AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1997
REGISTRATION NO. 333
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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. ( )
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Aggregate
Title of each Class of Offering Amount of
Securities to be Registered Price(1) Registration Fee
Common Stock, $.01 par value per
share . . . . . . . . . . . . . . . $92,000,000 $27,879.00
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of
1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, 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.
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 APRIL 24, 1997
SHARES
LA SALLE PARTNERS
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. 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 $ and $ . See "Underwriters" for a
discussion of the factors to be considered in
determining the initial public offering price.
Application will be made to list the Common Stock on the New York Stock
Exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 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
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
Per Share . . . . . . . . . . . $ $ $
Total(3) . . . . . . . . . . . $ $ $
_________________________
(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 $ .
(3) The Selling Stockholder has granted to the Underwriters an
option, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of additional
shares of Common Stock at the price to public, less underwriting
discounts and commissions, for the purpose of covering
over-allotments, if any. If the Underwriters exercise such
option in full, the total price to public, underwriting
discounts and commissions, and proceeds to the 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 & CO. WILLIAM BLAIR & COMPANY
INCORPORATED
, 1997
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.
TABLE OF CONTENTS
PAGE PAGE
Prospectus Summary . . . . 3 Business . . . . . . . . . 36
Risk Factors . . . . . . . 8 Management . . . . . . . . 51
Background of the Company . 15 Principal Stockholders . . 57
Incorporation Transactions. 16 Certain Transactions . . . 58
Use of Proceeds . . . . . . 17 Description of Capital Stock 60
Dividend Policy . . . . . . 17 Shares Eligible for Future
Capitalization . . . . . . 18 Sale . . . . . . . . . . 63
Dilution . . . . . . . . . 19 Underwriters . . . . . . . 66
Selected Financial Data . . 20 Legal Matters. . . . . . . 68
Pro Forma Consolidated Experts . . . . . . . . . . 68
Financial Statements . . . 21 Additional Information . . 68
Management's Discussion and Index to Financial
Analysis of Financial Statements. . . . . . . . . F-1
Condition and Results
Of Operations . . . . . . 23
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.
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
overallot 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."
[Inside Front Cover]
Diagram depicting organizational structure and representative
clients.
[Inside Front Cover Foldout]
Map of United States depicting locations of
LaSalle Partners' principal offices and
pictures of buildings managed.
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 LaSalle Partners
Limited Partnership ("LPL") and LaSalle Partners Management Limited
Partnership (together with LPL, the "Predecessor Partnerships") to
the Company and the transfer of the operations of the Predecessor
Partnerships to subsidiaries of LaSalle Partners Incorporated,
described under the caption "Incorporation Transactions," which will
be completed simultaneously with 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. Throughout this
Prospectus, except where the context otherwise requires, references
to the "Company" or "LaSalle Partners" mean 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. The Company 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 17 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 and earnings before interest, taxes, depreciation and
amortization of $32.3 million, representing an increase of 15.9% and
32.7%, respectively, from the prior year's results.
On April 22, 1997, The Galbreath Company ("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 merger expands the Company's geographic presence, adds additional
client relationships and offers 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 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 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 17 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. The Company 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 % of the outstanding
Common Stock and total employee ownership will be %.
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. The Management Services group had property and facility
management responsibility for approximately 132 million square feet
of commercial space as of December 31, 1996.
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.
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 December 31, 1996, the Company had approximately
$15.2 billion of real estate assets under management, of which
approximately $2.3 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.
THE OFFERING
Common Stock offered . . . . . shares
Common Stock to be outstanding
after the Offering . . . . shares (1)
Use of proceeds . . . . . . . . To repay certain outstanding
indebtedness of the
Company. See "Use of
Proceeds."
Proposed New York Stock Exchange
symbol . . . . . . . . . .
________________
(1) Excludes an aggregate of: (i) 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) additional shares of Common
Stock reserved for future grants or awards under the Company's
1997 Stock Incentive Plan. See "Management 1997 Stock Incentive
Plan."
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
1992 1993 1994 1995 1996 AS ADJUSTED (1)
--------- ---------- ---------- --------- ---------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Total revenue........................ $103,334 $104,049 $126,918 $151,827 $175,967
Total operating expenses............. 84,722 87,036 108,903 131,711 149,066
------- ------- ------- ------- -------
Operating income..................... 18,612 17,013 18,015 20,116 26,901
Interest expense..................... 5,590 5,257 5,159 3,806 5,730
Earnings before provision for income 13,022 11,756 12,856 16,310 21,171
taxes................................ 355 300 554 505 1,207
------- ------- --------- ------- ------
Net provision for income taxes....... $12,667 $11,456 $ 12,302 $15,805 $19,964
====== ====== ======== ====== ======
Net earnings.........................
Pro forma:
Net earnings per share..............
Shares used in computation of pro
forma net earnings per share (2)..
OTHER DATA:
EBITDA(3)............................ $21,034 $19,544 $20,866 $24,356 $32,317
Investments under management(4)...... $6,500,000 $7,000,000 $10,700,000 $11,500,000 $15,200,000
Total square feet-facility
management (5)....................... 2,400 50,600 50,600 67,600 68,600
Total square feet under management
(6).................................. 47,000 98,300 102,400 125,700 131,600
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
PRO FORMA
ACTUAL AS ADJUSTED(7)
------ --------------
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C>
Cash and cash equivalents........................................................................ $ 7,207
Total assets..................................................................................... 156,614
Long-term debt (8)............................................................................... 55,551
Total liabilities................................................................................ 132,367
Partners' capital and stockholders' equity....................................................... 24,247
</TABLE>
_________________________
(1) As adjusted to give effect to 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
$ per share and the receipt and application of the net
proceeds therefrom, as though they had occurred on January 1,
1996. See "Use of Proceeds," "Background of the Company" and
"Incorporation Transactions."
(2) Includes the shares of Common Stock to be issued in
connection with the Incorporation Transactions and the
shares of Common Stock offered by the Company hereby.
(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. EBITDA is
widely used in the real estate industry as a measure of
operating performance and ability to service debt. 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.
(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.
(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 Incorporation Transactions
and the sale of the shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of
$ per share and the receipt and application of the net
proceeds therefrom, as though they had occurred on December
31, 1996. See "Use of Proceeds," "Background of the Company"
and "Incorporation Transactions."
(8) See Note 7 to Notes to the Predecessor Partnerships' Combined
Financial Statements.
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. 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 38% of the 132 million square feet under the
Company's property management and leasing agreements, and
approximately 38% of the $12.9 billion in private real estate
assets under the Company's investment management agreements, 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.
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 3 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 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 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.
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
Discussions 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."
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
shares of Common Stock outstanding. The shares sold in
the Offering 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 shares to be held by the
stockholders of the Company immediately prior to the Offering are
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 shares of Common Stock underlying options
which the Company expects to award to certain employees 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. 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 and DEL-LPAML Limited Partnership, limited
partnerships which are comprised of approximately 200 of the
Company's employees (the "Employee Partnerships"), 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 shares of Common Stock to be
received by DEL/LaSalle in connection with the Incorporation
Transactions and shares of Common Stock held by the Employee
Partnerships, representing an aggregate of % 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 been granted certain
registration rights for its shares of Common Stock. DEL/LaSalle
has granted the Underwriters a 30-day option to purchase up to
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.
If DEL/LaSalle defaults in the repayment of the Dresdner Note or
interest thereon, 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 % of
the Company's outstanding shares of Common Stock (approximately
% if the Underwriters' over-allotment option is exercised in
full). 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 held by the Employee
Partnerships is voted in accordance with the direction of its
general partners, entities controlled by 11 directors, officers
and employees of the Company, including Messrs. Scott, Spoerri,
Cummings, Esler, Rose and Webb and Ms. Thurber. See "Principal
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 application will be made to list the
Common Stock on the New York Stock Exchange, 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 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 issue up to shares of preferred stock and
up to shares of undesignated Common Stock and to
determine the price, rights, preferences and privileges of those
shares 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 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 make to its stockholders. See
"Dividend Policy."
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, purchasers of shares of
Common Stock in the Offering will incur immediate and substantial
dilution in net tangible book value per share. See "Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act. 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" within
the meaning of Section 27A of the Securities Act. 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. The Company undertakes no obligation to
publicly release any updates or revisions to these forward-
looking statements to reflect any future events or circumstances.
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
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. See "Business Galbreath Acquisition."
The Company was incorporated in Maryland in April 1997 and
will succeed to the business of the Predecessor Partnerships
simultaneously with the closing of the Offering. See
"Incorporation Transactions." 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 17 United States cities and in London,
Paris, Mexico City and Beijing and has over 300 property and
other offices throughout the United States.
INCORPORATION TRANSACTIONS
Simultaneously with the closing of the Offering, pursuant
to an agreement among the partners, each of the general and
limited partners of the Predecessor Partnerships (the Employee
Partnerships, DEL/LaSalle and Dai-ichi) will contribute all of
their respective general and limited partnership interests (the
"Partnership Interests Contribution") in the Predecessor
Partnerships to the Company in exchange for an aggregate of
shares of Common Stock. The Predecessor Partnerships will
then contribute, among other things, substantially all of their
respective assets and liabilities (the "Asset Contributions")
relating to: (i) management services to LaSalle Management
Services, Inc. ("LMS") in exchange for all of the outstanding
shares of common stock of LMS; (ii) corporate and financial
services to LaSalle Corporate & Financial Services, Inc. ("LCFS")
in exchange for all of the outstanding shares of common stock of
LCFS; and (iii) investment management to LaSalle Investment
Management, Inc. ("LIM") in exchange for all of the outstanding
shares of common stock of LIM. Following the Asset
Contributions, the Predecessor Partnerships will distribute the
Common Stock of LMS, LCFS and LIM to the Company and dissolve.
The Partnership Interests Contribution 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 Incorporation
Transactions. In connection with the Incorporation Transactions,
the Company will amend and restate its the Restated Articles of
Incorporation. See "Description of Capital Stock."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the
shares of Common Stock offered hereby (assuming an
initial public offering price of $ per share), after
deducting estimated underwriting discounts and commissions and
estimated expenses of the Offering payable by the Company, are
estimated to be approximately $ 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 an aggregate
of approximately $37.2 million of 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 December 31, 1996, the principal
amount of borrowings under the Long-Term Facility was
approximately $27.4 million. Upon completion of the Offering,
the Company intends to use its borrowing capacity and cash
generated from operations 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 make to
its stockholders.
CAPITALIZATION
The following table sets forth the pro forma short-term debt
and capitalization of the Company at December 31, 1996, as
adjusted to give effect to the Incorporation Transactions as if
such transactions had occurred on December 31, 1996, and as
further adjusted to give effect to the sale of shares of
Common Stock offered hereby at an assumed initial public offering
price of $ 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>
DECEMBER 31, 1996
PRO FORMA
PRO FORMA AS ADJUSTED
(IN THOUSANDS, EXCEPT SHARE DATA)
Short-term debt:
<S> <C> <C>
Borrowings under short-term credit facility........................... $ 6,500
Current maturities of long-term debt.................................. 9,064
------- --------
Total short-term debt.............................................. $ 15,564 $
======= ========
Long-term debt:
Long-term credit facility, less current maturities(1) $ 21,445 $
Subordinated loans, less current maturities 34,106
------- --------
Total long-term debt, less current maturities 55,551
------- --------
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, 50,000,000 shares
authorized; shares issued and outstanding pro forma;
shares issued and outstanding pro forma as adjusted (2) ..........
Undesignated Common Stock, $.01 par value per share,
50,000,000 shares authorized; no shares issued and
outstanding..........................................................
Additional paid-in capital.............................................
Retained earnings...................................................... --
------- --------
Total stockholders' equity.......................................... 25,093
-------- --------
Total capitalization....................................... $ 80,644 $
======== ========
</TABLE>
(1) See Note 7 to Notes to the Predecessor Partnerships'
Combined Financial Statements.
(2) Excludes an aggregate of: (i) 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) additional shares of Common
Stock reserved for future grants or awards under the
Company's 1997 Stock Incentive Plan. See "Management 1997
Stock Incentive Plan."
DILUTION
The pro forma net tangible book value of the Company as of
December 31, 1996 (as adjusted to give effect to the
Incorporation Transactions) was $ million, or $ per share
of Common Stock. Pro forma net tangible book value 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 Incorporation Transactions had taken place on
December 31, 1996. Without taking into account any changes in
such net tangible book value after December 31, 1996, other than
to give effect to the sale of the shares of Common Stock
offered hereby (at an assumed initial public offering price of
$ per share) and the receipt and application of the net
proceeds therefrom, pro forma net tangible book value of the
Company as of December 31, 1996 would have been approximately
$ million, or $ per share. This represents an immediate
increase in net tangible book value of $ per share to the
current stockholders of the Company and an immediate dilution in
net tangible book value of $ per share to purchasers of
Common Stock in the Offering. The following table illustrates
this per share dilution.
Assumed initial public offering price per share. . . . . . . . $
Pro forma net tangible book value per share at December
31, 1996 $
Increase per share attributable to purchasers in the
Offering . . . . . . . . . . . . . . . ____
Pro forma net tangible book value per share after the
Offering . . . . . . . . . . . . . . .
Dilution per share to purchasers in the Offering $
The following table summarizes on a pro forma basis, as of
December 31, 1996, the difference between the existing
stockholders and the purchasers of shares in the Offering (at an
assumed initial public offering price of $ 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>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders....... % $ % $
New investors...............
Total...................... 100% $ 100%
========= ==== ========= ===
</TABLE>
The foregoing calculations exclude an aggregate of:
(i) 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) additional
shares of Common Stock reserved for future grants or awards under
the Company's 1997 Stock Incentive Plan. See "Management 1997
Stock Incentive Plan."
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 unaudited pro forma, as adjusted, statement of
operations data for 1996 give effect to 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 give effect to the Incorporation Transactions and the
Offering as if they occurred on December 31, 1996. 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
1992 1993 1994 1995 1996 as Adjusted
------------ ---------- -------- ---------- ---------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Total revenue............................. $103,334 $104,049 $126,918 $151,827 $175,967
Total operating expenses.................. 84,722 87,036 108,903 131,711 149,066
-------- -------- ------- ------- -------
Operating income.......................... 18,612 17,013 18,015 20,116 26,901
Interest expense.......................... 5,590 5,257 5,159 3,806 5,730
Earnings before provision for income...... 13,022 11,756 12,856 16,310 21,171
taxes..................................... 355 300 554 505 1,207
--------- --------- --------- -------- --------
Net provision for income taxes............ $ 12,667 $ 11,456 $ 12,302 $ 15,805 $ 19,964
======== ======== ======== ======= ========
Net earnings..............................
Pro forma:
Net earnings per share....................
Shares used in computation of pro forma
net earnings per share (1).............
OTHER DATA:
EBITDA(2)................................. $ 21,034 $ 19,544 $ 20,866 $ 24,356 $ 32,317
Investments under management (3).......... $6,500,000 $7,000,000 $10,700,000 $11,500,000 $15,200,000
Total square feet-facility management (4). 2,400 50,600 50,600 67,600 68,600
Total square feet under management (5).... 47,000 98,300 102,400 125,700 131,600
DECEMBER 31,
1996 Pro Forma
1992 1993 1994 1995 1996 AS ADJUSTED
---------- ---------- ---------- ---------- -------- ---------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 9,784 $ 5,125 $ 12,840 $ 8,322 $ 7,207
Total assets.............................. 72,590 84,512 107,055 115,001 156,614
Long-term debt (6)........................ 51,319 56,619 41,028 40,805 55,551
Total liabilities......................... 87,277 99,801 93,898 100,004 132,367
Partners' capital (14,687) (15,289) 13,157 14,997 24,247
(deficit)/stockholders' equity............
</TABLE>
_________________________
(1) Includes the shares of Common Stock to be issued in
connection with the Incorporation Transactions, and
shares of Common Stock offered by the Company hereby.
(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.
EBITDA is widely used in the real estate industry as a
measure of operating performance and ability to service
debt. 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.
(3) Investments under management represents the aggregate fair
market value or cost basis of assets managed within the
Investment Management group as of the end of the periods
shown.
(4) Represents the total square footage of properties for which
the Company provided facility management services as of the
end of the periods shown.
(5) Represents the total square footage of properties for which
the Company provided property management, leasing or
facility management services as of the end of the periods
shown.
(6) See Note 7 to Notes to the Predecessor Partnerships'
Combined Financial Statements.
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 statement of earnings
gives effect to the Incorporation Transactions as if they occurred on
January 1, 1996. The unaudited pro forma consolidated statement of
earnings, as adjusted, gives further effect to the Offering. The
unaudited pro forma consolidated balance sheet gives effect to the
Incorporation Transactions as if they occurred on December 31, 1996.
The unaudited pro forma consolidated balance sheet, as adjusted, gives
further effect to the Offering. 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 and
for the year ended December 31, 1996 had the Company consummated the
Incorporation Transactions and the Offering as of the dates indicated
nor does it purport to represent the future financial position or
results of operations of the Company.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
HISTORICAL .INCORPORATION OFFERING PRO FORMA
COMBINED (1) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
--------------- ------------ ------------ ----------- -----------
(IN THOUSANDS)
Revenue:
<S> <C> <C> <C> <C> <C>
Fee based services........................... $170,709 $ $170,709 $ $
Equity in earnings from unconsolidated ventures 3,220 3,220
Construction operations, net................. 1,271 1,271
Other income................................. 767 767
---------- ----------- ----------
Total revenue.............................. 175,967 175,967
Operating expenses:
Compensation and benefits.................... 104,673 104,673
Other operating and administrative........... 38,977 38,977
Depreciation and amortization................ 5,416 5,416
---------- ----------- ---------- ----------- ----------
Total operating expenses................... 149,066 149,066
---------- ----------- ---------- ----------- ----------
Operating income........................... 26,901 26,901
Interest expense................................ 5,730 5,730
---------- ----------- ---------- ----------- ----------
Earnings before provision for income taxes. 21,171 21,171
Net provision for income taxes.................. 1,207 6,415(2) 7,622
---------- ----------- ---------- ----------- ----------
Net earnings............................... $ 19,964 $ (6,415) $ 13,549 $ $
========== =========== ========== =========== ==========
</TABLE>
__________
(1) The "Historical Combined" column reflects the historical combined
statement of earnings of the Predecessor Partnerships for the year
ended December 31, 1996.
(2) The pro forma adjustment reflects the net provision for income
taxes relating to: (i) the income tax benefits associated with the
Company becoming a taxable entity and establishing deferred tax
accounts as of January 1, 1996 ($846); and (ii) the provision for
income taxes related to 1996 pre-tax earnings as though the Company
were a taxable entity as of January 1, 1996 ($7,261).
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
HISTORICAL INCORPORATION OFFERING PRO FORMA
COMBINED(1) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- ------------- --------- ----------- -----------
(IN THOUSANDS)
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ 7,207 $ $ 7,207 $ $
Trade receivables........................... 87,283 87,283
Other receivables........................... 3,005 3,005
Prepaid expenses............................ 1,228 1,228
Deferred tax assets......................... -- 846(2) 846
--------- ------------ ---------
98,723 846 99,569
Total current assets...................
Property and equipment........................ 14,549 14,549
Intangibles resulting from business
acquisitions................................ 23,735 23,735
Investments in real estate ventures........... 13,687 13,687
Long-term receivables, net.................... 5,052 5,052
Other assets, net............................. 868 868
--------- --------- ------------ ----------
Total assets........................ $156,614 $ 846 $157,460 $ $
========= ============ ========= ============ ==========
LIABILITIES AND PARTNERS' CAPITAL/
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued $ 34,228 $ $ 34,228 $ $
liabilities..............................
Accrued compensation........................ 26,016 26,016
Borrowings under short-term credit facility. 6,500 6,500
Current maturities of long-term debt........ 9,064 9,064
--------- --------- ------------ ----------
Total current liabilities........... 75,808 75,808
Long-term debt:
Subordinated loans, less current 34,106 34,106
maturities.................................
Long-term credit facility, less
current maturities........................ 21,445 21,445 ------------ ----------
--------- ---------
Total long-term debt................ 55,551 55,551
Other long-term liabilities................... 1,008 1,008
--------- --------- ------------ ----------
Total liabilities................... 132,367 132,367
Partners' Capital/Stockholders' equity:
Common Stock................................
Additional paid-in-capital..................
Retained earnings/partners' capital......... 24,247 846 25,093
--------- ------------ ---------
Total partners' capital/stoc-
holders' equity.................. 24,247 846 25,093
--------- ------------ ---------
Total liabilities and
partners' capital/stockholders'
equity............................ $156,614 $ 846 $157,460 $ $
========= ============ ========= ============ ==========
</TABLE>
_________________________
(1) The "Historical Combined" column reflects the historical combined
balance sheet of the Predecessor Partnerships as of December 31,
1996.
(2) The pro forma adjustment reflects the deferred income taxes as of
December 31, 1996 associated with the Company becoming a taxable
entity concurrent with the Incorporation Transactions.
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.
Although a significant portion of the Company's revenue is
transactional in nature, 87% of the Company's 1996 revenue was derived
from clients for which the Company provided services in previous
years. The Company believes that its strong client-service
orientation, its focus on cross-selling its products and services, and
its development of strategic alliances with major users and owners of
real estate strengthen its client relationships and create recurring
revenue sources. The Company's revenue has increased at a compound
rate of 12.4% over the past 10 years and at a compound rate of 14.2%
for the five year period ended December 31, 1996. In addition, the
Company's wide range of product and service offerings enabled the
Company to maintain a stable level of revenue from 1990 to 1993, the
sharpest downturn in the real estate markets in recent decades.
The Company's operating expenses consist principally of
compensation and benefits, fixed overhead and depreciation and
amortization. Compensation and benefits, which represented 59.5% of
total revenue in 1996, tend to be relatively constant as a percentage
of revenue on an annual basis. Other operating and administrative
expenses consist principally of overhead costs and to a lesser extent
business development expenses, professional fees and employee training
and development. Overhead generally consists of occupancy costs and
other routine business expenses (i.e., office equipment, supplies and
telecommunications) necessary to conduct the Company's day-to-day
operations. Overhead costs, which represented 6.5% of total revenue
in 1996, tend to be relatively fixed, with increases occurring as the
Company expands into new geographic markets and as significant changes
occur in staffing levels. The remaining components of other operating
and administrative expenses are relatively variable. Depreciation and
amortization, which represented 3.1% of the Company's total revenue in
1996, consist of expenses related to depreciation of fixed assets and
amortization of intangible assets associated with corporate
acquisitions. These expenses have increased in recent years due to
the acquisitions of ABKB and CIN Property Management, increased
investment in technology and the Company's relocation of its Chicago
headquarters. The Company expects that depreciation and amortization
expenses will increase as a result of the merger of Galbreath with the
Company.
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."
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% and 20.1% in
1995 and 1994, respectively. 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.
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.
As of December 31, 1996, the Company had a total net investment
of $13.7 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. 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 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. Co-investment also creates opportunities for the Company
to provide services related to the acquisition, financing, property
management, leasing and disposition of such investments.
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 statement of earnings.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
------- ------ -----
Revenue:
<S> <C> <C> <C>
Management Services.................................... 41.3% 40.7% 40.7%
Corporate and Financial Services....................... 27.7 24.6 26.0
Investment Management.................................. 31.0 34.7 33.3
----- ----- -----
Total revenue....................................... 100.0% 100.0% 100.0%
Operating expenses:
Compensation and benefits.............................. 61.6% 60.1% 59.5%
Other operating and administrative..................... 22.0 23.9 22.2
Depreciation and amortization.......................... 2.2 2.8 3.0
----- ----- -----
Total operating expenses............................ 85.8% 86.8% 84.7%
Operating income....................................... 14.2% 13.2% 15.3%
Interest expense.......................................... 4.1 2.5 3.3
----- ----- -----
Earnings before provision for income taxes.......... 10.1% 10.7% 12.0%
Net provision for income taxes............................ 0.4 0.3 0.7
----- ----- ------
Net earnings.............................................. 9.7% 10.4% 11.3%
===== ===== =====
</TABLE>
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1994 1995 1996
---------------------- ---------------------- -----------------------
(DOLLARS IN THOUSANDS)
MANAGEMENT SERVICES:
Segment revenue:
<S> <C> <C> <C> <C> <C> <C>
Property management fees...... $ 32,465 61.7% $ 34,017 53.8% $ 37,465 52.1%
Leasing fees.................. 9,747 18.5 13,951 22.2 14,819 20.6
Facility management fees...... 6,222 11.8 10,477 16.6 13,639 19.0
Development management fees... 3,557 6.8 3,125 4.9 5,465 7.6
Intersegment sales............ 160 0.3 1,370 2.2 200 0.3
Other income.................. 466 0.9 212 0.3 281 0.4
-------- --------- --------- --------- --------- ---------
$ 52,617 100.0% $ 63,152 100.0% $ 71,869 100.0%
Operating Expenses:
Compensation, benefits, other
operating and administrative. 46,267 87.9 50,859 80.5 59,486 82.8
Depreciation and amortization. 1,076 2.0 1,202 1.9 1,651 2.3
-------- --------- --------- --------- --------- ------
Operating income............ $ 5,274 10.1% $ 11,091 17.6% $ 10,732 14.9%
======== ===== ========= ===== ========= =====
CORPORATE AND FINANCIAL SERVICES:
Segment revenue:
Tenant representation fees.... $ 19,359 55.2% $ 23,037 61.8% $ 31,200 66.8%
Investment banking fees....... 9,432 26.9 6,908 18.5 6,664 14.3
Land fees .................... 4,300 12.2 3,675 9.8 4,938 10.6
Construction operations, net.. 1,284 3.7 1,358 3.6 1,271 2.7
Equity in earnings from
unconsolidated ventures..... 476 1.4 2,171 5.9 1,380 3.0
Intersegment sales........... 1,000 2.1
Other income.................. 233 0.6 154 0.4 253 0.5
-------- --------- --------- ------- --------- ---------
$ 35,084 100.0% $ 37,303 100.0% $ 46,706 100.0%
Operating expenses:
Compensation, benefits, other
operating and administrative. 27,463 78.3 28,604 76.7 34,831 74.6
Depreciation and amortization. 845 2.4 890 2.4 1,055 2.3
-------- --------- --------- --------- --------- ---------
Operating income ............ $ 6,776 19.3% $ 7,809 20.9% $ 10,820 23.1%
======== ===== ========= ===== ========= =====
INVESTMENT MANAGEMENT:
Segment revenue:
Advisory fees................. $ 35,734 90.7% $ 45,117 85.5% $ 53,618 91.5%
Acquisition fees.............. 2,944 7.5 6,411 12.2 2,939 5.0
Equity in earnings from
unconsolidated ventures..... 548 1.4 959 1.8 1,840 3.2
Other income.................. 151 0.4 255 0.5 195 0.3
-------- --------- --------- --------- --------- ---------
$ 39,377 100.0% $ 52,742 100.0% $ 58,592 100.0%
Operating expenses:
Compensation, benefits, other
operating and administrative. 32,482 82.5 49,378 93.6 50,533 86.2
Depreciation and amortization. 930 2.4 2,148 4.1 2,710 4.6
-------- --------- --------- --------- --------- ---------
Operating income............ $ 5,965 15.1% $ 1,216 2.3% $ 5,349 9.2%
======== ===== ========= ==== ========= ====
Total segment revenue............ $127,078 $ 153,197 $ 177,167
Intersegment revenue eliminations. (160) (1,370) (1,200)
-------- ------- ---------
Total revenue................. $126,918 $ 151,827 $ 175,967
======== ========= =========
Total segment operating expenses. $109,063 $ 133,081 $ 150,266
Intersegment operating expenses.. (160) (1,370) (1,200)
-------- --------- ---------
Total operating expenses..... $108,903 $ 131,711 $ 149,066
======== ========= =========
Total operating income....... $ 18,015 $ 20,116 $ 26,901
======== ========= =========
</TABLE>
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.
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 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.
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 257 transactions totaling over 6.7
million square feet in 1996 compared to 132 transactions and 3.6
million square feet in 1995. 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.
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.
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 17.5 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.
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.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited combined
statements of operations data for each of the Company's last eight
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
----------------------------------------- ------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- ------- -------- -------
Revenue(1):
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Services............ $ 11,782 $ 13,777 $ 13,697 $ 22,526 $ 12,013 $ 14,832 $ 18,384 $ 26,440
Corporate and Financial
Services.................... 3,302 6,336 9,880 17,785 4,962 6,273 9,199 25,272
Investment Management.......... 11,336 12,693 13,105 15,608 11,360 12,466 11,979 22,787
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue.................. $ 26,420 $ 32,806 $ 36,682 $ 55,919 $ 28,335 $ 33,571 $ 39,562 $ 74,499
Operating expenses:
Compensation and benefits...... $ 21,489 $ 22,352 $ 22,145 $ 25,197 $ 23,327 $ 24,346 $ 24,995 $ 32,005
Other operating and
administrative (1).......... 7,083 8,702 8,467 12,036 7,052 9,831 10,088 12,006
Depreciation and
amortization................ 1,003 1,057 1,052 1,128 1,111 1,134 1,169 2,002
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)........ $ (3,155) $ 695 $ 5,018 $ 17,558 $ (3,155) $ (1,740) $ 3,310 $ 28,486
Interest expense............... 941 948 959 958 937 1,104 1,944 1,745
Income tax provision (benefit). (127) (8) 126 514 (233) (162) 78 1,524
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)............$ (3,969) $ (245) $ 3,933 $ 16,086 $ (3,859) $ (2,682) $ 1,288 $ 25,217
========== ========= ======== ======== ======== ======== ======== ========
EBITDA(2)...................... $ (2,152) $ 1,752 $ 6,070 $ 18,686 $ (2,044) $ (606) $ 4,479 $ 30,488
======== ======== ======== ======== ======== ========== ======== ========
</TABLE>
The following table sets forth the above quarterly financial
information as a percentage of total revenue:
<TABLE>
<CAPTION>
1995 1996
----------------------------------------- ------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- ------- -------- -------
Revenue (1):
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Services............ 44.6 % 42.0 % 37.3 % 40.3 % 42.4 % 44.2 % 46.5 % 35.5 %
Corporate and Financial
Services..................... 12.5 19.3 26.9 31.8 17.5 18.7 23.3 33.9
Investment Management.......... 42.9 38.7 35.7 27.9 40.1 37.1 30.3 30.6
------ ------ ------ ------ ------ ------ ------ ------
Total revenue.................. 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 % 82.3 % 72.5 % 63.2 % 43.0 %
Other operating and
administrative (1) ......... 26.8 26.5 23.1 21.5 24.9 29.3 25.5 16.1
Depreciation and
amortization................ 3.8 3.2 2.9 2.0 3.9 3.4 3.0 2.7
------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss)........ (11.9)% 2.1 % 13.7 % 31.4 % (11.1)% (5.2)% 8.4 % 38.2 %
Interest expense............... 3.6 2.9 2.6 1.7 3.3 3.3 4.9 2.3
Income tax provision
(benefit)................... (0.5) 0.0 0.3 0.9 (0.8) (0.5) 0.2 2.0
------ ------ ------ ------ ------- ------ ------ ------
Net earnings (loss)............ (15.0)% (0.7)% 10.7 % 28.8 % (13.6)% (8.0)% 3.3 % 33.8 %
====== ====== ====== ====== ====== ====== ====== ======
EBITDA (2)..................... (8.1)% 5.3 % 16.5 % 33.4 % (7.2)% (1.8)% 11.3 % 40.9 %
====== ====== ====== ====== ======= ====== ====== ======
</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. EBITDA is widely used in the real estate
industry as a measure of operating performance and
ability to service debt. 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.
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 made as revenue is
earned; 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 provided by operations totaled $14.0 million for
1996 compared to $13.6 million for 1995 and $24.6 million for 1994.
The primary element of change in these years is the increase in
receivables, which can be attributed to the significant increase in
leasing commissions being 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 (which has been reduced by approximately $16.3 million
through subsequent dispositions of a portion of these investments and
through sales of participations in these investments to employees and
others) in over 30 separate properties or funds. 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, this
impact will increase as such existing co-investments are sold over the
next several years, and as the Company's co-investment activity
accelerates following the Offering.
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 December 31, 1996, the Company had
unfunded commitments for existing co-investments of $2.3 million.
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
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 Company
must maintain a certain level of net worth and earnings before
interest, taxes, depreciation and amortization, and is 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 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 totaled
$6.5 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 December
31, 1996, totaled $27.4 million.
At December 31, 1996, 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 (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 an
aggregate of approximately $37.2 million of 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. 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 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.
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 a deferred tax asset and a
corresponding tax benefit in its statement of earnings in accordance
with the provisions of SFAS No. 109. Had such amount been recorded as
of December 31, 1996, the effect would have been approximately $.8
million inclusive of certain state and local deferred tax assets
recorded on a historical basis.
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. The Company 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 17 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 and earnings before
interest, taxes, depreciation and amortization of $32.3 million,
representing an increase of 15.9% and 32.7%, respectively, 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 merger expands the
Company's geographic presence, adds additional client relationships
and offers 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 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 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 17 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. The Company 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 %
of the outstanding Common Stock and total employee ownership
will be %.
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.
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 the 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 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, 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 December 31, 1996, the Company
had a total net investment of $13.7 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 December 31, 1996, the Management Services group
had responsibility for approximately 132 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 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 group 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 country's largest
markets. During 1996, leasing professionals completed over 1,200
lease transactions totaling approximately 10 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 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.
The Company intends to expand its Property Management and Leasing
Services unit through a combination of targeted marketing initiatives
and acquisitions. 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 December 31, 1996, approximately
59% of the Company s 63 million square foot Property Management and
Leasing Services portfolio was composed of assets owned by unrelated
third party clients and approximately 41% was composed of assets
managed for clients for which LaSalle Partners also provides
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 December 31, 1996, the Company managed
approximately 5,500 facilities, totaling more than 68 million square
feet of space for seven 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 has 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 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 ("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.
[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. 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 32 of
the country's largest markets.
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 believes that the educational background and skills
of its Tenant Representation professionals and its employee
compensation structure are uncommon in the industry and are a
significant competitive strength. 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 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 CIGNA Corporation,
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.
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 several
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 Company has
developed a reputation as an industry leader and innovator in real
estate investment management. 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 December 31, 1996, the Company managed approximately $15.2
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 $2.3 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 December 31, 1996, 22% of the Company's assets
under management were invested outside of the United States.
Additionally, approximately 40% 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 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 monitors real estate and capital market conditions to
enhance investment decisions and identify future opportunities. The
Company believes that its commitment of 12 professionals is one of the
industry s most significant commitments to fundamental research for
real estate investors. 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 $3.3 billion at December 31, 1996.
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 December 31, 1996, the Company
had a net total investment of $13.7 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 the end of 1996, ABKB/LaSalle Securities served 33 securities
investment clients with $2.3 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 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.
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.
In connection with the Contribution and Exchange Agreement,
the Company granted the Employee Partnerships, Dai-ichi, and the
former Galbreath stockholders 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. 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 February 2006. The Company has 17 United States
corporate offices located in Atlanta, Chicago, Cincinnati, Cleveland,
Columbus, Dallas, Denver, Fort Lauderdale, Los Angeles, New York,
Orlando, Philadelphia, Pittsburgh, Portland, Sacramento, 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 December 31, 1996, the Company employed 1,055 people,
including 828 professional staff members and 227 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
over 900 janitorial, engineering and property maintenance workers for
certain properties managed by the Company. LaSalle Partners has an
option to purchase LPISC. Approximately 210 of the employees of LPISC
are members of labor unions.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as
follows:
Name Age Position
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 Investment Management,
Inc. and Director
Charles K. Esler, Jr. 50 President and Chief Executive Officer -
LaSalle Management Services, Inc.
and Director
Lizanne Galbreath 39 Chairman, LaSalle Management Services, Inc.
and Director
M.G. Rose 57 President, Tenant Representation Division -
LaSalle Corporate & Financial
Services, Inc. and Director
Lynn C. Thurber 50 Co-President - LaSalle Investment Management,
Inc. and Director
Earl E. Webb 40 Managing Director, Investment Banking Division,
LaSalle Corporate & Financial Services, Inc.
and Director
The Company expects to appoint at least three independent
directors prior to consummation of the Offering.
Stuart L. Scott. Mr. Scott has been Chief Executive Officer and
Chairman of the Board of Directors 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
Investment 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 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 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
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 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 Investment
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 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.
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.
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 AND COMPENSATION
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.
DIRECTOR COMPENSATION
The Company's directors are not currently compensated. Following
the Offering, the Company expects that each non-employee director will
receive a fee, to be determined by the Board of Directors, for
attendance at meetings as well as an annual retainer. The Company is
also considering the adoption of a stock option program for its non-
employee directors.
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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION (1)
-----------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (2)
- --------------------------- ------ ----- ------------
Stuart L. Scott
Chairman of the Board of Directors
<S> <C> <C> <C>
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 Investment
Management, Inc............................... 260,000 352,000 12,447
Charles K. Esler, Jr.
President and Chief Executive Officer -
LaSalle Management Services, Inc.............. 270,000 380,000 12,328
M. G. Rose......................................
President, Tenant Representation Division -
LaSalle Corporate & Financial Services, Inc... 270,000 541,500 12,328
Lynn C. Thurber
Co-President - LaSalle Investment
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 commence on the date of this Prospectus and
will end on December 31, 1997. 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 10% of an
employee's base compensation, including commissions, bonuses, and
overtime, at a price 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 INCENTIVE PLAN
General. The 1997 Stock Incentive Plan (the "Incentive Plan")
provides for the grant of various types of stock-based compensation to
eligible participants. The purpose of the 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.
The Incentive Plan is designed to comply with the requirements of
Regulation G (12 C.F.R. SECTION207), 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 subject to the actual terms of the Incentive
Plan.
The 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 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
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. The
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 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 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 Incentive Plan. The
shares reserved for issuance under the 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 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 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, , ,
, , , , and will be granted to Messrs.
Scott, Spoerri, Sullivan, Cummings, Esler, Rose and Webb,
respectively, and will be granted to Ms. Thurber.
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.
CASH/STOCK BONUS PLAN
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 new bonus plan designed
to continue the equity participation emphasis of the earlier plan and
to facilitate compliance with the Company's equity ownership
guidelines. Under the new bonus plan, employees of the Company whose
targeted annual compensation exceeds $100,000 (the "New Bonus Plan
Employees") will have the ability to take a specified percentage of
their annual compensation over $100,000 in cash or in Common Stock.
If the New Bonus Plan Employee elects to receive Common Stock, the
total amount of bonus received in Common Stock (the "Bonus
Allocation") will be increased by 20% (the "Equity Enhancement"). The
number of shares issued in respect of the Bonus Allocation and the
Equity Enhancement will be based on the fair market value of Common
Stock on the date of payment. Shares issued to the New Bonus Plan
Employees attributable to the Bonus Allocation will vest one year
after the date of grant and shares attributable to the Equity
Enhancement will vest in 20% increments on each anniversary of the
date of payment. The shares of Common Stock used for the New Bonus
Plan will be shares which have or may be acquired by the Company in
the open market, in private transactions or otherwise.
PRINCIPAL 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 of the Named Executive Officers; (iii) the
directors and executive officers of the Company as a group; and (iv)
each person who at such time will beneficially own more than 5% of the
outstanding shares of Common Stock. DEL/LaSalle has granted the
Underwriters a 30-day option to purchase up to an aggregate of
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."
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
PERCENT PERCENT
NUMBER BEFORE OFFERING AFTER OFFERING (1)
------ --------------- ------------------
Directors, Executive Officers
and Certain Stockholders
DEL-LPL Limited Partnership
DEL-LPAML Limited
Partnership
DSA-LPL, Inc. .
c/o Dai-ichi Life (U.S.A.), Inc.
399 Park Avenue, 24th Floor
New York, New York 10022
DSA-LSAM, Inc.
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. (2)
Galbreath Holdings, L.L.C. (3)
Stuart L. Scott (4) (5)
Robert C. Spoerri (4) (6)
William E. Sullivan (7)
Daniel W. Cummings (4) (8)
Charles K. Esler (9)
Lizanne Galbreath (10)
M.G. Rose (4) (11)
Lynn C. Thurber (4) (12)
Earl E. Webb (4) (13)
All directors and executive officers
as a group (9 persons)
_______________
(1) Beneficial ownership prior to the Offering has not
been included prior to the consummation of the
Incorporation Transactions, 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. Assumes
no exercise of the Underwriters' over-allotment
option. Unless otherwise indicated, the address
of each person or entity is c/o LaSalle Partners
Incorporated, 200 East Randolph Street, Chicago,
IL 60601.
(2) DEL/LaSalle has granted the Underwriters a 30-day
option to purchase 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."
(3) Does not include the shares of Common Stock
owned by Galbreath-LPL L.L.C. ("Galbreath-LPL").
Galbreath Holdings L.L.C. ("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 13 d-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.
(4) Does not include the shares of Common Stock
owned by DEL-LPL Limited Partnership ("DEL-LPL")
of which the listed person, as the sole
stockholder of a general partner of DEL-LPL, might
be deemed to be the beneficial owner, as that term
is defined for purposes of Rule 13d-3. The listed
person disclaims such beneficial ownership.
(5) Mr. Scott, either directly or through an
affiliate, owns an 11.6% interest in the Employee
Partnerships. Mr. Scott owns all of the issued
and outstanding common stock of DEL-SLS, Inc., a
general partner of DEL-LPL.
(6) Mr. Spoerri, either directly or through an
affiliate, owns an 8.1% interest in the Employee
Partnerships. Mr. Spoerri owns all of the issued
and outstanding common stock of DEL-RCS, Inc., a
general partner of DEL-LPL.
(7) Mr. Sullivan owns a .8% limited partnership
interest in the Employee Partnerships.
(8) Mr. Cummings, either directly or through an
affiliate, owns a 2.3% interest in the Employee
Partnerships. Mr. Cummings owns all of the issued
and outstanding common stock of DEL-DWC, Inc., a
general partner of DEL-LPL.
(9) Mr. Esler, either directly or through an
affiliate, has a 2.1% interest in the Employee
Partnerships. Mr. Esler owns all of the issued
and outstsnding common stock of DEL-CKE, Inc., a
general partner of DEL-LPAML Limited Partnership
("DEL-LPAML"). Does not include the 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. Mr. Esler disclaims
such beneficial ownership.
(10) 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 managing member 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.
(11) Mr. Rose, either directly or through an affiliate,
owns a 7.3% interest in the Employee Partnerships.
Mr. Rose owns all of the issued and outstanding
common stock of DEL-MGR, Inc., a general partner
of DEL-LPL.
(12) Ms. Thurber, either directly or through an
affiliate, owns a 1.4% interest in the Employee
Partnerships. Ms. Thurber owns all of the issued
and outstanding common stock of DEL-LCT, Inc., a
general partner of DEL-LPL.
(13) Mr. Webb, either directly or through an affiliate,
owns a 1.0% 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.
CERTAIN 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. In addition, the Company also 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 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 amount will be substantially lower.
Through an affiliated entity, Mr. Scott 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 LaSalle Florida Business Environment Company, L.P., a
fund being organized by the Company to invest in real estate in
Florida (the "Florida Fund"). Mr. Scott is also a director and the
president 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. 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 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 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 the
former stockholders of Galbreath 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 authorized capital stock of the Company consists of (i)
100,000,000 shares of common stock, $.01 par value per share, of
which 50,000,000 shares are designated "Common Stock" and
50,000,000 shares are undesignated ("Undesignated Common Stock")
and (ii) 10,000,000 shares of Preferred Stock, $.01 par value per
share ("Preferred Stock"). Upon the closing of the Offering,
shares of Common Stock will be issued and outstanding, and no
shares of Undesignated 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 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 which
the Company may issue in the future.
UNDESIGNATED COMMON STOCK
Subject to the limitations prescribed by law, the Company is
authorized to issue 50,000,000 shares of Undesignated Common Stock.
The Undesignated Common Stock may be issued from time to time in
one or more series, and the Board of Directors is authorized to fix
the dividend rights, dividends rates, any conversion rights or
right of exchange, any voting rights, rights or terms of
redemption, the redemption price or prices and any other rights,
preferences, privileges and restrictions of any series or class of
Undesignated Common Stock and the number of shares constituting
such series or class and the designation thereof. The Company has
no present plans to issue any shares of Undesignated Common Stock.
Depending upon the rights of such Undesignated Common Stock,
the issuance of Undesignated Common Stock could have an adverse
effect on holders of Common Stock by delaying or preventing a
change in control of the Company, making removal of the present
management of the Company more difficult or resulting in
restrictions upon the payment of dividends and other distributions
to the holders of Common Stock.
PREFERRED STOCK
The Restated Articles of Incorporation will 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.
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
The Restated Articles of Incorporation will 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 will 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
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. 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 will provide 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 will 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 60 days nor more than 90 days prior to the anniversary
date of the immediately preceding annual meeting of stockholders.
Although the Bylaws will not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals
regarding other business to be 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 will 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 will 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 will 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 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
. Application will be made to
list the Common Stock on the New York Stock Exchange.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this Offering, the Company will have
approximately shares of Common Stock outstanding. The
shares of Common Stock sold in this Offering (
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 shares of Common Stock outstanding upon the
closing of the Offering will be owned by the Employee Partnerships
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
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 (which
will be required when any such person ceases to be an employee of
the Company for any reason), 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.
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. Each of the Company's current stockholders will
enter into or is bound by a similar agreement. 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 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 expected undistributed earnings for 1996. All
of the shares of Common Stock to be received by
DEL/LaSalle in connection with the Incorporation Transactions and
shares of Common Stock held by the Employee
Partnerships, representing % 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 Underwriters a 30-day option to purchase up to
shares of Common Stock to cover over-allotments in
connection with the Offering. In the event that the Underwriters'
over-allotment is exercised, the proceeds to DEL/LaSalle will be
used to repay a portion of the Dresdner Note. If DEL/LaSalle
defaults in the repayment of the Dresdner Note or interest thereon,
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, Dai-ichi, the former Galbreath stockholders
(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 generally will be
required to use its best efforts to effect any such registration
statement 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.
UNDERWRITERS
Under the terms and subject to conditions contained in an
Underwriting Agreement dated the date hereof, the Underwriters
named below, for whom Morgan Stanley & Co. Incorporated and William
Blair & Company, L.L.C. are serving as Representatives, have
severally agreed to purchase, and the Company has agreed to sell to
the Underwriters, the respective number of shares of Common Stock
set forth opposite their name below:
Name Number of Shares
Morgan Stanley & Co. Incorporated . . . . . . . .
William Blair & Company, L.L.C. . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . .
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 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 over-allotment option described below), if
any are taken.
The Underwriters propose to offer part of the shares of
Common Stock offered hereby directly to the public at the public
offering price set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in
excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may re-allow, a
concession not in excess of $ per share to other Underwriters
or to certain other 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.
Pursuant to the Underwriting Agreement, the Selling
Stockholder has granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to
purchase up to an additional shares of Common Stock at
the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Underwriters may
exercise such option to purchase solely for the purpose of
covering over-allotments, if any, incurred in the sale of the
shares of Common Stock offered hereby. To the extent such option
is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage
of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total
number of shares of Common Stock offered by the Underwriters
hereby.
The Representatives have informed the Company that they do
not intend sales to any accounts over which they have
discretionary authority to exceed five percent of the total
number of shares of Common Stock offered hereby.
The Company, on the one hand, and the Underwriters, on the
other hand, 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.
The Company and the Selling Stockholder will agree in the
Underwriting Agreement that they will not, without the prior
written consent of Morgan Stanley & Co. Incorporated, 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 enter into any swap or similar agreement
that transfers to another, in whole or in part, the economic risk
of ownership of the Common Stock, for a period of 180 days after
the date of this Prospectus, other than stock or stock option
issuances by the Company pursuant to existing employee benefit
plans. Each of the Company's other current stockholders will
enter a similar agreement.
At the request of the Company, the Underwriters have
reserved for sale at the initial offering price, up to
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.
Prior to the Offering, there has been no public market for
the Common Stock. The Company intends to have the shares of
Common Stock offered hereby approved for listing on The New York
Stock Exchange under the symbol " ." The initial public
offering price of the Common Stock will be determined by
negotiation between the Company and the Representatives. Among
the factors to be considered in determining the initial public
offering price will be the future prospects of the Company and
its industry in general; revenue, earnings and certain other
financial and operating information of the Company in recent
periods; the general condition of the securities market at the
time of the Offering; and the price-earnings ratios, price-sales
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.
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.
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.
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.
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 generally accepted
accounting principles.
INDEX TO FINANCIAL STATEMENTS
Page
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 . . F-3
Combined Statements of Earnings For the Years Ended
December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . F-4
Combined Statements of Partners' Capital (Deficit)
For the Years Ended December 31, 1994, 1995 and 1996 . . . F-5
Combined Statements of Cash Flows For the Years Ended
December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . F-6
Notes to Combined Financial Statements . . . . . . . . . . . F-7
LASALLE PARTNERS INCORPORATED
Report of KPMG Peat Marwick LLP, Independent Auditors . . . F-20
Balance Sheet as of April 22, 1997 . . . . . . . . . . . . . F-21
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . F-22
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
<TABLE>
<CAPTION>
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
Combined Balance Sheets
(in thousands)
December 31, 1995 and 1996
ASSETS 1995 1996
- ------ ---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 8,322 $ 7,207
Trade receivables 71,677 87,283
Other receivables 2,035 3,005
Prepaid expenses 1,016 1,228
--------- ---------
Total current assets 83,050 98,723
Property and equipment, at cost, less accumulated
depreciation of $22,900 and $23,310 in 1995 and
1996, respectively (note 2) 10,132 14,549
Intangibles resulting from business acquisitions (note 3) 8,351 23,735
Investments in real estate ventures (note 6) 7,386 13,687
Long-term receivables, net 5,296 5,052
Other assets, net 786 868
---------- ---------
$ 115,001 $ 156,614
========== =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 31,160 $ 34,228
Accrued compensation (note 9) 24,872 26,016
Borrowings under short-term credit facility (note 7) - 6,500
Current maturities of long-term debt (note 7) 1,308 9,064
--------- --------
Total current liabilities 57,340 75,808
Long-term debt (note 7):
Subordinated loans, less current maturities 37,213 34,106
Long-term credit facility, less current maturities 3,592 21,445
--------- --------
Total long-term debt 40,805 55,551
Other long-term liabilities 1,859 1,008
Commitments and contingencies (notes 4, 6, 8 and 11) --------- --------
Total liabilities 100,004 132,367
Partners' capital 14,997 24,247
-------- ---------
$ 115,001 $ 156,614
========= =========
</TABLE>
See accompanying notes to combined financial statements.
<TABLE>
<CAPTION>
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
Combined Statements of Earnings
(in thousands)
Years ended December 31, 1994, 1995 and 1996
1994 1995 1996
------- --------- -----
Revenue:
<S> <C> <C> <C>
Fee based services (note 5) $123,243 $146,282 $170,709
Equity in earnings from unconsolidated ventures (note 6) 1,024 3,130 3,220
Construction operations, net (note 4) 1,284 1,358 1,271
Other income 1,367 1,057 767
-------- -------- --------
Total revenue 126,918 151,827 175,967
Operating expenses:
Compensation and benefits (note 9) 78,108 91,183 104,673
Other operating and administrative 27,944 36,288 38,977
Depreciation and amortization (note 2) 2,851 4,240 5,416
-------- -------- --------
Total operating expenses 108,903 131,711 149,066
------- ------- -------
Operating income 18,015 20,116 26,901
Interest expense (note 7) 5,159 3,806 5,730
-------- -------- -------
Earnings before provision for income taxes 12,856 16,310 21,171
Net provision for income taxes (note 2) 554 505 1,207
-------- -------- -------
Net earnings $ 12,302 $ 15,805 $ 19,964
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
<TABLE>
<CAPTION>
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
Combined Statements of Partners' Capital (Deficit)
(in thousands)
Years Ended December 31, 1994, 1995 and 1996
GENERAL LIMITED
PARTNES 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 - 13,000 - 13,000
partners
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 adjustment - - 1,099 1,099
-------------- --------------- --------------- --------------
Partners' capital (deficit), December 31, 1996 $ (45,097) 68,245 1,099 $ 24,247
============= ========== =============== ==============
</TABLE>
See accompanying notes to combined financial statements.
<TABLE>
<CAPTION>
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
Combined Statements of Cash Flows
(in thousands)
Years ended December 31, 1994, 1995 and 1996
1994 1995 1996
------ ------ -----
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 12,302 $ 15,805 $ 19,964
Reconciliation of net earnings to net cash provided
by operating activities:
Depreciation and amortization 2,851 4,240 5,416
Equity in earnings and gain on sale from
unconsolidated ventures (note 6) (1,349) (3,130) (3,220)
Provision for loss on receivables and other assets 247 2,732 986
Operating distributions from unconsolidated
ventures 398 1,078 3,571
Changes in:
Receivables 2,634 (9,699) (17,234)
Prepaid expenses and other assets (312) 172 37
Accounts payable, accrued liabilities and accrued
compensation 7,857 2,355 4,444
------------------ ------------- ----------------
Net cash provided by operating activities 24,628 13,553 13,964
Cash flows provided by (used in) investing activities:
Net capital additions - property and equipment (2,218) (5,055) (10,790)
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)
Distributions, repayments of advances and
sale of investments 6,768 1,290 3,282
------------------ ------------------ -----------------
Net cash used in investing activities (4,885) (5,706) (32,478)
Cash flows provided by (used in) financing activities:
Net borrowings under credit facility (2,000) 1,600 29,002
Payment of subordinated notes payable (14,106) - -
Distributions to partners (10,962) (13,965) (11,813)
Contributions from partners 15,040 -
------------------ ------------------ ------------------
Net cash provided by (used in) financing
activities (12,028) (12,365) 17,189
Effects of foreign currency translation on
cash balances - - 210
------------------ ------------------ -----------------
Net increase (decrease) in cash and cash
equivalents 7,715 (4,518) (1,115)
Cash and cash equivalents, January 1 5,125 12,840 8,322
----------------- ----------------- ----------------
Cash and cash equivalents, December 31 $ 12,840 $ 8,322 $ 7,207
================= ================== ================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Combined interest paid was $5,217, $3,798 and $5,191 for
1994, 1995 and 1996, respectively.
See accompanying notes to combined financial statements.
LA SALLE PARTNERS LIMITED PARTNERSHIP
AND SUBSIDIARIES
LA SALLE PARTNERS MANAGEMENT LIMITED PARTNERSHIP
AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
December 31, 1994, 1995 and 1996
(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.
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.
(2) Summary of Significant Accounting Policies
Principles of Combination and Consolidation
The combined financial 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.
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 reviewing the current and planned results of
the acquired business. If such analysis indicates
impairment, the intangible asset would be adjusted in the
period such changes occurred based on its calculated fair
value.
Fair Value of Financial Instruments
The Partnerships financial instruments include cash and
cash equivalents, receivables, accounts payable and notes
payable. Excluding subordinated notes payable, the carrying
values of the financial instruments approximate their fair
values at December 31, 1995 and 1996. A reasonable estimate
of fair value is not practicable for the subordinated debt
due to the unique conversion features of the debt (note 1).
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.
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 Investment 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 which was
allocated to goodwill and other intangibles and is being
amortized on a straight-line basis over 5 to 20 years. 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 and goodwill. 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 proforma 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.
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. 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.
Summarized financial information by business segment for
1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- ------------------ -------------------
MANAGEMENT SERVICES:
<S> <C> <C> <C>
Revenue $ 52,457 $ 61,782 $ 71,669
Intersegment sales 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 sales - - 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 sales - - -
--------------------- ----------------- -------------------
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
--------------------- ----------------- -------------------
TOTAL SEGMENT OPERATING INCOME $ 18,015 $ 20,116 $ 26,901
===================== ================= ===================
</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 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
-------- ------ ----
Balance Sheet:
<S> <C> <C> <C>
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.
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:
Credit Facility Subordinated Total
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
====== ====== ======
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:
AMOUNT
------
1997 $3,940
1998 3,384
1999 3,308
2000 3,203
2001 2,964
Thereafter 11,866
------
$28,665
=======
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.
(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 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.
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
LASALLE PARTNERS INCORPORATED
Balance Sheet
APRIL 22, 1997
ASSETS
Cash $ 100
========
STOCKHOLDER'S EQUITY
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
========
See accompanying notes to Balance Sheet
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"). In connection with the Offering, the
Predecessor Partnerships, DEL-LPL Limited Partnership and
DEL-LPAML Limited Partnership (the "Employee Partnerships"),
DEL/LaSalle Finance Company, L.L.C. ("DEL/LaSalle") and DSA,
will contribute all of their respective general and limited
partnership interests in the Predecessor Partnerships to the
Company in exchange for shares of Common Stock. The
Predecessor Partnerships will then contribute, among other
things, substantially all of their respective assets and
liabilities (the "Asset Contributions") relating to
Investment Management Services to LaSalle Investment
Management, Inc. ("LIM") in exchange for all of the
outstanding shares of common stock of LIM, Corporate and
Financial Services to LaSalle Corporate & Financial
Services, Inc. ("LCFS") in exchange for all of the
outstanding shares of LCFS, and Management Services to
LaSalle Management Services, Inc. ("LMS") in exchange for
all of the outstanding shares of LMS. Following the Asset
Contributions, the Predecessor Partnerships will distribute
the common stock of LIM, LCFS and LMS to the Company and
dissolve.
The Company expects to establish an Option and Stock
Incentive Plan as described under the caption "Management."
LA SALLE PARTNERS
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:
Expenses Amount
SEC Registration Fee . . . . . . . . . . . . . . $27,879
NASD Fee . . . . . . . . . . . . . . . . . . . . 9,700
New York Stock Exchange Fee . . . . . . . . . . .
Printing Expenses . . . . . . . . . . . . . . . .
Legal Fees and Expenses . . . . . . . . . . . . .
Transfer Agent and Registrar Fees . . . . . . . .
Accounting Fees and Expenses . . . . . . . . . .
Miscellaneous Expenses . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . _______
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 director's 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 8 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 maintain insurance for the benefit of
its directors and officers insuring such persons against certain
liabilities, including liabilities under the securities laws.
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 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.
ITEM 16. EXHIBITS.
(a) Exhibits.
Exhibit
Number Description
1.01* Form of Underwriting Agreement
2.01* Subscription and Contribution 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)
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* Security Agreement, dated as of August 27,
1996, by and between LPL and DSA-LSPL, Inc.
("DSA-LSPL")
10.09* Security Agreement, dated as of August 27,
1996, by and between LPML and DSA-LSAM,
Inc. ("DSA-LSAM")
10.10* Security Agreement, dated as of August 27,
1996, by and between LaSalle Construction
Limited Partnership, DSA-LSPL and DSA-LSAM
10.11* Subsidiary Security Agreement, dated as of
August 27, 1996, by and among certain
subsidiaries which are signatories thereto,
DSA-LSPL and DSA-LSAM
10.12* Amended and Restated Class A Subordinate
Promissory Note, dated as of August 27,
1996, from LPL to DSA-LSPL
10.13* Second Amended and Restated Class A
Subordinate Promissory Note, dated as of
August 27, 1996, from LPML to DSA-LSAM
10.14* Amended and Restated Class B Subordinate
Promissory Note, dated as of August 27,
1996, from LPL to DSA-LSPL
10.15* Second Amended and Restated Class B
Subordinate Promissory Note, dated as of
August 27, 1996, from LPML to DSA-LSAM
10.16* Contribution and Exchange Agreement, dated
as of April 21, 1997, by and among DEL-LPL
Limited Partnership, DEL-LPAML Limited
Partnership, LPL, LPML, The Galbreath
Company, Galbreath Company of California,
Inc., Galbreath Holdings LLC and the
stockholders of Galbreath
10.17* 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
10.18* Asset Purchase Agreement, dated as of
December 31, 1996, by and between LaSalle
Construction Limited Partnership, LPL,
Clune Construction Company, L.P. and
Michael T. Clune
10.19* 1997 Stock Incentive Plan
10.20* Registration Rights Agreement
11.01* Computation of Pro Forma Net Income Per
Share
21.01* List of Subsidiaries
23.01 Consent of KPMG Peat Marwick LLP,
independent auditors
23.02* Consent of Skadden, Arps, Slate, Meagher &
Flom (Illinois) (included in Exhibit 5.01)
23.03* Consent of Piper & Marbury L.L.P.
24.01 Power of Attorney (set forth on the
signature page hereto)
27.01* Financial Data Schedule
_____________________
* To be filed by Amendment
(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.
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on April
24, 1997.
LASALLE PARTNERS INCORPORATED
By:/s/ Stuart L. Scott
Stuart L. Scott
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints William E.
Sullivan his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite or necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities indicated on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Stuart L. Scott Chairman of the Board April 24, 1997
Stuart L. Scott of Directors and Chief
Executive Officer
(Principal Executive
Officer)
/s/ Robert C. Spoerri President, Chief April 24, 1997
Robert C. Spoerri Operating Officer
and Director
/s/ William E. Sullivan Executive Vice April 24, 1997
William E. Sullivan President, Chief
Financial Officer and
Director (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Daniel W. Cummings Co-President - LaSalle April 24, 1997
Daniel W. Cummings Investment Management,
Inc. and Director
/s/ Charles K. Esler President and Chief April 24, 1997
Charles K. Esler Executive Officer -
LaSalle Management
Services, Inc. and
Director
/s/ M. G. Rose President, Tenant April 24, 1997
M. G. Rose Representation
Division-LaSalle
Management Services,
Inc. and Director
/s/ Lynn C. Thurber Co-President - LaSalle April 24, 1997
Lynn C. Thurber Investment Management,
Inc. and Dirrector
/s/ Earl E. Webb Managing Director, April 24, 1997
Earl E. Webb Investment Banking
Division, LaSalle
Corporate & Financial
Services, Inc. and Director
/s/ Lizanne Galbreath Chairman, LaSalle April 24, 1997
Lizanne Galbreath Management Services,
Inc. and Director
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
------ ----------- -----------
1.01* Form of Underwriting Agreement
2.01* Subscription and Contribution 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)
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* Security Agreement, dated as of
August 27, 1996, by and between
LPL and DSA-LSPL, Inc. ("DSA-
LSPL")
10.09* Security Agreement, dated as of
August 27, 1996, by and between
LPML and DSA-LSAM, Inc. ("DSA-
LSAM")
10.10* Security Agreement, dated as of
August 27, 1996, by and between
LaSalle Construction Limited
Partnership, DSA-LSPL and DSA-
LSAM
10.11* Subsidiary Security Agreement,
dated as of August 27, 1996, by
and among certain subsidiaries
which are signatories thereto,
DSA-LSPL and DSA-LSAM
10.12* Amended and Restated Class A
Subordinate Promissory Note,
dated as of August 27, 1996,
from LPL to DSA-LSPL
10.13* Second Amended and Restated
Class A Subordinate Promissory
Note, dated as of August 27,
1996, from LPML to DSA-LSAM
10.14* Amended and Restated Class B
Subordinate Promissory Note,
dated as of August 27, 1996,
from LPL to DSA-LSPL
10.15* Second Amended and Restated
Class B Subordinate Promissory
Note, dated as of August 27,
1996, from LPML to DSA-LSAM
10.16* Contribution and Exchange
Agreement, dated as of April 21,
1997, by and among DEL-LPL
Limited Partnership, DEL-LPAML
Limited Partnership, LPL, LPML,
The Galbreath Company, Galbreath
Company of California, Inc.,
Galbreath Holdings LLC and the
stockholders of Galbreath
10.17* 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
10.18* Asset Purchase Agreement, dated
as of December 31, 1996, by and
between LaSalle Construction
Limited Partnership, LPL, Clune
Construction Company, L.P. and
Michael T. Clune
10.19* 1997 Stock Incentive Plan
10.20* Registration Rights Agreement
11.01* Computation of Pro Forma Net
Income Per Share
21.01* List of Subsidiaries
23.01 Consent of KPMG Peat Marwick
LLP, independent auditors
23.02* Consent of Skadden, Arps, Slate,
Meagher & Flom (Illinois)
(included in Exhibit 5.01)
23.03* Consent of Piper & Marbury
L.L.P.
24.01 Power of Attorney (set forth on
the signature page hereto)
27.01* Financial Data Schedule
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.
Chicago, Illinois KPMG Peat Marwick LLP
April 23, 1997
