the
Company's product and service offerings and geographic presence and which
provide the opportunity for economies of scale.
. Pursuing Co-investment Opportunities. The Company intends to accelerate
its strategy of co-investing with its investment management clients to
take advantage of recovering real estate markets. This strategy is
intended to increase the growth of assets under management, generate
return on investment and create potential opportunities to provide
services related to the acquisition, financing, property management,
leasing and disposition of such investments.
INCORPORATION TRANSACTIONS
The Company and LaSalle Partners Management Services, Inc. ("LPMS"), LaSalle
Partners Corporate & Financial Services, Inc. ("LCFS") and LaSalle Advisors
Capital Management, Inc. ("LACM") were formed in April 1997 in connection with
the conversion of the business and operations of the Predecessor Partnerships
from partnership to corporate form. Immediately prior to the closing of the
Offering, the general and limited partners of the Predecessor Partnerships will
exchange their partnership interests in the Predecessor Partnerships for
12,200,000 shares of Common Stock, and the Company will succeed to the business
and operations of the Predecessor Partnerships. Prior to the exchange, neither
the Company, LPMS, LCFS nor LACM had any assets or conducted any operations
other than in connection with their formation.
Following the exchange, the Company will operate as a holding company with
the business and operations of the Predecessor Partnerships being conducted
through four principal wholly-owned operating subsidiaries, LPMS, LCFS, LACM
and LaSalle Partners International, Inc. ("LPII" and, collectively with LPMS,
LCFS and LACM, the "Principal Operating Subsidiaries"). LPII, an existing
subsidiary of the Predecessor Partnerships, will continue to conduct the
Company's international operations. The Predecessor Partnerships are
undertaking these transactions in order to facilitate access to the capital
markets, provide greater flexibility for acquisitions, create longer-term
liquidity for their partners and reduce administrative burdens associated with
operating as a partnership. See "Incorporation Transactions."
6
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered:
U.S. offering.................................... 3,200,000 shares
International offering........................... 800,000 shares
Total Common Stock offered....................... 4,000,000 shares
Common Stock to be outstanding after the Offering. 16,200,000 shares (1)
Use of proceeds................................... To repay certain
outstanding indebtedness of
the Company and for general
corporate purposes. See
"Use of Proceeds."
New York Stock Exchange symbol.................... LAP
</TABLE>
- --------
(1) Excludes an aggregate of: (i) 725,000 shares of Common Stock issuable upon
exercise of options to be granted under the Company's 1997 Stock Award and
Incentive Plan ("1997 Stock Incentive Plan") upon closing of the Offering,
with an exercise price equal to the initial public offering price; and (ii)
1,490,000 additional shares of Common Stock reserved for future grants or
awards under the Company's 1997 Stock Incentive Plan. See "Management--
Director Compensation" and "--1997 Stock Award and Incentive Plan."
RISK FACTORS
Prospective investors should carefully consider the matters discussed under
"Risk Factors" prior to making an investment decision regarding the Common
Stock offered hereby. These matters include, among others: (i) the impact of
general economic conditions and the real estate economic climate on the
Company's business and results of operations; (ii) the risk that property
management and investment management agreements will be terminated prior to
expiration or not renewed; (iii) the dependence of the Company's revenue from
property management and leasing services on the performance of the properties
managed by the Company; (iv) the risks inherent in pursuing a selective
acquisition strategy; (v) the concentration of the Company's properties in
central business districts; (vi) the risks associated with the co-investment
activities of the Company; (vii) the seasonal nature of the Company's revenue,
operating income and net earnings; and (viii) the competition faced by the
Company in a variety of business disciplines within the commercial real estate
industry. See "Risk Factors."
7
<PAGE>
SUMMARY FINANCIAL DATA
The information set forth below should be read in conjunction with "Pro Forma
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Predecessor
Partnerships' Combined Financial Statements and notes thereto, all included
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996
PRO FORMA AS
1992 1993 1994 1995 1996 ADJUSTED (1)
---------- ---------- ----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total revenue.... $ 103,334 $ 104,049 $ 126,918 $ 151,827 $ 175,967 $ 207,559
Total operating
expenses........ 84,722 87,036 108,903 131,711 149,066 177,382
---------- ---------- ----------- ----------- ----------- -----------
Operating income
(loss).......... 18,612 17,013 18,015 20,116 26,901 30,177
Interest expense. 5,590 5,257 5,159 3,806 5,730 1,075
Earnings (loss)
before provision
for income
taxes........... 13,022 11,756 12,856 16,310 21,171 29,102
Net provision
(benefit) for
income taxes.... 355 300 554 505 1,207 11,204
---------- ---------- ----------- ----------- ----------- -----------
Net earnings
(loss).......... $ 12,667 $ 11,456 $ 12,302 $ 15,805 $ 19,964 $ 17,898
========== ========== =========== =========== =========== ===========
Pro forma:
Supplemental
primary and
fully diluted
earnings (loss)
per share(2)... $1.13
===========
OTHER DATA:
EBITDA(3)........ $ 21,034 $ 19,544 $ 20,866 $ 24,356 $ 32,317 $ 37,624
Cash flows
provided by
(used in)
operating
activities...... 14,675 4,837 24,628 13,553 13,964 13,646
Cash flows
provided by
(used in)
investing
activities...... (1,727) (2,738) (4,885) (5,706) (32,478) (31,852)
Cash flows
provided by
(used in)
financing
activities...... (19,000) (6,758) (12,028) (12,365) 17,189 19,195
Investments under
management(4)... $6,500,000 $7,000,000 $10,700,000 $11,500,000 $15,200,000 $15,200,000
Total square
feet-facility
management(5)... 2,400 50,600 50,600 67,600 68,600 81,600
Total square feet
under
management(6)... 47,000 98,300 102,400 125,700 131,600 202,900
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------
1997
PRO FORMA AS
1996 1997 ADJUSTED (1)
------------ ------------ -------------
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total revenue.... $ 27,285 $ 36,019 $ 43,384
Total operating
expenses........ 32,490 39,291 46,269
------------ ------------ -------------
Operating income
(loss).......... (5,205) (3,272) (2,885)
Interest expense. 937 1,695 265
Earnings (loss)
before provision
for income
taxes........... (6,142) (4,967) (3,150)
Net provision
(benefit) for
income taxes.... (350) (248) (1,213)
------------ ------------ -------------
Net earnings
(loss).......... $ (5,792) $ (4,719) $ (1,937)
============ ============ =============
Pro forma:
Supplemental
primary and
fully diluted
earnings (loss)
per share(2)... $(0.12)
=============
OTHER DATA:
EBITDA(3)........ $ (4,094) $ (1,498) $ (599)
Cash flows
provided by
(used in)
operating
activities...... (12,721) (4,678) (7,892)
Cash flows
provided by
(used in)
investing
activities...... (5,967) (2,038) (2,185)
Cash flows
provided by
(used in)
financing
activities...... 14,921 7,705 7,573
Investments under
management(4)... $11,500,000 $15,100,000 $15,100,000
Total square
feet-facility
management(5)... 67,600 69,100 82,100
Total square feet
under
management(6)... 130,200 132,700 204,000
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(7)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 8,094 $ 14,994
Total assets............................................ 124,075 166,411
Long-term debt(8)....................................... 57,083 --
Total liabilities....................................... 109,425 50,575
Partners' capital/stockholders' equity.................. 14,650 115,836
</TABLE>
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(Footnotes on following page)
8
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(1) As adjusted to give effect to the merger of Galbreath with the Company, the
Incorporation Transactions and the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $20.00 per share and the receipt and application of the net proceeds
therefrom to retire debt, as though they had occurred on January 1, 1996.
See "Use of Proceeds," "Background of the Company" and "Incorporation
Transactions."
(2) Pro forma as adjusted supplemental primary and fully diluted earnings
(loss) per share is based upon 15,869,337 shares of Common Stock
outstanding, which includes the 12,200,000 shares of Common Stock to be
issued in connection with the Incorporation Transactions and gives effect
to 3,669,337 of the 4,000,000 shares of Common Stock to be issued in the
Offering, the proceeds of which will be used to repay indebtedness. The
Company will have 16,200,000 shares of Common Stock outstanding upon
completion of the Offering. See "Use of Proceeds."
(3) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, thereby removing the effect of certain non-cash charges on
income, such as the amortization of intangible assets relating to
acquisitions. Management believes that EBITDA is useful to investors as a
measure of operating performance, cash generation and ability to service
debt. EBITDA is also used by analysts who report publicly on the
performance of real estate services companies. However, EBITDA should not
be considered as an alternative either to: (i) net earnings (determined in
accordance with generally accepted accounting principles ("GAAP")); (ii)
operating cash flow (determined in accordance with GAAP); or (iii)
liquidity. There can be no assurance that the Company's calculation of
EBITDA is comparable to similarly titled items reported by other companies.
(4) Investments under management represents the aggregate fair market value or
cost basis of assets managed by the Investment Management group as of the
end of the periods shown. The percentage of investments under management
stated at cost represented 3% in 1992 and 1993, 7% in 1994 and 1995, and 8%
in 1996 and 1997 of the amounts shown.
(5) Represents the total square footage of properties for which the Company
provided facility management services as of the end of the periods shown.
(6) Represents the total square footage of properties for which the Company
provided property management and leasing or facility management services as
of the end of the periods shown.
(7) As adjusted to give effect to the merger of Galbreath with the Company, the
Incorporation Transactions and the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $20.00 per share and the receipt and application of the net proceeds
therefrom to retire debt, as though they had occurred on March 31, 1997.
See "Use of Proceeds," "Background of the Company" and "Incorporation
Transactions."
(8) See Note 7 to Notes to the Predecessor Partnerships' Combined Financial
Statements.
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RISK FACTORS
Prospective investors should carefully consider the following information in
addition to the other information presented in this Prospectus before
purchasing the shares of Common Stock offered hereby.
GENERAL ECONOMIC CONDITIONS; REAL ESTATE ECONOMIC CLIMATE
Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate could adversely affect certain segments of
the Company's business. Such economic conditions could result in a general
decline in rents which in turn would adversely affect revenue from property
management fees (which in certain cases are calculated as a percentage of the
revenue generated by the property under management) and commissions or fees
derived from property sales and leases (which are typically based on the sale
price or lease revenue commitment, respectively). Such conditions could also
lead to a decline in sale prices as well as a decline in demand for capital
invested in commercial real estate and related assets.
The condition of the real estate market tends to be cyclical and related to
the condition of the economy as a whole or, at least, to the perceptions of
investors and users as to the economic outlook. The sharp downturn in the
commercial real estate market in the early 1990s has caused and may continue
to cause some property owners to dispose of their properties or to lose them
through foreclosures. Such changes in the ownership of properties may be
accompanied by a change in property and investment management firms and could
cause the Company to lose property and investment management agreements or
make the agreements it retains less profitable.
RISK OF TERMINATION OR OTHER LOSS OF MANAGEMENT AGREEMENTS
The Company is substantially dependent on revenue received for services
performed under property management and leasing and investment management
agreements, and would be adversely affected if a significant number of these
agreements were terminated or were not renewed. For the year ended December
31, 1996, revenue from property management and leasing agreements and
investment management agreements constituted approximately 37% and 32%,
respectively, of total revenue. Most property management and leasing and
investment management agreements have terms of approximately three years and
typically are terminable by the client for any reason on as little as 30 to 60
days' notice. There can be no assurance that any such contracts will not be
cancelled prior to expiration or will be renewed when the term expires. In
addition, the Company derives substantial property management and leasing and
investment banking fees from real estate assets managed by its Investment
Management group. Contracts for these related services may be terminated or
lost for a number of reasons, including the termination or cancellation of the
underlying asset management agreement or disposition of the subject property.
The loss of a substantial number of these agreements could have a material
adverse effect on the Company.
In addition, the Company will sell the remaining real estate assets held by
four multiple investor funds ("commingled funds") formed by the Company in the
1980s to hold real estate investments on behalf of numerous tax-exempt
institutional investors. The Company receives investment advisory, property
management and leasing and investment banking fees for services provided in
connection with these funds. In 1996, 1995 and 1994, revenue derived from, or
in connection with, these funds represented 11.5%, 12.8% and 20.1%,
respectively, of the Company's total revenue. The Company expects that revenue
derived from, or in connection with, these funds will decrease and eventually
be eliminated as the remaining assets of the funds are sold. While the timing
of the revenue losses will depend on the timing of the dispositions, the
Company expects to complete substantially all of such dispositions prior to
the end of 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON PROPERTY PERFORMANCE
The Company's revenue from property management and leasing services are
generally based on percentages of the revenue generated by the properties that
it manages. In addition, leasing commissions typically are based
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on the value of the lease revenue commitments. Accordingly, the continued
success of the Company will be dependent, in part, upon the performance of the
properties it manages. Such performance in turn will depend in part upon the
ability of the Company to attract and retain creditworthy tenants for the
properties it manages, the Company's ability to control operating expenses
(some of which are beyond the Company's control), financial conditions
prevailing generally and in the areas in which such properties are located and
the real estate market generally.
RISKS INHERENT IN PURSUING SELECTIVE ACQUISITION STRATEGY
The Company intends to continue to selectively pursue domestic and
international acquisitions as a means of strengthening its position as an
industry leader, as well as expanding and enhancing its current product and
service offerings and geographic market coverage. The success of the Company's
acquisition strategy will be dependent upon the availability of suitable
acquisition candidates on favorable terms, of which there can be no assurance.
Further, there can be no assurance that any acquisition, including the merger
of Galbreath with the Company, will be integrated successfully into the
Company's operations or will perform in accordance with expectations or that
business judgements as to the value or consequences of any such acquisition
will prove correct. The consideration paid for any future acquisition may be
in cash, debt or shares of the Company's capital stock. The Company could
incur substantial indebtedness or substantial goodwill or both in connection
with its acquisition strategy. In addition, issuances of additional shares of
the Company's capital stock in connection with an acquisition could result in
dilution to stockholders.
CONCENTRATION OF PROPERTIES IN CENTRAL BUSINESS DISTRICTS
Many of the properties for which the Company provides management and leasing
or investment management services are office buildings in the central business
districts ("CBDs") of major urban cities. Approximately 39% of the 132.7
million square feet under the Company's property, leasing and facility
management agreements, and approximately 36% of the $12.6 billion in private
real estate assets under the Company's investment management agreements as of
March 31, 1997, are related to properties located in CBDs. During the early
1990s, rental rates and property values of CBD office buildings experienced
greater declines relative to other property types and locations. This decline,
and the slower recovery of this sector to date, has been largely attributable
to over-supply of new office space and corporate restructurings affecting
large businesses. The cyclical market conditions of the CBD office sector will
continue to have an important impact on the Company's operations.
RISKS ASSOCIATED WITH CO-INVESTMENT ACTIVITIES
The Company intends to use the increased financial flexibility created by
the Offering to expand its co-investment activities. The Company's increased
participation as a principal in real estate investments could increase
fluctuations in the Company's net earnings and cash flow. The Company's co-
investments also inherently involve the risk of loss of the Company's
investment. Moreover, in certain of these investments, the Company will not
have complete discretion to control the timing of the disposition of such
investments and, as a result, the recognition of any related gain or loss. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SEASONALITY
Historically, the Company's revenue, operating income and net earnings in
the first three calendar quarters are substantially lower than in the fourth
quarter. This seasonality is due to a calendar year-end focus on the
completion of transactions, which is consistent with the real estate industry
generally. In addition, an increasing percentage of the Company's management
contracts contain clauses providing for performance bonuses to be received if
the Company achieves certain performance targets. Such incentive payments are
generally earned in the fourth quarter. In contrast, the Company's non-
variable operating expenses, which are treated as expenses when incurred
during the year, are relatively constant on a quarterly basis. Therefore, the
Company typically sustains a loss in the first and second quarter of each
calendar year, reports a small profit or loss in the third quarter and records
a substantial majority of the Company's earnings in the fourth calendar
quarter. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results of Operations."
11
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COMPETITION
The Company competes in a variety of business disciplines within the
commercial real estate industry, including investment management, tenant
representation, corporate facility management, construction and development
management, on-site property management and leasing, and investment banking.
Each of these business disciplines is highly competitive on a national as well
as local level. Depending on the industry segment, the Company faces
competition from other real estate service providers, institutional lenders,
insurance companies, investment banking firms, investment managers and
accounting firms. Some of the Company's principal competitors in certain of
these business disciplines have greater financial resources and a broader
global presence. Many of the Company's competitors are local or regional firms
which are substantially smaller than the Company on an overall basis; however,
they may be substantially larger on a local or regional basis. The Company has
faced increased competition in recent years in the Management Services and
Investment Management segments of its business which has, in some cases,
resulted in lower property and investment management fees, or compensation
arrangements more closely aligned with performance. In recent years, there has
also been a significant increase in the number of REITs which self-manage
their real estate assets, which could decrease the demand for property
management services, and thereby increase competition. In general, with
respect to each of the Company's business disciplines, there can be no
assurance that the Company will be able to continue to compete effectively,
will be able to maintain current fee or margin levels or arrangements or will
not encounter increased competition.
RISK RELATED TO GENERAL PARTNER STATUS
Subsidiaries of the Company are general partners in numerous general and
limited partnerships which invest in or manage real estate assets. As a
general partner, these subsidiaries may be liable to their partners as well as
liable for the obligations of such partnerships. Because all of the Company's
general partnership interests are held through its special purpose
subsidiaries, the Company believes that its exposure to contingent liabilities
is limited to the total invested or committed capital in and notes from or
advances to such subsidiaries holding the general partnership interests.
ENVIRONMENTAL CONCERNS
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 an on-site property
manager, it could be held liable as an operator for such costs. Such liability
may be imposed without regard to 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 of the
Company to disclose environmental issues could subject the Company to
liability to a buyer or lessee of property. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs it incurs in connection with the contamination. The operator
of a site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the site,
including 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 upon the
business or financial condition of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 16,200,000 shares of
Common Stock outstanding. The 4,000,000 shares sold in the Offering (4,600,000
if the Underwriters exercise in full the over-allotment option) will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except for any shares held by an
"affiliate" of the Company. The 12,200,000
12
<PAGE>
shares to be held by the stockholders of the Company (11,600,000 if the
Underwriters exercise in full the over-allotment option) will be deemed to be
"restricted securities," as that term is defined in Rule 144 under the
Securities Act ("Rule 144"), in that such shares were issued in private
transactions not involving a public offering. None of such shares will be
eligible for sale under Rule 144 prior to the first anniversary of the closing
of the Offering. For a summary description of the requirements of Rule 144,
see "Shares Eligible for Future Sale." The Company intends to file a
registration statement on Form S-8 with respect to the shares reserved for
issuance under its 1997 Stock Incentive Plan, including the 725,000 shares of
Common Stock underlying options which the Company expects to award to certain
employees and directors pursuant to such plan upon the closing of the
Offering.
The Company and each of the Company's existing stockholders will enter into
lock-up agreements with the Representatives (as herein defined) not to sell or
otherwise dispose of any of their shares of Common Stock for a period of 180
days from the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated, subject to certain exceptions. The Company
has been informed by Galbreath-LPL that after the consummation of the
Offering, Galbreath-LPL intends to distribute its shares of Common Stock to
its members. Certain stockholders of the Company are entitled to register
their shares under the Securities Act for resale, at the expense of the
Company. See "Shares Eligible for Future Sale--Registration Rights" and
"Underwriters."
In March 1997, DEL/LaSalle Finance Company, L.L.C. ("DEL/LaSalle"), a
limited liability company, all of the membership interests of which are owned
by DEL-LPL Limited Partnership ("DEL-LPL") and DEL-LPAML Limited Partnership
("DEL-LPAML" and together with DEL-LPL, the "Employee Partnerships"), limited
partnerships which are comprised of approximately 200 of the Company's current
and former employees, purchased the limited partnership interests in the
Predecessor Partnerships owned by a subsidiary of Dresdner Bank AG
("Dresdner"). Dresdner was required to sell the interests in order to comply
with bank regulatory requirements. As consideration for such purchase,
DEL/LaSalle issued to Dresdner a $35.0 million promissory note (the "Dresdner
Note"). The purchase price was determined in May 1996 and was based on the
original purchase price for such interests plus Dresdner's share of expected
undistributed earnings for 1996. All of the 1,826,548 shares of Common Stock
to be received by DEL/LaSalle in connection with the Incorporation
Transactions and 2,831,150 of the shares of Common Stock held by the Employee
Partnerships, representing an aggregate of approximately 29% of the
outstanding Common Stock after giving effect to the Offering, will be pledged
to support DEL/LaSalle's obligations under the Dresdner Note. The principal
amount of the Dresdner Note is due in five installments, with $3.5 million due
on April 15, 2000 and $7.8 million due on each April 15 thereafter, through
2004. The Dresdner Note bears interest at 7.0% per annum, payable on each
April 15 beginning on April 15, 1998. DEL/LaSalle will not have any assets
other than the Common Stock issued in connection with the Incorporation
Transactions. Funds for repayment of the Dresdner Note, including interest
thereon, will be provided by capital contributions from the Employee
Partnerships and through the sale of Common Stock in the public market or in
privately negotiated transactions. DEL/LaSalle has granted the U.S.
Underwriters a 30-day option to purchase up to 600,000 shares of Common Stock
to cover over-allotments in connection with the Offering. In the event that
the Underwriters' over-allotment option is exercised, the proceeds to
DEL/LaSalle will be used to repay a portion of the Dresdner Note. Subject to
certain exceptions, the Employee Partnerships will pledge 600,000 shares of
Common Stock to replace stock sold by DEL/LaSalle. If an event of default
occurs under the Dresdner Note, Dresdner will have the right to sell any or
all of the pledged shares in the public market or in privately negotiated
transactions, subject to compliance with the Securities Act and applicable
law. See "Shares Eligible for Future Sale" and "Underwriters."
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock.
CONTROL BY PRINCIPAL STOCKHOLDER
Upon completion of this Offering, the Employee Partnerships, directly and
through DEL/LaSalle, will beneficially own approximately 48.0% of the
Company's outstanding shares of Common Stock (approximately
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44.3% if the Underwriters exercise in full the over-allotment option).
Accordingly, the Employee Partnerships will continue to be able to exercise
substantial influence over the business and affairs of the Company, including
but not limited to having sufficient voting power to substantially influence
the election of all of the directors to be elected at any annual or special
meeting of stockholders and, in general, to substantially influence the outcome
of any corporate transaction or other matter submitted to the stockholders for
approval, including mergers, consolidations, the sale of substantially all of
the Company's assets, charter amendments and other extraordinary corporate
transactions or may prevent or cause a change in the control of the Company.
The Common Stock will be voted in accordance with the direction of partners
having a majority of the percentage ownership interests in the Employee
Partnerships. In addition, Lizanne Galbreath, a director and member of senior
management of the Company, and other former stockholders of Galbreath who are
now employees of the Company will own an additional 6.7% of the Company's
outstanding shares of Common Stock following the Offering. See "Principal and
Selling Stockholders."
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, there can be no assurance
that an active trading market will develop or be sustained. The price of shares
of Common Stock to be sold in the Offering will be determined by negotiations
among the Company and the Underwriters and may be higher than the price at
which the Common Stock will trade after completion of the Offering. See
"Underwriters" for factors to be considered in determining such offering price.
The market price of the Common Stock could be subject to significant
fluctuations in response to quarter-to-quarter variations in operating results
of the Company or its competitors, conditions in the commercial real estate
industry, the commencement of, developments in or outcome of litigation,
changes in estimates of the Company's performance by securities analysts, and
other events or factors, including the events and other factors described in
this "Risk Factors" section. In addition, the stock market in recent years has
experienced price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of companies. These fluctuations,
as well as general economic and market conditions, may adversely affect the
market price of the Common Stock. See "Underwriters."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Amendment and Restatement (the "Restated Articles
of Incorporation") and Amended and Restated Bylaws (the "Bylaws") will include
provisions that may delay, defer or prevent a takeover attempt that may be in
the best interest of stockholders. The Company has a classified Board of
Directors, pursuant to which directors are divided into three classes, with
three-year staggered terms. The classified board provision could increase the
likelihood that, in the event an outside party acquired a controlling block of
the Company's stock or initiated a proxy contest, incumbent directors
nevertheless would retain their positions for a substantial period, which may
have the effect of discouraging, delaying or preventing a change in control of
the Company. In addition, the Restated Articles of Incorporation will provide
for: (i) the ability of the Board of Directors to establish one or more classes
and series of capital stock including the ability to issue up to 10,000,000
shares of preferred stock, and to determine the price, rights, preferences and
privileges of such capital stock without any further stockholder approval; (ii)
a requirement that any stockholder action without a meeting be pursuant to
unanimous written consent; and (iii) certain advance notice procedures for
nominating candidates for election to the Board of Directors. Such provisions
could discourage bids for the Common Stock at a premium as well as affect the
market price of the Common Stock. In addition, certain provisions of the
Maryland General Corporation Law (the "MGCL") may also have the effect of
delaying, deterring or preventing a change in the control of the Company. The
possible impact of these provisions on takeover attempts could adversely affect
the price of the Common Stock. See "Description of Capital Stock."
ABSENCE OF DIVIDENDS; DIVIDEND POLICY
The Company does not currently intend to pay any dividends on the Common
Stock in the foreseeable future. Any payment of future dividends and the
amounts thereof will be dependent upon the Company's
14
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earnings, financial requirements and other factors deemed relevant by the
Company's Board of Directors, including the Company's contractual obligations.
The Company expects that provisions to be contained in agreements governing the
Company's long-term indebtedness after the Offering will limit the amount of
dividends that the Company may pay to its stockholders. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially higher than
the pro forma net tangible book value per share of Common Stock. As a result,
assuming an initial public offering price of $20.00 per share, purchasers of
shares of Common Stock in the Offering will incur immediate and substantial
dilution of $16.07 in net tangible book value per share. See "Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements. Discussions containing
such forward-looking statements may be found in the material set forth under
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as within this
Prospectus generally. In addition, when used in this Prospectus, the words
"believes," "intends," "anticipates," "expects" and words of similar import may
constitute "forward-looking statements." Such statements are subject to a
number of risks and uncertainties. Actual results in the future could differ
materially from those described in the forward-looking statements as a result
of the risk factors set forth above and the matters set forth in the Prospectus
generally.
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BACKGROUND OF THE COMPANY
The Company, founded in 1968, is a leading full-service real estate firm
that provides management services, corporate and financial services and
investment management services to corporations and other real estate owners
and investors worldwide. The Company has grown by expanding both its client
base and its range of services and products in anticipation of client needs
and to seize market opportunities. Primarily providing investment banking,
investment management and land services in its early years of existence, the
Company expanded to offer development management services beginning in 1975,
property management and leasing services beginning in 1978 and tenant
representation services beginning in 1978. In addition, the Company was a
pioneer in the facility management services business, first offered by the
Company in 1990.
The Predecessor Partnerships were formed in 1986 by the Employee
Partnerships to conduct the Company's business. In 1988, DSA-LSPL, Inc. and
DSA-LSAM, Inc., affiliates of Dai-ichi Life (U.S.A.), Inc. ("Dai-ichi"),
became limited partners of the Predecessor Partnerships.
In November 1994, the Predecessor Partnerships acquired substantially all of
the assets of Alex. Brown Kleinwort Benson Realty Advisors Corporation
("ABKB"), a real estate investment advisor, in exchange for a 20% limited
partnership interest in the Predecessor Partnerships (the "ABKB Acquisition").
Through its acquisition of Kleinwort Benson, the parent company of ABKB,
Dresdner acquired these limited partnership interests, but was required to
sell such interests in order to comply with bank regulatory requirements. In
March 1997, DEL/LaSalle purchased the Dresdner limited partnership interests
in exchange for a $35.0 million note. The purchase price was determined in May
1996 and was based on the original purchase price for such interests plus
Dresdner's share of expected undistributed earnings for 1996. Following the
repurchase, the Employee Partnerships, directly and through DEL/LaSalle, and
Dai-ichi had ownership interests in the Predecessor Partnerships of 75.6% and
24.4%, respectively. The Employee Partnerships are the sole general partners
of the Predecessor Partnerships. See "Shares Eligible for Future Sale."
In October 1996, the Predecessor Partnerships acquired all of the capital
stock of CIN Property Management Limited ("CIN Property Management"), the
affiliated real estate investment and property management advisor for the
British Coal Pension Fund. This entity immediately changed its name to CIN
LaSalle Investment Management Limited ("CIN LaSalle Investment").
On April 22, 1997, Galbreath, a property management, facility management and
development management company, merged with the Predecessor Partnerships. As
consideration for Galbreath, the Predecessor Partnerships issued to the former
stockholders of Galbreath limited partnership interests representing an 18%
interest in the Predecessor Partnerships. Following the Galbreath merger, the
Employee Partnerships, directly and through DEL/LaSalle, and Dai-ichi had
ownership interests in the Predecessor Partnerships of approximately 62% and
20%, respectively. The proportional interests of the Employee Partnerships,
DEL/LaSalle, Dai-ichi and the former stockholders of Galbreath may change
slightly depending upon the result of current negotiations between them
relating to a Galbreath joint venture. See "Business--Galbreath Acquisition."
The Company, LPMS, LCFS and LACM were incorporated in Maryland in April
1997. Prior to the Incorporation Transactions (as defined below), the Company,
LPMS, LCFS and LACM will have no operations other than in connection with
their formation.
The Company's executive offices are located at 200 East Randolph Drive,
Chicago, Illinois 60601 and its telephone number is (312) 782-5800. The
Company has corporate offices in 10 United States cities and in London, Paris,
Mexico City and Beijing and has over 300 property and other offices throughout
the United States.
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INCORPORATION TRANSACTIONS
The Company and LPMS, LPCFS and LACM were formed in April 1997 in connection
with the conversion of the business and operations of the Predecessor
Partnerships from partnership to corporate form. Immediately prior to the
closing of the Offering, pursuant to agreements among the partners, each of
the general and limited partners of the Predecessor Partnerships will exchange
all of their respective general and limited partnership interests (the
"Partnership Interests Exchange") in the Predecessor Partnerships for an
aggregate of 12,200,000 shares of Common Stock. At March 31, 1997, the pro
forma book value of the Predecessor Partnerships' net assets was $43.4 million
and the pro forma book value of the Common Stock was $115.8 million. See
"Dilution" and "Pro Forma Consolidated Financial Statements." The Company will
cause the Predecessor Partnerships to contribute, among other things,
substantially all of their respective assets and liabilities (the "Asset
Contributions") relating to: (i) the management services group to LPMS; (ii)
the corporate and financial services group to LCFS; and (iii) the investment
management group to LACM. LPII, an existing subsidiary of the Predecessor
Partnerships, will continue to conduct the Company's international operations.
Following the Partnership Interests Exchange and the Asset Contributions, the
Company will operate as a holding company with the business and operations of
the Predecessor Partnerships being conducted through the Principal Operating
Subsidiaries. The Predecessor Partnerships are undertaking these transactions
in order to facilitate access to the capital markets, provide greater
flexibility for acquisitions, create longer-term liquidity for their partners
and reduce administrative burdens associated with operating as a partnership.
Following the Partnership Interests Exchange, the Employee Partnerships and
DEL/LaSalle, Dai-ichi and the former stockholders of Galbreath will own 63.7%,
18.3% and 18.0%, respectively, of the Company's outstanding Common Stock
immediately prior to the Offering. The percentage ownership interest of the
Employee Partnerships, DEL/LaSalle, Dai-ichi and the former stockholders of
Galbreath in the Company following the Partnership Interests Exchange will be
identical to their effective economic ownership interests in the Predecessor
Partnerships. See "Principal and Selling Stockholders." The proportional
interests of the Employee Partnerships, DEL/LaSalle, Dai-ichi and the former
stockholders of Galbreath may change slightly depending upon the result of
current negotiations between them relating to a Galbreath joint venture. See
"Business--Galbreath Acquisition." The Partnership Interests Exchange and the
Asset Contributions are collectively referred to as the "Incorporation
Transactions." The closing of the Offering is conditioned upon, among other
things, the completion of the Partnership Interests Exchange. In connection
with the Incorporation Transactions, the Company will amend and restate its
Articles of Incorporation. See "Description of Capital Stock."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered hereby (assuming an initial public offering price of
$20.00 per share), after deducting estimated underwriting discounts and
commissions and estimated expenses of the Offering payable by the Company, are
estimated to be approximately $72.4 million. The Company will not receive any
proceeds from the exercise of the over-allotment option.
The Company will use the net proceeds to repay the full amount of the
indebtedness outstanding under promissory notes issued to Dai-ichi (the "Dai-
ichi Notes"). Any remaining proceeds will be used to repay the indebtedness
outstanding under the Company's long-term credit facility (the "Long-Term
Facility") and for general corporate purposes. The Dai-ichi Notes consist of
approximately $6.2 million principal amount of Class A Notes and $31.0 million
principal amount of Class B Notes, each bearing interest at 10.0%, payable
annually on December 31. Principal payments on the Class A Notes are due in
two equal installments on June 30, 1997 and 1998. Principal payments on the
Class B Notes are due in 10 equal installments on June 30th of each year
beginning in 1999. Borrowings under the Long-Term Facility mature on September
6, 1999, and bear interest at the greater of the lending bank's prime rate and
the applicable federal funds rate plus .5%. Principal payments on borrowings
under the Long-Term Facility are payable on June 15 of each year for amounts
outstanding on March 31, based on a defined amortization schedule. As of March
31, 1997, the principal amount of borrowings under the Long-Term Facility was
approximately $29.2 million, of which approximately $23.3 million is
anticipated to be outstanding at the time of the Offering. Upon completion of
the Offering, the Company intends to use its borrowing capacity, cash
generated from operations and the remaining net proceeds of the Offering to
pursue its growth strategy, including international expansion, selective
acquisitions and co-investment activities. Pending application of the net
proceeds of the Offering as described herein, the Company intends to invest
the proceeds in investment-grade, short-term, interest-bearing securities.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock to date. After
the Offering, the Company intends to retain its earnings to support the
expansion of its business. Any dividends declared will be at the discretion of
the Board of Directors and will depend upon the Company's financial condition,
earnings and other factors, including the terms of the Company's indebtedness.
The Company expects that provisions to be contained in agreements governing
the Company's long-term indebtedness after the Offering will limit the amount
of dividends that the Company may pay to its stockholders.
18
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma short-term debt and
capitalization of the Company at March 31, 1997, as adjusted to give effect to
the merger of Galbreath with the Company and the Incorporation Transactions as
if such transactions had occurred on March 31, 1997, and as further adjusted
to give effect to the sale of 4,000,000 shares of Common Stock offered hereby
at an assumed initial public offering price of $20.00 per share, and the
receipt and application of the net proceeds therefrom, as described under "Use
of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Pro Forma Consolidated Financial Statements" and the Predecessor
Partnerships' Combined Financial Statements and the notes thereto, all
included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------
PRO PRO FORMA
FORMA AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Short-term debt:
Borrowings under short-term credit facility............. $ 16,800 $ 16,800
Current maturities of long-term debt(1)................. 9,332 --
-------- --------
Total short-term debt................................. $ 26,132 $ 16,800
======== ========
Long-term debt:
Long-term credit facility, less current maturities(1)... $ 22,977 $ --
Subordinated loans, less current maturities............. 34,106 --
-------- --------
Total long-term debt, less current maturities......... 57,083 --
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value per share, 10,000,000
shares authorized; no shares issued and outstanding.... -- --
Common Stock, $.01 par value per share, 100,000,000
shares authorized; 12,200,000 shares issued and
outstanding pro forma; 16,200,000 shares issued and
outstanding pro forma as adjusted(2)................... 122 162
Additional paid-in capital.............................. 43,314 115,674
Retained earnings....................................... -- --
-------- --------
Total stockholders' equity............................ 43,436 115,836
-------- --------
Total capitalization................................ $100,519 $115,836
======== ========
</TABLE>
- --------
(1) See Note 7 to Notes to the Predecessor Partnerships' Combined Financial
Statements.
(2) Excludes an aggregate of: (i) 725,000 shares of Common Stock issuable upon
exercise of options to be granted under the Company's 1997 Stock Incentive
Plan upon closing of the Offering, with an exercise price equal to the
initial public offering price; and (ii) 1,490,000 additional shares of
Common Stock reserved for future grants or awards under the Company's 1997
Stock Incentive Plan. See "Management--Director Compensation" and "--1997
Stock Award and Incentive Plan."
19
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company as of March
31, 1997 (as adjusted to give effect to the merger of Galbreath with the
Company and the Incorporation Transactions) was $(8.8) million, or $(.72) per
share of Common Stock. Pro forma net tangible book value (deficit) per share
is determined by dividing the tangible net worth of the Company (total assets
less intangible assets and total liabilities) by the aggregate number of
shares of Common Stock outstanding, assuming the merger of Galbreath with the
Company and the Incorporation Transactions had taken place on March 31, 1997.
Without taking into account any changes in such net tangible book value after
March 31, 1997, other than to give effect to the sale of the 4,000,000 shares
of Common Stock offered hereby (at an assumed initial public offering price of
$20.00 per share) and the receipt and application of the net proceeds
therefrom, pro forma net tangible book value of the Company as of March 31,
1997 would have been approximately $63.6 million, or $3.93 per share. This
represents an immediate increase in net tangible book value of $4.65 per share
to the current stockholders of the Company and an immediate dilution in net
tangible book value of $16.07 per share to purchasers of Common Stock in the
Offering. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $20.00
Pro forma net tangible book value (deficit) per share at
March 31, 1997............................................ $(.72)
Increase in pro forma net tangible book value per share
attributable to purchasers in the Offering................ 4.65
-----
Pro forma net tangible book value per share after the
Offering.................................................. 3.93
------
Dilution in pro forma net tangible book value per share to
purchasers in the Offering................................ $16.07
======
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1997,
the difference between the existing stockholders and the purchasers of shares
in the Offering (at an assumed initial public offering price of $20.00 per
share, before deducting estimated underwriting discounts and commissions and
estimated offering expenses) with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 12,200,000 75.3% $ 43,436,000 35.2% $3.56
New investors.......... 4,000,000 24.7 80,000,000 64.8 20.00
---------- ----- ------------ -----
Total................ 16,200,000 100.0% $123,436,000 100.0% 7.62
========== ===== ============ =====
</TABLE>
The foregoing calculations exclude an aggregate of: (i) 725,000 shares of
Common Stock issuable upon exercise of options to be granted under the
Company's 1997 Stock Incentive Plan upon closing of the Offering, with an
exercise price equal to the initial public offering price; and (ii) 1,490,000
additional shares of Common Stock reserved for future grants or awards under
the Company's 1997 Stock Incentive Plan. See "Management--Director
Compensation" and "--1997 Stock Award and Incentive Plan."
20
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth, for the periods and as of the dates
indicated, selected financial and other data on a pro forma basis for the
Company and on a historical combined basis for the Predecessor Partnerships.
The selected financial data as of December 31, 1995 and 1996 and for the years
ended December 31, 1994, 1995 and 1996 have been derived from the Predecessor
Partnerships' Combined Financial Statements audited by KPMG Peat Marwick LLP,
independent certified public accountants, included elsewhere herein. The
selected financial data as of December 31, 1992, 1993 and 1994 and for the
years ended December 31, 1992 and 1993 have been derived from the Predecessor
Partnerships' Combined Financial Statements audited by KPMG Peat Marwick LLP,
not included herein. The selected financial data as of March 31, 1997 and for
the three months ended March 31, 1996 and March 31, 1997 have been derived from
the Predecessor Partnerships' Unaudited Combined Financial Statements also
included elsewhere herein. Such financial statements include all adjustments,
consisting of normal recurring adjustments, which the Company considers
necessary for a fair presentation of its financial position and results of
operations for these periods. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of results that may be expected
for the entire year. The unaudited pro forma, as adjusted, statement of
operations data for 1996 and for the three months ended March 31, 1997 give
effect to the merger of Galbreath with the Company, the Incorporation
Transactions (as described under the heading "Incorporation Transactions") and
the Offering as if they occurred on January 1, 1996. In addition, the unaudited
pro forma, as adjusted, balance sheet data as of March 31, 1997 give effect to
the merger of Galbreath with the Company, the Incorporation Transactions and
the Offering as if they occurred on March 31, 1997. The information set forth
below should be read in conjunction with "Pro Forma Consolidated Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Predecessor Partnerships' Combined Financial
Statements and the notes thereto, all included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1996 PRO FORMA
AS ADJUSTED
1992 1993 1994 1995 1996 (1)
---------- ---------- ----------- ----------- ----------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Total revenue... $ 103,334 $ 104,049 $ 126,918 $ 151,827 $ 175,967 $ 207,559
Total operating
expenses....... 84,722 87,036 108,903 131,711 149,066 177,382
---------- ---------- ----------- ----------- ----------- -----------
Operating income
(loss)......... 18,612 17,013 18,015 20,116 26,901 30,177
Interest
expense........ 5,590 5,257 5,159 3,806 5,730 1,075
Earnings (loss)
before
provision for
income taxes... 13,022 11,756 12,856 16,310 21,171 29,102
Net provision
(benefit) for
income taxes... 355 300 554 505 1,207 11,204
---------- ---------- ----------- ----------- ----------- -----------
Net earnings
(loss)......... $ 12,667 $ 11,456 $ 12,302 $ 15,805 $ 19,964 $ 17,898
========== ========== =========== =========== =========== ===========
Pro forma:
Supplemental
primary and
fully diluted
earnings (loss)
per share (2).. $ 1.13
===========
OTHER DATA:
EBITDA (3)...... $ 21,034 $ 19,544 $ 20,866 $ 24,356 $ 32,317 $ 37,624
Cash flows
provided by
(used in)
operating
activities..... 14,675 4,837 24,628 13,553 13,964 13,646
Cash flows
provided by
(used in)
investing
activities..... (1,727) (2,738) (4,885) (5,706) (32,478) (31,852)
Cash flows
provided by
(used in)
financing
activities..... (19,000) (6,758) (12,028) (12,365) 17,189 19,195
Investments
under
management (4). $6,500,000 $7,000,000 $10,700,000 $11,500,000 $15,200,000 $15,200,000
Total square
feet-facility
management (5). 2,400 50,600 50,600 67,600 68,600 81,600
Total square
feet under
management (6). 47,000 98,300 102,400 125,700 131,600 202,900
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1997 PRO FORMA
AS ADJUSTED
1996 1997 (1)
------------ ------------ --------------
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Total revenue... $ 27,285 $ 36,019 $ 43,384
Total operating
expenses....... 32,490 39,291 46,269
------------ ------------ --------------
Operating income
(loss)......... (5,205) (3,272) (2,885)
Interest
expense........ 937 1,695 265
Earnings (loss)
before
provision for
income taxes... (6,142) (4,967) (3,150)
Net provision
(benefit) for
income taxes... (350) (248) (1,213)
------------ ------------ --------------
Net earnings
(loss)......... $ (5,792) $ (4,719) $ (1,937)
============ ============ ==============
Pro forma:
Supplemental
primary and
fully diluted
earnings (loss)
per share (2).. $ (0.12)
==============
OTHER DATA:
EBITDA (3)...... $ (4,094) $ (1,498) $ (599)
Cash flows
provided by
(used in)
operating
activities..... (12,721) (4,678) (7,892)
Cash flows
provided by
(used in)
investing
activities..... (5,967) (2,038) (2,185)
Cash flows
provided by
(used in)
financing
activities..... 14,921 7,705 7,573
Investments
under
management (4). $11,500,000 $15,100,000 $15,100,000
Total square
feet-facility
management (5). 67,600 69,100 82,100
Total square
feet under
management (6). 130,200 132,700 204,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1997
---------------------------------------------- ------------------------
PRO FORMA
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED (7)
-------- -------- -------- -------- -------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 9,784 $ 5,125 $ 12,840 $ 8,322 $ 7,207 $ 8,094 $ 14,994
Total assets............ 72,590 84,512 107,055 115,001 156,614 124,075 166,411
Long-term debt (8)...... 51,319 56,619 41,028 40,805 55,551 57,083 --
Total liabilities....... 87,277 99,801 93,898 100,004 132,367 109,425 50,575
Total partners' capital
(deficit)/stockholders'
equity................. (14,687) (15,289) 13,157 14,997 24,247 14,650 115,836
</TABLE>
- -------
(Footnotes on following page)
21
<PAGE>
- --------
(1) As adjusted to give effect to the merger of Galbreath with the Company,
the Incorporation Transactions and the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $20.00 per share and the receipt and application of the net proceeds
therefrom to retire debt, as though they had occurred on January 1, 1996.
See "Use of Proceeds," "Background of the Company" and "Incorporation
Transactions."
(2) Pro forma as adjusted supplemental primary and fully diluted earnings
(loss) per share is based upon 15,869,337 shares of Common Stock
outstanding, which includes the 12,200,000 shares of Common Stock to be
issued in connection with the Incorporation Transactions and gives effect
to 3,669,337 of the 4,000,000 shares of Common Stock to be issued in the
Offering, the proceeds of which will be used to repay indebtedness. The
Company will have 16,200,000 shares of Common Stock outstanding upon
completion of the Offering. See "Use of Proceeds."
(3) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, thereby removing the effect of certain non-cash charges on
income, such as the amortization of intangible assets relating to
acquisitions. Management believes that EBITDA is useful to investors as a
measure of operating performance, cash generation and ability to service
debt. EBITDA is also used by analysts who report publicly on the
performance of real estate services companies. However, EBITDA should not
be considered as an alternative either to: (i) net earnings (determined in
accordance with GAAP); (ii) operating cash flow (determined in accordance
with GAAP); or (iii) liquidity. There can be no assurance that the
Company's calculation of EBITDA is comparable to similarly titled items
reported by other companies.
(4) Investments under management represents the aggregate fair market value or
cost basis of assets managed by the Investment Management group as of the
end of the periods shown. The percentage of investments under management
stated at cost represented 3% in 1992 and 1993, 7% in 1994 and 1995, and
8% in 1996 and 1997 of the amounts shown.
(5) Represents the total square footage of properties for which the Company
provided facility management services as of the end of the periods shown.
(6) Represents the total square footage of properties for which the Company
provided property management and leasing or facility management services
as of the end of the periods shown.
(7) As adjusted to give effect to the merger of Galbreath with the Company,
the Incorporation Transactions and the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $20.00 per share and the receipt and application of the net proceeds
therefrom to retire debt, as though they had occurred on March 31, 1997.
See "Use of Proceeds," "Background of the Company" and "Incorporation
Transactions."
(8) See Note 7 to Notes to the Predecessor Partnerships' Combined Financial
Statements.
22
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are
derived from the Predecessor Partnerships' Combined Financial Statements. The
unaudited pro forma consolidated statements of earnings give effect to the
merger of Galbreath with the Company and the Incorporation Transactions, as if
they had occurred on January 1, 1996. The unaudited pro forma consolidated
statements of earnings, as adjusted, give further effect to the Offering and
the receipt and application of the net proceeds therefrom. The unaudited pro
forma consolidated balance sheet gives effect to the merger of Galbreath with
the Company and the Incorporation Transactions, as if they had occurred on
March 31, 1997. The unaudited pro forma consolidated balance sheet, as
adjusted, gives further effect to the Offering and the receipt and application
of the net proceeds therefrom. See "Incorporation Transactions," "Use of
Proceeds," "Capitalization," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The unaudited pro forma
consolidated financial statements should be read in conjunction with the
Predecessor Partnerships' Combined Financial Statements and the notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other financial information, all included elsewhere herein.
The pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable under the
circumstances. The pro forma consolidated financial statements are not
necessarily indicative of what the actual financial position and results of
operations would have been as of March 31, 1997 and for the year ended
December 31, 1996 and the three months ended March 31, 1997 had the Company
completed the merger of Galbreath with the Company and consummated the
Incorporation Transactions and the Offering (and the receipt and application
of the net proceeds therefrom) as of the dates indicated nor does it purport
to represent the future financial position or results of operations of the
Company.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------------------------------------------------------
GALBREATH MERGER
HISTORICAL -----------------------------------
COMBINED DISPOSITION OF PRO FORMA
PREDECESSOR HISTORICAL BUSINESS UNITS PRO ACQUISITION INCORPORATION COMPANY/
PARTNERSHIPS (1) COMBINED (1) ADJUSTMENTS (2) FORMA ADJUSTMENTS (3) ADJUSTMENTS GALBREATH
---------------- ------------ --------------- ------ --------------- ------------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Fee-based
services....... $34,244 $12,648 $(6,022) $6,626 $ -- $ -- $ 40,870
Equity in
earnings from
unconsolidated
ventures....... 1,394 73 -- 73 -- -- 1,467
Construction
operations,
net............ 205 -- -- -- -- -- 205
Other income.... 176 783 (117) 666 -- -- 842
------- ------- ------- ------ ----- ------- ----------
Total revenue... 36,019 13,504 (6,139) 7,365 -- -- 43,384
Operating
expenses:
Compensation and
benefits....... 27,217 9,814 (5,246) 4,568 -- -- 31,785
Other operating
and
administrative. 10,300 2,884 (1,174) 1,710 -- -- 12,010
Depreciation and
amortization... 1,774 179 -- 179 333 -- 2,286
------- ------- ------- ------ ----- ------- ----------
Total operating
expenses....... 39,291 12,877 (6,420) 6,457 333 -- 46,081
------- ------- ------- ------ ----- ------- ----------
Operating income
(loss)......... (3,272) 627 281 908 (333) -- (2,697)
Interest expense. 1,695 72 (72) -- -- -- 1,695
------- ------- ------- ------ ----- ------- ----------
Earnings (loss)
before
provision for
income taxes... (4,967) 555 353 908 (333) -- (4,392)
Net provision
(benefit) for
income taxes.... (248) 33 -- 33 -- (1,476)(6) (1,691)
------- ------- ------- ------ ----- ------- ----------
Net earnings
(loss)......... $(4,719) $ 522 $ 353 $ 875 $(333) $ 1,476 $ (2,701)
======= ======= ======= ====== ===== ======= ==========
Primary and fully
diluted earnings
(loss) per
share........... $ (0.22)
==========
Supplemental
primary and
fully diluted
earnings (loss)
per share.......
Shares used in
computation of
primary and
fully diluted
earnings per
share........... 12,200,000 (8)
==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
OFFERING AS
ADJUSTMENTS ADJUSTED
----------- ----------
<S> <C> <C>
Revenue:
Fee-based
services....... $ -- $ 40,870
Equity in
earnings from
unconsolidated
ventures....... -- 1,467
Construction
operations,
net............ -- 205
Other income.... -- 842
------ ----------
Total revenue... -- 43,384
Operating
expenses:
Compensation and
benefits....... -- 31,785
Other operating
and
administrative. 188 (4) 12,198
Depreciation and
amortization... -- 2,286
------ ----------
Total operating
expenses....... 188 46,269
------ ----------
Operating income
(loss)......... (188) (2,885)
Interest expense. (1,430)(5) 265
------ ----------
Earnings (loss)
before
provision for
income taxes... 1,243 (3,150)
Net provision
(benefit) for
income taxes.... 478 (6) (1,213)
------ ----------
Net earnings
(loss)......... $ 764 $ (1,937)
====== ==========
Primary and fully
diluted earnings
(loss) per
share...........
Supplemental
primary and
fully diluted
earnings (loss)
per share....... $ (0.12)(7)
==========
Shares used in
computation of
primary and
fully diluted
earnings per
share........... 15,869,337 (7)
==========
</TABLE>
- -------
(Footnotes on following page)
23
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------
GALBREATH MERGER
HISTORICAL ------------------------------------
COMBINED DISPOSITION OF PRO FORMA
PREDECESSOR HISTORICAL BUSINESS UNITS PRO ACQUISITION INCORPORATION COMPANY/
PARTNERSHIPS (1) COMBINED (1) ADJUSTMENTS (2) FORMA ADJUSTMENTS (3) ADJUSTMENTS GALBREATH
---------------- ------------ --------------- ------- --------------- ------------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Fee-based
services....... $170,709 $53,326 $(25,731) $27,595 $ -- $ -- $ 198,304
Equity in
earnings from
unconsolidated
ventures....... 3,220 572 -- 572 -- -- 3,792
Construction
operations,
net............ 1,271 -- -- -- -- -- 1,271
Other income.... 767 4,068 (643) 3,425 -- -- 4,192
-------- ------- -------- ------- ------- ------- ----------
Total revenue... 175,967 57,966 (26,374) 31,592 -- -- 207,559
Operating
expenses:
Compensation and
benefits....... 104,673 41,747 (23,965) 17,782 -- -- 122,455
Other operating
and
administrative. 38,977 12,055 (4,302) 7,753 -- -- 46,730
Depreciation and
amortization... 5,416 701 -- 701 1,330 -- 7,447
-------- ------- -------- ------- ------- ------- ----------
Total operating
expenses....... 149,066 54,503 (28,267) 26,236 1,330 -- 176,632
-------- ------- -------- ------- ------- ------- ----------
Operating income
(loss)......... 26,901 3,463 1,893 5,356 (1,330) -- 30,927
Interest expense. 5,730 504 (504) -- -- -- 5,730
-------- ------- -------- ------- ------- ------- ----------
Earnings before
provision for
income taxes... 21,171 2,959 2,397 5,356 (1,330) -- 25,197
Net provision for
income taxes.... 1,207 210 -- 210 -- 8,284 (6) 9,701
-------- ------- -------- ------- ------- ------- ----------
Net earnings
(loss)......... $ 19,964 $ 2,749 $ 2,397 $ 5,146 $(1,330) $(8,284) $ 15,496
======== ======= ======== ======= ======= ======= ==========
Primary and fully
diluted earnings
per share....... $ 1.27
==========
Supplemental
primary and
fully diluted
earnings per
share...........
Shares used in
computation of
primary and
fully diluted
earnings per
share........... 12,200,000(8)
==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------
PRO FORMA
OFFERING AS
ADJUSTMENTS ADJUSTED
----------- ----------
<S> <C> <C>
Revenue:
Fee-based
services....... $ -- $ 198,304
Equity in
earnings from
unconsolidated
ventures....... -- 3,792
Construction
operations,
net............ -- 1,271
Other income.... -- 4,192
------- ----------
Total revenue... -- 207,559
Operating
expenses:
Compensation and
benefits....... -- 122,455
Other operating
and
administrative. 750 (4) 47,480
Depreciation and
amortization... -- 7,447
------- ----------
Total operating
expenses....... 750 177,382
------- ----------
Operating income
(loss)......... (750) 30,177
Interest expense. (4,655)(5) 1,075
------- ----------
Earnings before
provision for
income taxes... 3,905 29,102
Net provision for
income taxes.... 1,503 (6) 11,204
------- ----------
Net earnings
(loss)......... $ 2,402 $ 17,898
======= ==========
Primary and fully
diluted earnings
per share.......
Supplemental
primary and
fully diluted
earnings per
share........... $ 1.13(7)
==========
Shares used in
computation of
primary and
fully diluted
earnings per
share........... 15,869,337(7)
==========
</TABLE>
(1) The "Historical" columns represent the combined statements of operations
of the Predecessor Partnerships and the combined statements of operations
of Galbreath for the three months ended March 31, 1997 and the year ended
December 31, 1996.
(2) These adjustments give effect to the elimination of revenue and related
compensation, benefits, operating and other expenses associated with
Galbreath's tenant representation and investment banking units which, in
connection with the merger, are being disposed of or eliminated, and the
elimination of interest expense related to Galbreath's debt which was
repaid in connection with the merger of Galbreath with the Company. Such
business units were not retained as they did not meet the strategic
objectives of the Company.
(3) The adjustment gives effect to the amortization of intangibles and
goodwill associated with the merger of Galbreath with the Company.
(4) The adjustment gives effect to the estimated incremental general and
administrative costs associated with operation as a public company.
(5) The adjustment gives effect to the repayment of the Dai-ichi Notes and the
Long-Term Facility. See "Use of Proceeds."
(6) The adjustment gives effect to the provision (benefit) for income taxes as
though the Company and Galbreath were taxable entities as of January 1,
1996 at an estimated effective tax rate of 38.5%.
(7) Includes the 12,200,000 shares of Common Stock to be issued in connection
with the Incorporation Transactions and 3,669,337 of the 4,000,000 shares
of Common Stock to be issued in the Offering, the proceeds of which will
be used to repay indebtedness. The Company will have 16,200,000 shares of
Common Stock outstanding upon completion of the Offering. See "Use of
Proceeds."
(8) Represents the 12,200,000 shares to be issued in connection with the
Incorporation Transactions.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------------------------------------------------------------
GALBREATH MERGER
HISTORICAL ---------------------------------
COMBINED DISPOSITION OF PRO FORMA
PREDECESSOR HISTORICAL BUSINESS UNITS PRO ACQUISITION INCORPORATION COMPANY/
PARTNERSHIPS(1) COMBINED(1) ADJUSTMENTS(2) FORMA ADJUSTMENTS ADJUSTMENTS(3) GALBREATH
--------------- ----------- -------------- ------ ----------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 8,094 $ 2,689 $ (1,774) $ 915 $ -- $ -- $ 9,009
Trade
receivables.... 52,052 8,665 (5,641) 3,024 -- -- 55,076
Other
receivables.... 4,116 1,020 (596) 424 -- -- 4,540
Prepaid
expenses....... 1,115 -- -- -- -- -- 1,115
Deferred tax
asset.......... -- -- -- -- 179(6) -- 179
Other assets.... -- 3,576 (3,576) -- -- -- --
-------- ------- -------- ------ ------- ------- --------
Total current
assets......... 65,377 15,950 (11,587) 4,363 179 -- 69,919
Property and
equipment....... 14,409 2,183 (35) 2,148 -- -- 16,557
Goodwill
resulting from
business
acquisitions.... 10,827 -- -- -- 23,651 (6) -- 34,478
Intangibles
resulting from
business
acquisitions.... 11,820 -- -- -- 5,913 (6) -- 17,733
Investment in
Galbreath....... -- -- -- -- 29,293 (7) -- --
(29,293)(6)
Investments in
real estate
ventures........ 15,752 129 (32) 97 -- -- 15,849
Long-term
receivables,
net............. 4,878 291 (291) -- -- -- 4,878
Other assets,
net............. 1,012 1,003 (1,003) -- -- -- 1,012
-------- ------- -------- ------ ------- ------- --------
$124,075 $19,556 $(12,948) $6,608 $29,743 $ -- $160,426
======== ======= ======== ====== ======= ======= ========
LIABILITIES AND PARTNERS' CAPITAL/STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts payable
and accrued
liabilities.... $ 19,059 $ 3,559 $ -- $3,559 $ 507 (7) $ -- $ --
886 (6)
24,011
Accrued
compensation... 6,143 5,317 (2,867) 2,450 -- -- 8,593
Borrowings under
short-term
credit
facility....... 16,800 930 (930) -- -- -- 16,800
Current
maturities of
long-term debt. 9,332 599 (599) -- -- -- 9,332
-------- ------- -------- ------ ------- ------- --------
Total current
liabilities.... 51,334 10,405 (4,396) 6,009 1,393 -- 58,736
Long-term debt:
Subordinated
loans, less
current
maturities..... 34,106 -- -- -- -- -- 34,106
Long-term credit
facility, less
current
maturities..... 22,977 455 (455) -- -- -- 22,977
-------- ------- -------- ------ ------- ------- --------
Total long-term
debt........... 57,083 455 (455) -- -- -- 57,083
Other long-term
liabilities..... 1,008 -- -- -- 163 (6) -- 1,171
-------- ------- -------- ------ ------- ------- --------
Total
liabilities.... 109,425 10,860 (4,851) 6,009 1,556 -- 116,990
Partners'
capital/stockholders'
equity:
Common stock.... -- -- -- -- -- 122 122
Additional paid-
in capital..... -- -- -- -- -- 43,314 43,314
Retained
earnings....... -- -- -- -- -- -- --
Predecessor
Partnership's
partners'
capital........ 14,650 -- -- -- 28,786 (7) (43,436) --
Galbreath
owners' equity. -- 8,696 (8,097) 599 (599)(6) -- --
-------- ------- -------- ------ ------- ------- --------
Total partners'
capital/
stockholders'
equity......... 14,650 8,696 (8,097) 599 28,187 -- 43,436
-------- ------- -------- ------ ------- ------- --------
$124,075 $19,556 $(12,948) $6,608 $29,743 $ -- $160,426
======== ======= ======== ====== ======= ======= ========
- -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
PRO
OFFERING FORMA AS
ADJUSTMENTS ADJUSTED
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $72,400 (4)
(66,415)(5) $ 14,994
Trade
receivables.... -- 55,076
Other
receivables.... -- 4,540
Prepaid
expenses....... -- 1,115
Deferred tax
asset.......... -- 179
Other assets.... -- --
------- --------
Total current
assets......... 5,985 75,904
Property and
equipment....... -- 16,557
Goodwill
resulting from
business
acquisitions.... -- 34,478
Intangibles
resulting from
business
acquisitions.... -- 17,733
Investment in
Galbreath....... -- --
Investments in
real estate
ventures........ -- 15,849
Long-term
receivables,
net............. -- 4,878
Other assets,
net............. -- 1,012
------- --------
$ 5,985 $166,411
======= ========
LIABILITIES AND PARTNERS
Current
liabilities:
Accounts payable
and accrued
liabilities.... $ -- $ --
24,011
Accrued
compensation... -- 8,593
Borrowings under
short-term
credit
facility....... -- 16,800
Current
maturities of
long-term debt. (9,332)(5) --
------- --------
Total current
liabilities.... (9,332) 49,404
Long-term debt:
Subordinated
loans, less
current
maturities..... (34,106)(5) --
Long-term credit
facility, less
current
maturities..... (22,977)(5) --
------- --------
Total long-term
debt........... (57,083) --
Other long-term
liabilities..... -- 1,171
------- --------
Total
liabilities.... (66,415) 50,575
Partners'
capital/stockholders'
equity:
Common stock.... 40 (4) 162
Additional paid-
in capital..... 72,360 (4) 115,674
Retained
earnings....... -- --
Predecessor
Partnership's
partners'
capital........ -- --
Galbreath
owners' equity. -- --
------- --------
Total partners'
capital/
stockholders'
equity......... 72,400 115,836
------- --------
$ 5,985 $166,411
======= ========
</TABLE>
- -------
(1) The "Historical" columns represent the combined balance sheet of the
Predecessor Partnerships as of March 31, 1997, and the combined balance
sheet of Galbreath as of March 31, 1997.
(2) These adjustments give effect to the distribution of certain assets and
liabilities, including assets and liabilities associated with Galbreath's
tenant representation and investment banking units, which will be made in
connection with the merger of Galbreath with the Company and the repayment
of debt in connection with the merger of Galbreath with the Company. Such
business units were not retained as they did not meet the strategic
objectives of the Company.
(3) These adjustments give effect to the issuance of 12,200,000 shares of
Common Stock in exchange for all of the outstanding partnership interests
of the Predecessor Partners in connection with the Incorporation
Transactions.
(4) This adjustment gives effect to the receipt of $72,400 of net proceeds
from the issuance of 4,000,000 shares of Common Stock in the Offering (at
an assumed initial public offering price of $20.00 per share).
(5) This adjustment gives effect to the repayment of the Dai-ichi Notes and
the Long-Term Facility. See "Use of Proceeds."
(6) These adjustments give effect to the allocation of the purchase price of
Galbreath of $29,293 to identifiable assets and liabilities at their
estimated fair values. The excess purchase price of $29,564 was allocated
to management contracts ($5,913) and goodwill ($23,651), which are being
amortized over 8 years and 40 years, respectively, based on the Company's
estimate of useful lives. The Company's estimate of useful lives was based
on the nature and terms of management contracts acquired, Galbreath's
existing client relationships, operating history and market presence, and
the Company's operating experience within the industry. Due to the nature
and expected recovery of assets and settlement of liabilities, historical
stated value approximates fair value. Estimated current and long-term
obligations resulting from the merger of $886 and $163, respectively, have
been recorded as liabilities and additional goodwill and intangible
assets. Upon conversion to a corporation, Galbreath will recognize a
deferred tax asset of $179 which has been deducted from goodwill and
intangible assets.
(7) This adjustment represents management's estimate of the fair value of
Galbreath of $29,293, including transaction related costs of $507, which
is based upon the estimated fair value of the consideration received by
the Company which was based on a discounted EBITDA analysis. Such value is
consistent with the value used to execute cash purchase and sale
transactions by the Employee Partnerships at December 31, 1996.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
LaSalle Partners is a leading full service real estate firm that provides
management services, corporate and financial services and investment
management services to corporations and other real estate owners, users and
investors worldwide. The Management Services segment provides three primary
service capabilities: (i) property management and leasing for property owners;
(ii) facility management for properties occupied by corporate owners and
users; and (iii) development management for both investors and real estate
users seeking to develop new buildings or renovate existing facilities. The
Corporate and Financial Services segment provides transaction and advisory
services through three primary service capabilities: (i) tenant representation
for corporations and professional service firms; (ii) investment banking
services to address the financing, acquisition and disposition needs of real
estate owners; and (iii) land acquisition and development services for owners,
users and developers of land. The Investment Management segment provides real
estate investment management services to institutional investors, corporations
and high net worth individuals.
The Company has benefited from the recovery in real estate markets which
began in 1993. Specifically, rising rental and occupancy rates have positively
affected revenue for the Company's property management and leasing and tenant
representation businesses. In addition, improving real estate property values
and improved trading values for public real estate securities have resulted in
higher revenue for the Company's Investment Management segment. The Company's
revenue has increased at a compound rate of 17.7%, 12.4% and 14.2% for the
three year, five year and ten year periods ended December 31, 1996,
respectively.
The Company is pursuing a strategy of selective acquisitions in order to
expand its capability to serve clients and strengthen its position as an
industry leader. As a result of the merger of Galbreath with the Company, the
Company added 71 million square feet to its property and facility management
portfolio, added new client relationships and expanded its market coverage.
Previously, with the acquisition of ABKB's real estate business in late 1994
and with the 1996 purchase of CIN Property Management, the Company added
approximately $5.3 billion to its assets under management, extended the
Company's securities advisory capabilities and established the Company as the
fourth largest manager of institutional real estate equity investments in the
United Kingdom.
PRO FORMA FINANCIAL INFORMATION
The Pro Forma Consolidated Financial Statements included elsewhere herein
give effect to, among other things, the merger of Galbreath with the Company,
the Incorporation Transactions and the Offering. See "Pro Forma Consolidated
Financial Statements."
PRO FORMA THREE MONTHS ENDED MARCH 31, 1997
On a pro forma basis, the Company's total revenue for the three months ended
March 31, 1997 was $43.4 million, compared to actual historical revenue of
$36.0 million. Pro forma total revenue of Galbreath includes fees generated
primarily from management services activities, such as property management and
leasing, facility management and development management assignments. Total
revenue of Galbreath also includes other income which consists of revenue
generated from the management of various insurance programs on behalf of
properties, investment income and other miscellaneous income.
Pro forma operating loss for the Company for the three months ended March
31, 1997 was $2.9 million compared to actual historical operating loss of $3.3
million. The decrease in operating loss on a pro forma basis is primarily the
result of the addition of $.9 million of pro forma Galbreath operating income,
including the effect of eliminating the net excess costs associated with
Galbreath's tenant representation and investment banking units which are being
disposed of or eliminated by the Company, partially offset by $.3 million of
amortization of management contracts and goodwill associated with the merger
and $.2 million of incremental expense associated with public ownership.
26
<PAGE>
Pro forma net loss for the three months ended March 31, 1997 was $1.9
million, which reflects the decrease in operating loss, the Company's
repayment of indebtedness under the Dai-ichi Notes and the Long-Term Facility
and the tax effect as though the Company and Galbreath were taxable entities
for the entire period.
PRO FORMA YEAR ENDED DECEMBER 31, 1996
On a pro forma basis, the Company's total revenue for 1996 was $207.6
million, compared to actual historical revenue of $176.0 million.
Pro forma operating income for the Company in 1996 was $30.2 million,
compared to actual historical operating income of $26.9 million. The increase
in operating income of the Company on a pro forma basis is primarily the
result of the addition of $5.4 million of pro forma Galbreath operating
income, including the effect of eliminating the net excess costs associated
with Galbreath's tenant representation and investment banking units which are
being disposed of or eliminated by the Company, offset by $1.3 million of
amortization of intangibles and goodwill associated with the merger and $.8
million of incremental expense associated with public ownership. Prior to the
merger with Galbreath, the Company's operating income as a percentage of total
revenue was 15.3%, compared to 14.5% on a pro forma basis. The decrease is
attributable to the amortization of goodwill and intangibles incurred in
connection with the merger of Galbreath with the Company. The Company believes
that potential synergies created by the merger will improve the operating
margin for the combined management services business. Such synergies are
expected to result primarily from eliminating infrastructure redundancies,
centralizing accounting and personnel functions and enhancing Galbreath's
management information systems.
Pro forma net income for 1996 was $17.9 million, reflecting the increase in
operating income, the Company's repayment of indebtedness under the Dai-ichi
Notes and the Long-Term Facility and the tax effect as though the Company and
Galbreath were taxable entities for the entire year.
The Galbreath combination is being treated for accounting purposes as a
purchase under Accounting Principles Board Opinion No. 16. The excess purchase
price over the fair value of the identifiable assets and liabilities acquired
was $29.6 million, of which $5.9 million was allocated to management contracts
and $23.7 million was allocated to goodwill. The amounts allocable to
management contracts and goodwill are being amortized on a straight-line basis
over 8 and 40 years, respectively, based on the Company's estimate of useful
lives. As such, depreciation and amortization expenses will increase as a
result of the merger with Galbreath.
27
<PAGE>
RESULTS OF OPERATIONS
The following unaudited table sets forth for the periods indicated the
percentage of total revenue represented by certain items reflected in the
Company's historical statement of earnings.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31, 31,
------------------- -------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Management Services..................... 41.3% 40.7% 40.7% 44.0% 40.0%
Corporate and Financial Services........ 27.7 24.6 26.0 14.4 13.8
Investment Management................... 31.0 34.7 33.3 41.6 46.2
----- ----- ----- ----- -----
Total revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Compensation and benefits............... 61.6% 60.1% 59.5% 85.5% 75.6%
Other operating and administrative...... 22.0 23.9 22.2 29.5 28.6
Depreciation and amortization........... 2.2 2.8 3.0 4.1 4.9
----- ----- ----- ----- -----
Total operating expenses.............. 85.8% 86.8% 84.7% 119.1% 109.1%
Operating income (loss)................. 14.2% 13.2% 15.3% (19.1)% (9.1)%
Interest expense.......................... 4.1 2.5 3.3 3.4 4.7
----- ----- ----- ----- -----
Earnings (loss) before provision
(benefit) for income taxes........... 10.1% 10.7% 12.0% (22.5)% (13.8)%
Net provision (benefit) for income taxes.. 0.4 0.3 0.7 (1.3) (0.7)
----- ----- ----- ----- -----
Net earnings (loss)....................... 9.7% 10.4% 11.3% (21.2)% (13.1)%
===== ===== ===== ===== =====
</TABLE>
28
<PAGE>
The following unaudited tables summarize the revenue, operating expenses and
operating income by segment, and the percentage of segment revenue represented
by such items, for the years ended December 31, 1994, 1995 and 1996 and for the
three months ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------------------------------- -------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGEMENT SERVICES:
Segment revenue:
Property management
fees.................. $ 32,465 61.7% $ 34,017 53.8% $ 37,465 52.1% $ 7,774 64.2% 8,666 60.0%
Leasing fees........... 9,747 18.5 13,951 22.2 14,819 20.6 443 3.7 1,173 8.1
Facility management
fees.................. 6,222 11.8 10,477 16.6 13,639 19.0 2,698 22.3 3,417 23.7
Development management
fees.................. 3,557 6.8 3,125 4.9 5,465 7.6 1,038 8.6 1,115 7.7
Intersegment sales..... 160 0.3 1,370 2.2 200 0.3 100 0.8 25 0.2
Other income........... 466 0.9 212 0.3 281 0.4 60 0.4 47 0.3
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
$ 52,617 100.0% $ 63,152 100.0% $ 71,869 100.0% $12,113 100.0% $14,443 100.0%
Operating Expenses:
Compensation, benefits,
other operating and
administrative........ 46,267 87.9 50,859 80.5 59,486 82.8 13,392 110.6 15,849 109.7
Depreciation and
amortization.......... 1,076 2.0 1,202 1.9 1,651 2.3 337 2.8 512 3.5
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Operating income
(loss)................ $ 5,274 10.1% $ 11,091 17.6% $ 10,732 14.9% $(1,616) (13.3%) (1,918) (13.3%)
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
CORPORATE AND FINANCIAL
SERVICES:
Segment revenue:
Tenant representation
fees.................. $ 19,359 55.2% $ 23,037 61.8% $ 31,200 66.8% $ 2,881 73.7% $ 3,409 68.6%
Investment banking
fees.................. 9,432 26.9 6,908 18.5 6,664 14.3 293 7.5 612 12.3
Land fees.............. 4,300 12.2 3,675 9.8 4,938 10.6 298 7.6 707 14.2
Construction
operations, net....... 1,284 3.7 1,358 3.6 1,271 2.7 311 7.9 205 4.1
Equity in earnings from
unconsolidated
ventures.............. 476 1.4 2,171 5.9 1,380 3.0 89 2.3 -- 0.0
Intersegment sales..... 1,000 2.1 -- 0.0 -- 0.0
Other income........... 233 0.6 154 0.4 253 0.5 40 1.0 33 0.7
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
$ 35,084 100.0% $ 37,303 100.0% $ 46,706 100.0% $ 3,912 100.0% $ 4,966 100.0%
Operating expenses:
Compensation, benefits,
other operating and
administrative........ 27,463 78.3 28,604 76.7 34,831 74.6 7,038 179.9 8,764 176.5
Depreciation and
amortization.......... 845 2.4 890 2.4 1,055 2.3 218 5.6 218 4.4
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Operating income
(loss)................ $ 6,776 19.3% $ 7,809 20.9% $ 10,820 23.1% $(3,344) (85.5%) $(4,016) (80.9%)
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
INVESTMENT MANAGEMENT:
Segment revenue:
Advisory fees.......... $ 35,734 90.7% $ 45,117 85.5% $ 53,618 91.5% $11,004 96.9% $14,640 88.0%
Acquisition fees....... 2,944 7.5 6,411 12.2 2,939 5.0 305 2.7 505 3.0
Equity in earnings from
unconsolidated
ventures.............. 548 1.4 959 1.8 1,840 3.2 -- 0.0 1,394 8.4
Other income........... 151 0.4 255 0.5 195 0.3 51 0.4 96 0.6
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
$ 39,377 100.0% $ 52,742 100.0% $ 58,592 100.0% $11,360 100.0% $16,635 100.0%
Operating expenses:
Compensation, benefits,
other operating and
administrative........ 32,482 82.5 49,378 93.6 50,533 86.2 11,049 97.3 12,929 77.7
Depreciation and
amortization.......... 930 2.4 2,148 4.1 2,710 4.6 556 4.9 1,044 6.3
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Operating income
(loss)................ $ 5,965 15.1% $ 1,216 2.3% $ 5,349 9.2% $ (245) (2.2%) $ 2,662 16.0%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
Total segment revenue... $127,078 $153,197 $177,167 $27,385 $36,044
Intersegment revenue
eliminations........... (160) (1,370) (1,200) (100) (25)
-------- -------- -------- ------- -------
Total revenue.......... $126,918 $151,827 $175,967 $27,285 $36,019
======== ======== ======== ======= =======
Total segment operating
expenses............... $109,063 $133,081 $150,266 $32,590 $39,316
Intersegment operating
expenses............... (160) (1,370) (1,200) (100) (25)
-------- -------- -------- ------- -------
Total operating
expenses.............. $108,903 $131,711 $149,066 $32,490 $39,291
======== ======== ======== ======= =======
Total operating income
(loss)................ $ 18,015 $ 20,116 $ 26,901 $(5,205) $(3,272)
======== ======== ======== ======= =======
</TABLE>
29
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
CONSOLIDATED RESULTS
Total Revenue. The Company's total revenue grew $8.7 million, or 32.0%, to
$36.0 million for the three months ended March 31, 1997 from $27.3 million in
the prior year period. The increase is attributable to the continued
improvement in real estate market conditions, the acquisition of CIN Property
Management in October 1996 and the increase in co-investments.
Operating Expenses. The Company's operating expenses grew $6.8 million, or
20.9%, to $39.3 million for the three months ended March 31, 1997 from $32.5
million in the prior year period. The increase is primarily attributable to the
acquisition of CIN Property Management, increased staffing levels and higher
compensation and benefits generally as a result of anticipated transactions. As
a percentage of total revenue, operating expenses declined to 109.1% for the
three months ended March 31, 1997 from 119.1% in the prior year period.
Operating Income (Loss). The Company typically incurs a loss in the first
quarter of the calendar year. For the three months ended March 31, 1997, the
Company's operating loss decreased $1.9 million to $3.3 million from $5.2
million in the prior year period. The decrease is primarily attributable to the
earnings associated with the acquisition of CIN Property Management and equity
earnings generated from co-investments with which additional compensation costs
are not associated. As a percentage of total revenue, the operating loss
decreased to 9.1% for the three months ended March 31, 1997 from 19.1% in the
prior year period.
Interest Expense. Interest expense increased $.8 million, or 80.9%, to $1.7
million in 1997 from $.9 million in 1996. The increase is substantially a
result of increased borrowings under the Long-Term Facility to fund the CIN
Property Management acquisition, technology and infrastructure investments and
co-investments.
Provision (Benefit) for Income Taxes. The benefit for income taxes decreased
by $.1 million to $.2 million in 1997 from $.4 million in 1996.
Net Earnings (Loss). The Company's net loss decreased $1.1 million, or 18.5%,
to $4.7 million in 1997 from $5.8 million in 1996.
SEGMENT OPERATING RESULTS
Management Services. The Management Services segment's revenue, which
represented 40.0% of the Company's total revenue for the three months ended
March 31, 1997, increased $2.3 million, or 19.2%, to $14.4 million from $12.1
million in the prior year period. The increase was due to a $.9 million
increase in property management fees and $.7 million increase in leasing fees
as a result of the net addition of 4.5 million square feet of new property
management assignments. In addition, facility management fees increased $.7
million as a result of an increase of one million square feet of property under
management in the fourth quarter of 1996.
Operating expenses increased $2.6 million, or 19.2%, to $16.4 million for the
three months ended March 31, 1997 from $13.7 million in the prior year period.
The increase is primarily attributable to increased compensation, relocation,
travel and marketing expenses associated with the national leasing and business
development group established in the second half of 1996 as well as increased
staffing levels to manage the additional property and facility management
assignments.
The Management Services segment's operating loss increased $.3 million, or
18.7%, to $1.9 million for the three months ended March 31, 1997 from $1.6
million in the prior year period. As a percentage of revenue, Management
Services' operating loss remained constant at 13.3% for the three months ended
March 31, 1997 compared to the prior year period.
Corporate and Financial Services. The Corporate and Financial Services
segment's revenue, which represented 13.8% of the Company's total revenue for
the three months ended March 31, 1997, increased
30
<PAGE>
$1.1 million, or 26.9%, to $5.0 million for the three months ended March 31,
1997 from $3.9 million in the prior year period. The increase is attributable
to an increased number of transactions in the tenant representation, investment
banking and land units.
Operating expenses for the Corporate and Financial Services segment increased
$1.7 million, or 23.8%, to $9.0 million for the three months ended March 31,
1997 from $7.3 million in the prior year period. The increase in operating
expenses primarily represents increased staffing levels in the Company's tenant
representation unit in addition to increased marketing efforts by the
investment banking unit.
The Corporate and Financial Services segment's operating loss increased $.7
million, or 20.1%, to $4.0 million for the three months ended March 31, 1997
from $3.3 million in the prior year period. The revenue of the Corporate and
Financial Services segment are heavily weighted to the fourth quarter of the
year with operating expenses generally spread evenly throughout the year in
accordance with GAAP. As a percentage of segment revenue, the operating loss
decreased to 80.9% in 1997 from 83.0% in 1996.
Investment Management. The Investment Management segment's revenue, which
represented 46.2% of the Company's total revenue for the three months ended
March 31, 1997, increased $5.3 million, or 46.4%, to $16.6 million for the
three months ended March 31, 1997 from $11.4 million in the prior year period.
The increase is primarily attributable to the earnings associated with the
acquisition of CIN Property Management which had revenue of $3.5 million in
1997, as well as to equity earnings recognized on $7.9 million of net
additional co-investments at March 31, 1997.
Operating expenses increased $2.4 million, or 20.4%, to $14.0 million for the
three months ended March 31, 1997 from $11.6 million in the prior year period.
The increase is primarily attributable to the additional compensation and other
direct operating expenses associated with the acquisition of CIN Property
Management totaling $2.8 million offset by a slight decrease in staffing in
other units within the Investment Management segment.
Operating income was $2.7 million for the three months ended March 31, 1997
compared to an operating loss of $.2 million for the prior year period. The
increase is attributable to the net income generated from CIN Property
Management in addition to equity earnings on co-investments for which
compensation and other operating costs are not incurred. As a percentage of
segment revenue, operating income increased to 16.0% for the three months ended
March 31, 1997 from a negative 2.2% in the prior year period.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
CONSOLIDATED RESULTS
Total Revenue. The Company's total revenue grew $24.1 million, or 15.9%, to
$176.0 million in 1996 from $151.8 million in 1995. In general, the strong
United States economy in 1996 and a lack of new construction since the early
1990s have resulted in tightening supplies and rising rental rates for
commercial real estate in the United States. Accordingly, the amount of public
and private capital invested in commercial real estate generally has increased
with improving market conditions. These conditions have resulted in revenue
growth for all three of the Company's business segments. The Company receives
investment advisory, property management and leasing and investment banking
fees for services provided in connection with four multiple investor funds
("commingled funds") formed by the Company in the 1980s to hold real estate
investments on behalf of numerous tax-exempt institutional investors. Revenue
derived from, or in connection with, these funds represented 11.5% of the
Company's total revenue in 1996 compared to 12.8% in 1995. The Company expects
that such revenue will decrease and eventually be eliminated as the remaining
assets of the funds are sold. While the timing of the revenue loss will depend
on the timing of the dispositions, the Company expects to complete
substantially all of such dispositions prior to the end of 1998. None of the
Company's clients accounted for 10% or more of the Company's total revenue in
1996 or 1995.
31
<PAGE>
Operating Expenses. The Company's operating expenses increased $17.4 million,
or 13.2%, to $149.1 million in 1996 from $131.7 million in 1995. The increase
in operating expenses generally reflected higher levels of compensation and
benefits associated with increased staffing and higher incentive compensation
associated with the Company's increased revenue. In addition, depreciation and
amortization expenses increased $1.2 million, or 27.7%, primarily as a result
of amortization of goodwill and other intangibles associated with the
acquisition of CIN Property Management in October 1996 (which are being
amortized over five to 20 years) and depreciation expense associated with the
Company's investment in technology-related assets and the relocation of its
corporate headquarters. As a percentage of total revenue, operating expenses
declined to 84.7% in 1996 from 86.8% in 1995, primarily reflecting the
relatively fixed nature of certain administrative expenses as well as the
impact in 1995 of the $1.9 million provision for the estimated uncollectible
portion of a receivable from Diverse Real Estate Holdings Limited Partnership
("Diverse"). See "Certain Relationships and Related Transactions."
Operating Income. Based on the factors noted above, the Company's operating
income increased $6.8 million, or 33.7%, to $26.9 million in 1996 from $20.1
million in 1995. As a percentage of total revenue, operating income increased
to 15.3% in 1996 from 13.2% in 1995.
Interest Expense. Interest expense increased $1.9 million, or 50.6%, to $5.7
million in 1996 from $3.8 million in 1995, principally as a result of increased
borrowings under the Long-Term Facility to fund the CIN Property Management
acquisition, technology and infrastructure investments and co-investments.
Provision for Income Taxes. Provision for income taxes increased $.7 million,
or 139%, to $1.2 million in 1996 from $.5 million in 1995, due to an increased
volume of transactions performed in jurisdictions with higher state taxes and
increased foreign taxes paid in connection with international operations.
Net Earnings. Net earnings increased $4.2 million, or 26.3%, to $20.0 million
in 1996 from $15.8 million in 1995. Net earnings in 1996 represented 11.3% of
total revenue, compared with 10.4% in the previous year.
SEGMENT OPERATING RESULTS
Management Services. The Management Services segment's revenue, which
represented approximately 40.7% of the Company's total revenue in 1996,
increased $8.7 million, or 13.8%, to $71.9 million in 1996 from $63.2 million
in 1995. This increase was primarily due to a $4.3 million increase in property
management and leasing fees and a $3.2 million increase in facility management
revenue. Property management and leasing fees increased as a result of the net
addition of approximately six million square feet of new property management
and leasing assignments in 1996 and, to a lesser extent, rising rental rates
for office buildings generally. The increase in facility management fees was
principally due to the initiation of a major new facility management assignment
and increased incentive-based fees related to cost savings achieved for
facility management accounts added in prior years. The Company's property
management and leasing revenue was impacted by a $.6 million decline in revenue
related to the sale of certain commingled fund properties. Total revenue from
property management and leasing services provided to commingled fund properties
in 1996 was $11.9 million compared to $12.5 million in 1995.
Operating expenses increased $9.1 million, or 17.4%, to $61.1 million in 1996
from $52.1 million in 1995 as a result of increased staffing levels to meet the
demands associated with an expansion of square feet under management. In
addition, the segment incurred approximately $2.0 million of incremental
expenses associated with an increased commitment of senior personnel to the
national leasing effort. This effort included an expansion in selected regional
markets resulting in approximately $1.0 million of relocation and recruiting
costs. The segment also incurred approximately $.7 million in consulting fees
to enhance client service and information reporting for property management
assignments and in training costs expended on new technology implemented in
1996 regarding tenant request and other systems. Operating income decreased by
$.4 million, or 3.2%, to $10.7 million in 1996 from $11.1 million in 1995. The
Management Services segment's operating income represented 39.9% of the
Company's total operating income in 1996. As a percentage of segment revenue,
operating income decreased to 14.9% in 1996 from 17.6% in 1995.
32
<PAGE>
Corporate and Financial Services. The Corporate and Financial Services
segment's revenue, which represented about 26.5% of the Company's total revenue
in 1996, increased $9.4 million, or 25.2%, to $46.7 million in 1996 from $37.3
million in 1995. This record revenue resulted primarily from an $8.2 million
increase in revenue from the Company's tenant representation business. A number
of significant tenant representation transactions and a series of transactions
generated from a new facility management client accounted for the majority of
the increased tenant representation revenue. The tenant representation business
completed 256 transactions totaling over 6.7 million square feet in 1996
compared to 132 transactions and 3.6 million square feet in 1995. General
improvements in real estate market fundamentals, including declining vacancies
in Class A buildings and increases in office rents, have prompted several of
the Company's clients to complete large relocations or lease extensions.
Approximately 79% of tenant representation revenue in 1996 was generated from
strategic alliances with large corporations or professional service firms.
Operating expenses for the Corporate and Financial Services segment increased
$6.4 million, or 21.7%, to $35.9 million in 1996 from $29.5 million in 1995,
principally as a result of higher staffing levels to meet the higher levels of
activity throughout the year and as a result of increased incentive
compensation earned by employees. The Corporate and Financial Services
segment's operating income, which represented 40.2% of the Company's total
operating income in 1996, increased $3.0 million in 1996, or 38.6%, to $10.8
million in 1996 from $7.8 million in 1995. As a percentage of segment revenue,
operating income increased to 23.1% in 1996 from 20.9% in 1995.
Investment Management. The Investment Management segment's revenue, which
represented 33.3% of the Company's total revenue in 1996, increased $5.9
million, or 11.1%, to $58.6 million in 1996 from $52.7 million in 1995. The net
gain in revenue was primarily attributable to growth in the Company's European
advisory business resulting from the CIN Property Management acquisition in
October 1996, and, to a lesser extent, the increase in assets under management
from the Company's co-investment activities and the Company's securities
advisory business. Strong fundamentals in the publicly traded real estate
securities markets during 1996, and the resulting capital inflows to this
sector, contributed to the growth in the Company's securities advisory
business.
Revenue was negatively impacted by a $1.0 million decline in investment
management fees from the Company's four large commingled funds in 1996, as a
result of the sale of several commingled fund assets during the year. The funds
had a net asset value of $726 million at the end of 1996, compared to $983
million at the end of 1995. Investment Management segment revenue from these
funds, which totaled $5.9 million in 1996, will continue to decline as
substantially all of the remaining properties are expected to be sold by the
end of 1998.
Operating expenses increased $1.7 million, or 3.3%, to $53.2 million in 1996
from $51.5 million in 1995. The increase is primarily attributable to
additional operating expenses and amortization of goodwill and intangible
assets associated with the acquisition of CIN Property Management totaling $2.6
million and, to a lesser extent, to employee relocation costs totaling $1.2
million. The 1996 increase in expenses was offset by $2.0 million in certain
one-time expenses incurred in 1995 related to the reorganization of this
segment.
Operating income, which represented 19.9% of the Company's total operating
income in 1996, increased $4.1 million to $5.3 million in 1996 from $1.2
million in 1995. As a percentage of segment revenue, operating income increased
to 9.2% in 1996 from 2.3% in 1995.
33
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
CONSOLIDATED RESULTS
Total Revenue. Total revenue increased $24.9 million, or 19.6%, to $151.8
million in 1995 from $126.9 million in 1994. The revenue increase resulted from
the full year effect of the acquisition of ABKB's securities and advisory
business in late 1994 and from revenue growth in the Management Services
segment's leasing and facility management activities. The Company's revenue
growth also reflected improvements in both general economic conditions and in
real estate industry fundamentals. Revenue growth was impacted by a decrease in
revenue from the commingled funds, which revenue represented 12.8% of the
Company's total revenue in 1995 compared to 20.1% in 1994. No client accounted
for more than 10% of the Company's total revenue in 1995 or 1994.
Operating Expenses. The Company's operating expenses increased $22.8 million,
or 20.9%, to $131.7 million in 1995 from $108.9 million in 1994. As a
percentage of total revenue, operating expenses increased to 86.8% in 1995 from
85.8% in 1994. The increase in operating expenses was attributable primarily to
a $13.1 million increase in compensation and benefits expenses, an $8.3 million
increase in other operating and administrative expenses and, to a lesser
extent, a $1.4 million increase in depreciation and amortization expense. The
increase in compensation and benefits expenses reflected the effect of the ABKB
acquisition in late 1994 and higher levels of employee incentive compensation
associated with certain segments exceeding their operating income objectives.
The increase in other operating and administrative expenses was primarily
attributable to the effect of the ABKB acquisition and, to a lesser extent, to
certain one-time costs and the $1.9 million provision for the uncollectible
portion of the Company's long-term receivable from Diverse. The increase in
depreciation and amortization expense principally resulted from the full-year
effect of the amortization of the intangible assets arising from the
acquisition of ABKB in late 1994. The $9.4 million in intangibles recognized in
that transaction are being amortized over a 10 year period. In 1994, operating
expenses included a $4.2 million charge related to the commitment to relocate
the Company's headquarters, which charge was allocated to all of the Company's
business segments, principally on a head-count basis.
Operating Income. Operating income increased $2.1 million, or 11.7%, to $20.1
million in 1995 from $18.0 million in 1994. As a result of the factors noted
above, as a percentage of total revenue, operating income represented 13.2% in
1995 compared to 14.2% in 1994.
Interest Expense. Interest expense declined to $3.8 million in 1995 from $5.2
million in 1994 and is substantially attributable to the $14.1 million
principal payment made on the Dai-ichi Notes in late 1994.
Net Earnings. Net earnings increased $3.5 million, or 28.5%, to $15.8 million
in 1995 from $12.3 million in 1994. Net earnings represented 10.4% of total
revenue, compared with 9.7% in 1994.
SEGMENT OPERATING RESULTS
Management Services. The Management Services segment's revenue, which
represented 40.7% of the Company's total revenue in 1995, increased $10.5
million, or 20.0%, to $63.2 million in 1995 from $52.6 million in 1994.
Facility management revenue increased $4.3 million as the Company obtained over
17.0 million square feet of new assignments. Improving leasing markets drove
leasing revenue to record levels in 1995, with leasing revenue increasing $4.2
million over 1994 levels. Property management fees also increased $1.6 million
to $34.0 million, principally as a result of new assignments.
Operating expenses increased $4.7 million, or 10.0%, to $52.1 million in 1995
from $47.3 million in 1994, primarily as a result of increased staffing levels
to support new assignments in addition to expanded marketing costs associated
with promoting the Company's facilities management initiative. As a percentage
of revenue, operating expenses decreased to 82.4% in 1995 from 89.9% in 1994
primarily as a result of higher than normal corporate overhead expenses
incurred in 1994 as a result of the Management Services segment's allocation of
the headquarters relocation charge. The Management Services segment's operating
income, which represented 55.1% of the Company's total operating income in
1995, increased $5.8 million, or 110%, to $11.1 million in 1995 from $5.3
million in 1994. As a percentage of segment revenue, operating income increased
to 17.6% in 1995 from 10.0% in 1994.
34
<PAGE>
Corporate and Financial Services. The Corporate and Financial Services
segment's revenue, which represented approximately 24.6% of the Company's total
revenue in 1995, increased $2.2 million, or 6.3%, to $37.3 million in 1995 from
$35.1 million in 1994. The revenue growth resulted from $3.7 million of
increased revenue from tenant representation activities. The tenant
representation business completed 132 transactions totaling 3.6 million square
feet in 1995, compared with 98 transactions totaling 3.8 million square feet in
1994. Although the total square footage of transactions in 1995 was slightly
less than in 1994, revenue per square foot increased due to a concentration of
activity in cities with higher average rents. Revenue gains were offset
principally by decreased revenue from its investment banking activities. The
reduction in the Company's investment banking revenue was primarily
attributable to senior personnel being dedicated to the development of new
products and initiatives in 1995, including CMBS and hotel investments, rather
than new business development.
Operating expenses increased $1.2 million, or 4.2%, to $29.5 million in 1995
from $28.3 million in 1994. As a percentage of revenue, operating expenses
represented 79.1% in 1995 compared to 80.7% in 1994. The 1994 operating
expenses for this segment were adversely affected by the one-time allocation of
the headquarters relocation charge. The Corporate and Financial Services
segment's operating income, which represented 38.8% of the Company's total
operating income in 1995, increased $1.0 million in 1995, or 15.2%, to $7.8
million in 1995 from $6.8 million in 1994. The increase was a result of the
strengthening of the real estate market, increased tenant representation fees
and the investment in a commercial land and residential development entity. As
a percentage of segment revenue, operating income increased to 20.9% in 1995
from 19.3% in 1994.
Investment Management. The Investment Management segment's revenue, which
represented 34.7% of the Company's total revenue in 1995, increased $13.4
million, or 33.9%, to $52.7 million in 1995 from $39.4 million in 1994. The
substantial majority of the increase in revenue was associated with the ABKB
acquisition, partially offset by a $7.0 million decrease in commingled fund
revenue. This decline in commingled fund revenue was primarily attributable to
the voluntary reduction in fees in 1995, as well as sales of real estate assets
held by such funds. In addition, as a result of the downturn in real estate
markets, commingled fund advisory fees, which are calculated as a percentage of
real estate net asset value ("NAV"), declined because of such reductions in
property NAVs.
Operating expenses increased $18.1 million, or 54.2%, to $51.5 million in
1995 from $33.4 million in 1994. The substantial majority of the increase is
associated with the ABKB acquisition and the amortization of the related
goodwill and intangible assets in addition to certain one-time expenses
incurred in 1995 totaling $2.0 million related to the restructuring of this
segment. As a percentage of revenue, operating expenses increased to 97.7% in
1995 from 84.9% in 1994. The Investment Management segment's operating income,
which represented 6.0% of the Company's total operating income in 1995,
decreased $4.7 million to $1.2 million in 1995 from $6.0 million in 1994. As a
percentage of segment revenue, operating income decreased to 2.3% in 1995 from
15.1% in 1994.
35
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited combined statements of
operations data for each of the Company's last nine quarters. In the opinion of
management, this information has been presented on the same basis as the
audited financial statements appearing elsewhere in this Prospectus, and
includes all adjustments, consisting only of normal recurring adjustments and
accruals, that the Company considers necessary for a fair presentation. The
unaudited combined quarterly information should be read in conjunction with the
Predecessor Partnerships' Combined Financial Statements and the notes thereto.
The operating results for any quarter are not necessarily indicative of the
results for any future period.
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------------ ------------------------------------ ---------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
-------- ------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE(1):
Management Services..... $11,782 $13,777 $13,697 $22,526 $12,013 $15,332 $18,484 $25,840 $14,418
Corporate and Financial
Services............... 3,302 6,336 9,880 17,785 3,912 6,933 8,712 26,149 4,966
Investment Management... 11,336 12,693 13,105 15,608 11,360 12,466 11,979 22,787 16,635
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... $26,420 $32,806 $36,682 $55,919 $27,285 $34,731 $39,175 $74,776 $36,019
OPERATING EXPENSES:
Compensation and
benefits............... $21,489 $22,352 $22,145 $25,197 $23,327 $24,346 $24,995 $32,005 $27,217
Other operating and
administrative (1)..... 7,083 8,702 8,467 12,036 8,052 8,831 10,088 12,006 10,300
Depreciation and
amortization........... 1,003 1,057 1,052 1,128 1,111 1,134 1,169 2,002 1,774
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss). $(3,155) $ 695 $ 5,018 $17,558 $(5,205) $ 420 $ 2,923 $28,763 $(3,272)
Interest expense........ 941 948 959 958 937 1,104 1,944 1,745 1,695
Income tax provision
(benefit).............. (127) (8) 126 514 (350) (39) 56 1,540 (248)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $(3,969) $ (245) $ 3,933 $16,086 $(5,792) $ (645) $ 923 $25,478 $(4,719)
======= ======= ======= ======= ======= ======= ======= ======= =======
EBITDA(2)............... $(2,152) $ 1,752 $ 6,070 $18,686 $(4,094) $ 1,554 $ 4,092 $30,765 $(1,498)
Net cash provided by
(used in) operating.... (8,926) 3,429 10,543 8,507 (12,721) 7,639 1,863 17,183 (4,678)
Net cash provided by
(used in) investing.... (695) (2,266) (1,629) (1,116) (5,967) (3,139) (2,678) (20,694) (2,038)
Net cash provided by
(used in) financing.... 2,349 (1,970) (8,644) (4,100) 14,921 (4,432) 1,099 5,601 7,705
</TABLE>
The following table sets forth the above quarterly financial information as a
percentage of total revenue:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------------- ----------------------------------- ---------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
-------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE(1):
Management Services..... 44.6% 42.0% 37.3% 40.3% 44.0% 44.1% 47.2% 34.6% 40.0%
Corporate and Financial
Services............... 12.5 19.3 26.9 31.8 14.4 20.0 22.2 35.0 13.8
Investment Management... 42.9 38.7 35.7 27.9 41.6 35.9 30.6 30.4 46.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenue........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
OPERATING EXPENSES:
Compensation and
benefit................ 81.3% 68.1% 60.4% 45.1% 85.5% 70.1% 63.8% 42.8% 75.6%
Other operating and
administrative (1)..... 26.8 26.5 23.1 21.5 29.5 25.4 25.7 16.0 28.6
Depreciation and
amortization........... 3.8 3.2 2.9 2.0 4.1 3.3 3.0 2.7 4.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss). (11.9)% 2.1% 13.7% 31.4% (19.1)% 1.2% 7.5% 38.5% (9.1)%
Interest expense........ 3.6 2.9 2.6 1.7 3.4 3.2 5.0 2.3 4.7
Income tax provision
(benefit).............. (0.5) 0.0 0.3 0.9 (1.3) (0.1) 0.1 2.1 (0.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net earnings (loss)..... (15.0)% (0.7)% 10.7% 28.8% (21.2)% (1.9)% 2.4% 34.1% (13.1)%
===== ===== ===== ===== ===== ===== ===== ===== =====
EBITDA (2).............. (8.1)% 5.3% 16.5% 33.4% (15.0)% 4.5% 10.4% 41.1% (4.2)%
</TABLE>
- --------
(1)Excludes intersegment revenue and intersegment expense.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, thereby removing the effect of certain non-cash charges on
income, such as the amortization of intangible assets relating to
acquisitions. Management believes that EBITDA is useful to investors as a
measure of operating performance, cash generation and ability to service
debt. EBITDA is also used by analysts who report publicly on the
performance of real estate services companies. However, EBITDA should not
be considered as an alternative either to: (i) net earnings (determined in
accordance with GAAP); (ii) operating cash flow (determined in accordance
with GAAP); or (iii) liquidity. There can be no assurance that the
Company's calculation of EBITDA is comparable to similarly titled items
reported by other companies.
36
<PAGE>
Segment Revenue. A substantial majority of Management Services revenue
reflects property and facility management fees earned evenly throughout the
year. However, fourth quarter revenue is generally higher due to higher levels
of leasing fees earned in the fourth quarter as well as incentive fees earned
under performance-based agreements. Corporate and Financial Services revenue
has historically increased from quarter to quarter in a given year with the
largest proportion of transactions being completed in the fourth quarter,
consistent with the industry. Investment Management revenue is generally
earned evenly throughout the year with the fourth quarter 1996 revenue
reflective of the CIN Property Management acquisition in October 1996.
Operating Expenses. Bonus accruals are recorded quarterly on the basis of
the progress toward achievement of revenue targets. Consequently, fourth
quarter compensation and benefit expenses track the higher level of revenue
generated in the fourth quarter. Other operating and administrative expenses
are generally relatively consistent throughout the year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operations totaled $4.7 million for the three months
ended March 31, 1997 compared to $12.7 million for the prior year period. Net
cash flows provided by operations totaled $14.0 million, $13.6 million and
$24.6 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The primary element of change for the three months ended March
31, 1997 and in the years 1996 through 1994 is the increase in receivables,
which can be attributed to the significant increase in leasing commissions
generated in the fourth quarter of each year for both the Management Services
and Corporate and Financial Services segments. Fees recognized from lease
transactions are typically collected half when the lease is executed and half
when the space is occupied with occupancy generally occurring between six and
12 months after the lease execution. These increases have been partially
offset by steady increases in accounts payable and accrued compensation which
is also attributable to the increase in fourth quarter revenue generation.
Since 1993, the Company has invested or committed approximately $30 million
in over 30 separate properties or funds. As of March 31, 1997, the Company had
a total net investment of $15.8 million in 33 separate property or fund co-
investments (which properties and funds had a total acquisition cost exceeding
$1.0 billion). Twenty-nine of these co-investments were made in the last three
years. The holding period for co-investments typically ranges from three to
seven years. Such co-investments are typically represented by non-controlling
general partner and limited partner interests. In addition to its share of
investment returns, the Company typically earns property management, leasing,
and advisory fees on these investments. The equity earnings from these co-
investments have had a relatively small impact on the Company's current
earnings and cash flow. However, the Company's increased participation as a
principal in real estate investments could increase fluctuations in the
Company's net earnings and cash flow as a result of the timing and magnitude
of the gains or losses and potential incentive participation fees, if any, to
be recognized on the disposition of the assets. In certain of these
investments, the Company will not have complete discretion to control the
timing of the disposition of such investments.
Net cash used in investing activities was $2.0 million for the three months
ended March 31, 1997 compared to $6.0 million for the prior year period. The
reduction in net cash used in investing activities is a result of $.9 million
of distributions from real estate investments and a decrease of $4.1 million
in capital investments over the prior year period offset by an increase in
capital contributions of $1.1 million to real estate ventures. Net cash used
in investing activities was $32.5 million in 1996, compared to $5.7 million in
1995. The increase was attributable to the acquisition of CIN Property
Management for $15.7 million, as well as increases in co-investment activity,
expenditures on furniture and fixtures at the Company's new corporate
headquarters and increased investments in technology. Net cash used in
investing activities was $5.7 million in 1995, compared to $4.9 million in
1994. Net co-investment activity in 1995 was $2.0 million lower than in the
prior year; however, capital investments in technology in 1995 were $2.8
million higher than in 1994. As of March 31, 1997, the Company had unfunded
commitments for existing co-investments of $1.1 million.
37
<PAGE>
Historically, the Company has financed its operations, acquisitions and co-
investments with internally generated funds, partnership equity and borrowings
under revolving credit facilities. In September 1996, the Company replaced its
$30 million revolving line of credit with a $70 million credit agreement
terminating on September 6, 1999. The agreement consists of a short-term
facility (the "Short-Term Facility") and the Long-Term Facility totaling $30
million and $40 million, respectively. The agreement is secured by certain of
the Company's receivables, fixed assets and investments in ventures. The
agreement requires that the Company maintain a certain level of net worth and
meet earnings before interest, taxes, depreciation and amortization targets.
The Company is further prohibited, without the lenders' prior approval, from
incurring certain indebtedness (including certain levels of indebtedness in
connection with co-investments), guaranteeing certain obligations or disposing
of a significant portion of its assets. The facilities bear variable rates of
interest based on market rates. The Company expects to renegotiate the terms
of the Short-Term Facility and Long-Term Facility in connection with the
assumption of such indebtedness by the Company in the Incorporation
Transactions. As part of this process, following the Offering the Company
intends to establish a new facility through its existing lender or a new
lender. There can be no assurance as to the terms and conditions of such new
facility.
The Short-Term Facility is a revolving line of credit which must be paid
down annually for a 30-consecutive-day period and is restricted as to use for
general business purposes. Amounts outstanding on the Short-Term Facility at
March 31, 1997 totaled $16.8 million. The Long-Term Facility is limited in use
to investments in real estate ventures, business acquisitions and certain
capital expenditures, subject to lender approval. Principal payments on
borrowings under the Long-Term Facility are payable annually on June 15 for
amounts outstanding as of March 31 based on a defined amortization schedule.
Principal payments made on June 15 of each year increase the available balance
on the facility from which to borrow. Amounts outstanding on the Long-Term
Facility as of March 31, 1997 totaled $29.2 million.
At March 31, 1997, the Company also had outstanding $37.2 million in
subordinated debt owed to affiliates of Dai-ichi in the form of $6.2 million
in Class A Notes and $31 million in Class B Notes (the "Dai-ichi Notes"), each
bearing interest at 10% payable annually on December 31st. Principal payments
on the Class A Notes are $3.1 million due on June 30, 1997 and 1998. Principal
payments on the Class B Notes are due in ten equal payments of $3.1 million on
June 30th of each year beginning in 1999. The Notes are prepayable without
penalty. In 1994, a principal repayment of $14.1 million was made on the Class
A Notes with capital contributions received in connection with the ABKB
acquisition.
Net cash provided by financing activities was $7.7 million for the three
months ended March 31, 1997 compared to $14.9 million for the prior year
period. The change is primarily attributable to the increased cash flow
provided by operations resulting in a decrease in borrowing needs. Net cash
provided by (used in) financing activities was $17.2 million in 1996, compared
to ($12.4) million in 1995. Borrowings under the Long-Term Facility in 1996
were used to fund the acquisition of CIN Property Management, the increase in
co-investment activity, and infrastructure investments. Net cash used in
financing activities was $12.4 million in 1995, compared to $12.0 million in
1994. Distributions to partners increased by $3.0 million in 1995, compared to
1994.
Upon completion of the Offering, the Company intends to repay the full
amount of the indebtedness outstanding under the Dai-ichi Notes. The remaining
proceeds will be used to repay the indebtedness outstanding under the Long-
Term Facility. After the existing long-term debt is paid, the Company plans to
increase its long-term debt periodically in order to continue to pursue
international expansion, strategic acquisitions and co-investments. The
Company believes, based on its current operating plans, that cash generated
from operations, the net proceeds of the Offering and available borrowings
will be sufficient to meet its capital and liquidity requirements for at least
the next two years. See "Use of Proceeds."
DISPOSITION
On December 31, 1996, the Company completed the sale of its construction
management business to a former member of the Company's management. This
business, which specializes in the interior build-out of office and retail
space for tenants in the Chicago and Los Angeles markets, had 1996 revenue,
which are shown
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net of related expenses on the Company's combined statements of earnings, of
$1.3 million. The business was sold in exchange for a note of $9.1 million.
The note, which is secured by the current and future assets of the business,
is due December 31, 2006. For financial reporting purposes, the Company has
not treated the transaction as a divestiture. Principal and interest to be
received under the note will be treated as a reserve, if necessary, for any
anticipated financial exposure under the terms of the asset purchase
agreement, with the remainder recognized as income as principal and interest
payments are received.
SEASONALITY
Historically, the Company's revenue, operating income and net earnings in
the first three calendar quarters are substantially lower than in the fourth
quarter. This seasonality is due to a calendar year-end focus on the
completion of transactions, which is consistent with the real estate industry
generally. In addition, an increasing percentage of the Company's management
contracts contain clauses providing for performance bonuses to be received if
the Company achieves certain performance targets. Such incentive payments are
generally earned in the fourth quarter. In contrast, the Company's non-
variable operating expenses, which are treated as expenses when incurred
during the year, are relatively constant on a quarterly basis. Therefore, the
Company typically sustains a loss in the first and second quarter of each
calendar year, reports a small profit or loss in the third quarter and records
a substantial majority of the Company's earnings in the fourth calendar
quarter. See "--Quarterly Results of Operations."
INFLATION
The Company's operations are directly affected by various national and
economic conditions, including interest rates, the availability of credit to
finance real estate transactions and the impact of tax laws. To date, the
Company does not believe that general inflation has had a material impact on
its operations, as revenue, commissions and other variable costs related to
revenue are primarily impacted by real estate supply and demand rather than
general inflation.
OTHER MATTERS
In connection with the Offering and the Incorporation Transactions, the
Company will become subject to Federal and additional state and local income
taxes as it converts from partnership to corporate form. Concurrently with the
Incorporation Transactions, the Company will record deferred tax assets and
liabilities in accordance with the provisions of SFAS No. 109. Such amounts
are not expected to have a material effect on the Company's Pro Forma
Consolidated Financial Statements.
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BUSINESS
COMPANY OVERVIEW
LaSalle Partners is a leading full-service real estate firm that provides
management services, corporate and financial services and investment management
services to corporations and other real estate owners, users and investors
worldwide. By offering a broad range of real estate products and services, and
through its extensive knowledge of domestic and international real estate
markets, the Company is able to serve as a single source provider of solutions
for its clients' full range of real estate needs. Based on published industry
data and its industry knowledge, the Company believes that it holds a leading
market position in each of its primary businesses. For example, the Company
believes it is the largest property manager of office buildings in the United
States, one of the largest outsource service providers for corporate occupied
facilities and the third largest manager of institutional equity capital
invested in domestic real estate assets and securities. The Company is also the
fourth largest manager of institutional real estate equity investments in the
United Kingdom. Founded in 1968, the Company is headquartered in Chicago,
Illinois, and maintains corporate offices in 10 United States cities and four
international markets. The Company also maintains over 300 property and other
offices throughout the United States. In 1996, the Company generated total
revenue of $176.0 million, representing an increase of 15.9% from the prior
year's results.
To meet the diverse needs of its clients, the Company provides its full range
of real estate services through three principal business groups: Management
Services, Corporate and Financial Services and Investment Management. The
Management Services group develops and implements property level strategies to
increase investment value for real estate owners and optimize occupancy costs
for corporate owners and users of real estate. The Corporate and Financial
Services group provides tenant representation services, investment banking
services and land acquisition and development services. The Investment
Management group provides real estate investment management services to
institutional investors, corporations and high net worth individuals.
On April 22, 1997, Galbreath, a property management, facility management and
development management company, was merged with the Company. Based on the 1996
CPN Survey, the combination of Galbreath and the Company would have ranked the
Company as the third largest property manager in the United States. The
Company's principal objectives for the merger were to expand the Company's
geographic presence, add additional client relationships and provide the
potential for significant economic synergies with the Management Services
group. Such synergies are expected to result primarily from eliminating
infrastructure redundancies, centralizing accounting and personnel functions
and enhancing Galbreath's management information systems.
COMPETITIVE ADVANTAGES
The Company believes that it has several competitive advantages which have
established it as a leader in the real estate services and investment
management industries. These advantages include the Company's:
. Relationship Orientation. The Company's client-driven focus enables the
Company to develop long-term relationships with owners and users of real
estate. By developing such relationships, the Company generates repeat
business and creates recurring revenue sources; 87% of the Company's 1996
revenue was derived from clients for which the Company provided services
in prior years. The Company's relationship orientation is supported by an
employee compensation system which it believes is unique in the real
estate industry. LaSalle Partners compensates its professionals with a
salary, bonus and stock ownership plan which is designed to reward client
relationship building, teamwork and quality performance, rather than on a
commission basis which is typical in the industry.
. Full Range of Services. By offering a wide range of high quality,
complementary services, the Company can combine its services to develop
and implement real estate strategies that meet the increasingly complex
needs of its clients. The Company's product and service capabilities
include property management and leasing, facility management, development
management, tenant representation, investment banking, land acquisition
and development, and investment management.
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. Geographic Reach. With 10 corporate offices and over 300 property and
other offices throughout the United States, LaSalle Partners possesses
in-depth knowledge of local markets and can provide its full range of
real estate services throughout the country. In addition, the Company's
four international offices give the Company the ability to serve its
clients' needs in key international markets. The international offices
also serve as the platform from which the Company will expand its
international presence.
. Reputation. Based on its industry knowledge, commissioned marketing
surveys, industry publications and number of long-standing client
relationships, the Company believes that it is widely recognized by large
corporations and institutional owners and users of real estate as a
provider of high quality, professional real estate services and
investment management products. The Company believes its name recognition
and reputation for quality services are significant advantages when
pursuing new business opportunities.
. Experienced Management/Employee Equity Incentives. The Company's senior
management team has an average of approximately 18 years of experience in
the real estate services industry and, with the exception of Lizanne
Galbreath who joined the Company on April 22, 1997 in connection with the
Galbreath merger, has been with LaSalle Partners for an average of
approximately 16 years. The Company uses equity-based incentive
compensation and bonus plans and minimum stock ownership guidelines to
foster employee commitment and align employee and stockholder interests.
Following the Offering, the Company's senior management team will
indirectly own approximately 21.4% of the outstanding Common Stock and
total employee ownership will be approximately 47.5%.
INDUSTRY TRENDS
The real estate services industry is emerging from the severe downturn in
the real estate markets in the early 1990s. Strong improvements in commercial
real estate fundamentals--supply, demand, vacancy and rental rates--have
contributed to increased property values. The Company believes that the
recovery of the real estate markets and the trends described below provide
growth opportunities for the Company.
CONSOLIDATION
The real estate services industry is highly fragmented. For example, the top
10 property managers (based on square footage) manage less than 4% and the top
50 property managers manage less than 7% of the 61 billion total square feet
of commercial property (industrial, office and retail) located in the United
States. Many large real estate service firms engaged in the property
management business, including the Company, believe that, as a result of
substantial existing infrastructure investments and the ability to spread
fixed costs over a broader base of business, it is possible to recognize
incrementally higher margins on property management assignments as the amount
of square footage under management increases. The advantages of scale in the
property management business, including the ability to provide higher quality
service at a lower cost to the user, has led to a significant consolidation
trend among real estate service providers.
In addition, large users of commercial real estate services have recently
demonstrated a desire to use a smaller number of real estate firms capable of
providing a full range of services across multiple geographic markets. The
ability to offer a full range of services requires significant corporate
infrastructure investment, including information technology and personnel
training. Smaller regional and local real estate service firms, with limited
resources, are less able to make such investments.
GROWTH OF OUTSOURCING
In recent years, outsourcing of professional real estate services has
increased substantially as corporations have focused corporate resources,
including capital, on their core competencies. In addition, public and other
non-corporate users of real estate, such as government agencies and health and
educational institutions, have begun outsourcing real estate activities as a
means of reducing costs. As a result, there are significant growth
opportunities for firms that can provide integrated real estate services
across many geographic markets.
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ALIGNMENT OF INTERESTS OF INVESTORS AND INVESTMENT MANAGERS
As a result of recovering real estate markets, institutional investors have
increased their allocation of investment capital to real estate and many
investors have shown a desire to commit their capital to investment managers
willing to co-invest with them on specific investments. In addition, investors
are increasingly requiring that the fees paid to investment managers be more
closely aligned with investment performance. As a result, the Company believes
that those investment managers with co-investment capital will have an
advantage in attracting real estate investment capital. Co-investment brings
with it the opportunity to provide additional services related to the
acquisition, financing, property management, leasing and disposition of such
investments.
INCREASING DEMAND FOR GLOBAL SERVICES; GLOBALIZATION OF CAPITAL FLOWS
As many United States corporations have pursued growth opportunities in
international markets, they have increased their demand for global real estate
services, such as facility management, tenant representation and development
management. The Company believes that this trend will favor those real estate
service providers with the capability to provide services in key international
markets. Additionally, real estate capital flows have become more global as
foreign investors have invested in United States assets, and United States
investors have sought international real estate investment opportunities. This
trend has created new markets for investment managers that can facilitate
international real estate capital flows and can execute cross-border real
estate transactions.
GROWTH STRATEGY
Following the Offering, the Company intends to use its increased financial
flexibility to pursue its growth strategy, which is designed to capitalize on
existing client relationships and emerging industry trends. Key components of
its growth strategy include the following:
EXPANDING CLIENT RELATIONSHIPS
Based on its ability to deliver high quality real estate services, the
Company has been able to successfully leverage discrete client assignments into
more comprehensive relationships utilizing some or all of its business groups.
Current industry trends, particularly improving real estate markets and the
increased outsourcing of real estate services, provide a favorable environment
for the Company to increase the scope of its current client relationships and
to develop new relationships through its broad array of services. The Company's
business groups identify new clients and markets and pursue opportunities to
sell the products and services of many of the Company's business units. The
Company's Client Services Group, which is a dedicated firm-wide marketing
organization, acts as a catalyst in assisting Company professionals in all
groups in marketing multiple services of the firm to existing and prospective
clients.
BROADENING INTERNATIONAL PRESENCE
To take advantage of the trend toward globalization of real estate capital
sources and investment opportunities and the international business expansion
of many of its corporate clients, the Company intends to expand its existing
international operations and enter new international markets. This expansion is
expected to include the opening of new international offices and may include
selective acquisitions of international real estate services companies. In
order to serve its clients' increasingly global real estate needs, and to
pursue new business opportunities, the Company has opened offices in London,
Paris, Mexico City and Beijing. The Company intends to use these international
offices to serve as a platform from which the Company will expand its
international presence.
SELECTIVELY PURSUING STRATEGIC ACQUISITIONS
The Company intends to selectively pursue acquisition targets to expand its
capability to serve clients and strengthen its position as an industry leader.
The expected benefits of such acquisitions include expanding and
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enhancing its product and service offerings, broadening its geographic market
coverage or generating economies of scale. The Company will only pursue
acquisitions which meet its standards for quality of service and are compatible
with the Company's culture. Consistent with this strategy, the Company acquired
the assets of ABKB, a domestic real estate investment management business, in
late 1994 and CIN Property Management, an investment management business in the
United Kingdom, in late 1996. Through these acquisitions, the Company added
over $5 billion to its assets under management, extended the Company's
securities advisory capabilities and established the Company as one of the
largest managers of real estate investment equity capital in the United
Kingdom. More recently, in April 1997, Galbreath, a national property
management company with 71 million square feet under management, was merged
with the Company. This merger expands the Company's market presence in Ohio,
Pennsylvania, New York, Florida and other key markets and offers the potential
for significant economic synergies with its Management Services group.
PURSUING CO-INVESTMENT OPPORTUNITIES
The Company intends to accelerate its strategy of co-investing with its
investment management clients, to take advantage of recovering real estate
markets. As of March 31, 1997, the Company had a total net investment of $15.8
million in 33 separate property or fund co-investments. The acquisition cost of
the properties acquired through these co-investments exceeds $1.0 billion.
Existing co-investments consist primarily of office and hotel properties
purchased within the last three years.
The Company's co-investment strategy is supported by its broad fundamental
real estate research capabilities, which include identifying trends in
geographic regions and property types. The Company's extensive knowledge of
local markets drawn from each of its business segments facilitates the
identification and evaluation of specific investment opportunities. Co-
investments provide the Company with the opportunity to participate in any
returns generated by such investments and provide services related to the
acquisition, financing, property management, leasing and disposition of such
investments. As a result of the Offering, the Company will have additional
financial flexibility to pursue its co-investment strategy.
BUSINESS SEGMENTS
The Company serves its clients through its three principal business groups.
MANAGEMENT SERVICES
The Company's Management Services group develops and implements property
level strategies to increase investment value for real estate owners and
optimize occupancy costs for corporate owners and users of real estate. The
Management Services group provides three primary service capabilities: (i)
property management and leasing for property owners ("Property Management and
Leasing Services"); (ii) facility management for properties occupied by
corporate owners and users ("Facility Management Services"); and (iii)
development management for both investors and real estate users seeking to
develop new buildings or renovate existing facilities ("Development Management
Services"). As of March 31, 1997, the Management Services group had property
management, leasing or facility management responsibility for approximately
132.7 million square feet of commercial space. In 1996, the Management Services
group generated revenue of $71.9 million and operating income of $10.7 million,
representing approximately 41% of the Company's total revenue and approximately
40% of the Company's total operating income.
Based on the 1996 CPN Survey, the Company is the largest property manager of
office buildings in the United States and is the eighth largest property
manager in the United States overall. As a result of the merger of Galbreath
with the Company, the Management Services group assumed management
responsibility for
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approximately 71 million additional square feet of primarily office and
industrial space. Including Galbreath, the Company would have ranked as the
third largest property management firm in the 1996 CPN Survey.
[Bar graph depicting the Management Services group's total square footage under
management for the period 1992-1996]
Property Management and Leasing Services. Active since 1978, the Company's
Property Management and Leasing Services unit operates, markets and leases
commercial real estate. The Company was a pioneer in the development of value-
creating property management services. The Company's goal is to enhance its
clients' property values through aggressive day-to-day management focused on
maintaining high levels of occupancy and tenant satisfaction, while lowering
the operating costs of such properties. The Company's Property Management and
Leasing Services unit generated approximately $52.3 million in revenue in 1996.
Prior to the merger of Galbreath with the Company, the Company represented
more than 70 property owners, providing on-site Property Management and Leasing
Services for approximately 170 office, retail, mixed-use and industrial
properties, in 29 of the largest markets in the U.S. During 1996, leasing
professionals completed over 1,200 lease transactions totaling approximately
9.5 million square feet. As a result of the merger of Galbreath with the
Company, the Company assumed management responsibility for over 200 additional
properties in five additional markets (including two of the largest markets in
the U.S.) for over 20 new institutional real estate owners.
The Company provides property management or leasing services, or both, for
many well-known buildings, including the Amoco Building in Chicago, the
Citicorp Center in New York, and the Transamerica Building in San Francisco.
While major office buildings represent the Company's most visible assignments,
the Company is also active in the management of retail projects, industrial
real estate, mid-size assets of all types and portfolios of smaller properties.
The clients of the Company's Property Management and Leasing Services unit
include domestic and international pension funds, the Company's own investment
funds and third-party corporate and institutional investment clients.
Representative clients served in 1996 included The Allstate Corporation, Amoco
Corporation, Lincoln National Corporation, Mitsui Fudosan Co. Ltd. and
Transamerica Corporation.
Consolidation among property management and leasing companies, in combination
with improving leasing markets, provides significant opportunities for the
Company. Since the fee arrangements for most of the Company's Property
Management and Leasing Services assignments are largely dependent on property
revenues, the Company has benefited from the national recovery in commercial
real estate markets. This recovery has been characterized by rising average
commercial rental and occupancy rates during the 1993-1996 time period.
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The Company intends to expand its Property Management and Leasing Services
unit through a combination of targeted marketing initiatives and acquisitions.
Based on its industry experience, the Company believes that its established
infrastructure and its reputation for high quality service make the Company an
attractive potential acquiror to many smaller local, regional and national
property management firms. The marketing efforts of the Property Management and
Leasing Services unit are directed toward pursuing new third-party management
assignments, expanding the Company's relationships with existing clients and
capitalizing on new business opportunities that may arise from the Investment
Management group's initiatives, such as implementation of its co-investment
strategy. As of March 31, 1997, more than half of the Company's 63.5 million
square foot Property Management and Leasing Services portfolio was composed of
assets owned by unrelated third party clients and the remainder was composed of
assets managed for clients for which LaSalle Partners also provided investment
advisory services. The Company believes that during the next several years,
this business mix will become increasingly weighted toward assets owned by
unrelated third-parties, with a decreasing emphasis on assets owned in the
Company's existing investment funds, as many of the commingled funds created by
the Company in the 1980s reach maturity and dissolution. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's Property Management and Leasing Services are typically provided
by an on-site general manager and staff supported through extensive regional
supervisory teams as well as central resources in areas such as training,
technical and environmental services, accounting, marketing and human
resources. Property general managers assume full responsibility for property
management and leasing activities, client satisfaction and financial results.
Property Management and Leasing Services personnel are compensated, not by fees
or commissions, but through a combination of base salary and performance bonus
that is directly linked to results produced for clients.
The Company typically receives fees based on the value of the lease revenue
commitment for leases consummated while it serves as exclusive property leasing
agent. Increasingly, management agreements provide for incentive compensation
relating to operating expense reductions, gross revenue, occupancy objectives
or tenant satisfaction levels. As is customary in the industry, management
contract terms typically range from one to three years, but are cancellable at
any time upon a short notice period, usually 30 to 60 days. However, on a
portfolio basis, the Company's current average length per management assignment
is approximately four years.
Facility Management Services. The Company's Facility Management Services unit
provides comprehensive portfolio and property management services to
corporations and institutions that outsource their real estate management
functions. The properties under management range from corporate headquarters to
industrial complexes, sales offices and data centers. Facility Management
Services professionals create working partnerships with each client to deliver
fully-integrated real estate services that are tailored to the specific needs
of each organization. Typically, performance measures are developed to quantify
progress made toward the goals and objectives that are set mutually with
clients. The Company's Facility Management Services unit also serves as an
important "port of entry" for the Company's other business units. Depending on
client needs, the Facility Management Services unit, either alone or through
the Company's other business units, provides services such as portfolio
planning, property management, leasing, tenant representation, acquisition,
finance, disposition, project management, development management and land
advisory services. In 1996, the Facility Management Services unit generated
revenue of approximately $13.6 million. Facility Management Services
relationships also generated revenue of approximately $12.8 million in 1996 for
the Company's other business units.
The Company was a pioneer in the facility management services business and
currently is one of the largest providers of facility management services in
the United States. The Company's target clients typically have large portfolios
(usually over one million square feet) with significant opportunities to reduce
costs and improve service delivery. At March 31, 1997, the Company managed
approximately 5,500 facilities, totaling more than 69 million square feet of
space for eight clients. Representative clients served in 1996 included
Ameritech, BankAmerica Corporation and Sun Microsystems, Inc. As a result of
the merger of Galbreath with the Company, the Company assumed management
responsibility for facilities totaling 13 million square feet for clients such
as Eli Lilly and Company, The LTV Corporation and The Mead Corporation. The
Facility Management Services-
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unit is also exploring new business opportunities with universities, health
care institutions, government agencies and other potential clients.
The Company believes that the global corporate trend of outsourcing non-core
business functions represents an important long-term business opportunity for
LaSalle Partners. The Company believes that its broad-based service
capabilities will become an increasingly valuable competitive advantage in
pursuing Facility Management Services assignments. The Company believes that
its demonstrated experience, cost-cutting successes and client satisfaction
also provide it with an important competitive advantage. The Company has set
and consistently met its objective of cutting operating costs of its properties
under management between 10% and 30% within the first two years of the
assignment. In order to efficiently provide all services required to manage and
operate large facility portfolios, the Company forms partnerships with major
building services and architecture firms.
The Facility Management Services unit is compensated on the basis of
negotiated fees, which are typically structured to include a base fee and a
performance bonus. The performance bonus compensation is based on a
quantitative evaluation of progress toward performance measures and regularly
scheduled client satisfaction surveys. Facility Management Services agreements
are typically three to five years in duration.
Development Management Services. Active since 1975, the Company's Development
Management Services unit manages all aspects of the development, redevelopment
and renovation of commercial projects, principally on a fee basis. The Company
prepares projections, budgets, schedules and cash flows for its clients in
addition to undertaking entitlement, zoning and a variety of other development-
related responsibilities. All of the Company's current development business is
conducted for third-party clients, many of which are corporations with
significant office space needs. The Development Management Services unit
frequently manages development initiatives for clients of the Company's
Facility Management Services, Tenant Representation Services and Land Services
units, as well as for clients of the Company's Investment Management group
which are pursuing development-related investment strategies. In 1996, the
Development Management Services unit generated approximately $5.5 million in
revenue.
The Company has extensive experience in ground-up development in the office,
retail and institutional sectors and has completed more than 41 million square
feet of development and redevelopment projects for clients such as Capital
Cities/ABC, Inc., Duracell International Inc., McDonald's Corporation and The
Prudential Insurance Company of America. The Development Management Services
unit is currently managing the development of 17 projects totaling
approximately 4.5 million square feet nationally. Capitalizing on experience
gained in the redevelopment of Union Station in Washington, D.C., the Company
also specializes in mixed-use developments and is currently managing the
redevelopment of Grand Central Terminal in New York as a combined
transportation center and retail facility and the redevelopment of Orchestra
Hall in Chicago, Illinois.
The Development Management Services unit generates development and advisory
fees. Fees are typically fixed and are negotiated based upon the cost of the
developments or improvements. Assignments are typically multi-year in nature.
CORPORATE AND FINANCIAL SERVICES
The Company's Corporate and Financial Services group provides transaction and
advisory services through three primary service capabilities: (i) tenant
representation for corporations and professional service firms ("Tenant
Representation Services"); (ii) investment banking services to address the
financing, acquisition and disposition needs of real estate owners ("Investment
Banking Services"); and (iii) land acquisition and development services for
owners, users and developers of land ("Land Services"). In 1996, the Corporate
and Financial Services group generated revenue of $46.7 million and operating
income of $10.8 million, representing approximately 27% of the Company's total
revenue and approximately 40% of the Company's total operating income.
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[Bar graph depicting revenue for the Tenant Representation Services unit for the
period 1992-1996]
Tenant Representation Services. First offered in 1978, the Company's Tenant
Representation Services unit assists clients by defining space requirements,
identifying suitable alternatives, recommending appropriate occupancy solutions
and negotiating lease and ownership terms with third parties. This unit also
includes the project management group which provides strategic occupancy
planning, field tenant improvement, project management and relocation
management to the Company's clients.
The Company seeks to lower its clients' real estate costs, minimize real
estate occupancy risks, improve clients' flexibility and occupancy control and
create more productive office environments. The Company uses a multi-
disciplined approach to develop occupancy strategies that are linked to its
clients' core business objectives. In 1996, the Tenant Representation Services
unit generated revenue of approximately $31.2 million, completing over 250
transactions for a total of approximately seven million square feet.
The domestic tenant representation industry includes a large number of
service providers offering a wide range of service quality and capabilities.
The Tenant Representation Services unit directs its marketing efforts toward
developing "strategic alliances" with clients whose real estate requirements
include ongoing assistance in meeting their real estate needs and also toward
clients who have the need to consider multiple real estate options and to
execute complex strategies. Based on marketing studies commissioned by the
Company and its industry knowledge, the Company believes that it is recognized
as one of the highest quality providers of tenant representation services in
the United States. Representative clients served in 1996 included Amoco
Corporation, Aon Corporation, R.R. Donnelley & Sons Company and Towers Perrin.
In many cases, the Company develops a strategic alliance with clients to
deliver fully integrated real estate services, including comprehensive on-going
strategic planning and transaction execution services across multiple office
locations. The Company views its strategic alliances as a competitive advantage
since these long-term relationships lower business development costs for the
Company and create recurring revenue sources. In 1996, approximately 79% of
Tenant Representation Services unit revenue was derived from strategic
alliances. Through these relationships, the Company gains a better
understanding of its clients' portfolio and occupancy requirements since the
same professionals service the client's needs nationwide. The Company believes
that these relationships enable it to deliver more consistent services and
better results than single-transaction, commissioned brokerage service
providers.
Responsibility for the national occupancy needs of strategic alliance clients
is assigned to dedicated client teams. These teams allocate resources to
address specific client requirements in markets throughout the United States.
The Company's Tenant Representation Services unit draws upon the resources and
local market knowledge of the Company's network of Property Management and
Leasing Services professionals located in over 300 property and other offices
in 31 of the largest markets in the U.S.
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In addition to its strategic alliances, the Company also represents clients
in large, complex transaction assignments that typically involve relocations of
headquarters facilities or major consolidations of offices. In such
assignments, the Company draws on other capabilities of the firm to enable
clients to consider development of new facilities, weigh the benefits of
purchase or lease decisions and evaluate long-term financing options.
The Company distinguishes its tenant representation services from those of
its competitors in several ways. The Company's Tenant Representation Services
professionals are recruited on the basis of strong educational credentials and
broad business experience, with approximately 90% holding Master of Business
Administration or other advanced degrees. In addition, in contrast to the
Company's major national brokerage competitors, the Company's Tenant
Representation Services professionals do not earn commissions, but are
compensated by means of a base salary and performance bonus that is determined
by their contribution to achieving predetermined client performance objectives.
The Tenant Representation Services unit uses state-of-the-art computer
technology, including proprietary software developed by the Company, to improve
productivity and enhance client service. For example, it has created an on-line
lease analysis/negotiation program that enables users to scan in a lease from a
third party, and then compare lease language in each section against a database
of "best-practices" lease language drawn from previous engagements.
The Company is generally compensated for Tenant Representation Services on a
negotiated fee basis. Although fees are generated by lease commissions, they
are often also determined by performance related to targets set by the Company
and the client prior to the Company's engagement and, in the case of strategic
alliances, at annual intervals thereafter. Quantitative and qualitative
measurements assess progress relative to these goals, and the Company is
compensated accordingly, with incentive fees often awarded for superior
performance.
Investment Banking Services. Active since 1968, the Company's Investment
Banking Services unit is engaged in real estate finance, portfolio advisory
activities, corporate finance and institutional property sales. In 1996, the
Company completed institutional property sales, debt financings, equity
financings and portfolio advisory activities on assets and portfolios valued at
approximately $4.9 billion. The Investment Banking Services unit generated
revenue of approximately $6.7 million in 1996.
The Company believes that its Investment Banking Services unit has a number
of competitive strengths, including its broad accumulated base of real estate
investment banking knowledge and an ability to draw on the Company's access to
global capital sources. The Company's Management Services group and Investment
Management group are valuable resources for the Investment Banking Services
unit in providing local market and property information and capital markets
expertise.
The Investment Banking Services unit is integral to the business development
efforts of the Company's other business units by researching, developing and
introducing innovative new financial products and strategies. Such efforts have
included the development of the Company's hotel investment capability and its
commercial mortgage backed securities operation, both of which are currently
operated within the Company's Investment Management group.
In 1996, approximately 61% of the Company's Investment Banking Services
assignments represented repeat business from its clients. In addition,
approximately 54% of Investment Banking Services revenue represented fees
derived from sales of assets for clients for which LaSalle Partners also
provides investment management services. Representative clients served in 1996
included ENRON Corp., Equifax Inc., G.E. Investment Corp. and Sumitomo Trust &
Banking Co., Ltd.
The Company is typically compensated for Investment Banking Services on the
basis of the value of transactions completed or securities placed, but in
certain circumstances the Company receives retainer fees for strategic advisory
services.
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Land Services. The Company has been active in the evaluation, acquisition and
disposition of land assets since 1970. The Company's Land Services
professionals offer clients expertise and broad experience in a range of land-
related competencies, including land planning and urban design, political
approvals, market and financial analysis and valuations. The Land Services unit
completed 37 transactions in 1996 in United States markets as well as in
multiple international markets. The Company's Land Services unit benefits from
LaSalle Partners' strong relationships with its clients, with approximately 50%
of Land Services unit transactions in 1996 involving clients serviced by other
business units of the Company. The Land Services unit generated approximately
$4.9 million of revenue in 1996.
The Land Services unit acquires and sells urban and suburban development
projects and sites for future development, undertakes complex land assemblages
and site searches and provides advisory services for owners of land and land-
development projects. The Company's Land Services unit also originates and
executes land-related investment programs in development properties and
portfolios of land assets for the clients of the Company's Investment
Management group. In addition, the Company developed expertise in the sale of
portfolios of land and land-related assets by completing such assignments for
several corporate clients, as well as the disposition of the $1.7 billion
National Land Fund for the Resolution Trust Corporation. The Company's Land
Services professionals also have advised public institutions on land-related
assignments, including the conversion of military base facilities, master
planning of peripheral airport land and the evaluation and disposition of land
related to major transit systems.
Representative clients served in 1996 included the California Public
Employees' Retirement System, City of Chicago, Nippon Landic (USA), Inc. and
Shell Oil Company.
INVESTMENT MANAGEMENT
The Company's Investment Management group provides real estate investment
management services to institutional investors, corporations and high net-worth
individuals. The Company serves its clients through a broad range of real
estate money management products and services in the public and private capital
markets to meet various strategic, risk/return and liquidity requirements, with
a wide variety of equity and debt products. This business is organized along
two functional lines, private equity and debt investments and public equity and
debt investments. The Company offers its clients a range of investment
alternatives, including private direct (i.e. single asset acquisitions) and
fund (i.e. portfolios of assets) investments in many real estate property types
(e.g., office, retail, hotel, industrial, residential, land and parking) and
public investments, primarily in REITs, other public real estate equities and
CMBS. The Company believes that the success of the Investment Management group
is built on the foundation of fully integrated research, innovative investment
strategies and a strong client focus. The Investment Management group's
strategy is focused on three fundamentals: (i) developing and executing
tailored investment strategies to meet a variety of client objectives; (ii)
providing superior performance for its clients; and (iii) delivering a high
level of service.
As of March 31, 1997, the Company managed approximately $15.1 billion of real
estate assets, making LaSalle Partners the third largest manager of
institutional equity capital invested in domestic real estate assets and
securities. Approximately $2.5 billion of this total represents public real
estate securities currently managed by the Company's ABKB/LaSalle Securities
unit ("ABKB/LaSalle Securities"), a leading domestic institutional real estate
money manager.
The investment and capital origination activities of the Company's Investment
Management group are becoming increasingly international. As of March 31, 1997,
22% of the Company's assets under management were invested outside of the
United States. Additionally, approximately 38% of equity capital currently
under management by the Company originated from international investors. The
Company expects its international Investment Management group to continue to
increase as a proportion of total capital raised and invested. In 1996, the
Investment Management group generated $58.6 million of revenue and $5.3 million
of operating income, representing approximately 33% of the Company's total
revenue and 20% of the Company's total
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<PAGE>
operating income. Investment Management group activities generate significant
additional business for other parts of the Company's operations, particularly
in the areas of Property Management and Leasing Services and Investment Banking
Services.
The Company maintains an extensive real estate research department which,
with a staff of 12 professionals, monitors real estate and capital market
conditions to enhance investment decisions and identify future opportunities.
In addition to drawing on public sources for information, the research
department utilizes the extensive local presence of LaSalle Partners
professionals throughout the United States to gain proprietary insight into
local market conditions. Representative clients served in 1996 included the
British Coal Pension Fund, California Public Employees' Retirement System,
Cargill, Dai-ichi Life (U.S.A.), Inc. and Oregon Public Employees' Retirement
Fund.
[Bar graph depicting the Investment Management group's Assets under Management
for the period 1992-1996]
Private Equity and Debt Investments. The Company introduced its first
institutional investment fund in 1979 and currently has a series of commingled
investment funds with over 115 investors. The Company also has 34 single client
account relationships ("separate accounts") with domestic and international
investors for whom the Company manages private real estate investments. On
behalf of its Investment Management clients, the Company acquires, manages,
leases, finances and divests real estate investments across a broad range of
real estate property types.
To take advantage of the trend toward globalization of real estate capital
sources, the Company strengthened and extended its international investment
activities with the acquisition in October 1996, of CIN Property Management
(now renamed CIN LaSalle Investment). The Company believes that CIN LaSalle
Investment, the fourth largest manager of real estate equity investments in the
United Kingdom, will expand the Company's investment activities and capital
raising in the United Kingdom and continental Europe. The Company also
initiated opportunistic investment programs in France in 1996, acquiring for
clients one of the first distressed French real estate loan portfolios sold by
financial institutions. The Company believes that significant additional
investment opportunities will arise in France due to existing economic
conditions, and that it is well positioned to play a role in the restructuring
of French real estate assets. The Company currently has approximately 300
assets under investment or property management agreements in the United Kingdom
and France, with a total value of approximately $3.4 billion at March 31, 1997.
50
<PAGE>
The Company continues to explore additional international markets for its
Investment Management group clients. The Company intends to leverage its
organizational strength through selective acquisitions and the use of the
Company's international offices to take advantage of the accelerating interest
in international investment, to expand investment activity to new countries and
to strengthen its position as a leading intermediary for international real
estate capital flows.
The trend among investors is to favor advisors that co-invest in newly formed
investment vehicles in order to better align the interests of the investor and
the advisor. The Company believes that co-investment will become increasingly
important in order for the Company to retain and expand its competitive
position. The Company also believes that its co-investment strategy will
greatly strengthen its ability to raise capital for new investment funds over
which the Company exercises discretionary investment authority. After the
Offering, the Company intends to accelerate its co-investment activities. By
increasing assets under management, the Company will gain the opportunity to
provide additional services related to the acquisition, financing, property
management, leasing and disposition of such assets. Co-investment will also
provide a vehicle for the Company to participate in investment opportunities
resulting from recovering real estate markets. As of March 31, 1997, the
Company had a net total investment of $15.8 million in 33 separate property or
fund co-investments. The acquisition cost of the properties acquired through
these co-investments exceeds $1.0 billion. Existing co-investments consist
primarily of office and hotel properties purchased within the last three years.
Investment Management group operations are conducted with teams of
professionals dedicated to achieving client objectives. The portfolio managers
serve as the relationship coordinators for the Company's clients and are
responsible for drawing on all of the resources of the Investment Management
group (including research, investment services and specialty products) and the
rest of the Company's global resources. All investment decisions for private
market investments must be approved by the Company's five-member investment
committee. The investment committee approval process is utilized for both the
Company's discretionary investment funds and for all of its separate account
clients.
The Company is generally compensated for investment management services for
private equity and debt investments based on initial capital invested, with
additional fees tied to investment performance above benchmark levels. The term
of the Company's advisory agreements varies by the form of investment vehicle
involved and the type of service provided. The Company's investment funds have
various lifespans, typically ranging between five and ten years, with extension
provisions based on a vote of investors. Separate account advisory agreements
generally have three year terms with "at will" termination provisions.
Public Equity and Debt Investments. The Company offers its clients the
ability to invest in either separate account or fund investment vehicles
focused on public real estate equity and debt securities. The Company
principally invests its clients' capital in domestic REIT equities and CMBS.
LaSalle Partners is also active in private placement investments in publicly
traded real estate companies and selected investments in private real estate
companies seeking capital to ultimately gain access to the public markets.
The Company conducts its securities investment business through ABKB/LaSalle
Securities, which was formed by the Company in 1994 in connection with the
acquisition of ABKB's real estate advisory business. As of the end of 1994,
ABKB/LaSalle Securities served 21 clients and had approximately $630 million of
assets under management. As of March 31, 1997, ABKB/LaSalle Securities served
35 securities investment clients with $2.5 billion of assets under management.
The Company is typically compensated by its securities investment clients on
the basis of the market value of assets under management with increasing use of
incentive fees tied to performance of investments above benchmark levels.
GALBREATH ACQUISITION
On April 22, 1997, the Predecessor Partnerships acquired Galbreath pursuant
to a Contribution and Exchange Agreement, of the same date, among the Employee
Partnerships, the Predecessor Partnerships, Galbreath, the former stockholders
of Galbreath and certain related entities (the "Contribution and Exchange
51
<PAGE>
Agreement"). Pursuant to the Contribution and Exchange Agreement, all of the
outstanding capital stock of Galbreath and related entities was contributed to
the Predecessor Partnerships in exchange for limited partnership interests
representing an aggregate of 18% of the Predecessor Partnerships' general and
limited partnership interests. Such limited partnership interests were issued
to Galbreath Holdings, LLC ("Galbreath Holdings") and Galbreath-LPL Holdings,
LLC ("Galbreath-LPL") and will be exchanged for shares of Common Stock in the
Partnership Interests Exchange. See "Incorporation Transactions." Galbreath
Holdings and Galbreath-LPL were each formed in connection with the merger of
Galbreath with the Company. The members of Galbreath Holdings are three trusts
established for the benefit of Ms. Lizanne Galbreath, a director of the
Company, and her siblings. The members of Galbreath-LPL are Ms. Galbreath and
certain current and former employees of Galbreath.
The Employee Partnerships and the Predecessor Partnerships have agreed to
jointly and severally indemnify the former Galbreath stockholders for any
damage or loss resulting from, among other things, any breach of the Employee
Partnerships' or the Predecessor Partnerships' representations and warranties
contained in the Contribution and Exchange Agreement. The former Galbreath
stockholders have agreed to provide similar indemnification to the Company and
the Employee Partnerships. The indemnification obligations of the Predecessor
Partnerships and the Employee Partnerships as a group and the former Galbreath
stockholders as a group are generally limited to an amount equal to 30% of the
value of the partnership interests transferred to the former Galbreath
stockholders. Pursuant to the Contribution and Exchange Agreement, the
representations and warranties will survive until the date of the issuance of
the financial statements of the Company for the year ending December 31, 1997,
which date shall not be later than March 31, 1998.
Pursuant to the Contribution and Exchange Agreement, as long as Galbreath
Holdings is the beneficial owner of at least ten percent of the Company's
outstanding Common Stock, it shall have the right to nominate one member to
the Board of Directors. Lizanne Galbreath was the initial nominee of Galbreath
Holdings.
Under the Contribution and Exchange Agreement, Galbreath was obligated to
acquire and transfer to the Predecessor Partnerships the fifty percent
partnership interest of a joint venture partner in Galbreath Middle-Atlantic
Partnership ("GMAP"). GMAP provides property management and leasing services
in the Pittsburgh metropolitan area. The third-party partner in GMAP has
indicated that it will not complete the sale of its interests. As a result,
the Company and the former Galbreath stockholders are engaged in negotiations
to determine the number of shares of Common Stock and/or cash that the former
stockholders of Galbreath will surrender to the Employee Partnerships and Dai-
ichi to replace the value of the GMAP interests. The proportional interests in
the Company of the Employee Partnerships, Dai-ichi and the former stockholders
of Galbreath may change slightly depending upon the result of such
negotiations.
In connection with the Contribution and Exchange Agreement, the Company
granted the Employee Partnerships, Dai-ichi, and Galbreath Holdings certain
registration rights. See "Shares Eligible for Future Sale--Registration
Rights."
COMPETITION
The market for commercial real estate services provided by the Company is
both highly fragmented and highly competitive. In each of its business
disciplines, the Company competes on the basis of the skill and quality of its
personnel, the variety of services offered, the cost of the services offered,
the ability to enhance asset values, the breadth of geographic coverage and
the quality of its infrastructure, including training and technology. Based on
industry experience, the Company believes it has a strong reputation for the
quality of its services as well as its client oriented approach. The Company
believes that its experienced employees, broad range of services provided,
local and broad market expertise, and operating infrastructure enable it to
compete effectively in each of its business disciplines. See "Risk Factors--
Competition."
FACILITIES
The Company's principal executive office is located at 200 East Randolph
Drive, Chicago, Illinois, where the Company currently occupies over 100,000
square feet of office space pursuant to a lease that expires in
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<PAGE>
February 2006. The Company has 10 United States corporate offices located in
Atlanta, Baltimore, Chicago, Columbus, Dallas, Denver, Los Angeles, New York,
San Francisco and Washington D.C. and four international corporate offices
located in London, Paris, Mexico City and Beijing. The Company's corporate
offices are each leased pursuant to agreements with terms ranging from month-
to-month to 10 years. In addition, the Company has over 300 property and other
offices throughout the United States. On-site property management offices are
generally located within properties under management and are provided without
cost.
ENVIRONMENTAL
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 an on-site property
manager, it could be held liable as an operator for such costs. Such liability
may be imposed without regard to fault or 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
of the Company to disclose environmental issues could subject the Company to
liability to a buyer or lessee of property. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs it incurs in connection with the contamination. The presence
of contamination or the failure to remediate contamination may adversely affect
the owner's ability to sell or lease real estate or to borrow using the real
estate as collateral. The owner or operator of a site may be liable under
common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site, including the presence of
asbestos-containing materials. See "Risk Factors--Environmental Concerns."
On November 29, 1996, Galbreath received a Citation and Notification of
Penalty from the Occupational Safety and Health Administration ("OSHA")
describing certain asbestos-related violations. The citation set forth a
proposed penalty amount of approximately $150,000. Galbreath has complied with
OSHA's requests, but has denied any wrongdoing. Galbreath is currently in
negotiations with OSHA with respect to the amount due in connection with the
citation. On March 7, 1997, the Secretary of Labor of the United States
Department of Labor brought an action against Galbreath before the Occupational
Safety and Health Review Commission seeking an order affirming the citation and
the amount proposed therein. Galbreath has filed a motion for extension of time
to answer the complaint.
LEGAL PROCEEDINGS
The Company is a defendant in various litigation matters arising in the
ordinary course of business, some of which involve claims for damages that are
substantial in amount. Most of these matters are covered by insurance. In the
opinion of the Company, the ultimate resolution of such litigation matters will
not have a material adverse effect on the financial position, results of
operations and liquidity of the Company.
EMPLOYEES
As of May 31, 1997, following the merger of Galbreath with the Company, the
Company employed 1,322 people, including 1,096 professional staff members and
226 support personnel. None of the Company's employees are members of any labor
union.
The Company has entered into an agreement with LPI Service Corporation
("LPISC"), a company controlled by a former employee of LaSalle Partners,
pursuant to which LPISC provides the services of approximately 3,000
janitorial, engineering and property maintenance workers for certain properties
managed by the Company. LaSalle Partners has an option to purchase LPISC.
Approximately 600 of the employees of LPISC are members of labor unions.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stuart L.
Scott 58 Chairman of the Board of Directors and Chief Executive Officer
Robert C.
Spoerri 48 President, Chief Operating Officer and Director
William E.
Sullivan 42 Executive Vice President, Chief Financial Officer and Director
Daniel W.
Cummings 44 Co-President--LaSalle Advisors Capital Management, Inc. and Director
Charles K. 50
Esler, President and Chief Executive Officer--LaSalle Partners Management
Jr. Services, Inc. and Director
Lizanne
Galbreath 39 Chairman, LaSalle Partners Management Services, Inc. and Director
M.G. Rose 57 President, Tenant Representation Division--LaSalle Partners
Corporate & Financial Services, Inc. and Director
Lynn C.
Thurber 50 Co-President--LaSalle Advisors Capital Management, Inc. and Director
Earl E. 40 Managing Director, Investment Banking Division--LaSalle Partners
Webb Corporate & Financial Services, Inc. and Director
Darryl 52
Hartley-
Leonard Nominee for Director*
Thomas C. 60
Theobald Nominee for Director*
</TABLE>
- --------
*These individuals have consented to become directors of the Company following
completion of the Offering. The Company intends to identify at least one
additional independent director prior to consummation of the Offering.
Stuart L. Scott. Mr. Scott has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since its incorporation, and Chief
Executive Officer and Chairman of the Management Committee of the Predecessor
Partnerships since December 1992. Prior to December 1992, Mr. Scott was
President of the Predecessor Partnerships for more than 15 years and Co-
Chairman of the Management Committee from January 1990 to December 1992. Mr.
Scott originally joined the Company in 1973. He is a member of the Board of
Directors of Hartmarx Corporation, a clothing manufacturing company. He holds a
B.A. from Hamilton College and a J.D. from Northwestern University.
Robert C. Spoerri. Mr. Spoerri has been President, Chief Operating Officer
and a director of the Company since its incorporation, and Chief Operating
Officer and Vice-Chairman of the Management Committee of the Predecessor
Partnerships since January 1994. From January 1990 to December 1993, Mr.
Spoerri was a Co-Director of the asset management group of the Predecessor
Partnerships and the Director of the property management and leasing group of
the Predecessor Partnerships from January 1980 to December 1989. Mr. Spoerri
originally joined the Company in 1977. He holds a B.S. from Indiana University
and an M.B.A. from Harvard University.
William E. Sullivan. Mr. Sullivan has been Executive Vice President, Chief
Financial Officer and a director of the Company since its incorporation, and
Executive Vice President and Chief Financial Officer of the Predecessor
Partnerships since February 1997. From September 1995 to February 1997, Mr.
Sullivan was a Managing Director of the special projects group of the
Predecessor Partnerships. From January 1992 to September 1995, Mr. Sullivan was
a Senior Vice President of the special projects group. Mr. Sullivan originally
joined the Company in 1984. He holds a B.S.B.A. from Georgetown University and
an M.M. from Northwestern University.
Daniel W. Cummings. Mr. Cummings has been a director of the Company since its
incorporation, and a Co-President of LaSalle Advisors Capital Management, Inc.,
an operating subsidiary of the Company, since April 1997. Mr. Cummings has been
a Managing Director and Co-President of LaSalle Advisors Limited Partnership, a
subsidiary of one of the Predecessor Partnerships, since November 1994. From
January 1992 to November
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<PAGE>
1994, Mr. Cummings was a Managing Director--Portfolio Management of LaSalle
Advisors Limited Partnership. Mr. Cummings originally joined the Company in
1979. He holds a B.A. from Dartmouth College and an M.B.A. from the University
of Chicago.
Charles K. Esler. Mr. Esler has been a director of the Company since its
incorporation, and President and Chief Executive Officer of LaSalle Partners
Management Services, Inc., an operating subsidiary of the Company, since April
1997. Since 1992, Mr. Esler has been President of LaSalle Partners Management
Limited, one of the Predecessor Partnerships. Mr. Esler originally joined the
Company in 1979. He holds a B.S.M.E. from the University of Michigan and an
M.B.A. from Northwestern University.
Lizanne Galbreath. Ms. Galbreath has been Chairman of LaSalle Partners
Management Services, Inc. and a director of the Company since April 1997, when
Galbreath was merged with the Company. Prior to the merger, Ms. Galbreath was
Chairman and Chief Executive Officer of Galbreath from August 1995 to April
1997. From June 1993 to August 1995, Ms. Galbreath served as Vice-Chairman of
Galbreath, and from June 1992 to May 1993, Ms. Galbreath was Senior Managing
Director in charge of national accounts. Ms. Galbreath originally joined
Galbreath in 1984. Ms. Galbreath holds a B.A. from Dartmouth College and an
M.B.A. from the University of Pennsylvania.
M.G. Rose. Mr. Rose has been a director of the Company since its
incorporation, and President, Tenant Representation Division of LaSalle
Partners Corporate & Financial Services, Inc., an operating subsidiary of the
Company, since April 1997. Mr. Rose has been a Managing Director and President
of the tenant representation group of the Predecessor Partnerships since
September 1983. He originally joined the Company in 1978. Mr. Rose holds a
mechanical engineering degree from the University of Cincinnati.
Lynn C. Thurber. Ms. Thurber has been a director of the Company since its
incorporation, and a Co-President of LaSalle Advisors Capital Management, Inc.,
an operating subsidiary of the Company, since April 1997. Ms. Thurber has been
a Managing Director and Co-President of LaSalle Advisors Limited Partnership, a
subsidiary of one of the Predecessor Partnerships, since November 1994. Ms.
Thurber was Chief Executive Officer of ABKB from May 1993 to November 1994, at
which time its assets were acquired by the Company. From July 1992 to May 1993,
Ms. Thurber served as Chief Operating Officer and Director of Acquisitions of
ABKB. Prior to that time, Ms.Thurber was a Principal at Morgan Stanley & Co.
Incorporated. She holds an A.B. from Wellesley College and an M.B.A. from
Harvard University.
Earl E. Webb. Mr. Webb has been a director of the Company since its
incorporation, and Managing Director, Investment Banking Division of LaSalle
Partners Corporate & Financial Services, Inc., an operating subsidiary of the
Company, since April 1997. Mr. Webb has been Managing Director of the
Investment Banking Division of the Predecessor Partnerships since January 1995.
From January 1992 to January 1995, Mr. Webb was a Senior Vice-President of the
Predecessor Partnerships. Mr. Webb originally joined the Company in 1985. Mr.
Webb has also been a member of the board of directors of Players International,
Inc., a multi-jurisdictional gaming company, since September 1996. He holds a
B.S. from the University of Virginia and an M.M. from Northwestern University.
Darryl Hartley-Leonard. Mr. Hartley-Leonard is a private investor. He
formerly worked for Hyatt Hotels Corporation ("Hyatt") for 32 years. From 1994
to 1996 he served as Chairman of the Board of Directors of Hyatt and from 1986
to 1994, he served as Chief Executive Officer/Chief Operating Officer of Hyatt.
Mr. Hartley-Leonard currently serves on the board of directors of TeleQuest
Corporation, a privately-held, high-technology company; PGI, a global events,
entertainment, exhibition and business communications company; The Metropolitan
Residential Hotel Company, a long-term stay apartment hotel company; and
Cohabaco, a cigar distribution company. Mr. Hartley-Leonard holds a B.A. degree
from Blackpool Lancashire College of Lancaster University and an honorary
doctorate of business administration from Johnson and Wales University.
Thomas C. Theobald. Mr. Theobald has served as a Managing Director at William
Blair Capital Partners since September 1994. From July 1987 to August 1994, Mr.
Theobald was Chairman of Continental Bank Corporation. He currently serves on
the board of directors of Xerox Corporation, a manufacturer of document
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<PAGE>
processing products and systems; Anixter International, a supplier of
electrical apparatus and equipment; Enron Global Power & Pipelines LLC, a
worldwide manager of power plants and natural gas pipelines; Stein Roe Funds,
an income trust fund and investment trust fund manager; LaSalle Income and
Growth Fund, a REIT; and Peregrine Asia Pacific Growth Fund, an investment fund
focused on investments in the Asian pacific region. Mr. Theobald holds an A.B.
degree from the College of the Holy Cross and an M.B.A. degree from Harvard
University.
The Company's Board of Directors will be divided into three classes, each of
whose members will serve for a staggered three-year term. The board will
consist of three Class I Directors (Messrs. Spoerri, Esler and Cummings), three
Class II Directors (Messrs. Sullivan and Webb and Ms. Galbreath) and three
Class III Directors (Messrs. Scott and Rose and Ms. Thurber). At each annual
meeting of stockholders, a class of directors will be elected for a three-year
term to succeed the directors or director of the same class whose terms are
then expiring. The terms of the Class I Directors, Class II Directors and Class
III Directors will expire upon the election and qualification of successor
directors at the annual meeting of stockholders held during the calendar years
1998, 1999 and 2000, respectively. Mr. Hartley-Leonard will become a Class I
Director and Mr. Theobald will become a Class III Director upon completion of
the Offering.
Each officer serves at the discretion of the Board of Directors. There are no
family relationships among any of the directors and executive officers of the
Company.
BOARD OF DIRECTORS COMMITTEES
Effective upon the closing of the Offering, there will be two committees of
the Board of Directors of the Company: the Audit Committee and the Compensation
Committee. The members of the Audit Committee and the Compensation Committee
will be appointed prior to the closing of the Offering. The Compensation
Committee will review and approve all compensation, including incentive
compensation, for the executive officers of the Company and administer the 1997
Stock Incentive Plan. The Audit Committee will review the results and scope of
the audit and other services provided by the Company's independent auditors and
will review and evaluate the Company's internal control functions. The Audit
Committee will consist of directors who are neither officers, employees nor
affiliates of the Company.
Pursuant to the Contribution and Exchange Agreement, as long as Galbreath
Holdings is the beneficial owner of at least ten percent of the Company's
outstanding Common Stock, it shall have the right to nominate one member to the
Board of Directors of the Company. Lizanne Galbreath was the initial nominee of
Galbreath Holdings.
DIRECTOR COMPENSATION
The Company's directors are not currently compensated. Following the
Offering, each non-employee director will receive an annual retainer of
$25,000, plus $1,000 for attendance at each meeting of the Board of Directors,
the Audit Committee or the Compensation Committee. In connection with the
Offering, each non-employee director will receive an initial grant of options
to purchase 5,000 shares of Common Stock at the initial public offering price.
Each non-employee director elected to the Board of Directors for the first time
thereafter will receive upon such election an initial grant of options to
purchase 5,000 shares of Common Stock at fair market value on the date of
grant. In addition, each non-employee director will receive an annual grant of
options to purchase 1,000 shares for each year during such director's term. All
of the foregoing options shall have a 10 year term and shall vest over a 5 year
period, with 20% becoming vested on each anniversary of the date of grant. In
addition, a non-employee director may elect to receive, in lieu of the annual
cash retainer, stock options in an amount equal to the annual cash retainer,
net of the aggregate exercise price of the stock options, divided by the then
current market price of the Common Stock. Such stock options will have an
exercise price of $1.00 per share and an exercise period ending 10 years from
December 31st of the year in which the retainer was earned. The foregoing award
of options will be granted automatically under the 1997 Stock Incentive Plan.
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<PAGE>
EXECUTIVE COMPENSATION
Since the Company had no operating history prior to the date hereof, the
following table sets forth, for the year ended December 31, 1996, the cash
compensation paid to the Chief Executive Officer and the other five most highly
compensated executive officers of the Company (the "Named Executive Officers")
by the Predecessor Partnerships.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
---------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
- --------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Stuart L. Scott
Chairman of the Board of Directors
and Chief Executive Officer................. $336,000 $464,000 $ 14,203
Robert C. Spoerri
President and Chief Operating Officer....... 320,000 442,000 13,834
Daniel W. Cummings
Co-President--LaSalle Advisors Capital
Management, Inc............................. 260,000 352,000 12,447
Charles K. Esler, Jr.
President and Chief Executive Officer--
LaSalle Partners Management Services, Inc... 270,000 380,000 12,328
M. G. Rose
President, Tenant Representation Division--
LaSalle Partners Corporate & Financial
Services, Inc............................... 270,000 541,500 12,328
Lynn C. Thurber
Co-President--LaSalle Advisors Capital
Management, Inc............................. 260,000 352,000 245,500(3)
</TABLE>
- --------
(1) Represents total cash compensation paid to the Named Executive Officers for
all services rendered to the Predecessor Partnerships during the year ended
December 31, 1996.
(2) The amounts shown in this column consist of: (i) "tax gross up" payments
made in respect to certain compensation; (ii) premiums paid on life
insurance policies; and (iii) contributions by the Company to the Company's
401(k) savings plan for the benefit of the Named Executive Officers.
(3) Included under All Other Compensation for Ms. Thurber was $232,292 for
reimbursement of certain relocation expenses.
EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan")
is intended to qualify under Section 423 of the Internal Revenue Code of 1986
(the "Code"). Purchases under the Stock Purchase Plan will occur at the end of
each option period. The first option period will begin on January 1, 1998.
Thereafter, each option period will be a successive six-month purchase period.
The Stock Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions that may not exceed $21,250 per year. The purchase
price of Common Stock available under the Stock Purchase Plan is equal to 85%
of the fair market value of the Common Stock at the beginning or the end of a
purchase period, whichever is lower. Unless terminated sooner, the Stock
Purchase Plan will terminate 10 years from its effective date. The Board of
Directors has authority to amend or terminate the Stock Purchase Plan;
provided, no such action may adversely affect the rights of any participant.
1997 STOCK AWARD AND INCENTIVE PLAN
General. The 1997 Stock Incentive Plan provides for the grant of various
types of stock-based compensation to eligible participants. The purpose of the
1997 Stock Incentive Plan is to promote the success of the Company's business
in the best interests of its stockholders by providing incentives to those
individuals who are or will be responsible for such success.
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<PAGE>
The 1997 Stock Incentive Plan is designed to comply with the requirements of
Regulation G (12 C.F.R. (S)207), the requirements for "performance-based
compensation" under Section 162(m) of the Code and the conditions for exemption
from the short-swing profit recovery rules under Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Exchange Act"). The summary that follows is
qualified by reference to the actual terms of the 1997 Stock Incentive Plan.
The 1997 Stock Incentive Plan provides for the granting of stock options
("Options"), including "incentive stock options" ("ISOs") within the meaning of
Section 422 of the Code and non-qualified stock options. Options granted under
the 1997 Stock Incentive Plan may be accompanied by stock appreciation rights
or limited stock appreciation rights, or both ("Rights"). Rights may also be
granted independently of Options. The 1997 Stock Incentive Plan also provides
for the granting of restricted stock and restricted stock units ("Restricted
Awards"), dividend equivalents, performance shares and other stock- and cash-
based awards. Pursuant to the 1997 Stock Incentive Plan, certain additional
options may be granted to non-employee directors (as more fully described under
the heading "Management--Director Compensation"). The 1997 Stock Incentive Plan
also permits the plan's administrator to make loans to participants in
connection with the grant of awards, on terms and conditions determined solely
by the plan administrator. All awards will be evidenced by an agreement (an
"Award Agreement") setting forth the terms and conditions applicable thereto.
Plan Administration. The 1997 Stock Incentive Plan is administered by the
Board of Directors, and from and after the Offering will be administered by a
committee of the Board of Directors, the composition of which will at all times
satisfy the provisions of Rule 16b-3 of the Exchange Act (such Board of
Directors or committee is sometimes referred to herein as the "Plan
Administrator"). Subject to the terms of the 1997 Stock Incentive Plan, the
Plan Administrator has the right to grant awards to eligible recipients and to
determine the terms and conditions of Award Agreements, including the vesting
schedule and exercise price of such awards, and the effect, if any, of a change
in control of the Company on such awards.
Shares Subject to the 1997 Stock Award and Incentive Plan. The 2,215,000
shares reserved for issuance under the 1997 Stock Incentive Plan may be
authorized but unissued shares of Common Stock or shares which have been or may
be reacquired by the Company in the open market, in private transactions or
otherwise.
Eligibility. Discretionary grants of Options, Rights, Restricted Awards and
dividend equivalents, performance shares and loans in connection therewith may
be made to any non-employee director, employee or any independent contractor of
the Company or its direct and indirect subsidiaries and affiliates who is
determined by the Plan Administrator to be eligible for participation in the
1997 Stock Incentive Plan, consistent with the purpose of such plan; provided
that ISOs may only be granted to employees of the Company and its subsidiaries.
Exercise of Options. Options will vest and become exercisable over the
exercise period, at such times and upon such conditions, including amount and
manner of payment of the exercise price, as the Plan Administrator determines
and sets forth in the Award Agreement. The Plan Administrator may accelerate
the exercisability of any outstanding Option at such time and under such
circumstances as it deems appropriate. Options that are not exercised within 10
years from the date of grant, however, will expire without value. Options are
exercisable during the optionee's lifetime only by the optionee. The Award
Agreements will contain provisions regarding the exercise of Options following
termination of employment with or service to the Company, including
terminations due to the death, disability or retirement of an award recipient,
or upon a change in control of the Company.
Initial Grants. The Board of Directors has authorized the grant of options to
purchase shares of Common Stock under the 1997 Stock Incentive Plan at the
initial public offering price, upon the closing of the Offering. Such options
vest on the sixth anniversary of the date of grant, subject to earlier vesting
if the Company's Common Stock exceeds certain targeted trading prices following
the first anniversary of the date of grant. Of such options, 75,000 will be
granted to each of Messrs. Scott and Spoerri, and 37,500 will be granted to
each of Messrs. Cummings, Esler and Rose and Ms. Thurber.
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<PAGE>
EMPLOYEE STOCK OWNERSHIP GUIDELINES
Following the Offering, the Company will adopt stock ownership guidelines for
its executive officers and key employees (the "Covered Employees"). These
guidelines will require Covered Employees to maintain certain specified levels
of stock ownership based on a multiple of their annual compensation levels.
Compliance with such guidelines will be phased in over two, four or six years,
depending on the position of the Covered Employee. Failure to maintain such
ownership will disqualify the Covered Employee from participating in the
Company's option grant program.
STOCK COMPENSATION PROGRAM
The Predecessor Partnerships maintained a bonus compensation plan for
employees whose targeted annual compensation exceeded $100,000 (the "Bonus Plan
Employees"). Under such plan, Bonus Plan Employees were paid a percentage of
their total compensation in the form of limited partnership interests in the
Employee Partnerships. Following the Offering, the Company intends to adopt a
stock compensation program designed to continue the equity participation
emphasis of the earlier plan and to facilitate compliance with the Company's
equity ownership guidelines (the "Stock Compensation Program"). Under the Stock
Compensation Program, each employee of the Company whose targeted annual
compensation equals or exceeds $100,000 (the "New Plan Employees") may apply a
specified percentage of his or her annual compensation on a tax-deferred basis
toward Common Stock or, at the direction of the employee, for other
applications made available by the administrator. If a New Plan Employee elects
to be credited with Common Stock, the total amount credited in Common Stock
(the "Allocation") will be increased by a percentage (the "Equity Enhancement")
sufficient to represent a 15% discount from the fair market value of Common
Stock. The number of shares issued in respect of the Allocation and the Equity
Enhancement will be based on the fair market value of Common Stock when
credited. Shares credited to New Plan Employees which are attributable to the
Allocation will be fully vested on the date of grant and shares attributable to
the Equity Enhancement will vest on the third anniversary of the date of grant.
The shares of Common Stock used for the Stock Compensation Program will be
shares which have or may be acquired by the Company in the open market, in
private transactions or otherwise.
EMPLOYMENT AGREEMENT
In April 1997, the Company entered into an employment agreement with Ms.
Galbreath as Chairman and Chief Executive Officer of Galbreath/LaSalle
Development Company (the "Employment Agreement"). The term of the Employment
Agreement is for the period from April 22, 1997 to December 31, 1997. The
Employment Agreement provides for a base salary and target bonus for calendar
year 1997 of $200,000 and $300,000, respectively, each to be pro-rated to
reflect the term of the agreement. Ms. Galbreath's bonus shall be determined by
the Company based on criteria used to determine the bonuses of other members of
management of the Company, and shall be payable in cash and Common Stock. In
addition, the Employment Agreement provides that Ms. Galbreath may terminate
her employment at any time, and that the Company may terminate her employment
under certain limited circumstances. The agreement further provides that,
commencing January 1, 1998, Ms. Galbreath's employment with the Company shall
continue subject to mutual agreement of the Company and Ms. Galbreath from time
to time, provided that the Company shall be obligated to pay to Ms. Galbreath a
separation payment equal to six months of her base salary if her employment is
terminated prior to December 31, 1998 for reasons other than as set forth in
the Employment Agreement.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the Common Stock immediately prior to and following the closing of
the Offering by: (i) each director of the Company; (ii) each director nominee
of the Company; (iii) each of the Named Executive Officers; (iv) the directors,
director nominees and executive officers of the Company as a group; and (v)
each person who at such time will beneficially own more than 5% of the
outstanding shares of Common Stock. DEL/LaSalle has granted the U.S.
Underwriters a 30-day option to purchase up to an aggregate of 600,000
additional shares of Common Stock on the same terms and conditions as the
Offering to cover over-allotments, if any, in connection with the Offering. See
"Shares Eligible for Future Sale" and "Underwriters."
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)
-----------------------------------
PERCENT
BEFORE PERCENT AFTER
NUMBER OFFERING OFFERING
--------- -------- -------------
DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE
OFFICERS AND CERTAIN STOCKHOLDERS
- ---------------------------------------
<S> <C> <C> <C>
DEL-LPL Limited Partnership............... 5,054,175(2) 41.4% 31.2%
DSA-LSPL, Inc............................. 1,896,660(3) 15.6 11.7
c/o Dai-ichi Life (U.S.A.), Inc.
399 Park Avenue, 24th Floor
New York, New York 10022
DEL/LaSalle Finance Company, L.L.C........ 1,826,548(4) 15.0 11.3
DEL-LPAML Limited Partnership............. 891,913(5) 7.3 5.5
Galbreath Holdings, LLC................... 1,727,027(6) 14.2 10.7
Stuart L. Scott........................... (7)(8)
Robert C. Spoerri......................... (7)(9)
William E. Sullivan....................... (10)
Daniel W. Cummings........................ (7)(11)
Charles K. Esler.......................... (12)
Lizanne Galbreath......................... (13)
M.G. Rose................................. (7)(14)
Lynn C. Thurber........................... (7)(15)
Earl E. Webb.............................. (7)(16)
Darryl Hartley-Leonard.................... --
Thomas C. Theobald........................ --
All directors, director nominees and
executive officers as a group
(11 persons)............................. (17)
</TABLE>
- --------
(1) Beneficial ownership prior to the consummation of the Incorporation
Transactions has not been included because there were outstanding only a
nominal number of shares of Common Stock. Unless otherwise indicated, each
person listed above has sole investment and voting power with respect to
the shares listed. Each of Messrs. Scott, Spoerri, Sullivan, Cummings,
Esler, Rose and Webb, and Ms. Thurber are partners in the Employee
Partnerships. The number of shares of Common Stock beneficially owned by
each does not include the 5,054,175 shares owned by DEL-LPL, the 891,913
shares owned by DEL-LPAML and the 1,826,548 shares (1,226,548 shares of
Common Stock if the over-allotment option is exercised in full) owned by
DEL/LaSalle. Unless otherwise indicated, the address of each person or
entity is c/o LaSalle Partners Incorporated, 200 East Randolph Street,
Chicago, IL 60601.
(2) Does not include the 891,913 shares of Common Stock owned by DEL-LPAML,
one of the Employee Partnerships, or the 1,826,548 shares of Common Stock
owned by DEL/LaSalle, which is 85% owned by DEL-LPL. Includes 762,675
shares of Common Stock attributable to partnership interests of former
employees of the Predecessor Partnerships.
(3) Does not include the 334,705 shares of Common Stock owned by DSA-LSAM,
Inc., an entity under common ownership with DSA-LSPL, Inc.
(Footnotes continued on following page)
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<PAGE>
(4) DEL/LaSalle, the "Selling Stockholder" has granted the U.S. Underwriters a
30-day option to purchase 600,000 shares of Common Stock on the same terms
and conditions as the Offering. All of the outstanding membership
interests in DEL/LaSalle are owned by the Employee Partnerships. See
"Incorporation Transactions."
(5) Includes 134,590 shares of Common Stock attributable to partnership
interests held by former employees of the Predecessor Partnerships.
(6) Does not include the 468,972 shares of Common Stock owned by Galbreath-
LPL. Galbreath Holdings is the non-member manager of Galbreath-LPL and,
therefore, might be deemed to be the beneficial owner of such shares for
purposes of Rule 13d-3 ("Rule 13d-3") promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Galbreath Holdings disclaims beneficial ownership of such shares of Common
Stock. The Company has been informed by Galbreath-LPL that after the
consummation of the Offering, Galbreath-LPL intends to distribute its
shares of Common Stock to its members.
(7) Does not include the 5,054,175 shares of Common Stock owned by DEL-LPL,
one of the Employee Partnerships, of which the listed person, as the sole
stockholder of a general partner of DEL-LPL, might be deemed to be the
beneficial owner for purposes of Rule 13d-3. Also does not include the
1,826,548 shares of Common Stock of DEL/LaSalle, which is 85% owned by
DEL-LPL. The listed person disclaims beneficial ownership of the shares of
Common Stock owned by DEL-LPL and DEL/LaSalle.
(8) Mr. Scott, either directly or through an affiliate, owns a 9.5% interest
in the Employee Partnerships, on a fully-diluted basis. Mr. Scott owns all
of the issued and outstanding common stock of DEL-SLS, Inc., a general
partner of DEL-LPL.
(9) Mr. Spoerri, either directly or through an affiliate, owns a 6.8% interest
in the Employee Partnerships, on a fully-diluted basis. Mr. Spoerri owns
all of the issued and outstanding common stock of DEL-RCS, Inc., a general
partner of DEL-LPL.
(10) Mr. Sullivan owns a 1.0% limited partnership interest in the Employee
Partnerships, on a fully-diluted basis.
(11) Mr. Cummings, either directly or through an affiliate, owns a 2.6%
interest in the Employee Partnerships, on a fully-diluted basis. Mr.
Cummings owns all of the issued and outstanding common stock of DEL-DWC,
Inc., a general partner of DEL-LPL.
(12) Mr. Esler, either directly or through an affiliate, has a 2.4% interest in
the Employee Partnerships, on a fully diluted basis. Mr. Esler owns all of
the issued and outstanding common stock of DEL-CKE, Inc., a general
partner of DEL-LPAML, one of the Employee Partnerships. Does not include
the 891,913 shares of Common Stock owned by DEL-LPAML of which Mr. Esler
might be deemed to be the beneficial owner for purposes of Rule 13d-3.
Also does not include the 1,826,548 shares of Common Stock of DEL/LaSalle,
which is 15% owned by DEL-LPAML. Mr. Esler disclaims beneficial ownership
of the shares of Common Stock owned by DEL-LPAML and DEL/LaSalle.
(13) Ms. Galbreath owns, either directly or through a trust for which she is
the sole beneficiary, a 45.0% interest in, and is the managing member of,
Galbreath Holdings. Ms. Galbreath also owns a 40.3% interest in Galbreath-
LPL. Because Ms. Galbreath is the non-member manager of Galbreath Holdings
and Galbreath Holdings is the managing member of Galbreath-LPL, Ms.
Galbreath might be deemed to be the beneficial owner of all shares of
Common Stock owned by Galbreath Holdings and Galbreath-LPL for purposes of
Rule 13d-3. Ms. Galbreath disclaims beneficial ownership of such shares of
Common Stock, except to the extent of her ownership interests.
(14) Mr. Rose, either directly or through an affiliate, owns a 5.87% interest
in the Employee Partnerships, on a fully-diluted basis. Mr. Rose is a
general partner of DEL-LPL.
(15) Ms. Thurber, either directly or through an affiliate, owns a 1.9% interest
in the Employee Partnerships, on a fully-diluted basis. Ms. Thurber owns
all of the issued and outstanding common stock of DEL-LCT, Inc., a general
partner of DEL-LPL.
(16) Mr. Webb, either directly or through an affiliate, owns a 1.3% interest in
the Employee Partnerships. Mr. Webb owns all of the issued and outstanding
common stock of DEL-EEW, Inc., a general partner of DEL-LPL.
(17) See footnotes (7)-(16) above.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Scott, Spoerri, Rose, Esler and Cummings, as well as entities
affiliated with Messrs. Scott and Spoerri, are limited partners of Diverse.
Diverse has an ownership interest in and operates investment assets, primarily
as the managing general partner of real estate development ventures. Prior to
January 1, 1992, the Company earned fees for providing development advisory
services to Diverse as well as fees for the provision of administrative
services. Effective January 1, 1992, the Company discontinued charging fees to
Diverse for these services. At the end of 1994, 1995 and 1996, the total
receivable due from Diverse in connection with such
fees and interest thereon was $5.3 million, $3.4 million and $2.4 million,
respectively. In 1992, Diverse began the process of discontinuing its
operations and disposing of its assets. Diverse made a payment of $1.5 million
in 1994 and $1.0 million in 1996 to reduce the receivable due to the Company.
In 1995, the Company recorded a $1.9 million provision for the estimated
uncollectible portion of the receivable due to the Company by Diverse. Messrs.
Scott, Spoerri, Rose, Esler and Cummings directly hold an approximately 11.9%,
2.2%, 2.5%, .3% and .3% partnership interest in Diverse, respectively. In
addition, the Stuart Scott Trust and Lakewood Equities, entities affiliated
with Messrs. Scott and Spoerri, have a 5.7% and .7% partnership interest in
Diverse, respectively. Diverse did not make distributions to its partners in
1994, 1995 or 1996.
In addition, the Company provides property management and leasing services to
properties in which Diverse has an ownership interest. At the end of 1994, 1995
and 1996, the total receivable due from these properties was $.6 million, $.3
million and $45,000, respectively. The properties made payments to the Company
in each of those years totaling $1.8 million, $1.7 million and $.9 million,
respectively. The Company believes that the services provided to properties in
which Diverse has an ownership interest are on terms no more favorable than
those given to unaffiliated persons.
The Company provides certain administrative services to the Employee
Partnerships for which the Company is not reimbursed. For the years ended
December 31, 1994, 1995 and 1996, respectively, the Company believes that the
estimated value of the services provided to the Employee Partnerships was $.3
million, $.2 million and $.3 million. It is expected that after the closing of
the Offering, the Company will continue to provide such services to the
Employee Partnerships without charge. After the Incorporation Transactions, the
Company expects that the value of such services will be substantially lower.
Through an affiliated entity, Mr. Scott beneficially owns all of the
outstanding shares of common stock of LP Finance 1996-1 Corporation ("LP
Finance"). LP Finance owns a 37.3% limited partnership interest in FBEC--One
Urban Centre, L.P. ("One Urban"), which interest is expected to be exchanged
for an interest in Florida Business Environment Company, L.P. ("FBEC"), a fund
being organized by the Company to invest in real estate in Florida (One Urban
and FBEC together, the "Florida Fund"). LP Finance's percentage interest in
FBEC would be determined by the total amount of capital ultimately raised. Mr.
Scott is also a director and the president and chairman of the board of LaSalle
FOF, Inc. ("LaSalle FOF"), the general partner of the Florida Fund. Mr. Scott
also owns approximately 37.3% of the outstanding shares of common stock of
LaSalle FOF. Since December 1996, the Company has provided and continues to
provide investment management services to the Florida Fund. The Company earns
an annual advisory fee of $.1 million plus a percentage of the fund properties'
net operating income and may earn an additional fee equal to a percent of
profits in excess of profits providing a specified internal rate of return. A
new advisory agreement is currently being negotiated pursuant to which the
Company would earn an annual advisory fee equal to a percentage of the fund
properties' net operating income and may earn an additional fee equal to a
percent of profits in excess of profits providing a specified internal rate of
return. The Company was also paid an acquisition fee of $.2 million in
connection with a property purchased by the fund. The Company believes that the
services provided to the Florida Fund are on terms no more favorable to the
fund than those terms given to unaffiliated persons.
The Company provides property management and leasing and investment
management services to Dai-ichi and affiliates of Dai-ichi. For the years ended
December 31, 1994, 1995 and 1996, respectively, Dai-ichi paid $16.4 million,
$9.3 million and $11.6 million for such services. At the end of such years, the
Company had
62
<PAGE>
receivables of $4.9 million, $3.6 million and $2.5 million due from Dai-ichi
with respect to such services. The Company believes that the services provided
to Dai-ichi and its affiliates are on terms no more favorable to Dai-ichi than
those available to unaffiliated persons. The Company has also issued to Dai-
ichi the Dai-ichi Notes, which will be repaid out of the net proceeds to the
Company from the Offering. At each of December 31, 1994, 1995 and 1996,
respectively, an aggregate of $37.2 million, was outstanding under the Dai-ichi
Notes. The largest aggregate indebtedness outstanding under the Dai-ichi Notes
since January 1, 1994 was $51.3 million. In 1994, a principal payment of $14.1
million was made on the Class A Notes. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
In 1996, approximately $3.8 million of the revenues generated by Galbreath
were derived from real estate properties that were owned, in part, by entities
that Ms. Galbreath and the members of her immediate family control (the
"Galbreath Affiliates"). In 1996, Galbreath also paid leasing commissions, rent
and other operating expenses of $.3 million to the Galbreath Affiliates. The
Company believes that the services provided to the Galbreath Affiliates and the
agreements regarding said leasing commissions, rent and operating expenses are
on terms no more favorable to the Galbreath Affiliates than those available to
unaffiliated persons.
In connection with the Incorporation Transactions and the merger of Galbreath
with the Company, the Company granted certain registration rights to Dai-ichi,
the Employee Partnerships and Galbreath Holdings with respect to the shares of
Common Stock to be issued to them in the Incorporation Transactions. See "Risk
Factors--Shares Eligible for Future Sale," "Incorporation Transactions" and
"Shares Eligible for Future Sale--Registration Rights."
DESCRIPTION OF CAPITAL STOCK
The following description briefly summarizes certain information regarding
the capital stock of the Company. This information does not purport to be
complete and is subject in all respects to the applicable provisions of the
Maryland General Corporation Law, as amended, the Restated Articles of
Incorporation and the Bylaws.
The Board of Directors is authorized to reclassify any unissued portion of
the authorized shares of capital stock to provide for the issuance of shares in
other classes or series, including preferred stock in one or more series, to
establish the number of shares in each class or series and to fix the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of such class or series.
The authorized capital stock of the Company consists of (i) 100,000,000
shares of common stock, $.01 par value per share and (ii) 10,000,000 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"). Upon the closing
of the Offering, 16,200,000 shares of Common Stock will be issued and
outstanding. The Company has no shares of Preferred Stock issued and
outstanding, nor will any shares of Preferred Stock be issued and outstanding
upon the closing of the Offering.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of directors.
Consequently, the holders of a majority of the outstanding shares of Common
Stock can elect all of the directors then standing for election.
Holders of the Common Stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." Holders of Common
Stock have no conversion, preemptive or other rights to subscribe for any
securities of the Company, and there are no redemption or sinking fund
provisions with respect to such shares. All outstanding
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<PAGE>
shares of Common Stock are, and the shares to be sold in the Offering when
issued and paid for will be, validly issued, fully paid and nonassessable. In
the event of any liquidation, dissolution or winding-up of the affairs of the
Company, holders of Common Stock will be entitled to share ratably in the
assets of the Company remaining after provision for payment of liabilities to
creditors. The rights, preferences and privileges of holders of Common Stock
are subject to the rights of the holders of any shares of Preferred Stock and
any additional classes of stock which the Company may issue in the future.
PREFERRED STOCK
The Restated Articles of Incorporation authorize the Board of Directors to
create and issue up to 10,000,000 shares of Preferred Stock in one or more
classes or series and to fix for each such class or series the voting powers,
designations, preferences and relative, participating, optional or other
special rights and any qualifications, limitations or restrictions thereof.
Upon the closing of the Offering, none of such shares will be outstanding. The
Board of Directors is authorized to, among other things, provide that any such
class or series of Preferred Stock may be (i) subject to redemption at such
time or times and at such price or prices as the Board may establish; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or classes
or any other series as the Board may establish; (iii) entitled to such rights
upon the dissolution of, or upon any distribution of the assets of, the Company
as the Board may establish; or (iv) convertible into, or exchangeable for,
shares of any other class or classes of stock, or of any other series of the
same or any other class or classes of stock, of the Company at such price or
prices or at such rates of exchange and with such adjustments as the Board may
establish. Issuance of Preferred Stock could discourage bids for the Common
Stock at a premium as well as create a depressive effect on the market price of
the Common Stock.
ADDITIONAL CLASSES OF STOCK
Additional classes of stock, including preferred stock, may be issued from
time to time, in one or more series, as authorized by the Board of Directors.
Prior to issuance of shares of each series, the Board of Directors is required
by the MGCL and the Company's Restated Articles of Incorporation to set for
each such series the preferences, conversion or other rights, voting powers,
restrictions, limitations as to the dividends or other distributions,
qualifications and terms or conditions of redemption, as are permitted under
Maryland law. The Board of Directors could authorize the issuance of capital
stock with terms and conditions which could have the effect of discouraging a
takeover or other transaction which holders of some, or a majority, of the
Common Stock might believe to be in their best interests or in which holders of
some, or a majority, of the Common Stock might receive a premium for their
Common Stock over the then market price of such Common Stock. As of the date
hereof, no such additional classes of stock are outstanding and the Company has
no present plans to issue any such stock.
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
The Restated Articles of Incorporation contain provisions which eliminate the
personal liability of a director or officer to the Company and its stockholders
for breaches of fiduciary duty to the fullest extent provided by law. Under
Maryland law, however, these provisions do not eliminate or limit the personal
liability of a director or officer (i) to the extent that it is proved that the
director or officer actually received an improper benefit or profit or (ii) if
a judgment or other final adjudication is entered in a proceeding based on a
finding that the directors' or officers' action, or failure to act, was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in such proceeding. These provisions do not affect the
ability of the Company or its stockholders to obtain equitable relief, such as
an injunction or rescission.
The Restated Articles of Incorporation and Bylaws provide that the Company
shall indemnify and advance expenses to its directors and officers to the
fullest extent permitted by the MGCL, and that the Company shall indemnify and
advance expenses to its officers to the same extent as its directors and to
such further extent as is consistent with law. The MGCL provides that a
corporation may indemnify any director made a party to any
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proceeding by reason of service in that capacity unless it is established that
(i) the act or omission of the director was material to the matter giving rise
to the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty, or (ii) the director actually received an
improper personal benefit in money, property or services, or (iii) in the case
of any criminal proceeding, the director had reasonable cause to believe that
the act or omission was unlawful. The statute permits Maryland corporations to
indemnify their officers, employees or agents to the same extent as its
directors and to such further extent as is consistent with law.
The Company intends to obtain directors' and officers' liability insurance
("D&O Insurance") prior to the effective date of the Offering, and expects to
maintain such insurance following such date. In addition, the Company will
enter into an indemnification agreement with each of its directors and certain
officers of the Company under which the Company will indemnify each of them
against expenses and losses incurred for claims brought against them by reason
of being a director or officer of the Company. The Company expects that the
indemnification agreements will indemnify and advance expenses to its directors
and officers to the fullest extent permitted by the MGCL.
The Company believes that the limitation of liability and indemnification
provisions in the Restated Articles of Incorporation, the D&O Insurance and the
indemnification agreements will enhance the Company's ability to continue to
attract and retain qualified individuals to serve as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
CERTAIN ARTICLES OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
Certain provisions in the Restated Articles of Incorporation and Bylaws and
the MGCL may have the effect of delaying, deferring or preventing a change of
control of the Company or may operate only with respect to extraordinary
corporate transactions involving the Company.
The Restated Articles of Incorporation provides for the Board of Directors to
be divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of the Board will be elected each
year. See "Management." A director may be removed by the stockholders, but only
for cause, and only by the affirmative vote of the holders, voting as a single
class, of two-thirds of the voting power of the Company's then outstanding
capital stock entitled to vote generally in the election of directors. The
Company believes that classification of the Board of Directors will help to
assure the continuity and stability of the Company's business strategies and
policies as determined by the Board of Directors. The provision for a
classified board, together with the director removal provisions, could prevent
a party who acquires control of a majority of the outstanding voting stock from
obtaining control of the Board until the second annual stockholders meeting
following the date the acquiror obtains the controlling stock interest. The
classified board provision, together with the director removal provisions,
could have the effect of discouraging a potential acquiror from making a tender
offer or initiating a proxy contest or otherwise attempting to gain control of
the Company and could increase the likelihood that incumbent directors will
retain their positions.
The Bylaws provide that stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the Board or by a stockholder who was a
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting and who has given to the Company's Secretary timely written
notice, in proper form, of the stockholder's intention to bring that proposal
or nomination before the meeting. In addition to certain other applicable
requirements, for a stockholder proposal or nomination to be properly brought
before an annual meeting by a stockholder, such stockholder generally must have
given notice thereof in proper written form to the Secretary of the Company not
less than 90 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders. Although the Bylaws do
not give the Board the power to approve or disapprove stockholder nominations
of candidates or proposals regarding other business to be
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conducted at a special or annual meeting, the Bylaws may have the effect of
precluding the conduct of certain business at a meeting if the proper
procedures are not followed or may discourage or defer a potential acquiror
from conducting a solicitation of proxies to elect its own slate of directors
or otherwise attempting to obtain control of the Company.
Pursuant to the MGCL, the Bylaws permit stockholders to call special
meetings of stockholders upon written request of holders of shares entitled to
cast not less than a majority of all votes entitled to be cast at such
meeting. The Bylaws provide that only business specified in the notice of a
special meeting will be conducted at such meeting. Such provisions do not,
however, affect the ability of stockholders to submit a proposal to the vote
of all stockholders of the Company at an annual meeting in accordance with the
Bylaws, which provide for the additional notice requirements for stockholder
nominations and proposals at the annual meetings of stockholders as described
above. In addition, pursuant to the MGCL, the Bylaws provide that any action
required to be taken at a meeting of the stockholders may be taken without a
meeting by unanimous written consent, if such consent sets forth such action
and is signed by each stockholder entitled to vote on the matter and a written
waiver of any right to dissent signed by each stockholder entitled to notice
of the meeting but not entitled to vote thereat.
The Restated Articles of Incorporation and Bylaws provide that the
affirmative vote of at least 80% of the total votes eligible to be cast in the
election of directors is required to amend, alter, change or repeal certain of
their provisions. This requirement of a super-majority vote to approve
amendments to certain provisions of the Restated Articles of Incorporation and
Bylaws could enable a minority of the Company's stockholders to exercise veto
power over any such amendments.
Under the MGCL, certain "Business Combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
thereof are prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder. Thereafter, any such
Business Combination must be recommended by the Board of Directors of such
corporation and approved by the affirmative vote of at least (i) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation and (ii) 66 2/3% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom the Business Combination is to be effected,
unless, among other things, the corporation's stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. It is anticipated that the Company's Board of
Directors will exempt from the Maryland statute any business combination with
the Employee Partnerships, any present or future affiliate or associate of any
of them, or any other person acting in concert or as a group with any of the
foregoing persons. Pursuant to the MGCL, these provisions also do not apply to
Business Combinations which are approved or exempted by the Board of Directors
of the corporation prior to the time that the Interested Stockholder becomes
an Interested Stockholder.
The Company will elect to include in its Restated Articles of Incorporation
provisions exempting it from the application of the Maryland control share
acquisition statute.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank. The Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "LAP," subject to official notice of issuance.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this Offering, the Company will have approximately
16,200,000 shares of Common Stock outstanding. The 4,000,000 shares of Common
Stock sold in this Offering (4,600,000 shares if the Underwriters' over-
allotment option is exercised in full) will be freely tradable without
restriction under the Securities Act, except for any such shares held at any
time by an "affiliate" of the Company, as such term is defined under Rule 144
promulgated under the Securities Act.
The remaining 12,200,000 shares of Common Stock outstanding upon the closing
of the Offering (11,600,000 if the Underwriters exercise in full the over-
allotment option) will be owned by the Employee Partnerships, including
DEL/LaSalle, the former Galbreath stockholders and affiliates of Dai-ichi and
may be publicly sold only if such Common Stock is registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144, as currently in
effect, a person who has beneficially owned shares for at least one year,
including an "affiliate," as that term is defined in Rule 144, is entitled to
sell, within any three-month period, a number of "restricted" shares that does
not exceed the greater of one percent (1%) of the then outstanding shares of
Common Stock (approximately 162,000 shares immediately after the Offering) or
the average weekly trading volume during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about the Company. Rule 144(k) provides that a person who is not
deemed an "affiliate" and who has beneficially owned shares for at least two
years is entitled to sell such shares at any time under Rule 144 without
regard to the limitations described above.
Under the terms of the partnership agreement of the Employee Partnerships,
partners thereof generally will be entitled to receive upon their withdrawal
from the Employee Partnerships, death or incapacity, or upon request, up to
that number of shares of Common Stock held by the Employee Partnerships which
represents their pro rata interest in the shares of Common Stock held by the
Employee Partnerships. Partners of the Employee Partnerships who receive
shares upon their withdrawal or by election will not be subject to any
contractual restrictions on resale with respect to shares of the Common Stock
received by them but will be subject to the restrictions on transfer described
above. However, unless such shares are registered for sale under the
Securities Act, for purposes of Rule 144 they would be considered "restricted
securities" and would be subject to the limitations on sale pursuant to Rule
144 described above. For the purposes of determining compliance with the
volume limitations of Rule 144, all sales of Common Stock by partners of the
Employee Partnerships will generally be aggregated. In addition, the holding
period for partners of the Employee Partnerships under Rule 144 will generally
include the holding period of the Employee Partnerships.
The Company will agree with the Underwriters, subject to certain exceptions,
not to sell or otherwise dispose of any shares of Common Stock for a period of
180 days from the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated. Subject to certain exceptions, each of the
Company's current stockholders will enter into or is bound by a similar
agreement. The Company has been informed by Galbreath-LPL that after the
consummation of the Offering, Galbreath-LPL intends to distribute its shares
of Common Stock to its members. See "Underwriters."
The Company is unable to estimate the number of shares of Common Stock that
may be sold in the future by the existing stockholders other than Galbreath-
LPL or the effect, if any, that sales of shares by such stockholders will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock by such stockholders, or the perception
that such sales could occur, could adversely affect prevailing market prices.
In March 1997, DEL/LaSalle, a limited liability company whose only members
are the Employee Partnerships, purchased the limited partnership interests in
the Predecessor Partnerships owned by a subsidiary of Dresdner. Dresdner was
required to sell the interests in order to comply with bank regulatory
requirements. As consideration for such purchase, DEL/LaSalle issued to
Dresdner the Dresdner Note. The purchase price was determined in May 1996 and
was based on the original purchase price for such interests plus Dresdner's
share of
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expected undistributed earnings for 1996. All of the 1,826,548 shares of Common
Stock to be received by DEL/LaSalle in connection with the Incorporation
Transactions and 2,831,150 of the shares of Common Stock held by the Employee
Partnerships, representing an aggregate of approximately 29% of the outstanding
Common Stock after giving effect to the Offering, will be pledged to support
DEL/LaSalle's obligations under the Dresdner Note. The principal amount of the
Dresdner Note is due in five installments, with $3.5 million due on April 15,
2000 and $7.8 million due on each April 15 thereafter, through 2004. The
Dresdner Note bears interest at 7.0% per annum, payable on each April 15
beginning on April 15, 1998. DEL/LaSalle will not have any assets other than
the Common Stock issued in connection with the Incorporation Transactions.
Funds for repayment of the Dresdner Note, including interest thereon, will be
provided by capital contributions from the Employee Partnerships and through
the sale of Common Stock in the public market or in privately negotiated
transactions. DEL/LaSalle has granted the U.S. Underwriters a 30-day option to
purchase up to 600,000 shares of Common Stock to cover over-allotments in
connection with the Offering. In the event that the Underwriters' over-
allotment option is exercised, the proceeds to DEL/LaSalle will be used to
repay a portion of the Dresdner Note. Subject to certain exceptions, the
Employee Partnerships will pledge 600,000 shares of Common Stock to replace the
shares sold by DEL/LaSalle. If an event of default occurs under the Dresdner
Note, Dresdner will have the right to sell any or all of the pledged shares in
the public market or in privately negotiated transactions, subject to
compliance with the Securities Act and applicable law.
REGISTRATION RIGHTS
In connection with the merger of Galbreath with Predecessor Partnerships, the
Company entered into a Registration Rights Agreement (the "Registration Rights
Agreement") by and among the Employee Partnerships, affiliates of Dai-ichi,
Galbreath Holdings (each a "Current Stockholder") and the Company. The
Registration Rights Agreement provides that, subject to certain limitations, at
any time following 12 months from the date of closing of the Offering (the
"Effective Date"), each Current Stockholder has the right to demand, on no more
than two occasions, that the Company register all or a portion of the shares of
Common Stock owned by such stockholder at the Effective Date, subject to a
minimum demand of 20.0% of the total shares originally issued to such
stockholder or a lesser percentage if the anticipated aggregate price to the
public would exceed $5.0 million. The Company will be required to use its best
efforts to effect any such registration on demand. Such registrations will be
at the Company's expense, except that each selling stockholder will bear its
pro rata share of the underwriting discounts and commissions.
In addition, at any time after the expiration of 12 months from the Effective
Date, the Current Stockholders will have certain incidental rights to require
the Company to include in any registration statement filed by the Company with
respect to its securities (whether for its own account or for the account of
any securityholder) such amount of shares of Common Stock requested by the
Current Stockholders to be included therein, subject to certain exceptions.
Such registrations will be at the Company's expense, except that each selling
stockholder will bear its pro rata share of the underwriting discounts and
commissions.
The Registration Rights Agreement also provides that, prior to the transfer
of Common Stock by the Current Stockholders, such stockholders must provide
notice to the Company of the proposed transfer unless the proposed transfer is
to one of the Current Stockholders, certain institutional investors, persons
who would own after the transfer less than 5.0% of the Company's outstanding
Common Stock, purchasers pursuant to Rule 144 under the Securities Act, or to
an underwriter in a firm commitment underwriting. The Company will then have
the option of purchasing the shares proposed to be transferred at a price equal
to the average closing market price of Common Stock during the five trading
days prior to such notice.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal income
and estate tax consequences of the ownership and disposition of Common Stock
applicable to "Non-United States Holders." Subject to the discussion below
under "Estate Tax," a "Non-United States Holder" is any beneficial owner of
Common Stock that, for United States federal income tax purposes is a non-
resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust as such terms are defined in the Internal Revenue Code
of 1986, as amended (the "Code"). This discussion is based on the Code,
existing, proposed and temporary regulations promulgated thereunder, and
administrative and judicial interpretations as of the date thereof, all of
which are subject to change either retroactively or prospectively. This
discussion does not address all aspects of United States federal income and
estate taxation that may be relevant to Non-United States Holders in light of
their particular circumstances and does not address any tax consequences
arising under the laws of any state, local or foreign taxing jurisdiction or
the application of a particular tax treaty. Prospective investors are urged to
consult their tax advisors regarding the United States federal, state and local
income and other tax consequences, and the non-United States tax consequences,
of owning and disposing of Common Stock.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, could effect the United States
taxation of dividends on Common Stock paid to a Non-United States Holder. The
Proposed Regulations are generally proposed to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules. It
cannot be predicted at this time whether the Proposed Regulations will be
adopted as proposed or what modifications, if any, may be made to them. The
discussion below is not intended to include a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
may have if adopted.
DIVIDENDS
Subject to the discussion below, any dividend paid to a Non-United States
Holder generally will be subject to United States withholding tax either at a
rate of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable tax treaty. For purposes of determining whether tax
is to be withheld at a 30% rate or at a reduced rate as specified by an
applicable tax treaty, under current United States Treasury Regulations the
Company ordinarily will presume that dividends paid to a holder with an address
in a foreign country are paid to a resident of such country absent knowledge
that such presumption is not warranted. Under such Regulations, dividends paid
to a holder with an address within the United States generally will be presumed
to be paid to a holder who is not a Non-United States Holder and will not be
subject to the 30% withholding tax, unless the Company has actual knowledge
that the holder is a Non-United States Holder.
The Proposed Regulations would provide for certain presumptions (which differ
from those described above) upon which the Company may generally rely to
determine whether, in the absence of certain documentation, a holder should be
treated as a Non-United States Holder for purposes of the 30% withholding tax
described above. The presumptions would not apply for purposes of granting a
reduced rate of withholding under a treaty. Under the Proposed Regulations, to
obtain a reduced rate of withholding under a treaty a Non-United States Holder
would generally be required to provide an Internal Revenue Service Form W-8
certifying such Non-United States Holder's entitlement to benefits under a
treaty. The Proposed Regulations also would provide special rules to determine
whether, for purposes of determining the applicability of a tax treaty and for
purposes of the 30% withholding tax described above, dividends paid to a Non-
United States Holder that is an entity should be treated as paid to the entity
or those holding an interest in that entity.
Dividends received by a Non-United States Holder that are effectively
connected with a United States trade or business conducted by such Non-United
States Holder are exempt from withholding tax. However, such effectively
connected dividends are subject to regular United States income tax in the same
manner as if the
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Non-United States Holder were a United States person for federal income tax
purposes. A Non-United States Holder may claim exemption from withholding under
the effectively connected income exception by filing Internal Revenue Service
Form 4224 (Exemption From Withholding of Tax on Income Effectively Connected
With the Conduct of a Trade or Business in the United States) each year with
the Company or its paying agent prior to the payment of the dividends for such
year. The Proposed Regulations would replace Form 4224 with Form W-8.
Effectively connected dividends received by a corporate Non-United States
Holder may be subject to additional "branch profits tax" at a rate of 30% (or
such lower rate as may be specified by an applicable tax treaty) of such
corporate Non-United States Holder's effectively connected earnings and
profits, subject to certain adjustments.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the United
States Internal Revenue Service ("IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain realized upon the sale or other
disposition of Common Stock unless (i) such gain is effectively connected with
a United States trade or business of the Non-United States Holder; (ii) the
Non-United States Holder is an individual who holds the Common Stock as a
capital asset, is present in the United States for a period or periods
aggregating 183 days or more during the taxable year in which such sale or
disposition occurs, and certain other conditions are met; or (iii) the Company
is or has been a "United States real property holding corporation" for federal
income tax purposes at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period and certain other
conditions are met. The Company has determined that it is not and has never
been, and the Company does not believe that it will become, a "United States
real property holding corporation" for federal income tax purposes. Non-United
States Holders should consult applicable tax treaties, which might result in
United States federal income tax treatment on the sale or other disposition of
Common Stock different than as described above.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Unless the Company has actual knowledge that a holder is a Non-United States
Holder, dividends paid to a holder at an address within the United States may
be subject to backup withholding at a rate of 31% if the holder is not an
"exempt recipient" as defined in Treasury Regulations (which includes
corporations) and fails to provide a correct taxpayer identification number and
other information to the Company. Backup withholding will generally not apply
to dividends paid to holders at an address outside the United States (unless
the Company has knowledge that the holder is a United States person).
Proceeds from the disposition of Common Stock by a Non-United States Holder
effected by or through a United States office of a broker will be subject to
information reporting and to backup withholding at a rate of 31% of the gross
proceeds unless such Non-United States Holder certifies under penalties of
perjury as to, among other things, its address and status as a Non-United
States Holder or otherwise establishes an exemption. Generally, United States
information reporting and backup withholding will not apply to a payment of
disposition proceeds if the transaction is effected outside the United States
by or through a non-United States office of a broker. However, if such broker
is, for United States federal income tax purposes, a United States person, a
"controlled foreign corporation," or a foreign person which derives 50% or more
of its gross income for certain
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periods from the conduct of a United States trade or business, information
reporting (but not backup withholding) will apply unless (i) such broker has
documentary evidence in its files that the holder is a Non-United States Holder
and certain other conditions are met, or (ii) the holder otherwise establishes
an exemption.
The Proposed Regulations would, if adopted, alter the aforegoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions and other rules under which Non-United States Holders may
be subject to backup withholding in the absence of required certifications and
would modify the definition of an "exempt recipient" in the case of a
corporation.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of United States
income taxes, a refund may be obtained, provided the required documents are
filed with the IRS.
ESTATE TAX
An individual Non-United States Holder who is treated as the owner of Common
Stock at the time of such individual's death or has made certain lifetime
transfers of an interest in Common Stock will be required to include the value
of such Common Stock in such individual's gross estate for United States
federal estate tax purposes and may be subject to United States federal estate
tax, unless an applicable tax treaty provides otherwise. For United States
federal estate tax purposes, a "Non-United States Holder" is an individual who
is neither a citizen nor a domiciliary of the United States. Whether an
individual is considered a "domiciliary" of the United States for estate tax
purposes is generally determined on the basis of all of the facts and
circumstances.
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UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
Morgan Stanley & Co. Incorporated, William Blair & Company, L.L.C. and
Montgomery Securities are acting as U.S. Representatives, and the International
Underwriters named below, for whom Morgan Stanley & Co. International Limited,
William Blair & Company, L.L.C. and Montgomery Securities are acting as
International Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them, severally, the respective number of shares
of Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.....................
William Blair & Company, L.L.C........................
Montgomery Securities.................................
---------
Subtotal............................................ 3,200,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited............
William Blair & Company, L.L.C........................
Montgomery Securities.................................
---------
Subtotal............................................ 800,000
---------
Total............................................. 4,000,000
=========
</TABLE>
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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. Underwriters' 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 or 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. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
Between U.S. and International Underwriters. As used herein, "United States or
Canadian Person" means any national or resident of the United States or Canada,
or any corporation, pension, profit-sharing or other trust or other entity
organized under the laws of the United States or Canada or of any political
subdivision 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 State 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
73
<PAGE>
United Kingdom except to persons whose ordinary activities involve them in
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 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 and except pursuant to
any exemption from the registration requirements of the Securities and Exchange
Law and otherwise in compliance with applicable provisions of Japanese law.
Each International Underwriter has further agreed to send to any dealer who
purchases from it any of the Shares a notice stating in substance that by
purchasing such Shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any of such Shares, directly or
indirectly, in Japan or to or for the account of any resident thereof except
for offers or sales to Japanese International Underwriters or dealers and
except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as is contained in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by the Representatives.
The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 600,000 additional shares of Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Common Stock offered hereby. To the extent such
option is exercised, each U.S. Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
The Common Stock has been approved for listing on The New York Stock Exchange
under the symbol "LAP," subject to official notice of issuance.
Each of the Company and the directors, executive officers, the Selling
Stockholder and the other stockholders of the Company have agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 180 days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for
74
<PAGE>
Common Stock, or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The restrictions described in this paragraph
do not apply to (a) the sale of shares to the Underwriters, (b) the issuance
by the Company of shares of Common Stock upon the exercise of an option or a
warrant or the conversion of a security outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing, (c)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares, (d) stock or stock option issuances
by the Company pursuant to existing employee benefit plans, (e) the
distribution of shares of Common Stock by the Employee Partnerships and
Galbreath-LPL to their respective partners or members, as the case may be,
provided that any such partners or members, as the case may be, agree to be
bound by the foregoing limitations, (f) the sale or other transfer of shares
of Common Stock by DSA-LSPL, Inc. or DSA-LSAM, Inc. to Dai-ichi Life (U.S.A.),
Inc. ("Dai-ichi Life") or any one or more of its direct or indirect wholly
owned subsidiaries, provided that Dai-ichi Life or any such subsidiaries agree
to be bound by the foregoing limitations, or (g) the pledge of shares of
Common Stock by DEL/LaSalle and the Employee Partnerships as described under
"Shares Eligible for Future Sale."
At the request of the Company, the Underwriters have reserved for sale at
the initial offering price, up to 200,000 shares offered hereby for directors,
officers, employees, business associates and related persons of the Company.
The number of shares of Common Stock available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares offered hereby.
All purchasers of the shares of Common Stock reserved pursuant to this
paragraph who are also directors or senior officers of the Company will be
required to enter into agreements identical to those described in the
immediately preceding paragraph restricting the transferability of such shares
for a period of 180 days after the date of this Prospectus.
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 Representatives perform investment banking services to the Company for
which they receive customary compensation. An affiliate of Morgan Stanley &
Co. Incorporated has retained the Company for investment advisory services on
behalf of one of its clients. Such client pays customary fees to the Company
for such services. Thomas C. Theobald, a director nominee of the Company, is
an employee of William Blair & Company, L.L.C.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. The
Selling Stockholder has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiations between
the Company and the U.S. Representatives. Among the factors to be considered
in determining the initial public offering price will be the future prospects
of the Company and
75
<PAGE>
its industry in general, sales, earnings and certain other financial and
operating information of the Company in recent periods, and the price-earnings
ratios, price-sales ratios, aggregate value-EBITDA ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom (Illinois) and for the
Underwriters by Sidley & Austin, Chicago, Illinois. Skadden, Arps, Slate,
Meagher & Flom (Illinois) and Sidley & Austin will rely upon the opinion of
Piper & Marbury L.L.P., Baltimore, Maryland, as to certain matters of Maryland
law.
EXPERTS
The Combined Financial Statements of the Predecessor Partnerships as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996 and the balance sheet of LaSalle Partners Incorporated
as of April 22, 1997 included in this Prospectus and Registration Statement
have been included herein and in the Registration Statement in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
and upon the authority of said firm as experts in accounting and auditing.
The Combined Financial Statements of Galbreath as of December 31, 1996 and
for the year then ended included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, and the exhibits and schedules to the Registration
Statement. Statements made in this Prospectus as to the contents of any
agreement or other document referred to herein are not necessarily complete,
and reference is made to the copy of such agreement or other document filed as
an exhibit or schedule to the Registration Statement, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith.
After consummation of the Offering, the Company will be subject to the
information and reporting requirements of the Exchange Act and, in accordance
therewith will be required to file proxy statements, reports and other
information with the Commission. The Registration Statement, as well as any
such report, proxy statement and other information filed by the Company with
the Commission, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Upon listing of the
Common Stock on the New York Stock Exchange, Inc. (the "NYSE"), reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
76
<PAGE>
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm accompanied by an opinion expressed by such independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information in each case prepared
in accordance with GAAP.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LaSalle Partners Limited Partnership and LaSalle Partners Management
Limited Partnership
Report of KPMG Peat Marwick LLP, Independent Auditors................... F-2
Combined Balance Sheets as of December 31, 1995 and 1996, and
(unaudited) as of March 31, 1997....................................... F-3
Combined Statements of Earnings For the Years Ended December 31, 1994,
1995 and 1996, and (unaudited) for the Three Months Ended March 31,
1996 and 1997.......................................................... F-4
Combined Statements of Partners' Capital (Deficit) For the Years Ended
December 31, 1994, 1995 and 1996, and (unaudited) for the Three Months
Ended March 31, 1997................................................... F-5
Combined Statements of Cash Flows For the Years Ended December 31, 1994,
1995 and 1996, and (unaudited) for the Three Months Ended March 31,
1996 and 1997.......................................................... F-6
Notes to Combined Financial Statements.................................. F-7
LaSalle Partners Incorporated
Report of KPMG Peat Marwick LLP, Independent Auditors................... F-17
Balance Sheet as of April 22, 1997...................................... F-18
Notes to Balance Sheet.................................................. F-19
The Galbreath Company and Affiliates
Report of Deloitte & Touche LLP, Independent Auditors................... F-20
Combined Balance Sheets as of December 31, 1996, and (unaudited) as of
March 31, 1997......................................................... F-21
Combined Statements of Income and Owner's Equity for the Year Ended
December 31, 1996, and (unaudited) for the Three Months Ended March 31,
1996 and 1997.......................................................... F-22
Combined Statements of Cash Flows for the Year Ended December 31, 1996,
and (unaudited) for the Three Months Ended March 31, 1996 and 1997..... F-23
Notes to Combined Financial Statements.................................. F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
LaSalle Partners Limited Partnership
LaSalle Partners Management Limited Partnership:
We have audited the accompanying combined balance sheets of LaSalle Partners
Limited Partnership and subsidiaries and LaSalle Partners Management Limited
Partnership and subsidiaries as of December 31, 1995 and 1996, and the related
combined statements of earnings, partners' capital (deficit), and cash flows
for each of the years in the three-year period ended December 31, 1996. These
combined financial statements are the responsibility of the general partners
of the Partnerships. Our responsibility is to express an opinion on these
combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of LaSalle Partners
Limited Partnership and subsidiaries and LaSalle Partners Management Limited
Partnership and subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 21, 1997
except as to note 12
which is as of April 22, 1997
F-2
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
ASSETS 1995 1996 1997
------ -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 8,322 $ 7,207 $ 8,094
Trade receivables, net of allowances.......... 71,677 87,283 52,052
Other receivables............................. 2,035 3,005 4,116
Prepaid expenses.............................. 1,016 1,228 1,115
-------- -------- --------
Total current assets........................ 83,050 98,723 65,377
Property and equipment, at cost, less
accumulated depreciation of $22,900, $23,310
and $24,295 in 1995, 1996 and 1997,
respectively (note 2).......................... 10,132 14,549 14,409
Intangibles resulting from business acquisitions
(note 3)....................................... 8,351 23,735 22,647
Investments in real estate ventures (note 6).... 7,386 13,687 15,752
Long-term receivables, net of allowances........ 5,296 5,052 4,878
Other assets, net............................... 786 868 1,012
-------- -------- --------
$115,001 $156,614 $124,075
======== ======== ========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities...... $ 31,160 $ 34,228 $ 19,059
Accrued compensation (note 9)................. 24,872 26,016 6,143
Borrowings under short-term credit facility
(note 7)..................................... -- 6,500 16,800
Current maturities of long-term debt (note 7). 1,308 9,064 9,332
-------- -------- --------
Total current liabilities................... 57,340 75,808 51,334
Long-term debt (note 7):
Subordinated loans, less current maturities... 37,213 34,106 34,106
Long-term credit facility, less current
maturities................................... 3,592 21,445 22,977
-------- -------- --------
Total long-term debt........................ 40,805 55,551 57,083
Other long-term liabilities..................... 1,859 1,008 1,008
Commitments and contingencies (notes 4, 6, 8 and
11)
-------- -------- --------
Total liabilities........................... 100,004 132,367 109,425
Partners' capital:
General partners.............................. (49,627) (45,097) (50,161)
Limited partners.............................. 64,624 68,245 64,195
Effect of cumulative translation adjustments . -- 1,099 616
-------- -------- --------
Total partners' capital..................... 14,997 24,247 14,650
-------- -------- --------
$115,001 $156,614 $124,075
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
COMBINED STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Fee based services (note 5)..... $123,243 $146,282 $170,709 $26,734 $34,244
Equity in earnings from
unconsolidated ventures (note
6)............................. 1,024 3,130 3,220 89 1,394
Construction operations, net
(note 4)....................... 1,284 1,358 1,271 311 205
Other income.................... 1,367 1,057 767 151 176
-------- -------- -------- ------- -------
Total revenue................. 126,918 151,827 175,967 27,285 36,019
Operating expenses:
Compensation and benefits (note
9)............................. 78,108 91,183 104,673 23,327 27,217
Other operating and
administrative................. 27,944 36,288 38,977 8,052 10,300
Depreciation and amortization
(note 2)....................... 2,851 4,240 5,416 1,111 1,774
-------- -------- -------- ------- -------
Total operating expenses...... 108,903 131,711 149,066 32,490 39,291
-------- -------- -------- ------- -------
Operating income (loss)......... 18,015 20,116 26,901 (5,205) (3,272)
Interest expense (note 7)......... 5,159 3,806 5,730 937 1,695
-------- -------- -------- ------- -------
Earnings (loss) before provision
for income taxes............... 12,856 16,310 21,171 (6,142) (4,967)
Net provision (benefit) for income
taxes (note 2)................... 554 505 1,207 (350) (248)
-------- -------- -------- ------- -------
Net earnings (loss)............... $ 12,302 $ 15,805 $ 19,964 $(5,792) $(4,719)
======== ======== ======== ======= =======
Net earnings (loss) attributable
to:
General partners................ $ 8,400 $ 8,782 $ 11,093 $(3,219) $(2,622)
Limited partners................ 3,902 7,023 8,871 (2,573) (2,097)
-------- -------- -------- ------- -------
Net earnings (loss)............... $ 12,302 $ 15,805 $ 19,964 $(5,792) $(4,719)
======== ======== ======== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
COMBINED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS OTHER TOTAL
-------- -------- ----- --------
<S> <C> <C> <C> <C>
Partners' capital (deficit), January 1,
1994...................................... $(50,356) 35,067 -- $(15,289)
Net earnings............................. 8,400 3,902 -- 12,302
Distributions............................ (7,614) (3,348) -- (10,962)
Assets, net of liabilities contributed by
limited partners........................ -- 13,000 -- 13,000
Limited partners' cash contributions..... -- 14,106 -- 14,106
-------- ------ ----- --------
Total contributions.................... -- 27,106 -- 27,106
-------- ------ ----- --------
Partners' capital (deficit), December 31,
1994...................................... (49,570) 62,727 -- 13,157
Net earnings............................. 8,782 7,023 -- 15,805
Distributions............................ (8,839) (5,126) -- (13,965)
-------- ------ ----- --------
Partners' capital (deficit), December 31,
1995...................................... (49,627) 64,624 -- 14,997
Net earnings............................. 11,093 8,871 -- 19,964
Distributions............................ (6,563) (5,250) -- (11,813)
Effect of cumulative translation
adjustments............................. -- -- 1,099 1,099
-------- ------ ----- --------
Partners' capital (deficit), December 31,
1996...................................... $(45,097) 68,245 1,099 $ 24,247
Net earnings (loss) (unaudited).......... (2,622) (2,097) -- (4,719)
Distributions (unaudited)................ (2,442) (1,953) -- (4,395)
Effect of cumulative translation
adjustments (unaudited)................. -- -- (483) (483)
-------- ------ ----- --------
Partners' capital (deficit), March 31, 1997
(unaudited)............................... $(50,161) 64,195 616 $ 14,650
======== ====== ===== ========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss)......... $ 12,302 $ 15,805 $ 19,964 $ (5,792) $ (4,719)
Reconciliation of net
earnings (loss) to net
cash provided by operating
activities:
Depreciation and
amortization............. 2,851 4,240 5,416 1,111 1,774
Equity in earnings and
gain on sale from
unconsolidated ventures
(note 6)................. (1,349) (3,130) (3,220) (89) (1,394)
Provision for loss on
receivables and other
assets................... 247 2,732 986 3 1,140
Operating distributions
from unconsolidated
ventures................. 398 1,078 3,571 629 386
Changes in:
Receivables............... 2,634 (9,699) (17,234) 22,477 33,123
Prepaid expenses and other
assets................... (312) 172 37 90 15
Accounts payable, accrued
liabilities and accrued
compensation............. 7,857 2,355 4,444 (31,150) (35,003)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............. 24,628 13,553 13,964 (12,721) (4,678)
Cash flows provided by (used
in) investing activities:
Net capital additions--
property and equipment..... (2,218) (5,055) (10,790) (5,113) (981)
Acquisition of CIN (note
3)......................... -- -- (15,700) -- --
Investments in real estate
ventures:
Capital contributions and
advances to real estate
ventures................. (9,435) (1,941) (9,270) (1,065) (2,206)
Distributions, repayments
of advances and sale of
investments.............. 6,768 1,290 3,282 211 1,149
-------- -------- -------- -------- --------
Net cash used in
investing activities .. (4,885) (5,706) (32,478) (5,967) (2,038)
Cash flows provided by (used
in) financing activities:
Net borrowings under credit
facility................... (2,000) 1,600 29,002 18,000 12,100
Payment of subordinated
notes payable.............. (14,106) -- -- -- --
Distributions to partners... (10,962) (13,965) (11,813) (3,079) (4,395)
Contributions from
partners................... 15,040 -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............. (12,028) (12,365) 17,189 14,921 7,705
Effects of foreign currency
translation on cash
balances................... -- -- 210 -- (102)
-------- -------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents.. 7,715 (4,518) (1,115) (3,767) 887
Cash and cash equivalents,
January 1.................. 5,125 12,840 8,322 8,322 7,207
-------- -------- -------- -------- --------
Cash and cash equivalents,
December 31................ $ 12,840 $ 8,322 $ 7,207 $ 4,555 $ 8,094
======== ======== ======== ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (UNAUDITED WITH RESPECT TO
INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997):
Combined interest paid was $5,217, $3,798 and $5,191 for the years ended
December 31, 1994, 1995 and 1996, respectively, and $12 and $773 for the three
months ended March 31, 1996 and 1997, respectively.
See accompanying notes to combined financial statements.
F-6
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED AS TO INTERIM PERIODS)
(1) ORGANIZATION
LaSalle Partners Limited Partnership ("LPL") and LaSalle Partners Management
Limited Partnership ("LPML"), two Delaware limited partnerships (collectively,
the "Partnerships"), were formed on June 29, 1988 to provide real estate
services to clients including leasing, brokerage, construction and development
management, real property asset management and real estate investment advice.
Prior to June 29, 1988, these real estate services were provided by the
general partners of the Partnerships, DEL-LPL Limited Partnership and DEL-
LPAML Limited Partnership (collectively "DEL"), respectively. Previous to
January 23, 1995, LPML transacted business under the name of LaSalle Partners
Asset Management Limited.
Prior to November 30, 1994, the sole limited partners of LPL and LPML were
DSA-LSPL, Inc. and DSA-LSAM, Inc. (collectively "DSA"), respectively. On that
date, the Partnerships admitted Alex. Brown Kleinwort Benson Realty Advisors
Corporation ("ABKB") as an additional limited partner (note 3). Effective
March 31, 1995, ABKB changed its name to KB-LPL, Inc. DEL, DSA and KB-LPL,
Inc. had ownership interests of 55.6%, 24.4% and 20.0%, respectively, at
December 31, 1995 and 1996.
In August 1995, Dresdner Bank AG ("Dresdner") purchased the parent company
of KB-LPL, Inc. As a result of bank regulatory requirements, Dresdner was
required to sell its interests in the Partnerships. Pursuant to an agreement
reached with Dresdner in May, 1996, DEL re-purchased KB-LPL, Inc.'s ownership
in the Partnerships during the first quarter of 1997.
Under the provisions of the partnership agreements, LPL and LPML partnership
interests are paired on a one-for-one basis and may only be purchased or sold
in tandem. Partnership interests in DEL are also paired on a one-for-one
basis. Further, the partnership agreements provide for changes in ownership
interests. DEL has the right to increase their ownership interest by making
additional capital contributions to the Partnerships. Such additional capital
would be used by the Partnerships to repay subordinated notes payable,
including Class A and Class B notes, to DSA (note 7). If DEL does not exercise
their right, DSA has the right to convert any unpaid principal on the
subordinated notes into an additional capital contribution thus increasing
their ownership interests (note 7). Provisions in the partnership agreements
provide for the repayment of the Class A notes payable to DSA to be made
directly by the Partnerships.
The Partnerships' net cash flow, after appropriate reserves, is generally
distributed to the partners in accordance with their ownership interests. The
partnership agreements permit distributions during each year to the partners
in connection with estimated federal income tax payments owed by the partners.
Net profits and losses of the Partnerships are generally allocated to the
partners in accordance with their ownership interests in effect during each
year.
The Partnerships expect to be subject to a reorganization as part of the
Incorporation Transactions of LaSalle Partners Incorporated ("LPI"). Due to
the existence of a paired share arrangement between LPL and LPML and between
the DEL partnerships, as well as the existence of identical ownership before
and after the Incorporation Transactions, such transactions are expected to be
accounted for in a manner similar to the accounting used for a pooling of
interests. Thus, LPI's financial statements will include the financial
position and results of operations of the Partnerships at their historical
cost basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination and Consolidation
Due to the existence of a paired share arrangement between LPL and LPML, the
financial position and results of operations of the Partnerships have been
presented on a combined basis. The combined financial
F-7
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
statements include the accounts of the Partnerships and their majority owned
and controlled partnerships and subsidiaries. All material intercompany
transactions between the Partnerships and their subsidiaries have been
eliminated in consolidation and combination.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Held for Others
The Partnerships control certain cash and cash equivalents as agents for
their investment and property management clients. Such amounts, which total
$198,821 and $338,504 at December 31, 1995 and 1996, respectively, are not
included in the accompanying Combined Balance Sheets.
Statement of Cash Flows
Cash and cash equivalents include demand deposits and investments in U.S.
Treasury instruments (generally held available for sale) with maturities of
three months or less. The combined carrying value of such investments of
$5,979 and $1,000 approximates their market value at December 31, 1995 and
1996, respectively.
Impairment of Long-Lived Assets
The Partnerships adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121 Accounting for the Impairment of Long-lived Assets
and Long-lived Assets to be Disposed of on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles are to be
reviewed for impairment whenever events or change in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying value of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. Adoption of SFAS No.
121 did not have a material impact on the Partnerships' financial position,
results of operations, or liquidity.
Investments in Real Estate Ventures
The Partnerships have limited and general partner interests in various real
estate ventures with interests ranging from less than 1% to 49.5% which are
accounted for using the equity method (note 6).
The Partnerships also have nominal limited and general partner interests in
certain real estate ventures for which no significant capital will be
contributed. These investments, which represent ownership interests of up to
2%, are accounted for under the cost method.
Intangibles Resulting from Business Acquisitions
The Partnerships periodically evaluate the recoverability of the carrying
amount of intangibles resulting from business acquisitions by assessing
whether any impairment indications are present, including substantial
F-8
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
recurring operating deficits or significant adverse changes in legal or
economic factors that affect the businesses acquired. If such analysis
indicates impairment, the intangible asset would be adjusted in the period
such changes occurred based on its estimated fair value, which is derived from
expected cash flow of the businesses.
Fair Value of Financial Instruments
The Partnerships' financial instruments include cash and cash equivalents,
receivables, accounts payable and notes payable. The estimated fair value of
cash and cash equivalents, receivables and payables approximate their carrying
amounts due to the short maturity of these instruments. The estimated fair
value of the Partnership's credit facilities approximates their carrying value
due to their variable interest rate terms. The estimated fair value of the
Partnership's subordinated loans approximates their carrying value due to the
anticipated retirement of the loans at their carrying value in connection with
LPI's initial public offering.
Foreign Currency Translation
The financial statements of subsidiaries outside the United States, except
those subsidiaries located in highly inflationary economies, are generally
measured using the local currency as the functional currency. The assets and
liabilities of these subsidiaries are translated at the rates of exchange at
the balance sheet date. The resultant translation adjustments are included as
a separate component of partners' capital. Income and expense are translated
at average monthly rates of exchange. Gains and losses from foreign currency
transactions of these subsidiaries are included in net earnings. For
subsidiaries operating in highly inflationary economies, gains and losses from
balance sheet translation adjustments are included in net earnings.
Revenue Recognition
Advisory and management fees are recognized in the period in which the
services are performed. Transaction commissions are recorded as income at the
time the related services are provided unless significant future contingencies
exist. Construction and Development Management fees are generally recognized
as billed, which approximates the percentage of completion method of
accounting. Fees recognized in the current period that are expected to be
received beyond one year have been discounted to the present value of future
payments.
Depreciation
Depreciation and amortization is calculated for financial reporting purposes
using the straight-line method based on the estimated useful lives of the
assets. Furniture totaling $12,109 and $14,400 at December 31, 1995 and 1996,
respectively, is depreciated over seven years. Computer equipment and software
totaling $12,023 and $13,862 at December 31, 1995 and 1996, respectively, are
depreciated over three years. Leasehold improvements totaling $8,900 and
$9,597 at December 31, 1995 and 1996, respectively, are amortized over the
lease periods ranging from one to 10 years.
Income Tax Provision
Included in the accompanying Combined Statements of Earnings is a federal
and state income tax provision for wholly-owned corporate subsidiaries and a
state tax provision for certain states which require partnerships to pay
income taxes. No other provision for income taxes has been made as any
liability for such taxes would be that of the respective partners.
F-9
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Interim Information
The combined financial statements as of March 31, 1997 and for the three
months ended March 31, 1997 and 1996 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the combined financial
statements for these interim periods have been included. The results for the
interim period ended March 31, 1997 are not necessarily indicative of the
results to be obtained for the full fiscal year.
Reclassifications
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
(3) ACQUISITIONS
On October 17, 1996, subsidiaries of the Partnerships acquired all of the
common stock of CIN Property Management Limited, a London, England investment
and property management private limited liability company, for $15,709
including transaction expenses. The name of the entity was immediately changed
to CIN LaSalle Advisors Capital Management Limited ("CIN"). The acquisition
was accounted for as a purchase and accordingly, operating results of this
business subsequent to the date of acquisition are included in the
accompanying Combined Statements of Earnings. The excess purchase price over
the fair value of the identifiable assets and liabilities acquired was
$15,700, of which $4,710 was allocated to advisory contracts which are being
amortized on a straight-line basis over 5 years and $10,990 was allocated to
goodwill which is being amortized on a straight-line basis over a period of 20
years based on the Partnerships' estimate of useful lives. The effect of the
year end translation adjustment (note 2) increased the recorded amount of
goodwill by $960. Intangibles resulting from business acquisitions in the
accompanying Combined Balance Sheets includes $16,320 at December 31, 1996
related to the CIN acquisition.
On November 30, 1994, ABKB contributed all of its net assets valued at
$13,000 (including cash of $934) to the Partnerships. This transaction, in
combination with ABKB's purchase of partnership units from an affiliate of
DEL, resulted in ABKB acquiring a 20% limited partner interest (note 1). The
asset contribution transaction was accounted for using the purchase method of
accounting. Accordingly, the Partnerships allocated the purchase price to the
identifiable assets and liabilities acquired based on their estimated fair
values with the excess being allocated to advisory contracts. The excess value
of $9,361 is being amortized on a straight-line basis over a period of 10
years. Intangibles resulting from business acquisitions in the accompanying
Combined Balance Sheets include $8,351 and $7,415 at December 31, 1995 and
1996, respectively, related to the ABKB acquisition. The results of the
acquired business subsequent to November 30, 1994 have been included in the
accompanying Combined Statements of Earnings.
The pro forma results of such acquisitions are not material to the
Partnerships' combined financial statements.
(4) DISPOSITIONS
Effective December 31, 1996, the Partnerships sold its construction
management business and certain related assets to a former member of
management for a $9.1 million note. The note, which is secured by the current
and future assets of the business, is due December 31, 2006 and bears interest
at rates of 6.8% to 10%, with interest payments due annually. Principal
payments are also due annually beginning January 1998 as defined.
F-10
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the Asset Purchase Agreement, the Partnerships have
agreed to provide certain administrative and financial services, at cost,
beginning January 1997 and may provide certain financial assistance if
necessary.
For financial reporting purposes, the Partnerships have not treated the
transaction as a divestiture. As such, the net assets sold as part of the
transaction aggregating $68 at December 31, 1996 have been included in other
assets in the accompanying Combined Balance Sheets. The results of operations
of the construction management business will be accounted for similar to the
equity method of accounting. As such, principal and interest to be received
under the note will be treated as a reduction of such net assets and as a
reserve, if necessary, for any anticipated financial exposure under the terms
of the Asset Purchase Agreement with the remainder recognized as income.
The revenue related to the construction business sold for the years ended
December 31, 1994, 1995 and 1996 totaled $4,858, $4,977 and $5,678,
respectively. For financial statement presentation purposes these revenues
have been presented net of related expenses totaling $3,574, $3,619 and
$4,407, respectively, in the accompanying Combined Statements of Earnings.
The Partnerships pay subcontractors for expenses incurred on behalf of
construction management clients for which they are reimbursed monthly.
Included in trade receivables in the accompanying Combined Balance Sheets are
amounts due from clients totaling $15,281 and $21,757, respectively, related
to construction fee and reimbursable receivables at December 31, 1995 and
1996, respectively. Corresponding liabilities related to amounts payable to
subcontractors are included in accounts payable and accrued liabilities in the
accompanying Combined Balance Sheets totaling $17,926 and $20,109 at December
31, 1995 and 1996, respectively. In accordance with the Asset Purchase
Agreement, any trade receivables, net of related payables to subcontractors,
which are uncollected at April 30, 1997 will be reimbursed to the Partnerships
by the purchaser.
(5) BUSINESS SEGMENTS
The Partnerships' operations have been classified into three business
segments: Management Services, Corporate and Financial Services and Investment
Management. The Management Services segment provides three primary service
capabilities: (i) property management and leasing for property owners, (ii)
facility management for properties occupied by corporate owners and users; and
(iii) development management for both investors and real estate users seeking
to develop new buildings or renovate existing facilities. The Corporate and
Financial Services segment provides transaction and advisory services through
three primary service capabilities, including: (i) tenant representation for
corporations and professional services firms; (ii) investment banking services
to address the financing, acquisition and disposition needs of real estate
owners; and (iii) land acquisition and development services for owners, users
and developers of land. The Investment Management segment provides real estate
investment management services to institutional investors, corporations and
high net worth individuals.
Total revenue by industry segment includes revenue derived from services
provided to other segments. Operating income represent total revenue less
direct and indirect allocable expenses. The Partnerships allocate all
expenses, other than interest and income taxes, as substantially all expenses
incurred benefit one or more of the segments. Identifiable assets by segment
are those assets that are used by or are a result of each segments' business.
Corporate assets are principally cash and cash equivalents, office furniture
and leasehold improvements.
F-11
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information by business segment for 1994, 1995 and 1996
is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
MANAGEMENT SERVICES:
Revenue................................................ $52,457 $61,782 $71,669
Intersegment revenue................................... 160 1,370 200
------- ------- -------
Total Revenue...................................... $52,617 $63,152 $71,869
======= ======= =======
Operating income....................................... $ 5,274 $11,091 $10,732
======= ======= =======
Depreciation and amortization.......................... $ 1,076 $ 1,202 $ 1,651
Identifiable assets.................................... 21,193 20,154
CORPORATE AND FINANCIAL SERVICES:
Revenue................................................ $35,084 $37,303 $45,706
Intersegment revenue................................... -- -- 1,000
------- ------- -------
Total Revenue...................................... $35,084 $37,303 $46,706
======= ======= =======
Operating income....................................... $ 6,776 $ 7,809 $10,820
======= ======= =======
Depreciation and amortization.......................... $ 845 $ 890 $ 1,055
Identifiable assets.................................... 37,977 46,292
INVESTMENT MANAGEMENT:
Revenue................................................ $39,377 $52,742 $58,592
Intersegment revenue................................... -- -- --
------- ------- -------
Total Revenue...................................... $39,377 $52,742 $58,592
======= ======= =======
Operating income....................................... $ 5,965 $ 1,216 $ 5,349
======= ======= =======
Depreciation and amortization.......................... $ 930 $ 2,148 $ 2,710
Identifiable assets.................................... 26,898 53,337
</TABLE>
The Partnerships maintain operations and provide services outside of the
United States. International revenue aggregated $4,311, $5,164 and $7,676 in
1994, 1995 and 1996, respectively. Identifiable assets of such operations
aggregated $5,827 and $26,702 at December 31, 1995 and 1996, respectively.
(6) INVESTMENTS IN REAL ESTATE VENTURES
The Partnerships have invested in certain real estate ventures which own and
operate commercial real estate. These investments include noncontrolling
general and limited partnership ownership interests ranging from less than 1%
to 49.5% of the respective ventures. The Partnerships have made initial
capital contributions to the ventures. The Partnerships have remaining
commitments to certain ventures for additional capital contributions of
approximately $2,300 as of December 31, 1996. Substantially all venture
interests are held by corporate subsidiaries of the Partnerships. Accordingly,
the Partnerships' exposure to liabilities and losses of the ventures is
limited to its initial and remaining commitments.
Such investments have been accounted for under the equity method of
accounting in the accompanying combined financial statements. As such, the
Partnerships recognize their share of the underlying profits and losses
F-12
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
of the ventures as revenue in the accompanying Combined Statements of
Earnings. The Partnerships generally are entitled to operating distributions
in accordance with their respective ownership interests.
Summarized combined financial information for the unconsolidated ventures is
presented below:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Balance Sheet:
Investments in real estate....................... $759,714 $1,043,074
Total assets..................................... $871,335 $1,167,413
======== ==========
Mortgage indebtedness............................ 376,151 67,971
Total liabilities................................ $439,309 $ 617,635
======== ==========
Total equity..................................... $432,026 $ 549,778
======== ==========
Investments in unconsolidated ventures............. $ 6,302 $ 12,562
======== ==========
Statements of Operations:
Revenues......................................... $119,664 $187,720 $ 212,048
Net earnings..................................... $ 13,235 $ 31,783 $ 35,333
======== ======== ==========
Equity in earnings from unconsolidated ventures.... $ 1,024 $ 3,130 $ 3,220
======== ======== ==========
</TABLE>
The Partnerships also have investments which are accounted for using the
cost method which totaled $1,084 and $1,125 at December 31, 1995 and 1996,
respectively (note 2). Certain of the Partnerships' capital contributions to
the ventures are represented by notes payable which totaled $515 and $1,008 at
December 31, 1995 and 1996, respectively. Such notes are generally interest
bearing and mature in 2000.
(7) DEBT
Credit Facilities
In September 1996, the Partnerships replaced their $30 million revolving
line of credit ($4,900 outstanding at December 31, 1995), due annually on
April 30, with a $70 million credit agreement, terminating on September 6,
1999. The agreement consists of a short-term and long-term facility totaling
$30 million and $40 million, respectively. The credit agreement is secured by
certain of the Partnerships' receivables, fixed assets and investments in
ventures. The Partnerships must maintain a certain level of combined net
worth, earnings before interest, taxes, depreciation and amortization, and are
prohibited, without the lenders' prior approval, from incurring certain
indebtedness (including certain levels of indebtedness in connection with co-
investments), guaranteeing certain obligations, or disposing of a significant
portion of their assets. The facilities bear variable rates of interest based
on market rates.
The short-term facility is a revolving line of credit which must be paid
down annually for a 30 consecutive day period and is restricted as to use for
general business purposes. Amounts outstanding on the short-term facility at
December 31, 1996 aggregated $6,500.
The long-term facility is limited in use to fund investments in real estate
ventures, business acquisitions and certain capital expenditures, subject to
lender approval. Principal payments on borrowings under the long-term facility
are payable annually on June 15 for amounts outstanding as of March 31 based
on a defined amortization schedule. Principal payments made on June 15 of each
year increase the available balance on the facility from which to borrow.
Amounts outstanding on the long-term facility at December 31, 1996 aggregated
$27,402.
F-13
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Subordinated Loans
Subordinated loans consist of Class A and Class B unsecured notes payable to
DSA. The amounts outstanding on the Class A and Class B notes were $37,213 at
December 31, 1995 and 1996. Interest is payable annually on December 31 at a
rate of 10%.
Aggregate principal payments related to long-term debt due in each of the
next five years ending December 31 are as follows:
<TABLE>
<CAPTION>
CREDIT
FACILITY SUBORDINATED TOTAL
-------- ------------ -------
<S> <C> <C> <C>
1997........................................ $ 5,957 $ 3,107 $ 9,064
1998........................................ 5,617 3,106 8,723
1999........................................ 5,192 3,100 8,292
2000........................................ 5,107 3,100 8,207
2001........................................ 3,843 3,100 6,943
Thereafter.................................. 1,686 21,700 23,386
------- ------- -------
$27,402 $37,213 $64,615
======= ======= =======
</TABLE>
The credit facility is subject to renewal in September 1999. In the event
the lender does not renew the credit facility, all amounts outstanding will be
due on that date. The above payment table assumes the facility will be
renewed.
(8) LEASES
The Partnerships lease office space in various buildings for its own use
with remaining lease terms ranging from one to ten years. The terms of these
operating leases provide for the Partnerships to pay base rent and a share of
increases in operating expenses and real estate taxes in excess of defined
amounts.
Minimum future lease payments (i.e., base rent) due in each of the next five
years ending December 31 are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1997..................................... $ 3,940
1998..................................... 3,384
1999..................................... 3,308
2000..................................... 3,203
2001..................................... 2,964
Thereafter............................... 11,866
--------
$ 28,665
========
</TABLE>
Rent expense was $4,825, $5,597 and $6,117 during 1994, 1995 and 1996,
respectively. Of these amounts, $2,726, $2,560 and $218 were paid to
affiliates during 1994, 1995 and 1996, respectively.
In anticipation of the expiration of one of its leases on July 31, 1997, the
Partnerships executed a lease to relocate its corporate headquarters in
February 1996. The present value of the net lease obligation from the date of
the move through the end of the current lease term was accrued during 1994
when the Partnerships committed to the relocation plan. Such accrual,
aggregating $3,503, is being amortized as paid over the remaining lease term.
The lease payments related to this period have not been included in the
schedule of minimum future lease payments.
F-14
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
(9) COMPENSATION AND EMPLOYEE BENEFITS
Compensation
Compensation for all professional employees consists of a combination of a
salary and target bonus, which is established on an individual basis at the
beginning of the employees' compensation year. Actual bonuses are based on
individuals meeting stated objectives and other subjective criteria. These
amounts may vary in a year when the operating results of the Partnerships are
significantly above or below the year's business plan. Prior to 1996, the
general partners of DEL shared in a compensation pool which was calculated as
a percentage of net earnings before interest expense on the subordinated notes
of the Partnerships, amortization of intangible assets and other adjustments
as defined in the partnership agreements. Effective January 1, 1996, those
individuals are compensated consistent with the compensation program for all
professional employees of the Partnerships.
Effective January 1, 1996, the Partnerships implemented an Employee
Ownership Program ("Program") which allows employees meeting certain criteria
to receive a portion of their compensation in ownership interests in DEL. The
Partnerships are required to reimburse DEL for the value of such ownership
interests.
The accompanying Combined Statements of Earnings for the years ended
December 31, 1994, 1995 and 1996 include bonus expense of $18,184, $19,419 and
$26,683, respectively, of which $4,584 related to the Program in 1996.
Retirement Plan
The Partnerships have a qualified profit sharing plan which incorporates IRC
Section 401(k) for their eligible employees. Contributions under the qualified
profit sharing plan are made via a combination of employer match and an annual
contribution on behalf of eligible employees. Included in the accompanying
Combined Statements of Earnings for the years ended December 31, 1994, 1995
and 1996 are contributions of $598, $689 and $1,009, respectively.
Related trust assets of the Plan are managed by trustees and are excluded
from the accompanying combined financial statements.
(10) TRANSACTIONS WITH AFFILIATES
Certain partners of DEL have an ownership interest in Diverse Real Estate
Holdings Limited Partnership ("Diverse"). Diverse has an ownership interest in
and operates investment assets, primarily as the managing general partner of
real estate ventures. Included in the accompanying Combined Balance Sheets is
a long term receivable, net of allowance, from Diverse totaling $3,413 and
$2,413 at December 31, 1995 and 1996, respectively. A provision for the
estimated uncollectible portion of the receivable was recorded in the amount
of $1,900 and is included in the accompanying Combined Statements of Earnings
for 1995.
Certain officers of the Partnerships are trustees for real estate funds
which were organized by a subsidiary. The Partnerships earn advisory and
management fees for services rendered to the funds. Included in the
accompanying combined financial statements are revenues of $15,084, $10,502
and $11,635 for 1994, 1995 and 1996, respectively, as well as receivables of
$1,247 and $1,793 at December 31, 1995 and 1996, respectively, related to such
services.
The Partnerships also earn fees and commissions for services rendered to
other affiliates. These affiliates include DSA and its affiliates, real estate
ventures in which the Partnerships have an equity interest, and ventures
F-15
<PAGE>
LA SALLE PARTNERS LIMITED PARTNERSHIP AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
in which Diverse has an ownership interest. Included in the accompanying
combined financial statements are fees and commission revenues from such
affiliates of $16,189, $17,310 and $17,537 for 1994, 1995 and 1996,
respectively, as well as receivables for reimbursable expenses, fees and
commissions as of December 31, 1995 and 1996 of $10,182 and $5,245,
respectively.
In accordance with the partnership agreements, the Partnerships provide
certain administrative services to DEL for which they are not reimbursed.
(11) COMMITMENTS AND CONTINGENCIES
The Partnerships are defendants in various litigation matters arising in the
ordinary course of business, some of which involve claims for damages that are
substantial in amount. Most of these litigation matters are covered by
insurance. In the opinion of management, the ultimate resolution of such
litigation matters will not have a material adverse effect on the financial
position, results of operation or liquidity of the Company.
(12) SUBSEQUENT EVENT
On April 22, 1997, The Galbreath Company, a property management, facility
management and development management company, merged with the Partnerships.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
LaSalle Partners Incorporated:
We have audited the accompanying balance sheet of LaSalle Partners
Incorporated as of April 22, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in that balance
sheet. An audit of a balance sheet also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of LaSalle Partners Incorporated as
of April 22, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
April 22, 1997
F-17
<PAGE>
LASALLE PARTNERS INCORPORATED
BALANCE SHEET
APRIL 22, 1997
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash..................................................................... $ 100
=====
<CAPTION>
STOCKHOLDER'S EQUITY
- --------------------
<S> <C>
Stockholder's equity:
Common Stock, $.01 par value; 10,000,000 shares authorized; 10 shares
issued and outstanding................................................ $ --
Additional paid-in capital............................................. 100
-----
Total stockholder's equity........................................... $ 100
=====
</TABLE>
See accompanying notes to Balance Sheet
F-18
<PAGE>
LASALLE PARTNERS INCORPORATED
NOTES TO BALANCE SHEET
APRIL 22, 1997
(1) ORGANIZATION
LaSalle Partners Incorporated was incorporated under the General Corporation
Laws of Maryland on April 15, 1997. The authorized capital stock of the
Company consists of 10,000,000 shares of Common Stock, $.01 par value per
share. The Company expects to amend its Articles of Incorporation to authorize
capital stock of the Company consisting of 100,000,000 shares of Common Stock,
$.01 par value per share and 10,000,000 shares of Preferred Stock, $.01 par
value per share. Each outstanding share of Common Stock will entitle the
holder to one vote for each share on all matters voted on by stockholders,
including the election of Directors.
In the event the Offering is not completed, offering costs incurred will be
borne by LaSalle Partners Limited Partnership and subsidiaries and LaSalle
Partners Management Limited Partnership and subsidiaries on behalf of the
Company.
(2) SUBSEQUENT EVENTS (UNAUDITED)
The Company expects to issue additional shares of Common Stock in the
Company through a public offering (the "Offering"). Immediately prior to the
closing of the Offering, pursuant to agreements among the partners, each of
the general and limited partners of the Predecessor Partnerships will exchange
all of their respective general and limited partnership interests (the
"Partnership Interests Exchange") in the Predecessor Partnerships for an
aggregate of 12,200,000 shares of Common Stock. The Company will cause the
Predecessor Partnerships to contribute, among other things, substantially all
of their respective assets and liabilities (the "Asset Contributions")
relating to: (i) the management services group to LaSalle Partners Management
Services ("LPMS"); (ii) the corporate and financial services group to LaSalle
Partners Corporate & Financial Services ("LPCFS"); and (iii) the investment
management group to LaSalle Advisors Capital Management, Inc. ("LACM").
Following the Partnership Interests Exchange and the Asset Contributions, the
Company will operate as a holding company with the business and operations of
the Predecessor Partnerships being conducted through LPMS, LPCFS, LACM and
LaSalle Partners International, Inc. Due to common control and management of
the Predecessor Partnerships and the Company and identical ownership before
and after the Incorporation Transactions, such transactions are expected to be
accounted for in a manner similar to the accounting used for a pooling of
interests. Thus, the Company's financial statements will include the financial
position and results of operations of the Predecessor Partnerships at their
historical cost basis.
The Company expects to establish an Option and Stock Incentive Plan as
described under the caption "Management."
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Owners of
The Galbreath Company and Affiliates:
We have audited the accompanying combined balance sheet of The Galbreath
Company and affiliates as of December 31, 1996, and the related combined
statements of income and owners' equity and of cash flows for the year then
ended. The combined financial statements include the accounts of The Galbreath
Company and affiliated entities as described in Note 1 to the combined
financial statements, all of which are under common ownership and common
management. These financial statements are the responsibility of the
companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion such financial statements present fairly, in all material
respects, the combined financial position of The Galbreath Company and
affiliates at December 31, 1996 and the combined results of their operations
and their combined cash flows for the year then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Columbus, Ohio
April 7, 1997
(except for Note 9 as to which
the date is April 22, 1997)
F-20
<PAGE>
THE GALBREATH COMPANY AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER MARCH 31,
ASSETS 31, 1996 1997
- ------ ----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 5,805,443 $ 2,688,885
Accounts receivable:
Trade, less allowance for doubtful accounts of $840,000
at 1996 and 1997........................................ 6,709,273 7,532,315
Reimbursable expenses.................................... 1,601,197 1,132,911
Notes receivable........................................... 275,377 227,721
Advances to brokers, customers and other................... 962,249 791,501
Investments:
Securities............................................... 2,932,106 2,974,656
Real estate partnerships................................. 55,992 129,483
Prepaids and other......................................... 635,407 601,384
----------- -----------
Total current assets................................... 18,977,044 16,078,856
FIXED ASSETS--Net............................................ 2,120,459 2,182,838
DEPOSITS AND OTHER ASSETS.................................... 632,953 1,002,953
LONG-TERM NOTES RECEIVABLE-Less current portion.............. 379,677 290,932
----------- -----------
TOTAL........................................................ $22,110,133 $19,555,579
=========== ===========
<CAPTION>
LIABILITIES AND OWNERS' EQUITY
- ------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable--trade.................................... $1,832,743 $1,671,260
Accrued expenses:
Compensation............................................. 2,848,899 457,536
Health and workers' compensation benefits................ 529,241 1,135,626
Commissions.............................................. 4,824,574 3,723,815
Other.................................................... 1,785,745 1,888,150
Demand and other notes payable............................. 930,000 930,000
Current portion of long-term debt.......................... 86,400 82,000
Current portion of capital lease obligations............... 517,100 517,100
----------- -----------
Total current liabilities.............................. 13,354,702 10,405,487
LONG-TERM DEBT-Less current position......................... 278,684 257,084
CAPITAL LEASE OBLIGATIONS--Less current portion.............. 302,939 197,169
OWNERS' EQUITY............................................... 8,173,808 8,695,839
----------- -----------
TOTAL........................................................ $22,110,133 $19,555,579
=========== ===========
</TABLE>
See notes to combined financial statements.
F-21
<PAGE>
THE GALBREATH COMPANY AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND OWNERS' EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------------
1996 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Leasing fees, net of outside broker
fees of $6,637,214, $763,306 and
$1,132,341 for the periods ending
December 31, 1996, March 31, 1996 and
1997, respectively.................... $34,147,028 $ 6,550,517 $ 7,879,961
Management fees........................ 17,171,812 4,187,580 4,510,027
Development fees....................... 2,007,393 395,775 258,469
Other income........................... 4,639,995 1,116,922 855,547
----------- ----------- -----------
Total revenue........................ 57,966,228 12,250,794 13,504,004
----------- ----------- -----------
OPERATING EXPENSES:
Payroll................................ 21,671,229 5,479,076 5,535,148
Brokerage and leasing fees, excluding
outside broker fees................... 20,076,197 3,557,111 4,279,451
Rent................................... 2,810,522 716,124 813,780
Travel and entertainment............... 2,026,774 439,115 422,000
Professional fees...................... 1,726,755 321,727 400,625
Advertising and promotions............. 1,200,427 323,739 213,777
General and administrative............. 2,869,729 725,635 758,738
Other operating expenses............... 1,420,568 305,619 274,330
Depreciation and amortization.......... 701,219 168,113 178,953
----------- ----------- -----------
Total operating expenses............. 54,503,420 12,036,259 12,876,802
----------- ----------- -----------
OPERATING INCOME......................... 3,462,808 214,535 627,202
INTEREST EXPENSE......................... 504,063 97,544 71,617
----------- ----------- -----------
EARNINGS BEFORE PROVISION FOR INCOME
TAXES................................... 2,958,745 116,991 555,585
TAXES.................................... 209,603 33,746 33,554
----------- ----------- -----------
NET INCOME............................... 2,749,142 83,245 522,031
OWNERS' EQUITY, Beginning of period...... 5,548,738 5,548,738 8,173,808
DISTRIBUTIONS TO OWNERS.................. (124,072) (27,354) --
----------- ----------- -----------
OWNERS' EQUITY, End of period............ $ 8,173,808 $ 5,604,629 $ 8,695,839
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
F-22
<PAGE>
THE GALBREATH COMPANY AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------------
1996 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 2,749,142 $ 83,245 $ 522,031
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 701,219 168,113 178,953
Equity in income of real estate
partnerships....................... (561,681) (42,012) (73,491)
Gain on sale of assets.............. (13,715) -- --
Change in:
Receivables and advances to
brokers, customers and other..... (1,808,602) (1,455,097) (184,008)
Prepaid and other assets.......... 426,350 409,133 (335,977)
Accounts payable--trade........... 707,768 25,314 (161,483)
Accrued expenses.................. 966,852 (1,736,871) (2,783,332)
----------- ----------- -----------
Net cash provided by (used in)
operating activities............ 3,167,333 (2,548,175) (2,837,307)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.............. (322,600) (96,430) (241,332)
Proceeds from sales of fixed assets... 270,543 -- --
Sales (purchases) of investments--
securities........................... 354,507 (70,493) (42,550)
Change in restricted cash............. 132,345 132,345 --
Collections of notes receivable
issued............................... 205,733 -- 136,401
Increase in notes receivable.......... (503,557) (26,255) --
Distributions from real estate
partnerships......................... 489,373 -- --
----------- ----------- -----------
Net cash provided by (used in)
investing activities............ 626,344 (60,833) (147,481)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, including
capital lease obligations............ (9,077,535) -- (131,770)
Proceeds from notes payable........... 6,996,938 1,947,900 --
Repayment of notes payable............ -- (604,082) --
Distributions to owners............... (124,072) (27,354) --
----------- ----------- -----------
Net cash provided by (used in)
financing activities............ (2,204,669) 1,316,464 (131,770)
----------- ----------- -----------
INCREASE IN CASH....................... 1,589,008 (1,292,544) (3,116,558)
CASH AND CASH EQUIVALENTS--Beginning of
period................................ 4,216,435 4,216,435 5,805,443
----------- ----------- -----------
CASH AND CASH EQUIVALENTS--End of
period................................ $ 5,805,443 $ 2,923,891 $ 2,688,885
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................. $ 334,428 $ 70,159 $ 24,331
=========== =========== ===========
Capital lease obligations incurred for
fixed assets.......................... $ 108,237 $ -- $ --
=========== =========== ===========
Transfer of real estate investment to
satisfy demand note payable........... $ 168,000 $ -- $ --
=========== =========== ===========
Transfer of note and accrued interest
receivable to satisfy demand note and
accrued interest payable.............. $ 574,522 $ -- $ --
=========== =========== ===========
Fixed asset additions in accounts
payable............................... $ 46,025 $ -- $ --
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
F-23
<PAGE>
THE GALBREATH COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--The Company leases and manages commercial real
estate properties for related and third parties and provides real estate
brokerage, development and consulting services to clients throughout the
United States. The financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Combination--The accompanying combined financial statements
include the accounts of 1) The Galbreath Company and its subsidiary, Galbreath
Florida Region Partnership (collectively "Galbreath Ohio"); 2) The Galbreath
Company of California, Inc. ("Galbreath California"); and 3) Galbreath
Incorporated (formerly The Galbreath Company, Inc.) and its subsidiary, The
Galbreath Company L.P., and its affiliated entities (Galbreath Columbus Circle
Development Corp. and Galbreath Columbus Circle Development Associates L.P.)
(collectively "Galbreath New York"), collectively the "Company." Effective
December 31, 1996, Galbreath Incorporated was merged into The Galbreath
Company. Since the merger involves entities with common ownership, it was
accounted for similar to a pooling of interests. All of the combined entities
have common management and ownership. All significant intercompany balances
and transactions have been eliminated.
Capital--At December 31, 1996, The Galbreath Company had 750 authorized
shares of no-par value common stock with 100 shares outstanding.
At December 31, 1996, Galbreath California had 100 authorized and 10
outstanding shares of Class A Voting common stock without par value and 900
authorized and 90 outstanding shares of Class B Nonvoting common stock without
par value.
At December 31, 1996, Galbreath Columbus Circle Development Corp. had 100
authorized and outstanding shares of no-par value common stock.
Cash and Cash Equivalents--The Company considers all checking accounts, cash
funds and highly liquid debt instruments with original maturities of three
months or less to be cash equivalents. The Company's cash and cash equivalents
are held primarily at five financial institutions at December 31, 1996.
Investment Securities--The Company's investment securities consist primarily
of two mutual funds totaling $2,932,106 at December 31, 1996. The investment
securities are classified as available for sale and are stated at market
value, which approximates cost.
Investments in Real Estate Partnerships--Investments in real estate
partnerships (primarily Galbreath Middle-Atlantic General Partnership and The
Galbreath Company--Southeast) are accounted for using the equity method.
Fixed Assets--Depreciation of fixed assets is computed using the straight-
line method over the estimated useful lives of the assets ranging from three
to ten years.
Income Taxes--Each of the entities comprising the Company is treated as an S
Corporation or partnership for income tax purposes. Accordingly, taxable
income or loss is generally included in the separate income tax returns of the
Company's owners and is not taxable to the Company.
F-24
<PAGE>
THE GALBREATH COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Employee Savings and Retirement Plan--Company employees may participate in
The Galbreath Company Savings and Retirement Plan. The defined contribution
plan covers all full-time employees of the Company and certain affiliated
companies. Employees may contribute a percentage of their pay to the plan.
Employer contributions of $200,961 in 1996 was at the discretion of the
Company.
Self-Insurance Programs--The Company uses various self-insurance plans for
certain of its health and workers' compensation insurance programs. The
associated liability has been recorded in the financial statements based on
information currently available as to the estimated ultimate cost for
incidents prior to the balance sheet date. Losses in excess of certain limits
are insured with third-party insurance companies.
Revenue Recognition--Revenue is recognized when the service has been
provided or the leasing transaction has been finalized.
The Company manages several buildings for the federal government under the
terms of which the Company is directly responsible for all operating expenses.
The Company receives a fixed fee, based on occupied square footage, which is
reflected in the combined financial statements net of operating expenses of
$10,051,234 for the year ended December 31, 1996.
Advertising--Advertising costs are expensed as incurred.
Litigation--The Company and its subsidiary are defendants in several
lawsuits incidental to their businesses. In the opinion of management, the
outcome of such litigation will not have a material adverse effect on the
Company's combined financial statements.
Fair Value of Financial Instruments--The estimated fair value of cash and
equivalents, accounts receivable, advances to brokers, customers and others,
demand and other notes payable, accounts payable and accrued liabilities
approximate their carrying amounts due to the short maturity of those
instruments. Investments in securities are recorded at fair value based on
market quotations. The estimated fair value of notes receivable and long-term
debt approximate their carrying amounts based on their remaining maturities
and rates currently available to the Company.
Impairment of Long-Lived Assets--The Company adopted the provisions of
Statement of Financial Accounting Standards SFAS No. 121 "Accounting for the
Impairment of Long-lived Assets to be Disposed of," on January 1, 1996. This
Statement requires that long-lived assets and certain identifiable intangibles
are to be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
value of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of SFAS No. 121 did not have a material impact on the
Company's financial statements.
F-25
<PAGE>
THE GALBREATH COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. FIXED ASSETS
The Company's fixed assets at December 31, 1996 were comprised of the
following:
<TABLE>
<S> <C>
Furniture and fixtures $ 1,244,592
Leasehold improvements 747,108
Office equipment 3,412,953
Computer software 315,410
Automobiles 56,310
-----------
Total fixed assets 5,776,373
Accumulated depreciation (3,655,914)
-----------
Fixed assets--net $ 2,120,459
===========
</TABLE>
3. DEMAND AND OTHER NOTES PAYABLE
Demand and other notes payable at December 31, 1996 consist primarily of
unsecured related party notes payable, bearing interest at a fixed rate of 8%.
4. LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Related parties, unsecured, due in installments to May 1999,
7%-10% $110,676
9.42% Note, unsecured, due in installments to March 1999 245,408
Other 9,000
--------
Total long-term debt 365,084
Less current portion 86,400
--------
Long-term debt--less current portion $278,684
========
</TABLE>
At December 31, 1996 long-term debt matures as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1997 $ 86,400
1998 62,659
1999 216,025
--------
Total $365,084
========
</TABLE>
5. CAPITAL LEASES
The Company has entered into various capital lease agreements primarily
related to office equipment. Such equipment had capitalized cost and book
value of approximately $1,684,000 and $850,000, respectively, at December 31,
1996. Capital leases are due in principal installments of $517,100 in 1997 and
$302,939 in 1998, bearing interest at 7.44%-13.21%.
6. NOTES PAYABLE--LINE-OF-CREDIT
At December 31, 1996, the Company has a financing agreement with a lender
that provides for the following: 1) revolving credit borrowings of up to
$3,500,000 with interest at prime plus .5% and expiring on April 30, 1998; 2)
demand note borrowings of up to $2,000,000 with interest at prime plus 1.0%;
and 3) term note borrowings of up to $500,000 available to October 31, 1997
with interest at prime plus .75%. Amounts
F-26
<PAGE>
THE GALBREATH COMPANY AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
borrowed under the term note are payable in installments from November 1997 to
October 2000. Loans under the financing agreement are secured by accounts
receivable and a pledged securities account. The agreements are subject to a
Subordination Agreement which limits the repayment of certain related party
debt and requires compliance with various covenants. No amounts are
outstanding at December 31, 1996.
7. OPERATING LEASES
The Company leases certain equipment and office space under operating lease
agreements. Total lease expense for 1996 was $2,810,522 net of sublease
rentals of $82,715. Minimum future rental payments under these leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
RELATED
ALL OTHERS PARTY
---------- --------
<S> <C> <C>
Year:
1997 $1,084,935 $ 87,785
1998 634,524 35,581
1999 557,867 12,052
2000 405,895
2001 112,187
Thereafter 84,651
---------- --------
Total $2,880,059 $135,418
========== ========
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company manages, leases and develops various real estate properties
owned, in part, by entities in which certain owners of the Company have an
interest. Total related party fees from these entities were $3,819,000 in
1996.
The Company incurred leasing commissions, rent and other operating expenses
to entities in which certain owners of the Company have an interest. Total
related party operating expenses incurred to these entities were $348,000 in
1996.
At December 31, 1996, the Company has long-term note receivables of $335,015
due from three related parties in which certain owners of the Company have
interests. These notes bear interest at 9.52%-10% and are due in installments
through May 2000.
9. SUBSEQUENT EVENT
On April 22, 1997, The Galbreath Company and The Galbreath Company of
California, Inc. merged with LaSalle Partners Limited Partnership and LaSalle
Partners Management Limited Partnership, a full-service real estate firm that
provides management services, corporate and financial services and investment
management services to corporations and other worldwide real estate owners,
users and investors.
10. INTERIM INFORMATION (UNAUDITED)
The interim condensed combined financial statements are unaudited but, in
the opinion of management, reflect all adjustments necessary for a fair
presentation of the results of operations and financial position for such
periods. All such adjustments reflected in the interim condensed combined
financial statements are considered to be of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative of
results for the full year. These financial statements should be read in
conjunction with the financial statements and notes thereto for the year ended
December 31, 1996.
F-27
<PAGE>
LOGO
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion) International Cover Page
Issued July 11, 1997
4,000,000 Shares
LOGO
COMMON STOCK
-----------
ALL OF THE 4,000,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
THE COMPANY. OF THE 4,000,000 SHARES OF COMMON STOCK BEING OFFERED, 800,000
SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS AND 3,200,000 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THIS OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ESTIMATED THAT THE INITIAL OFFERING PRICE PER SHARE
OF COMMON STOCK WILL BE BETWEEN $19 AND $21. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
-----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "LAP," SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses of the Offering payable by the Company,
estimated at $2,000,000.
(3) The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 600,000 additional shares of Common Stock at the price to
public, less underwriting discounts and commissions, for the purpose of
covering over-allotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, and proceeds to the Selling Stockholder will be $ ,
$ and $ , respectively. The Company will not receive any proceeds
from the exercise of the over-allotment option. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Sidley & Austin, counsel for the Underwriters. It is expected that the
delivery of the Shares will be made on or about , 1997 at the offices of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
WILLIAM BLAIR & COMPANY
MONTGOMERY SECURITIES
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Offering are as follows:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
-------- ----------
<S> <C>
SEC Registration Fee ......................................... $ 27,879
NASD Fee ..................................................... 9,700
New York Stock Exchange Fee .................................. 81,100
Printing Expenses ............................................ 225,000
Legal Fees and Expenses ...................................... 1,150,000
Transfer Agent and Registrar Fees............................. 10,000
Accounting Fees and Expenses ................................. 275,000
Miscellaneous Expenses ....................................... 221,321
----------
Total..................................................... $2,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Restated Articles of Incorporation will relieve the Company's directors
from monetary damages to the Company or its stockholders for breach of such
directors' fiduciary duty as directors. Section 2-418 of the MGCL empowers the
Company to indemnify, subject to the standards contained therein, any person
in connection with any action, suit or proceeding brought or threatened by
reason of the fact that such person was a director, officer, employee or agent
of the Company, or is or was serving as such with respect to another entity at
the request of the Company. The MGCL also provides that the Company may
purchase insurance on behalf of any such director, officer, employee or agent.
The Company's Restated Articles of Incorporation and Bylaws will provide for
the indemnification of each director and officer of the Company to the fullest
extent permitted by applicable law.
Section 9 of the Underwriting Agreement between the Company and the
Underwriters, a form of which is filed as Exhibit 1.01 hereto, provides for
indemnification by the Company of the Underwriters and each person, if any,
who controls any Underwriter, against certain liabilities and expenses, as
stated therein, including liabilities under the Securities Act of 1933, as
amended.
The Company intends to obtain directors' and officers' liability insurance
("D&O Insurance") prior to the effective date of the Offering, and expects to
continue to carry D&O Insurance following such date. In addition, the Company
will enter into an indemnification agreement with each of its directors and
certain officers of the Company. The D&O Insurance and the indemnification
agreements will insure the Company's officers and directors against certain
liabilities, including liabilities under the securities laws. The Company
expects that the indemnification agreements will indemnify and advance
expenses to its directors and officers to the fullest extent permitted by the
MGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Immediately prior to the closing of the Offering, each of the general and
limited partners of LaSalle Partners Limited Partnership and LaSalle Partners
Management Limited Partnership will contribute all of their respective general
and limited partnership interests in such partnerships to the Company in
exchange for an aggregate of 12,200,000 shares of Common Stock. The issuances
of Common Stock will constitute a "transaction by any issuer not involving any
public offering" and thus will be exempt from the registration requirements of
the Securities Act of 1933 (the "Act") under Section 4(2) thereof.
II-1
<PAGE>
ITEM 16. EXHIBITS.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.01 Form of Underwriting Agreement
2.01* Subscription Agreement
3.01** Articles of Incorporation of LaSalle Partners Incorporated
3.02** Bylaws of LaSalle Partners Incorporated
3.03** Form of Articles of Amendment and Restatement of LaSalle Partners
Incorporated
3.04** Form of Amended and Restated Bylaws of LaSalle Partners
Incorporated
4.01 Form of certificate representing shares of Common Stock
5.01* Opinion and consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois)
5.02** Opinion and consent of Piper & Marbury L.L.P.
10.01** Credit Agreement, dated as of September 6, 1996, by and among
LaSalle Partners Management Limited Partnership ("LPML"), LaSalle
Partners Limited Partnership ("LPL") and Harris Trust and Savings
Bank ("Harris")
10.02** Security Agreement, dated as of September 6, 1996, by and among
LPL, LPML and Harris
10.03** Supporting Subsidiary Security Agreement, dated as of September 6,
1996, by and among certain subsidiaries named therein and Harris
10.04** Pledge and Security Agreement, dated as of September 6, 1996, by
and among LPL, LPML and Harris
10.05** Collateral Assignment of Partnership Interests, dated as of
September 6, 1996, by and among LPL, LPML and Harris
10.06** Subsidiary Collateral Assignment of Partnership Interests, dated
as of September 6, 1996, by and among certain subsidiaries named
therein and Harris
10.07** Guaranty Agreement, dated as of September 6, 1996, by and among
certain subsidiaries or affiliates of LPL or LPML and Harris
10.08** Contribution and Exchange Agreement, dated as of April 21, 1997,
by and among DEL-LPL Limited Partnership ("DEL-LPL"), DEL-LPAML
Limited Partnership ("DEL-LPAML"), LPL, LPML, The Galbreath
Company ("Galbreath"), Galbreath Company of California, Inc.,
Galbreath Holdings, LLC ("Galbreath Holdings") and the
stockholders of Galbreath
10.09** Agreement for the sale and purchase of shares in CIN Property
Management Limited, dated October 8, 1996, by and between British
Coal Corporation and LaSalle Partners International
10.10** Asset Purchase Agreement, dated as of December 31, 1996, by and
among LaSalle Construction Limited Partnership, LPL, Clune
Construction Company, L.P. and Michael T. Clune
10.11** LaSalle Partners Incorporated 1997 Stock Award and Incentive Plan
10.12** Form of LaSalle Partners Incorporated Employee Stock Purchase Plan
10.13 Form of LaSalle Partners Incorporated Stock Compensation Program
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14** Registration Rights Agreement, dated as of April 22, 1997, by and
among LaSalle Partners Incorporated, LPL, LPML, DEL-LPL, DEL-
LPAML, DSA-LSPL, Inc. ("DSA-LSPL"), DSA-LSAM, Inc. ("DSA-LSAM")
and Galbreath Holdings
10.15* Form of Indemnification Agreement
10.16** Consent Agreement, dated as of April 15, 1997, by and among DSA-
LSPL, DSA-LSAM, DEL-LPL, DEL-LPAML, DEL/LaSalle Finance Company,
L.L.C. ("DEL/LaSalle"), LPL and LPML
10.17** Consent Agreement, dated as of April 22, 1997, by and among the
Stockholders of Galbreath and the Galbreath Company of
California, Inc., Galbreath Holdings, DEL-LPL, DEL-LPAML,
DEL/LaSalle, LPL and LPML.
21.01 List of Subsidiaries
23.01 Consent of KPMG Peat Marwick LLP, independent auditors
23.02 Consent of Deloitte & Touche, LLP, independent auditors
23.03* Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(included in Exhibit 5.01)
23.04** Consent of Piper & Marbury L.L.P. (included in Exhibit 5.02)
23.05** Consent of Darryl Hartley-Leonard
23.06** Consent of Thomas C. Theobald
24.01** Power of Attorney
27.01** Financial Data Schedule
</TABLE>
- --------
*To be filed by Amendment
**Previously filed
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required under the related instructions, are not
applicable or the information has been provided in the Financial Statements,
or the notes thereto, included in this Registration Statement.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the 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 Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 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 in any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, 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 OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, ON JULY 11, 1997.
LaSalle Partners Incorporated
*
By: _________________________________
Stuart L. Scott
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT TO BE SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of Directors July 11, 1997
____________________________________ and Chief Executive Officer
Stuart L. Scott (Principal Executive Officer)
* President, Chief Operating Officer July 11, 1997
____________________________________ and Director
Robert C. Spoerri
* Executive Vice President, Chief July 11, 1997
____________________________________ Financial Officer and Director
William E. Sullivan (Principal Financial Officer and
Principal Accounting Officer)
* Co-President--LaSalle Advisors July 11, 1997
____________________________________ Capital Management, Inc. and
Daniel W. Cummings Director
* President and Chief Executive July 11, 1997
____________________________________ Officer--LaSalle Partners
Charles K. Esler Management Services, Inc.
and Director
* President, Tenant Representation July 11, 1997
____________________________________ Division--LaSalle Partners
M. G. Rose Management Services, Inc.
and Director
* Co-President--LaSalle Advisors July 11, 1997
____________________________________ Capital Management, Inc. and
Lynn C. Thurber Director
* Managing Director, Investment July 11, 1997
____________________________________ Banking Division, LaSalle
Earl E. Webb Partners Corporate & Financial
Services, Inc. and Director
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman, LaSalle Partners July 11, 1997
____________________________________ Management Services, Inc.
Lizanne Galbreath and Director
</TABLE>
/s/ William E. Sullivan
*By: __________________________
William E. Sullivan
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<C> <S> <C>
1.01 Form of Underwriting Agreement
2.01* Subscription Agreement
3.01** Articles of Incorporation of LaSalle Partners
Incorporated
3.02** Bylaws of LaSalle Partners Incorporated
3.03** Form of Articles of Amendment and Restatement of LaSalle
Partners Incorporated
3.04** Form of Amended and Restated Bylaws of LaSalle Partners
Incorporated
4.01 Form of certificate representing shares of Common Stock
5.01* Opinion and consent of Skadden, Arps, Slate, Meagher &
Flom (Illinois)
5.02** Opinion and consent of Piper & Marbury L.L.P.
10.01** Credit Agreement, dated as of September 6, 1996, by and
among LaSalle Partners Management Limited Partnership
("LPML"), LaSalle Partners Limited Partnership ("LPL")
and Harris Trust and Savings Bank ("Harris")
10.02** Security Agreement, dated as of September 6, 1996, by
and among LPL, LPML and Harris
10.03** Supporting Subsidiary Security Agreement, dated as of
September 6, 1996, by and among certain subsidiaries
named therein and Harris
10.04** Pledge and Security Agreement, dated as of September 6,
1996, by and among LPL, LPML and Harris
10.05** Collateral Assignment of Partnership Interests, dated as
of September 6, 1996, by and among LPL, LPML and Harris
10.06** Subsidiary Collateral Assignment of Partnership
Interests, dated as of September 6, 1996, by and among
certain subsidiaries named therein and Harris
10.07** Guaranty Agreement, dated as of September 6, 1996, by
and among certain subsidiaries or affiliates of LPL or
LPML and Harris
10.08** Contribution and Exchange Agreement, dated as of April
21, 1997, by and among DEL-LPL Limited Partnership
("DEL-LPL"), DEL-LPAML Limited Partnership ("DEL-
LPAML"), LPL, LPML, The Galbreath Company
("Galbreath"), Galbreath Company of California, Inc.,
Galbreath Holdings, LLC ("Galbreath Holdings") and the
stockholders of Galbreath
10.09** Agreement for the sale and purchase of shares in CIN
Property Management Limited, dated October 8, 1996, by
and between British Coal Corporation and LaSalle
Partners International
10.10** Asset Purchase Agreement, dated as of December 31, 1996,
by and among LaSalle Construction Limited Partnership,
LPL, Clune Construction Company, L.P. and Michael T.
Clune
10.11** LaSalle Partners Incorporated 1997 Stock Award and
Incentive Plan
10.12** Form of LaSalle Partners Incorporated Employee Stock
Purchase Plan
10.13 Form of LaSalle Partners Incorporated Stock Compensation
Program
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<C> <S> <C>
10.14** Registration Rights Agreement, dated as of April 22,
1997, by and among LaSalle Partners Incorporated, LPL,
LPML, DEL-LPL, DEL-LPAML, DSA-LSPL, Inc. ("DSA-LSPL"),
DSA-LSAM, Inc. ("DSA-LSAM") and Galbreath Holdings
10.15* Form of Indemnification Agreement
10.16** Consent Agreement, dated as of April 15, 1997, by and
among DSA-LSPL, DSA-LSAM, DEL-LPL, DEL-LPAML,
DEL/LaSalle Finance Company, L.L.C. ("DEL/LaSalle"),
LPL and LPML
10.17** Consent Agreement, dated as of April 22, 1997, by and
among the Stockholders of Galbreath and the Galbreath
Company of California, Inc., Galbreath Holdings LLC,
DEL-LPL, DEL-LPAML, DEL/LaSalle, LPL and LPML
21.01 List of Subsidiaries
23.01 Consent of KPMG Peat Marwick LLP, independent auditors
23.02 Consent of Deloitte & Touche LLP, independent auditors
23.03* Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois) (included in Exhibit 5.01)
23.04** Consent of Piper & Marbury L.L.P. (included in Exhibit
5.02)
23.05** Consent of Darryl Hartley-Leonard
23.06** Consent of Thomas C. Theobald
24.01** Power of Attorney
27.01** Financial Data Schedule
</TABLE>
- --------
*To be filed by Amendment
**Previously filed
<PAGE>
EXHIBIT 1.01
4,000,000 Shares
LA SALLE PARTNERS INCORPORATED
Common Stock
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
____________, 1997
<PAGE>
___________, 1997
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
Montgomery Securities
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
William Blair & Company, L.L.C.
Montgomery Securities
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
LaSalle Partners Incorporated, a Maryland corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below),
4,000,000 shares of the common stock, par value $.01 per share, of the Company
(the "Firm Shares").
It is understood that, subject to the conditions hereinafter stated,
3,200,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 800,000 Firm Shares (the "International Shares") will be sold to the several
International Underwriters named in Schedule II hereto (the "International
Underwriters") in connection with the offering and sale of such International
Shares outside the United States and Canada to persons other than United States
and Canadian Persons. Morgan Stanley & Co. Incorporated, William Blair &
Company, L.L.C. and Montgomery Securities shall act as representatives (the
"U.S. Representatives") of the several U.S. Underwriters, and Morgan Stanley &
Co. International Limited, William Blair & Company, L.L.C. and Montgomery
Securities shall act as
1
<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."
DEL/LaSalle Finance Company, L.L.C., an Illinois limited liability
company (the "Selling Shareholder"), proposes to sell to the several U.S.
Underwriters not more than an additional 600,000 shares of the Company's common
stock, par value $.01 per share (the "Additional Shares"), if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf of
the U.S. Underwriters, the right to purchase such shares of common stock granted
to the U.S. Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares." The shares of
common stock, par value $.01 per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock." The Company and the Selling Shareholder are hereinafter
sometimes collectively referred to as the "Sellers."
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." If the
Company has filed an abbreviated registration 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.
As part of the offering contemplated by this Agreement, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares
set forth opposite its name on Schedule I to this Agreement up to 200,000
Shares, for sale to the Company's employees, officers, directors, business
associates and related persons (collectively, "Participants"), as set forth in
the Prospectus under the heading "Underwriters" (the "Directed Share Program").
The Shares to be sold by Morgan Stanley pursuant to the Directed Share Program
(the "Directed Shares") will be sold by Morgan Stanley pursuant to this
Agreement at the Public Offering Price (as defined in Section 4 below). Any
Directed Shares not orally confirmed for purchase by any Participants by the end
of the first business day after the date on
2
<PAGE>
which this Agreement is executed will be offered to the public by Morgan Stanley
as set forth in the Prospectus.
The Company, LaSalle Partners Limited Partnership ("LPL") and LaSalle
Partners Management Limited Partnership ("LPML" and, together with LPL, the
"Predecessor Partnerships") shall be collectively referred to herein as the
"Companies." For purposes of this Agreement, the term "subsidiary" shall have
the meaning set forth in Rule 1-02 of Regulation S-X and, as used herein and
unless otherwise indicated, shall refer to a subsidiary of the Company or of
either of the Predecessor Partnerships, as the case may be.
1. Representations and Warranties of the Companies. The Companies
represent and warrant to and agree with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the knowledge
of the 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 a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph l(b) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each of the Company and the Predecessor Partnerships has been duly
incorporated or organized, is validly existing as a corporation or
partnership, as the case may be, in good standing under the laws of the
jurisdiction of its incorporation or organization, has all power and
authority to own its property and to conduct its business as described in
the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Companies and their subsidiaries,
taken as a whole.
3
<PAGE>
(d) Each "significant subsidiary" (as such term is defined in Rule 1-
02 of Regulation S-X) of the Companies, including but not limited to
LaSalle Partners Management Services, Inc.("LPMS"), LaSalle Partners
Corporate & Financial Services, Inc. ("LPCFS"), LaSalle Advisors Capital
Management, Inc. ("LACM"), LaSalle Partners International, Inc. ("LPII")
and __________ (each a "Significant Subsidiary" and, collectively, the
"Significant Subsidiaries"), has been duly incorporated or organized, is
validly existing as a corporation or partnership, as the case may be, in
good standing under the laws of the jurisdiction of its incorporation or
organization, has all power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified
to transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect
on the Companies and their subsidiaries, taken as a whole; all of the
issued shares of capital stock of each Significant Subsidiary which is a
corporation have been duly and validly authorized and issued, are fully
paid and non-assessable, all of the partnership interests of each
Significant Subsidiary which is a partnership have been duly and validly
authorized and issued, and all of the shares of capital stock or
partnership interests in any Significant Subsidiary (except as set forth in
the Registration Statement and the Prospectus) are owned directly or
indirectly by the Company or the Predecessor Partnerships, as the case may
be, free and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered by
the Companies.
(f) The authorized capital stock of the Company conforms, in all
material respects, as to legal matters to the description thereof contained
in the Prospectus.
(g) The shares of Common Stock (including the Shares to be sold by the
Selling Shareholder) outstanding prior to the issuance of the Shares to be
sold by the Company have been duly authorized and are validly issued, fully
paid and non-assessable.
(h) The Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in accordance with the terms of
this Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights.
(i) The financial statements (together with the related notes thereto)
of the Predecessor Partnerships and The Galbreath Company ("Galbreath")
included in the Registration Statement present fairly the financial
position of the Predecessor Partnerships and Galbreath, respectively, and
each of their respective subsidiaries as of the respective dates of such
financial statements, and the results of operations and cash flows of the
Predecessor Partnerships and Galbreath, respectively, and each of their
4
<PAGE>
respective subsidiaries for the respective periods covered thereby, all in
conformity with generally accepted accounting principles consistently
applied throughout the periods involved. The balance sheet (together with
the related notes thereto) of the Company included in the Registration
Statement present fairly the financial position of the Company and its
subsidiaries as of the date of such balance sheet, in conformity with
generally accepted accounting principles consistently applied throughout
the period involved. The pro forma consolidated financial statements
included in the Prospectus have been prepared in accordance with Article 11
of Regulation S-X with respect to pro forma financial statements, have been
properly 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.
(j) None of the Companies or any of their subsidiaries is in violation
of its certificate of incorporation or certificate of partnership, as the
case may be, or its by-laws or partnership agreement, as the case may be,
or, except as would not have a material adverse effect on the Companies and
their subsidiaries, taken as a whole, in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any agreement or other instrument binding upon the Companies or any of
their respective subsidiaries. The conduct of the business of the Companies
and their respective subsidiaries is and has been in compliance with
applicable foreign, federal, state and local laws and regulations, except
where the failure to be in compliance would not, singly or in the
aggregate, have a material adverse effect on the Companies and their
subsidiaries, taken as a whole.
(k) (i) The execution and delivery by the Companies of, and the
performance by the Companies of their obligations under, this Agreement and
the transactions described in the Prospectus under the caption
"Incorporation Transactions" will not contravene (A) any provision of
applicable law or the certificate of incorporation, by-laws or other
organizational documents of the Companies or any of their Significant
Subsidiaries, or (B) any agreement or other instrument binding upon any of
the Companies or their Significant Subsidiaries except as would not have a
material adverse effect on the Companies and their subsidiaries, taken as a
whole, or (C) any judgment, order or decree of any governmental body,
agency or court having jurisdiction over any of the Companies or their
Significant Subsidiaries except as would not have a material adverse effect
on the Companies and their subsidiaries, taken as a whole, and (ii) except
as would not have a material adverse effect on the Companies and their
subsidiaries, taken as a whole, no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by the Companies of their obligations under
this Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of the
Shares.
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(l) There has not occurred any material adverse change, or any
development reasonably likely to result in a material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Companies and their subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(m) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which any of the Companies or their
subsidiaries is a party or to which any of the properties of any of the
Companies or their subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(n) Each 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 and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be 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 Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Shares have been authorized for listing
on the New York Stock Exchange, Inc., subject only to official notice of
issuance.
(q) The Companies and their subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety
(including occupational health and safety), the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Companies and their
subsidiaries, taken as a whole.
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(r) There are no costs or liabilities associated with Environmental
Laws, including costs of complying therewith, which would, singly or in the
aggregate, have a material adverse effect on the Companies and their
subsidiaries, taken as a whole.
(s) There are no contracts, agreements or understandings between any
of the Companies and any person granting such person the right to require
the Company to file a registration statement under the Securities Act with
respect to any securities of the Company (except for that certain
Registration Rights Agreement, dated April 22, 1997, among the Company,
DEL-LPL Limited Partnership ("DEL-LPL"), DEL-LPAML Limited Partnership
("DEL-LPAML" and, together with DEL-LPL, the "Employee Partnerships"), DSA-
LSPL, Inc., DSA-LSAM, Inc. and Galbreath Holdings, LLC), and there are no
contracts, agreements or understandings between the Company or either of
the Predecessor Partnerships 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.
(t) The Companies have complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
(u) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Companies
and their subsidiaries have not incurred any material liability or
obligation nor entered into any material transaction not in the ordinary
course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (3) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Companies and their subsidiaries, except in each case
as described in or contemplated by the Prospectus.
(v) The Companies and their subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them in each case which is material to the
business of the Companies and their subsidiaries, taken as a whole, and in
each case free and clear of all liens, encumbrances and defects except such
as are described in the Prospectus or which would not have a material
adverse effect on the Companies and their subsidiaries, taken as a whole;
and any material real property and buildings held under lease by any of the
Companies or their subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
materially interfere with the use made of such property and buildings by
the Companies and their subsidiaries, in each case except as described in
or contemplated by the Prospectus.
(w) The Companies and their subsidiaries own or possess adequate
rights to use, or can acquire on reasonable terms, all material patents,
patent rights, licenses,
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inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
none of the Companies or their subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a material adverse
effect on the Companies and their subsidiaries, taken as a whole.
(x) The Companies and their Significant Subsidiaries have filed all
material foreign, federal and state income and franchise tax returns and
have paid all material taxes shown as due thereon, and there is no tax
deficiency that has been asserted against the Companies or their properties
or assets that would have a material adverse effect on the Companies and
their subsidiaries, taken as a whole.
(y) No labor dispute material to the Companies and their subsidiaries,
taken as a whole, with the employees of the Companies, any of their
subsidiaries or, to the knowledge of the Company, LPI Service Corporation
exists, except as described in or contemplated by the Prospectus, or, to
the knowledge of the Companies, is imminent.
(z) The Companies and their subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; none of the Companies or any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Companies nor
any such subsidiary has any reason to believe that they will not be able to
renew their existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue their business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Companies and their subsidiaries, taken as a whole,
except as described in or contemplated by the Prospectus.
(aa) Except as would not have a material adverse effect on the
Companies and their subsidiaries, taken as a whole, the Companies and their
subsidiaries possess all certificates, authorizations, licenses and permits
issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses; and none of
the Companies or their subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization, license or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the Companies and their subsidiaries, taken as a
whole, except as described in or contemplated by the Prospectus.
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(bb) The Company and its subsidiaries maintain, and the Predecessor
Partnerships and their subsidiaries have maintained, a system of internal
accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or
specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (3)
access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(cc) All offers, sales or other issuances of the Company's capital
stock prior to the date hereof were at all relevant times exempt from the
registration requirements of the Securities Act and were duly registered
with or the subject of an available exemption from the registration of the
applicable state securities or Blue Sky laws.
(dd) Following the Partnership Interests Exchange, as defined in and
as described in the Prospectus under the caption "Incorporation
Transactions," neither the Predecessor Partnerships' ability to distribute
any cash or property to the Company, nor the Company's ability to receive
any such distributions from the Predecessor Partnerships, will be impeded
by any law or agreement.
Furthermore, the Companies represent and warrant to Morgan Stanley
that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
2. Representations and Warranties of the Selling Shareholder. The
Selling Shareholder 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 the Selling Shareholder.
(b) The execution and delivery by the Selling Shareholder of, and the
performance by the Selling Shareholder of its obligations under, this
Agreement will not contravene any provision of applicable law, or the
certificate of formation or formation agreement of the Selling Shareholder,
or any agreement or other instrument binding upon the Selling Shareholder
or any judgment, order or decree of any governmental body,
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agency or court having jurisdiction over the Selling Shareholder, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Selling
Shareholder of its obligations under this Agreement, except (i) which would
not have a material adverse effect on the Selling Shareholder's ability to
perform its obligations under this Agreement or (ii) such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(c) On the Option Closing Date (as defined below) the Selling
Shareholder will have valid title to the Shares to be sold by the Selling
Shareholder and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement and to sell,
transfer and deliver the Shares to be sold by the Selling Shareholder.
(d) The delivery of the Shares to be sold by the Selling Shareholder
pursuant to this Agreement will, upon the delivery of and payment for such
Shares as contemplated herein, pass title to such Shares to the
Underwriters free and clear of any security interests, claims, liens,
equities and other encumbrances.
(e) All information under the captions "Principal and Selling
Stockholders" and "Risk Factors--Shares Eligible for Future Sale" furnished
by or on behalf of such Selling Shareholder for use in the Registration
Statement and Prospectus is, and on the Closing Date and on the Option
Closing Date will be, true, correct, and complete, and does not, and on the
Closing Date and on the Option Closing Date will not, contain any untrue
statement of a material fact or omit to state any material fact necessary
to make such information not misleading.
3. Agreements to Sell and Purchase. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) set forth in Schedules I and
II hereto opposite its names at U.S.$______ a Share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Shareholder
agrees to sell to the U.S. Underwriters the Additional Shares, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to 600,000 Additional Shares at the Purchase Price. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Selling Shareholder 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
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business days after the date of such notice. Additional Shares may be purchased
as provided in Section 5 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the Prospectus, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase 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 file a registration statement with the Commission relating to any of the
foregoing securities, or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the sale of the Shares to the Underwriters hereunder, (B) the issuance by the
Company of shares of Common Stock upon the exercise of an option or a warrant or
the conversion of a security outstanding on the date of the Prospectus of which
the Underwriters have been advised in writing, (C) transactions by any person
other than the Company relating to shares of Common Stock or other securities
acquired in open market transactions after the completion of the offering of the
Shares, (D) stock or stock option issuances by the Company pursuant to existing
employee benefit plans, (E) the distribution of shares of Common Stock by the
Employee Partnerships to their respective partners, provided that any such
partners agree to be bound by the foregoing limitations, or (F) the filing of a
registration statement by the Company on Form S-8 relating to existing Company
employee benefit plans. In addition, the Selling Shareholder agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period ending 180 days after the date of
the Prospectus, make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
4. Terms of Public Offering. The Sellers 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 is further
advised by you that the Shares are to be offered to the public initially at
U.S.$______ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$______ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$______ a share, to any Underwriter or to certain other dealers.
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5. Payment and Delivery. Payment for the Firm Shares shall be made
by wire transfer of immediately available funds to an account designated by the
Company against delivery of such Firm Shares for the respective accounts of the
several Underwriters at 10:00 A.M., New York City time, on __________, 1997, or
at such other time on the same or such other date, not later than __________,
1997, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Selling
Shareholder by wire transfer of immediately available funds to an account
designated by the Selling Shareholder against delivery of such Additional Shares
for the respective accounts of the several Underwriters at 10:00 A.M., New York
City time, on the date specified in the notice described in Section 3 or at such
other time on the same or on such other date, in any event not later than
__________, 1997, as shall be designated in writing by the U.S. Representatives.
The time and date of such payment are hereinafter referred to as the "Option
Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be 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 the Underwriters' Obligations. The obligations of
the Sellers 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 3:00 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 there shall not have occurred any change, or any
development reasonably likely to result in a change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Companies and their subsidiaries, taken as a whole, from that set forth in
the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date one or
more certificates, dated the Closing Date and signed by an executive
officer of the Company,
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(i) to the effect that the representations and warranties of the Companies
contained in this Agreement are true and correct as of the Closing Date and
that the Companies have complied in all material respects with all of the
agreements and satisfied all of the conditions on their part to be
performed or satisfied hereunder on or before the Closing Date, and (ii)
setting forth all jurisdictions in which the conduct of the Company's
business or its ownership or leasing of property requires that each of the
Companies or their subsidiaries be qualified to transact business, except
to the extent that the failure to be so qualified would not have a material
adverse effect on the Companies and their subsidiaries, taken as a whole;
The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Skadden, Arps, Slate, Meagher & Flom, (Illinois), outside
counsel for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly
existing and in good standing under the laws of the jurisdiction of
its incorporation with the power and authority to own its property and
conduct its business as described in the Prospectus (with such
exceptions as would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole); and the Company is qualified
to transact business and, based solely upon such counsel's review of
"good standing" certificates of such states, is in good standing in
each jurisdiction set forth in the certificate provided pursuant to
paragraph 6(b)(ii) hereto;
(ii) each of LPCFS, LACM and LPMS has been duly incorporated and
is validly existing and in good standing under the laws of the State
of Maryland with the power and authority to own its property and to
conduct its business as described in the Prospectus (with such
exceptions as would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole); and, based solely upon such
counsel's review of "good standing" certificates of such states, each
of LPCFS, LACM and LPMS is qualified to transact business and is in
good standing in each jurisdiction set forth in the certificate
provided pursuant to paragraph 6(b)(ii) hereto;
(iii) the authorized capital stock of the Company consists of
100,000,000 shares of Common Stock and 10,000,000 shares of preferred
stock, $.01 par value, and otherwise conforms, in all material
respects, as to legal matters to the description thereof contained in
the Prospectus;
(iv) the outstanding shares of Common Stock (including the
Shares to be sold by the Selling Shareholder) immediately prior to the
issuance of the Shares to
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be sold by the Company have been duly authorized, validly issued fully
paid and non-assessable;
(v) all of the issued shares of capital stock of each of LPCFS,
LACM and LPMS have been duly authorized and validly issued and are
fully paid and non-assessable and all of the shares of capital stock
in LPCFS, LACM and LPMS (except as set forth in the Registration
Statement and the Prospectus) are, to the knowledge of such counsel,
owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(vi) the issuance and sale of the Shares to be sold by the
Company have been duly authorized by the Company for sale to the
Underwriters under this Agreement and such Shares, when delivered to
and paid for by the Underwriters in accordance with this Agreement,
will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not, to the knowledge of such counsel, be
subject to any preemptive or similar rights to subscribe for or
purchase the Shares;
(vii) this Agreement has been duly authorized, executed and
delivered by the Companies;
(viii) the execution and delivery by the Companies of, and the
performance by the Companies of their obligations under, this
Agreement and the transactions described in the Prospectus under the
caption "Incorporation Transactions" will not contravene any provision
of the certificate of incorporation or by-laws or other organizational
documents of any of the Companies or their Significant Subsidiaries or
any agreement or instrument set forth as an exhibit to the
Registration Statement; except as would not have a material adverse
effect on the Companies and their subsidiaries, taken as a whole, (A)
the compliance by the Companies with all of the provisions of this
Agreement will not result in any violation or conflict with any of the
terms or provisions of any Applicable Laws or Applicable Orders (it
being understood that for purposes of such opinion, (1) the term
"Applicable Laws" means those laws, rules and regulations of the State
of New York and Illinois and the United States of America that, in
such counsel's experience, are normally applicable to transactions of
the type contemplated by this Agreement, each as in effect on the date
of such opinion; (2) the term "Applicable Orders" means those
judgments, orders or decrees of Governmental Authorities (as such term
is hereinafter defined) by which the Companies or any of its
Significant Subsidiaries is bound, the existence of which is actually
known to such counsel or has been specifically disclosed to such
counsel in writing by the Companies; and (3) the term "Governmental
Authorities" means any New York, Illinois or federal executive,
legislative, judicial, administrative or regulatory body under
Applicable Laws), provided that in rendering such opinion, such
counsel
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need not express any opinion with respect to (x) any securities or
Blue Sky laws of the various states or the securities laws of foreign
jurisdictions or (y) the information contained in, or the accuracy,
completeness or correctness of, the Prospectus or the Registration
Statement or the compliance thereof as to form with the Securities Act
and the rules and regulations promulgated thereunder; and (B) no
Governmental Approval is required for the execution, delivery and
performance of this Agreement by the Companies, compliance by the
Companies with all the provisions hereof and the consummation of the
transactions contemplated hereby (it being understood that for
purposes of such opinion, the term "Governmental Approval" means any
consent, approval, license, authorization or validation of, or notice
to, or filing, recording or registration with, any Governmental
Authority pursuant to Applicable Laws), provided that in rendering
such opinion, such counsel need not express any opinion with respect
to (x) any securities or Blue Sky laws of the various states or the
securities laws of foreign jurisdictions, (y) such Governmental
Approvals as have been obtained under the Securities Act, the Exchange
Act and the rules and regulations promulgated thereunder, or (z) the
rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD");
(ix) the statements (A) in the Prospectus under the captions
"Background of the Company," "Incorporation Transactions,"
"Management" and "Description of Capital Stock," and (B) in the
Registration Statement in Items 14 and 15, insofar as they purport to
describe or summarize certain provisions of the agreements, statutes
and regulations referred to therein, fairly describe or summarize such
provisions in all material respects;
(x) to such counsel's knowledge and without having investigated
any governmental records or court dockets, there are no (i) legal or
governmental proceedings pending or threatened to which any of the
Companies or their subsidiaries is a party that are required to be
described in the Registration Statement or the Prospectus and are not
so described or (ii) contracts or other documents that are required to
be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described
or filed as required;
(xi) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds therefrom
as described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended; and
(xii) the Registration Statement, as of its effective date, and
the Prospectus, as of its date, appeared on their face to be
appropriately responsive in
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all material respects to the requirements of the Securities Act and
the rules and regulations promulgated thereunder, except that, in each
case, such counsel need not express any opinion as to the financial
statements, schedules and other financial or statistical data included
therein or excluded therefrom or the exhibits to the Registration
Statement, and such counsel need not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (other than to the extent
specified in paragraphs (iii) and (ix) above).
In addition, Skadden, Arps, Slate, Meagher & Flom (Illinois) shall
state that it has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to
which such counsel need not express any belief) the Registration Statement
and the prospectus included therein at the time the Registration Statement
became effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading and has no reason to believe
that (except for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief) the
Prospectus contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Hagan & Associates, dated the Closing Date, to the effect that:
(i) each of the Predecessor Partnerships has been duly organized
and is validly existing and in good standing under the laws of the
jurisdiction of its organization with the power and authority to own
its property and conduct its business as described in the Prospectus
(with such exceptions as would not have a material adverse effect on
the Predecessor Partnerships and their subsidiaries, taken as a
whole); and each of the Predecessor Partnerships is qualified to
transact business and, based solely upon such counsel's review of
"good standing" certificates of such states, is in good standing in
each jurisdiction set forth in the certificate provided pursuant to
paragraph 6(b)(ii) hereto;
(ii) except as to LPCFS, LACM and LPMS which are covered by the
opinion described in (c)(ii) above and except as to __________, which
is covered by the opinion described in (d)(i) below, each Significant
Subsidiary of the Companies has been duly incorporated or organized
and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with the power and
authority to own its property and to conduct its business as described
in the Prospectus (with such exceptions as would not have a material
adverse effect on the Companies and their subsidiaries, taken as a
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whole); and, based solely upon such counsel's review of "good
standing" certificates of such states, each such Significant
Subsidiary is qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Companies and
their subsidiaries, taken as a whole; and
(iii) except as to LPCFS, LACM and LPMS which are covered by the
opinion described in (c)(v) above and except as to __________, which
is covered by the opinion described in (d)(ii) below, all of the
issued shares of capital stock of each Significant Subsidiary that is
a corporation have been duly authorized and validly issued and are
fully paid and non-assessable, all of the partnership interests of
each Significant Subsidiary which is a partnership have been duly and
validly authorized and issued, and all of the shares of capital stock
or partnership interests in any Significant Subsidiary (except as set
forth in the Registration Statement and the Prospectus) are, to the
knowledge of such counsel, owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or
claims.
(e) The Underwriters shall have received on the Closing Date an
opinion of _______________, United Kingdom counsel for the Company, dated
the Closing Date, to the effect that:
(i) __________ has been duly incorporated or organized and is
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with the power and
authority to own its property and conduct its business as described in
the Prospectus (with such exceptions as would not have a material
adverse effect on the Companies and their subsidiaries, taken as a
whole); and
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(ii) all of the issued shares of capital stock of __________
have been duly authorized and validly issued and are fully paid and
non-assessable and all of the shares of capital stock in __________
(except as set forth in the Registration Statement and the Prospectus)
are, to the knowledge of such counsel, owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or
claims.
(f) The Underwriters shall have received on the Closing Date an
opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the
Selling Shareholder, dated the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder;
(ii) (A) the execution and delivery by the Selling Shareholder
of, and the performance by the Selling Shareholder of its obligations
under, this Agreement will not (1) contravene any provision of the
certificate of formation or formation agreement of the Selling
Shareholder, or, to such counsel's knowledge without any independent
investigation, any agreement or other instrument binding upon the
Selling Shareholder or, (2) result in any violation or conflict with
any of the terms or provisions of any Applicable Laws or Applicable
Orders, provided that in rendering such opinion, such counsel need not
express any opinion with respect to (x) any securities or Blue Sky
laws of the various states or the securities laws of foreign
jurisdictions or (y) the information contained in, or the accuracy,
completeness or correctness of, the Prospectus or the Registration
Statement or the compliance thereof as to form with the Securities Act
and the rules and regulations promulgated thereunder, and (B) no
Governmental Approval is required for the execution, delivery and
performance of this Agreement by the Selling Shareholder, compliance
by the Selling Shareholder with all the provisions hereof and the
consummation of the transactions contemplated hereby, provided that in
rendering such opinion, such counsel need not express any opinion with
respect to (x) any securities or Blue Sky laws of the various states
or the securities laws of foreign jurisdictions, (y) such Governmental
Approvals as have been obtained under the Securities Act, the Exchange
Act and the rules and regulations promulgated thereunder or (z) the
rules and regulations of the NASD; and
(iii) upon transfer of the Shares to be sold by the Selling
Shareholder to the Underwriters and payment of the purchase price
therefor as contemplated herein, and assuming that the Underwriters
acquire their interest in such Shares in good faith and without notice
of any adverse claims, the Underwriters will acquire
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such Shares free of all adverse claims (within the meaning of the
Uniform Commercial Code as in effect in the State of New York).
(g) The Underwriters shall have received on the Closing Date an
opinion of Sidley & Austin, counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in subparagraphs (vi), (vii), (ix)
(but only as to the statements in the Prospectus under "Description of
Capital Stock" and "Underwriters") and (xii) of paragraph (c) above, as
well as a statement covering the matters referred to in the last unnumbered
subparagraph of paragraph (c) above.
With respect to subparagraph (xii) and the last unnumbered
subparagraph of paragraph (c) above, Skadden, Arps, Slate, Meagher & Flom
(Illinois) and Sidley & Austin may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without independent
check or verification, except as specified. With respect to paragraph (f)
above, Skadden, Arps, Slate, Meagher & Flom (Illinois) may rely, with
respect to factual matters and to the extent such counsel deems
appropriate, upon the representations of the Selling Shareholder contained
herein. In giving the opinions set forth in subparagraphs (i), (ii), (iv),
(v) and (vi) of paragraph (c) above, Skadden, Arps, Slate, Meagher & Flom
(Illinois) may rely, as to matters of Maryland law, solely on the opinion
of Piper & Marbury, L.L.P. In giving the opinions set forth in
subparagraphs (i), (ii) and (iii) of paragraph (d) above, Hagan &
Associates may rely, as to matters of Maryland law, solely on the opinion
of Piper & Marbury, L.L.P. In giving the opinions set forth in subparagraph
(vi) of paragraph (c) above, Sidley & Austin may rely, as to matters of
Maryland law, solely on the opinion of Piper & Marbury, L.L.P.
The opinions of Skadden, Arps, Slate, Meagher & Flom (Illinois)
described in paragraphs (c) and (f) above, the opinion of Hagan &
Associates described in paragraph (d) above and the opinion of ___________
___ described in paragraph (e) above, shall be rendered to the Underwriters
at the request of the Companies or the Selling Shareholder, as the case may
be, and shall so state therein.
(h) 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 reasonably satisfactory to the
Underwriters, from KPMG Peat Marwick LLP, independent public accountants
with respect to the Companies and their respective subsidiaries, and
Deloitte & Touche LLP, independent auditors with respect to Galbreath,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letters
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
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(i) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and each of the shareholders and between you
and each of the officers listed under the caption "Management" in the
Prospectus and each of the directors of the Company relating to sales and
certain other dispositions of shares of Common Stock or certain other
securities, delivered to you on or before the date hereof, shall be in full
force and effect on the Closing Date.
(j) The Partnership Interests Exchange (as defined in the Prospectus
under the caption "Incorporation Transactions") shall have been consummated
in the manner set forth therein.
(k) The Common Stock shall have been registered under the Exchange
Act, and the Shares shall have been approved for listing on the New York
Stock Exchange, subject only to official notice of issuance.
(l) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by a member of the Selling
Shareholder, to the effect that the representations and warranties of the
Selling Shareholder contained in this Agreement are true and correct as of
the Closing Date and that the Selling Shareholder has complied, in all
material respects, 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 several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and sale of the Additional Shares and other matters related to the
sale of the Additional Shares.
7. Covenants of the Company and the Predecessor Partnerships. In
further consideration of the agreements of the Underwriters herein contained,
each of the Company and the Predecessor Partnerships (as defined in the
Prospectus) covenants with each Underwriter to do, or cause the Company to do,
all of the following:
(a) To furnish to you, without charge, three (3) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 5:00 p.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
paragraph (c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
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(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; provided that the Company shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which it is not so qualified or
to take any action that would subject it to general consent to service of
process in any jurisdiction in which it is not so subject.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending ____________, 1998 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) To use the net proceeds received by it from the sale of the
Shares in the manner specified in the Prospectus under "Use of Proceeds."
(g) That in connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date of
the effectiveness of the Registration Statement. Morgan Stanley will notify
the Company as to which Participants will need to be so restricted. The
Company will direct the transfer agent to place stop transfer restrictions
upon such securities for such period of time.
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(h) To pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
(i) The Company and its subsidiaries shall consummate the
transactions described in the Prospectus under the caption "Incorporation
Transactions" as soon as reasonably practicable.
Furthermore, the Company and the Predecessor Partnerships covenant
with Morgan Stanley that the Company will, and the Predecessor Partnerships will
cause the Company to, comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the Directed
Shares are offered by the Company in connection with the Directed Share Program.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Sellers and the
Predecessor Partnerships agree to pay or cause to be paid all expenses incident
to the performance of their obligations under this Agreement, including: (i) the
fees, disbursements and expenses of the Company's counsel and the Company's
accountants and counsel for the Selling Shareholder 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 (which fees and disbursements of counsel
shall not exceed $5,000), (iv) all filing 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 in connection with
the preparation and filing of the registration statement on Form 8-A relating to
the Common Stock and all costs and expenses incident to listing the Shares on
the New York Stock Exchange, (vi) the cost of printing certificates representing
the Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the 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
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representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, and (ix) 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 7(h),
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. The provisions of this Section shall not
supersede or otherwise affect any agreement that the Sellers and the Predecessor
Partnerships may otherwise have for the allocation of such expenses among
themselves.
9. Indemnity and Contribution. (a) The Company and, subject to
paragraph 9(i) below, the Predecessor Partnerships agree to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; provided, however,
that the foregoing indemnity 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 with Section 7(a) hereof.
(b) The Selling Shareholder 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
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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 the Selling Shareholder under the captions "Principal
and Selling Stockholders" and "Risk Factors--Shares Eligible for Future Sale"
furnished in writing by or on behalf of the Selling Shareholder expressly for
use in the Registration Statement, any preliminary prospectus, the Prospectus or
any amendments or supplements thereto; provided, however, that the foregoing
indemnity 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 with Section 7(a) hereof.
(c) The Company and, subject to paragraph 9(i) below, the Predecessor
Partnerships agree to indemnify and hold harmless Morgan Stanley and each
person, if any, who controls Morgan Stanley within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act ("Morgan Stanley
Entities"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material fact
contained in the prospectus wrapper material prepared by or with the consent of
the Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading; (ii) caused by the failure of any Participant to pay
for and accept delivery of the Shares which, immediately following the
effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, provided that, neither the Company
nor the Predecessor Partnerships shall be responsible under this subparagraph
(iii) for any losses, claim, damages or liabilities (or expenses relating
thereto) that are finally judicially determined to have resulted from the bad
faith or gross negligence of Morgan Stanley Entities.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Companies, the Selling Shareholder, 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 the Selling Shareholder within
the meaning of either Section 15 of the Securities
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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
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(e) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a), (b), (c) or (d) of this Section 9, 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 the Selling Shareholder and all persons, if any, who control
the Selling Shareholder 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 or for Morgan Stanley, 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 Shareholder and such control persons of the Selling Shareholder,
such firm shall be designated in writing by the Selling Shareholder. The
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indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second, third and fourth 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.
(f) To the extent the indemnification provided for in paragraph (a),
(b), (c) or (d) of this Section 9 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 (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the 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 Sellers
and the Predecessor Partnerships 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 Seller and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the Sellers
and the Predecessor Partnerships 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 Sellers
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this Section
9 are
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several in proportion to the respective number of Shares they have purchased
hereunder, and not joint.
(g) The Sellers, the Predecessor Partnerships 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
paragraph (f) of this Section 9. 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.
(h) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Shareholder 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, the Selling Shareholder or any person
controlling the Selling Shareholder, or the Company, its officers or directors
or any person controlling the Company and (iii) acceptance of and payment for
any of the Shares. Notwithstanding the foregoing, the representations and
warranties of the Predecessor Partnerships shall not survive the consummation of
the Offering (it being understood that the representations, warranties and the
other statements of the Company continue to remain in effect as provided
herein).
(i) Notwithstanding the foregoing provisions of this Section 9, the
obligations of the Predecessor Partnerships under this Section 9 is contingent
and shall become effective only upon a failure of the offering of the Firm
Shares to be consummated pursuant to the terms of this Agreement and, in the
absence of such a failure, the Predecessor Partnerships will have no liability
or obligation under the foregoing provisions (it being understood that the
absence of any obligation of the Predecessor Partnerships under this Section 9
shall not affect the obligations of the Company under this Section 9).
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., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the
27
<PAGE>
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.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 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 Shareholder 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 Shareholder. In any such
case either you or the relevant Sellers 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.
28
<PAGE>
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Company and the Predecessor Partnerships 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
reasonable 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.
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.
29
<PAGE>
Very truly yours,
LASALLE PARTNERS INCORPORATED
By_______________________________
Name:
Title:
DEL/LASALLE FINANCE COMPANY, L.L.C.
By_______________________________
Name:
Title:
LASALLE PARTNERS LIMITED PARTNERSHIP
By DEL-LPL LIMITED PARTNERSHIP,
its General Partner
By_______________________________
Name:
Title:
LASALLE PARTNERS MANAGEMENT LIMITED
PARTNERSHIP
By DEL-LPAML LIMITED PARTNERSHIP,
its General Partner
By_______________________________
Name:
Title:
30
<PAGE>
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
Montgomery Securities
Acting severally on behalf
of themselves and the
several U.S. Underwriters named
in Schedule I hereto.
By Morgan Stanley & Co. Incorporated
By
------------------------------
Name:
Title:
Morgan Stanley & Co. International Limited
William Blair & Company, L.L.C.
Montgomery Securities
Acting severally on behalf
of themselves and the
several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. International Limited
By
-------------------------------------
Name:
Title:
31
<PAGE>
SCHEDULE I
U.S. Underwriters
-----------------
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
Montgomery Securities
[NAMES OF OTHER UNDERWRITERS]
_________
Total U.S. Firm Shares 3,200,000
=========
<PAGE>
SCHEDULE II
International Underwriters
--------------------------
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. International Limited
William Blair & Company, L.L.C.
Montgomery Securities
[NAMES OF OTHER UNDERWRITERS]
_________
Total International Firm Shares 800,000
=========
<PAGE>
Exhibit A
---------
[Form of Lock-up Letter]
------------------------
__________, 1997
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
Montgomery Securities
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
William Blair & Company, L.L.C.
Montgomery Securities
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley"), Morgan Stanley & Co. International Limited ("MSIL"), William
Blair & Company, L.L.C. ("William Blair") and Montgomery Securities
("Montgomery") propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with LaSalle Partners Incorporated, a Maryland
corporation (the "Company"), providing for the public offering (the "Public
Offering") by the several Underwriters, including Morgan Stanley, MSIL, William
Blair and Montgomery (the "Underwriters"), of 4,000,000 (plus 600,000 shares
subject to the Underwriters' over-allotment option) shares (the "Shares") of the
common stock, par value $.01 per share, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, the undersigned will not, during the
period commencing on the date hereof and ending 180 days after the date of the
final prospectus relating to the Public Offering (the "Prospectus"), (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any
<PAGE>
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (provided that such shares
or securities are either now owned by the undersigned or are hereafter acquired
prior to or in connection with the Public Offering), or (2) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement, (b) transactions by any person other
than the Company relating to shares of Common Stock or other securities acquired
in open market transactions after the completion of the offering of the Shares,
(c) the distribution of shares of Common Stock by the Employee Partnerships (as
defined in the Underwriting Agreement) and Galbreath-LPL Holdings, LLC to their
respective partners or members, as the case may be; provided that any such
partners or members, as the case may be, agree to be bound by the foregoing
limitations, (d) the sale or other transfer of shares of Common Stock by DSA-
LSPL, Inc. and DSA-LSAM, Inc. to Dai-ichi Life (U.S.A.), Inc. or any one or more
of its direct or indirect wholly owned subsidiaries; provided that Dai-ichi Life
(U.S.A.), Inc. or any such subsidiaries agree to be bound by the foregoing
limitations, or (g) the pledge of shares of Common Stock as described in the
Prospectus by DEL/LaSalle Finance Company, L.L.C. and the Employee Partnerships.
In addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, the undersigned will not, during
the period commencing on the date hereof and ending 180 days after the date of
the Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
____________________________
(Name)
____________________________
(Address)
<PAGE>
Temporary Certificate - Exchangeable for Definitive Engraved Certificate -
When Ready for Delivery
COMMON COMMON
NUMBER SHARES
LA SALLE PARTNERS
Incorporated
INCORPORATED UNDER THE LAWS OF
THE STATE OF MARYLAND SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN
CHICAGO, ILLINOIS, OR NEW YORK, NEW YORK CUSIP 51802H 10 5
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER
SHARE, OF
LaSalle Partners Incorporated
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar
Witness the facsimile seal and the signatures of its duly authorized
officers S E A L
Dated
______________________ _____________________
______________________ _____________________
______________________ _____________________
SECRETARY PRESIDENT
Countersigned and Registered:
HARRIS Trust and Savings BANK
(CHICAGO)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
LA SALLE PARTNERS INCORPORATED
LaSalle Partners Incorporated (the "Corporation") shall furnish on request
and without charge a full statement of any designations, preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption of the stock of each class
which the Corporation is authorized to issue, and, in the case of preferred
stock or a special class in a series, the differences in the relative rights and
preferences between the shares of each series to the extent that they have been
set and the authority of the Board of Directors to set the relative rights and
preferences of a subsequent series.
---------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ______________________ Custodian _________________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with the
right of survivorship and not under Uniform Gifts to Minors Act
as tenants in common
__________________________________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value received, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________
| |
|_____________________|________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________ Shares
of Common Stock represented by the within Certificate and do hereby irrevocably
constitute and appoint ________________________________________________________
___________________________________________________________________ Attorney to
transfer the said Shares on the books of the within-named Corporation with full
power of substitution in the premises.
Dated _______________________________
[_] __________________________________________
[_] __________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: ______________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION, (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
Northern Bank Note Company
_______________________________________________________________________________
Phone approval securities returning a signed copy of the final approved proof
for our records.
Proof Prepared On Above Date
Proof Approved:
By ____________________________________________________________________________
Date __________________________________________________________________________
P.O. Box 608
LaGrange, Illinois 60525
708/482-3900
Fax 708/482-3332
_______________________________________________________________________________
<PAGE>
EXHIBIT 10.13
LASALLE PARTNERS INCORPORATED
STOCK COMPENSATION PROGRAM
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 1
Purpose 1
Purpose 1
Employers 1
Effective Date 1
Administrator 2
Notices 2
SECTION 2 3
Participation 3
Participation 3
Continuity of Participation 3
SECTION 3 5
Stock Compensation Allocations 5
Amount of SCA Credits 5
SCA Account and Vesting 6
Distribution Election 7
SECTION 4 9
Bonus Deferral Elections 9
Bonus Deferral Elections 9
Period for Which Deferral Election Effective 9
Distribution Elections 10
Participant's Accounts 10
Adjustment of Participants' Accounts 11
Company Stock and Investment Funds 12
Individual Investment Option 14
No Responsibility for Company Stock or Investment Decisions 15
Statement of Account 15
SECTION 5 17
Salary Deferral Elections 17
SECTION 6 18
Distribution of Accounts 18
Distributions 18
Pre and Post Retirement Age Distributions 18
Designation of Beneficiary 19
Withholding; Employment Taxes 20
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 7 21
Administration and Interpretation 21
SECTION 8 22
Miscellaneous 22
No Right to Company Assets; Limitations Related to Company Stock 22
No Employment Rights 22
Facility of Payment 23
Nonassignability 23
Effect on Other Benefits 24
Independence of Program 24
Responsibility For Legal Effect 25
Action by the Company 25
Successors, Acquisitions, Mergers, Consolidations 25
Gender and Number 25
Governing Laws 26
Claims Procedure 26
Committee 27
SECTION 9 29
Amendment and Termination 29
</TABLE>
-ii-
<PAGE>
LASALLE PARTNERS INCORPORATED
-----------------------------
STOCK COMPENSATION PROGRAM
--------------------------
SECTION 1
---------
Purpose
-------
1.1. Purpose. LASALLE PARTNERS INCORPORATED STOCK COMPENSATION
PROGRAM (the "program") has been established by LASALLE PARTNERS INCORPORATED
(the "company") to credit participants with amounts which may be applied toward
deemed shares of company stock, and to enable designated employees to elect to
defer a portion of their bonuses and other cash compensation, subject to the
terms of the program.
1.2. Employers. The program as set forth below shall apply to
eligible employees of the company and each subsidiary of the company which
adopts the program with the consent of the administrator. The company and each
subsidiary of the company which adopts the program with the administrator's
consent will be referred to as an "employer" and may be referred to collectively
as the "employers."
1.3. Effective Date. The "effective date" of the program as set
forth below is the closing date of the initial public offering of the company,
expected to occur on or about July 21, 1997.
<PAGE>
1.4. Administrator. The program will be initially administered by an
individual appointed by the Compensation Committee of the Board of Directors of
the company. The Compensation Committee may designate a committee as successor
to the administrator.
1.5. Notices. Any notice or document relating to the program which
is to be filed with the company may be delivered, or mailed by registered or
certified mail, postage prepaid, to ________________________, in care of
LaSalle Partners Incorporated, 200 E. Randolph Drive, Chicago, Illinois 60601.
-2-
<PAGE>
SECTION 2
---------
Participation
-------------
2.1. Participation. For the period beginning on the effective date
and for each subsequent calendar year, the administrator will designate before
the effective date and before the beginning of the calendar year those employees
who are to participate in the program. In addition, the administrator may
designate during a calendar year additional employees who are to participate in
the program. In general, employees covered by the program will be limited to a
select group of management and highly-compensated employees with expected annual
compensation of at least $100,000. An employee designated to participate in the
program for any calendar year will receive SCA credits and may make deferral
elections on the basis described below.
2.2. Continuity of Participation. A participant in the program who
separates from service with the company and all its subsidiaries and affiliates
will cease participation and will become entitled to distributions as described
in Section 6. However, the separation from service of an employee with one
employer which has adopted the program (as described in subsection 1.2) will not
interrupt the continuity of his
-3-
<PAGE>
participation if, concurrently with or immediately after such separation, he is
employed by one or more of the other employers which has adopted the program. A
participant who separates from service with all employers but remains in the
employ of a subsidiary or affiliate of the company which has not adopted the
program, will become entitled to distributions in accordance with Section 6. A
participant will separate from service upon the first to occur of the following:
(a) Retirement as defined by the administrator;
(b) Retirement on account of disability at any age, as determined by
a qualified physician selected by the administrator (a
participant will be considered disabled for purposes of the
program if, on account of a disability, he is no longer capable
of performing the duties assigned to him by his employer); or
(c) The participant's death; or
(d) Resignation or dismissal from the employ of all the employers
before retirement and for a reason other than disability.
-4-
<PAGE>
SECTION 3
---------
Stock Compensation Allocations
------------------------------
3.1. Amount of SCA Credits. Each year, beginning with the year of
the effective date, each participant will be credited under the program with a
stock compensation allocation ("SCA"). The amount of SCA credited to each
participant will be determined in accordance with the following table:
<TABLE>
<CAPTION>
Compensation Level (Actual) Stock Compensation Allocation
- -----------------------------------------------------------
of the
amount in
Over but under Minimum + x% excess of
<S> <C> <C> <C> <C>
$ 99,999 150,000 3,000 + 13 100,000
150,000 200,000 9,500 + 15 150,000
200,000 250,000 17,000 + 18 200,000
250,000 300,000 26,000 + 20 250,000
300,000 400,000 36,000 + 22 300,000
400,000 500,000 58,000 + 22 400,000
500,000 80,000 + 16 500,000
- ----------------------------------------------------------
</TABLE>
At any time, the administrator may adjust the amounts and percentages set forth
above. As of each December 31 after the effective date, the amount of each
participant's SCA credit will be determined and the amount will be credited to
the participant's SCA account under the program. The amount so credited will,
according to the participant's written election, be applied among options made
available by the administrator
-5-
<PAGE>
or, at the election of the participant, will be converted to a deemed investment
consisting of shares of company stock (as defined in subsection 4.6). Shares of
company stock will be credited to a participant's SCA account on the terms set
forth in subsection 4.6, including a deemed purchase discount of 15%. Each
participant's election in accordance with the preceding must be made in writing
and filed with the company at the time prescribed by the administrator. A
participant's "compensation" for purposes of this subsection shall include such
items of remuneration as are determined by the administrator and, for the
calendar year which includes the effective date, a participant's compensation
will include amounts received from the company and from its predecessor.
3.2. SCA Account and Vesting. A "SCA account" will be maintained in
the name of each participant under the program, and each SCA account will be
credited as provided in subsection 3.1. SCA accounts will be reduced by amounts
applied toward options made available by the administrator, and SCA accounts
will be adjusted from time to time as provided in subsection 4.5. If for any
year a participant's SCA account is credited with shares of company stock in
accordance with subsection 3.1, shares of company stock will be credited by
taking into account a deemed purchase discount of 15 percent, as spec-
-6-
<PAGE>
ified in subsection 4.6. For each year that a SCA account is credited with
shares of company stock, a "discount subaccount" will also be established which
reflects the number of shares represented by the 15 percent deemed purchase
discount. The number of shares of company stock credited to the discount
subaccount maintained for each year is subject to the vesting schedule in the
next sentence. If the participant separates from service with the company within
three years from the date as of which company stock is credited to the
participant's discount subaccount, the amount then credited (as adjusted under
subsection 4.5) to the discount subaccount will be forfeited, unless the
participant's separation is due to one of the following:
(a) death;
(b) total and permanent disability;
(c) retirement (as defined by the administrator), provided the
participant announces his retirement on or before the date
company stock is credited.
3.3. Distribution Election. In accordance with subsection 3.1,
company stock will be credited as a deemed investment to the SCA accounts of
certain participants. Each such participant may, but need not, make an election
of the date on which the amount so credited (together with any invest-
-7-
<PAGE>
ment gains or losses thereon) will be distributed, subject to the vesting
requirements of subsection 3.2. Such date shall be referred to as the
"distribution date" and shall occur no later than March 15 (based on the prior
December 31 valuation) following one of the following dates: December 31 of the
second, third, fourth, fifth, sixth, seventh, eighth, ninth or tenth calendar
year after the calendar year for which a SCA account credit was made. The
distribution date, once elected by the participant, shall be irrevocable,
subject only to sub section 6.2. If for any calendar year a participant does
not make a distribution election in accordance with this subsection, the amount
of company stock credited to his SCA account for that year (to the extent
vested under subsection 3.2) will be distributed as soon as practicable after
such amount becomes vested in accordance with subsection 3.2.
-8-
<PAGE>
SECTION 4
---------
Bonus Deferral Elections
------------------------
4.1. Bonus Deferral Elections. In order to defer a portion of his
bonus for any calendar year, a participant with annual compensation not greater
than $225,000 may irrevocably elect to defer from his bonus an amount not to
exceed 10 per cent of his total compensation for that year. The amount which
can be deferred by a participant under the preceding sentence shall be reduced
by the amount of the participant's SCA credit for that year. A participant
must make his bonus deferral election in advance by signing a deferral
agreement and filing it with the administrator no later than the date specified
by the administrator. A participant's bonus deferral election filed with the
administrator is irrevocable on and after the administrator's deadline for the
election. The administrator is authorized to modify this subsection to:
(a) allow other participants to make bonus deferral elections;
(b) change the rate of bonus deferral permitted; or
(c) delete the reduction for SCA credit.
4.2. Period for Which Deferral Election Effective.
A participant's deferral election under subsection 4.1 and
-9-
<PAGE>
under Section 5 shall remain in effect only for the calendar year specified in
the deferral agreement. No deferral election shall be effective for more than
one calendar year. A participant must file a separate deferral election at the
time prescribed by the administrator in order to make deferrals for that year.
4.3. Distribution Elections. Each deferral election made by a
participant under subsection 4.1 and Section 5 may, but need not, include an
election of the date on which the amount of such deferral (together with any
investment gains or losses thereon) will be distributed. As provided in
subsection 3.3, participant may also elect a distribution date for the amount of
company stock credited each year to the participant's SCA account. Such date
shall be referred to as the "distribution date" and shall occur no later than
March 15 (based on the prior December 31 valuation) following one of the
following dates: the second, third, fourth, fifth, sixth, seventh, eighth, ninth
or tenth calendar year after the calendar year to which the deferral election
relates. The distribution date, once elected by the participant, shall be
irrevocable, subject only to subsection 6.2.
4.4. Participant's Accounts. The administrator shall maintain in
the name of each participant bookkeeping
-10-
<PAGE>
accounts to be known as the participant's "SCA account" and his "deferral
account." A participant's accounts shall include a subaccount for each calendar
year that amounts are credited on behalf of the participant. Each such
subaccount shall reflect (i) the amount credited during that year and (ii)
investment gains or losses on the investments deemed credited to those accounts.
SCA credits and deferred amounts shall be credited to subaccounts as of the date
bonuses or cash compensation would otherwise have been paid to the participant.
Subaccounts will be adjusted from time to time to reflect investment gains and
losses, as provided in subsection 4.5.
4.5. Adjustment of Participants' Accounts. As of each December 31
(that date is referred to below as an "accounting date"), the administrator
shall:
(a) First, charge to the proper accounts all payments or
distributions made since the last preceding accounting date that
have not been charged previously;
(b) Next, credit participants' accounts with SCA credits and other
amounts deferred which were applied to company stock;
(c) Next, as to any deferrals other than those in (b) above, credit
participants' accounts with a portion of the amounts deferred on
behalf of the participant since the last preceding accounting
date, to equitably reflect that deferrals
-11-
<PAGE>
were made from time to time during the accounting period;
(d) Next, credit participants' accounts with their pro rata share of
any increase or charge such accounts with their pro rata share of
any decrease in the adjusted net worth (as defined below) of each
deemed investment relating to such accounts;
(e) Next, allocate and credit deferred amounts, not already credited
under subparagraph (c) above, that are to be credited as of that
date.
The "adjusted net worth" of a deemed investment or other investment fund as at
any date means the then net worth of such investment fund as determined by the
administrator. The administrator may specify additional "accounting dates" from
time to time on a uniform basis.
4.6. Company Stock and Investment Funds. SCA credits and other
deferred amounts under the program will, as elected by the participant, be
credited as a deemed investment consisting of shares of common stock of LaSalle
Partners Incorporated (the "company stock"). With respect to any such deemed
investment credited to a participant's SCA account, company stock will be
credited to a participant's account taking into account a deemed purchase
discount of 15 percent. The price of company stock credited to a participant's
account in accordance with the preceding sentence will be determined by the
adminis-
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trator, taking into account the average of the closing prices of the company
stock on the New York Stock Exchange for a period of 20 consecutive trading
days, with the last of those trading days to occur not later than March 31
following the December 31 as of which SCA account credits are made. The
administrator may also allow participants to elect one or more investment funds
for the investment of all or a portion of the amounts deferred by the
participant under Section 4 or 5 of the program (but such investment fund
elections will not apply to SCA accounts). Each such election shall be made at
such time, in such manner and with respect to such investment funds as the
administrator shall determine, and shall be effective only in accordance with
such rules as the administrator shall establish. Prior to an accounting date, a
participant may elect in writing that all or part of his interest in an
investment fund be liquidated and the proceeds thereof transferred to one or
more of the other investment funds, in accordance with rules established from
time to time by the administrator. The deemed investments in company stock, the
investment funds described in this subsection and the individual investment
option in subsection 4.7 are for recordkeeping purposes only and do not allow
participants to direct any company or trust assets, and this subsection does not
create in any participant any rights greater than those described in subsection
8.1. If there is a
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deemed purchase or sale of the common stock of the company, then it (i) shall be
subject to the company's policies which restrict trading in company securities,
and (ii) the election shall not be given effect until such policies would allow
the individual to purchase and sell company securities. Amounts deemed invested
in the common stock of the company shall be credited with an amount equal to the
dividends earned on such deemed investment.
4.7. Individual Investment Option. In addition to the investment
described in subsection 4.6, if the administrator decides to make this option
available, amounts credited to a participant's deferral account may be deemed
credited to an individual investment option (as hereinafter defined) chosen by
such participant. The investment experience of each individual investment option
will be calculated by reference to the closing price (as hereinafter defined) or
net asset value of amounts deemed credited to such individual investment option.
In addition, the amount credited to each individual investment option will be
reduced by an amount equal to the brokerage or other transaction costs that
would have been incurred in connection with the deemed purchase or sale of an
investment. The individual investment option will consist of a deemed investment
in any mutual fund, money market fund,
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common stock, preferred stock or other security so long as such security is
listed for trading on a national securities exchange or the National Association
of Securities Dealers Automated Quotation System. All money market funds which
are elected as investment options must be money market funds which invest solely
in tax-exempt securities. A participant may change his investment option by
election made in accordance with subsection 4.6. The term "closing price" with
respect to a security shall mean (i) the closing sale price of such security if
such security is traded on a national securities exchange, or (ii) if such
security is not traded on a national securities exchange, the average of the
highest bid and the lowest asked prices for such security.
4.8. No Responsibility for Company Stock or Investment Decisions.
Responsibility for the consequences of the company stock investment, as well as
for all decisions on investment funds and options, belongs solely to the
participant, and the company (including its employees, officers and agents)
provides no advice with respect to, and assumes no responsibility for, any
consequences of the company stock investment or of a participant's investment
elections.
4.9. Statement of Account. As soon as practicable after the end of
each calendar year, the administrator shall
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furnish each participant with a statement of the balance credited to the
participant's accounts as at the end of that year.
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SECTION 5
---------
Salary Deferral Elections
-------------------------
This Section 5 does not take effect until the administrator selects
an effective date. At the time authorized by the administrator, an employee
designated as a participant for a calendar year may irrevocably elect to defer a
portion of his salary for that year. All salary deferral elections are subject
to minimum amounts established by the administrator. A participant's "salary"
means the participant's total base pay as paid by an employer hereunder, and for
purposes of a deferral election a participant's rate of base pay on January 1
of any year shall be considered to remain at the same rate during that calendar
year. A participant must make his salary deferral election in advance by
signing a salary deferral agreement and filing it with the administrator no
later than the December 31 which precedes the calendar year to which the
election relates. A participant's salary deferral election filed with the
administrator is irrevocable on and after the deadline for the election. Salary
deferrals will be credited to participants' deferral accounts as described in
subsection 4.4 and will be subject to the same distribution elections available
under subsection 4.3.
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SECTION 6
---------
Distribution of Accounts
------------------------
6.1. Distributions. Subject to subsection 6.2, amounts credited and
deferred under this program for each calendar year (and investment gains and
losses thereon) shall be distributed in a lump sum to the participant on the
applicable distribution date elected by the participant; provided, however,
that if on any distribution date, any investment gains or losses cannot then be
determined, such distribution will be delayed until the accounting steps
described in subsection 4.5 have been completed. Distributions may be made in
cash, company stock or other property, as determined by the administrator.
6.2. Pre and Post Retirement Age Distributions. If a participant
separates from service with the employers prior to attainment of retirement age
(as defined by the administrator), the entire balance in the participant's
deferral account shall be distributed to him in a lump sum in cash on or about
March 15 (the "early distribution date") following the calendar year in which
the participant separates from service, unless the administrator in its sole
discretion determines that distributions shall occur on the distribution dates
elected by the
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participant. If a participant separates from service with the employers on or
after attainment of retirement age (as defined by the administrator), the
balances in the participant's deferral account shall be distributed to the
participant on the applicable distribution dates elected by the participant,
unless the administrator in its sole discretion determines that distribution
shall be made in a single sum payment. Distribution shall be made to the
participant or, in the event of his death, to his beneficiary.
6.3. Designation of Beneficiary. A participant may designate a
beneficiary under this program by filing a written notice with the administrator
in such form as it requires. A participant may from time to time change his
designated beneficiary without the consent of such beneficiary by filing a new
designation in writing with the administrator. If no designation under this
program is in effect at the death of the participant, the beneficiary shall be
the spouse of the participant at the time of his death or, if no spouse is
living at the death of the participant, the representative of the participant's
estate. A participant's beneficiary designation form may specify whether payment
is to be made to the beneficiary in a single sum payment or in installments
over a period not to exceed ten years.
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5.4. Withholding; Employment Taxes. To the extent required by law in
effect at the time distribution is made from the program, the employers shall
withhold any taxes required to be withheld by federal, state or local
governments.
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SECTION 7
---------
Administration and Interpretation
---------------------------------
The administrator shall administer and interpret the program, and any
interpretation by the administrator shall be final and binding upon participants
and beneficiaries. The administrator may adopt such rules and regulations
relating to the program as it deems necessary or advisable. The administrator
may delegate administrative responsibilities to advisors or other persons who
may or may not be employees of the company and may rely upon information or
opinions of legal counsel or experts selected to render advice with respect to
the program. If the administrator is a participant, he may not decide or
determine any matter or question concerning his benefits under the program that
he would not have the right to decide or determine if he were not the
administrator. If the administrator is a committee, the committee will act in
accordance with subsection 8.13.
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SECTION 8
---------
Miscellaneous
-------------
8.1. No Right to Company Assets; Limitations Related to Company Stock.
No participant or other person shall acquire by reason of the program any right
in or title to any assets, funds or property of the employers whatsoever
including, without limiting the generality of the foregoing, any specific funds,
assets or other property which the employers, in their sole discretion, may set
aside in anticipation of a liability hereunder. Any benefits which become
payable hereunder shall be paid from the general assets of the employers. A
participant shall have only a contractual right to the amounts, if any, payable
hereunder to that participant. The employers' obligations under this program are
not secured or funded in any manner.
8.2. No Employment Rights. Nothing herein shall constitute a contract
of continuing service or in any manner obligate the company or any of its
subsidiaries to continue the employment of any participant, or obligate any
participant to continue in the employment of the company or any of its
subsidiaries, and nothing herein shall be construed as fixing or regulating the
compensation payable to a participant.
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<PAGE>
8.3. Facility of Payment. When a person entitled to benefits under
the program is under legal disability, or, in the administrator's opinion, is in
any way incapacitated so as to be unable to manage his financial affairs, the
administrator may direct payment of benefits to such person's legal
representative, or to a relative or friend of such person for such person's
benefit, or the administrator may direct the application of such benefits for
the benefit of such person. Any payment made in accordance with the preceding
sentence shall be a full and complete discharge of any liability for such
payment under the plan.
8.4. Nonassignability. No participant or other person shall have any
right to commute, sell, assign, pledge, anticipate, mortgage or otherwise
encumber, transfer or convey in advance of actual receipt the amounts, if any,
payable hereunder. No amounts payable hereunder shall, prior to actual payment,
be subject to claims of creditors, seizure or sequestration for the payment of
any debts, judgments, alimony, domestic relations order or separate maintenance
owed by the participant or any other person, or be transferable by operation of
law in the event of the participant's or any other person's bankruptcy or
insolvency. Notwithstanding the foregoing, if an estate or trust is a
beneficiary entitled to
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distributions from the program upon the death of the participant, the
representatives of the estate or the trustees of the trust may assign the right
to receive such payments to the persons, estates or trusts beneficially entitled
thereto, and the administrator may rely conclusively and without any liability
on the certification.
8.5. Effect on Other Benefits. Except as provided below in this
subsection, the participant's compensation for purposes of calculating his
awards and benefits under any employee benefit plan or program maintained by the
company shall not be reduced on account of deferrals under this program.
However, amounts deferred for more than one year under this program shall not be
included when calculating a participant's benefits or contributions under any
401(k) plan, 423(b) plan or other plan sponsored by the company which is
qualified under Section 401(a) of the Internal Revenue Code. Except for amounts
deferred one year or less, distributions made from this program shall be
excluded from a participant's compensation in the years distributed for purposes
of calculating contributions, awards and benefits under any employee benefit
plan or program maintained by the company.
8.6. Independence of Program. Except as otherwise expressly provided
herein, the program shall be independent of,
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and in addition to, any employment agreement or other plan or rights that may
exist from time to time between an employer and a participant in the program.
8.7. Responsibility For Legal Effect. No representations or
warranties, express or implied, are made by the employers or the administrator
and neither the employers nor the administrator assumes any responsibility
concerning the legal, tax or other implications or effects of the program.
8.8. Action by the Company. Any action required or permitted to be
taken under the program by the company shall be by one or more officers
designated by the Board of Directors of the company.
8.9. Successors, Acquisitions, Mergers, Consolidations. The terms and
conditions of the program shall inure to the benefit of and bind the employers,
the participants, their successors, assigns and personal representatives.
8.10. Gender and Number. Wherever appropriate herein, the masculine
may mean the feminine and the singular may mean the plural or vice versa.
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8.11. Governing Laws. This program shall be construed and
administered according to the laws of the State of Illinois.
8.12 Claims Procedure. The company will provide notice in writing to
any participant or beneficiary whose claim for benefits under the plan is
denied, and the company shall afford such participant or beneficiary a full and
fair review of its decision if so requested. The company has discretionary
authority and responsibility to construe and interpret the provisions of the
plan and make factual determinations thereunder, including the power to
determine the rights or eligibility of employees or participants and any other
persons, and the amounts of their benefits under the plan, and to remedy
ambiguities, inconsistencies or omissions, and each such determination by the
company shall be binding on all parties. Any interpretation of the provisions of
the plan and any decisions on any matter within the discretion of the company
made by the company in good faith shall be binding on all persons. Any
misstatement or other mistake of fact shall be corrected when it becomes known
and the company shall make such adjustment on account thereof as it considers
equitable and practicable.
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<PAGE>
8.13. Committee. In the event a committee is appointed to serve as
administrator under this program, the following provisions will apply:
(a) A committee member by writing may delegate any or all of his
rights, powers, duties and discretions to any other member or to
an alternate, with the consent of the latter.
(b) The committee members may act by meeting or by writing signed
without meeting, and may sign any document by signing one
document or concurrent documents.
(c) An action or a decision of a majority of the members of the
committee as to a matter shall be as effective as if taken or
made by all members of the committee.
(d) If, because of the number qualified to act, there is an even
division of opinion among the committee members as to a matter,
a disinterested party selected by the committee shall decide the
matter and his decision shall control.
(e) Except as otherwise provided by law, no member of the committee
shall be liable or responsible for an act or omission of the
other committee members in which the former has not concurred.
(f) The certificate of the secretary of the committee or of a
majority of the committee members that the committee has taken
or authorized any action shall be conclusive in
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favor of any person relying on the certificate.
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SECTION 9
---------
Amendment and Termination
-------------------------
The company reserves the right, in its sole discretion, to discontinue
or completely terminate the program at any time. If the program is discontinued
with respect to future deferrals, participants' account balances shall be
distributed on the distribution dates elected by them, unless the administrator
designates an earlier distribution date. As of the date designated by the
administrator following the date of complete termination, each participant shall
receive distribution of his entire deferral account balance as if his elected
distribution dates had occurred. The program may be amended by a written
instrument executed by the company, provided that an amendment of the program
may not reduce the balance in a participant's deferral account as of the date
the amendment is adopted.
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C E R T I F I C A T E
---------------------
I, _______________________________, Secretary of LaSalle Partners
Incorporated hereby certify that the foregoing is a correct copy of the LaSalle
Partners Incorporated Stock Compensation Program, effective as of the effective
date designated in subsection 1.3 of the plan.
Dated this ___ day of ___________________, 1997.
--------------------------------------
Secretary as Aforesaid
(Corporate Seal)
<PAGE>
EXHIBIT 21.01
1. LaSalle Partners Management Services, Inc., a Maryland corporation
2. LaSalle Partners Corporate & Financial Services, Inc., a Maryland
corporation
3. LaSalle Advisors Capital Management, Inc., a Maryland corporation
4. LaSalle Partners International, Inc., a Delaware corporation
5. LaSalle Partners (Illinois) Limited Partnership, an Illinois limited
partnership
6. LaSalle Advisors Limited Partnership, a Delaware limited partnership
7. LaSalle Construction Limited Partnership, a Delaware limited partnership
8. LaSalle Partners (New York) Limited Partnership, a New York limited
partnership
9. LSP Services (California) Limited Partnership, a California limited
partnership
10. LaSalle Partners International, an unlimited liability company,
incorporated in England and Wales
11. LaSalle Partners Management Limited Partnership, a Delaware limited
partnership
12. LaSalle Partners Management (Illinois) Limited Partnership, an Illinois
limited partnership
13. LSPAM (California) Limited Partnership, a California limited partnership
14. LaSalle Partners Limited Partnership, a Delaware limited partnership
15. ABKB/LaSalle Securities Limited Partnership, a Maryland limited partnership
<PAGE>
EXHIBIT 23.01
The Board of Directors
LaSalle Partners Incorporated:
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
KPMG PEAT MARWICK LLP
Chicago, Illinois
July 11, 1997
<PAGE>
Exhibit 23.02
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-25741 of LaSalle Partners Incorporated on Form S-1 of our report regarding
The Galbreath Company and Affiliates dated April 7, 1997 (except for Note 9 as
to which the date is April 22, 1997), appearing in the Prospectus, which is part
of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Columbus, Ohio
July 11, 1997
