<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File number 1-11278
THE DEWOLFE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2895334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 Hayden Avenue
Lexington, MA 02173
(Address of principal executive offices) (Zip Code)
(617) 863-5858
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of latest practicable date (October 31, 1996)
Common Stock, par value $.01 per share 3,331,951 shares
Page 1 of 24 pages, Exhibit Index appears on Page 11.
<PAGE> 2
-2-
THE DEWOLFE COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Income for the
Three Months and Nine Months ended September 30, 1996
and September 30, 1995 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months ended September 30, 1996 and September 30, 1995 5
Notes to Condensed Consolidated Financial Statements
September 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION 9
</TABLE>
<PAGE> 3
-3-
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,480,000 $ 1,865,000
Commissions receivable, net of allowance of $ 943,000 at
September 30, 1996 and $ 593,000 at December 31, 1995 16,203,000 11,416,000
Mortgage loans held for resale 7,940,000 11,046,000
Note and advance receivable from stockholder 66,000 66,000
Prepaid expenses and other current assets 467,000 445,000
------------ ------------
TOTAL CURRENT ASSETS 27,156,000 24,838,000
PROPERTY AND EQUIPMENT
Furniture and equipment 6,497,000 5,480,000
Land, building and improvements 4,252,000 3,767,000
------------ ------------
10,749,000 9,247,000
Accumulated depreciation (4,377,000) (3,007,000)
------------ ------------
NET PROPERTY AND EQUIPMENT 6,372,000 6,240,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of accumulated
amortization of $ 650,000 and $ 557,000 1,866,000 1,959,000
Other Assets 1,756,000 2,169,000
------------ ------------
$ 37,150,000 $ 35,206,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ 7,742,000 $ 10,724,000
Current portion of long term debt 1,214,000 1,315,000
Commissions payable 10,697,000 7,506,000
Accounts payable and accrued expenses 2,581,000 2,041,000
Deferred mortgage fee income 154,000 143,000
------------ ------------
TOTAL CURRENT LIABILITIES 22,388,000 21,729,000
LONG TERM DEBT, net of current portion 3,474,000 4,112,000
NON COMPETE AGREEMENTS AND CONSULTING
AGREEMENTS PAYABLE 898,000 1,172,000
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 3,000,000 shares authorized;
none outstanding
Common stock, $.01 par value; 10,000,000 shares authorized;
3,351,991 shares issued at September 30, 1996 and
3,295,014 shares issued at December 31, 1995 34,000 33,000
Additional paid-in capital 6,324,000 6,116,000
Retained earnings 4,152,000 2,059,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK 10,510,000 8,208,000
Less Treasury Stock (20,063 shares at September 30, 1996
and 2,857 shares at December 31, 1995) at cost (120,000) (15,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,390,000 8,193,000
------------ ------------
$ 37,150,000 $ 35,206,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 4
-4-
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Real estate brokerage $ 22,225,000 $ 21,465,000 $ 71,193,000 $ 61,848,000
Mortgage origination 1,249,000 1,405,000 3,560,000 3,200,000
Other 37,000 80,000 423,000 468,000
------------ ------------ ------------ ------------
TOTAL REVENUES 23,511,000 22,950,000 75,176,000 65,516,000
Commission expense:
Real estate brokerage 13,879,000 13,622,000 45,076,000 39,068,000
Mortgage origination 363,000 388,000 1,020,000 896,000
------------ ------------ ------------ ------------
TOTAL COMMISSSION EXPENSE 14,242,000 14,010,000 46,096,000 39,964,000
------------ ------------ ------------ ------------
NET REVENUES 9,269,000 8,940,000 29,080,000 25,552,000
Operating expenses:
Compensation and benefits 3,630,000 3,354,000 10,026,000 9,315,000
Facilities 1,253,000 1,233,000 3,575,000 3,334,000
General and administrative 1,806,000 1,762,000 5,430,000 4,939,000
Marketing and promotion 1,461,000 1,524,000 4,354,000 4,770,000
Communications 367,000 461,000 1,019,000 1,051,000
Provision for doubtful accounts 28,000 78,000 400,000 308,000
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 8,545,000 8,412,000 24,804,000 23,717,000
------------ ------------ ------------ ------------
OPERATING INCOME 724,000 528,000 4,276,000 1,835,000
Other income (expenses):
Interest expense (300,000) (478,000) (839,000) (937,000)
Interest income 202,000 239,000 439,000 378,000
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 626,000 289,000 3,876,000 1,276,000
Income taxes 288,000 128,000 1,783,000 557,000
------------ ------------ ------------ ------------
NET INCOME $ 338,000 $ 161,000 $ 2,093,000 $ 719,000
============ ============ ============ ============
Earnings Per Common Share $ 0.10 $ 0.05 $ 0.61 $ 0.21
Weighted average common
shares outstanding 3,448,604 3,474,858 3,406,196 3,398,323
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 5
-5-
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Increase (Decrease) in Cash
OPERATING ACTIVITIES
Cash received from customers $ 70,400,000 $ 59,369,000
Commissions and compensation paid to co-brokers, sales
associates and mortgage consultants (42,910,000) (36,316,000)
Operating expenses paid (22,697,000) (21,705,000)
Provision for doubtful accounts (400,000) (308,000)
Mortgage loans originated for sale (131,619,000) (122,399,000)
Proceeds from mortgage loan sales 134,726,000 110,658,000
Net borrowings on note payable, bank (2,982,000) 11,472,000
Interest received 439,000 378,000
Interest paid (853,000) (851,000)
Income taxes paid (1,353,000) (452,000)
------------- -------------
Cash provided (used) by operating activities 2,751,000 (154,000)
INVESTING ACTIVITIES
Expenditures for business combinations -- (1,596,000)
Expenditures for property and equipment (797,000) (556,000)
------------- -------------
Cash used for investing activities (797,000) (2,152,000)
FINANCING ACTIVITIES
Net borrowings under line of credit (400,000) 100,000
Principal payments on long term debt (1,044,000) (561,000)
Purchase of treasury stock 210,000 (15,000)
Issuance of common stock (105,000) 1,641,000
------------- -------------
Cash provided by financing activities (1,339,000) 1,165,000
------------- -------------
NET INCREASE (DECREASE) IN CASH 615,000 (1,141,000)
Cash at beginning of period 1,865,000 1,919,000
------------- -------------
CASH AT END OF PERIOD $ 2,480,000 $ 778,000
============= =============
Supplemental Information:
Noncash investing and financing activities
Leases capitalized $ 705,000 $ 1,142,000
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 6
-6-
THE DEWOLFE COMPANIES, INC.
SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
NOTE B - ACCOUNTING FOR ADVERTISING
The Company expenses advertising costs as they are incurred. Advertising costs
for the third quarter of 1996 and 1995 were $1,139,000 and $1,133,000,
respectively, and for the first nine months of 1996 and 1995 these costs were
$3,283,000 and $3,452,000, respectively.
<PAGE> 7
-7-
THE DEWOLFE COMPANIES, INC.
SEPTEMBER 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Real Estate Brokerage Revenues:
Real estate brokerage revenues increased 4% in the third quarter of 1996 to
$22.2 million, an increase of $760 thousand over the third quarter of 1995. The
first nine months real estate brokerage revenues were $71.2 million, or 15%
higher than the same period in 1995. The increase in real estate brokerage
revenues is primarily attributed to an increase in business in the Company's
existing markets which the Company believes was caused by a decrease in interest
rates and a general improvement in consumer confidence that had a generally
positive effect on residential real estate brokerage.
Real estate brokerage revenues includes $1.3 million of revenues from relocation
services in the third quarter of 1996 as compared to $1.1 million in the third
quarter of 1995, an increase of 18%. For the first nine months of 1996 real
estate brokerage revenues from relocation services was $3.7 million as compared
to $2.9 million during the first nine months of 1995. The increase is primarily
due to an increase in the number of corporate accounts and affinity groups that
the Company services.
Net revenues from real estate brokerage increased 6% or $503 thousand in the
third quarter of 1996 to $8.3 million and net revenues from real estate
brokerage increased 15% or $3.3 million during the first nine months of 1996 to
$26.1 million. Net real estate brokerage revenues as a percentage of real estate
brokerage revenues increased to 37.5% for the third quarter of 1996 as compared
to 36.5% for the same period in 1995.
Mortgage Origination Revenues:
Mortgage origination revenues decreased 11% in the third quarter of 1996 to $1.2
million, a decrease of $156 thousand compared to the third quarter of 1995. The
decrease in mortgage origination revenue in the third quarter of 1996 as
compared to 1995 is primarily due to a decrease in mortgage loans closed from
$83.3 million in the third quarter of 1995 as compared to $79.2 million in the
third quarter of 1996.
For the first nine months of 1996 mortgage origination revenues were $3.6
million or 11% more than the same period in 1995. The increase in mortgage
origination revenues for the nine month period of 1996 as compared to 1995 was
due to an increase in mortgage loans closed from $187.6 million in the nine
month period of 1995 as compared to $217.4 million in 1996. The increase for the
nine month period is primarily due to an increase in mortgage banking business
generally, which the Company believes was caused by the decrease in interest
rates and a general improvement in consumer confidence
Net revenues from mortgage origination as a percentage of total mortgage
origination revenues for the first nine months of 1996 was 71%, compared to 72%
for the same period in 1995.
Operating Expenses:
Operating expenses for the third quarter of 1996 increased $133 thousand or 2%
from third quarter of 1995, and as a percentage net revenues, operating expenses
decreased from 94% to 92%.
Operating expenses increased 5% or $1.1 million for the nine months of 1996 to
$24.8 million compared to $23.7 million in the nine months of 1995. Operating
expenses as a percentage of net revenues decreased from 92% to 85% for the nine
months of 1995 and 1996, respectively. The increase of $1.1 million is primarily
due to variable cost increases caused by the increase in the Company's overall
business.
The decrease in operating expenses as a percentage of net revenue in 1996 is due
to the effects of the Company's cost cutting and restructuring plan, and to the
improvement in the residential real estate brokerage and mortgage businesses
generally.
<PAGE> 8
-8-
Interest Expense and Interest Income:
Interest expense decreased by $178 thousand in the third quarter of 1996 as
compared to 1995. The decrease for the third quarter of 1996 is primarily due to
interest expense from borrowings under the mortgage banking credit line that
provides financing for mortgage loans originated by the Company. Interest
expense from these borrowings was $142 thousand in the third quarter of 1996 and
$311 thousand for the third quarter of 1995. The remaining interest expense
decrease is primarily due to the financing of capital lease obligations,
acquisition interest and the borrowings under the revolving line of credit.
Interest expense decreased by $98 thousand for the first nine months of 1996
compared to 1995 primarily due to interest expense from borrowings under the
mortgage banking credit line. Interest expense from these borrowings for the
first nine months of 1996 and 1995 were $365 thousand $479 thousand,
respectively. The decrease was offset in part by an increase in the financing of
capital lease obligations, acquisition interest and the borrowings under the
revolving line of credit.
The decrease of $77 thousand in interest income in the third quarter of 1996 as
compared to 1995, as well as the increase of $61 thousand for the first nine
months of 1996 compared to 1995, is primarily due to interest earned from
mortgage loans made to mortgage customers in 1996 as compared to 1995.
Net Income:
Net income increased 110% in the third quarter of 1996 to $338 thousand as
compared to $161 thousand in the third quarter of 1995. Net income for the first
nine months of 1996 was $2.093 million compared to $719 thousand in 1995. The
increase in net income for the third quarter and for the first nine months of
1996 was primarily attributed to an increase in business in the Company's
existing markets, which the Company believes was caused by a decrease in
interest rates and a general improvement in consumer confidence that had a
generally positive effect on residential real estate brokerage, as well as the
Company's cost cutting and restructuring plan.
Liquidity and Sources of Capital
Cash balances at September 30, 1996 and September 30, 1995 were $2.5 million and
$1.9 million, respectively. Cash provided by operations for the first nine
months of 1996 was $2.8 million as compared to cash used by operations for the
first nine months of 1995 of $154 thousand.
In connection with the mortgage loan activity the Company maintains a credit
line that is used to finance mortgage loans that it originates. The credit line
was increased from $18 million to $25 million in the second quarter of 1996. The
Company's borrowings under its $3 million line of credit with the First National
Bank of Boston had no outstanding balance at September 30, 1996 compared to $400
thousand outstanding at September 30, 1995.
The Company has approved a stock repurchase plan authorizing the Company to
acquire up to $1 million of the Company's outstanding common stock.
The Company considers it future cash flow from operations combined with its
credit arrangement with the First National Bank of Boston to be adequate to fund
continuing operations, however, the Company expects to continue to expand its
existing businesses which may include opening new real estate sales offices as
well as making investments in or acquiring other real estate business. As a
result, the Company from time-to-time may seek additional or alternate sources
of debt or equity financing which may include the issuance of shares of the
Company's capital stock.
<PAGE> 9
-9-
THE DEWOLFE COMPANIES, INC.
September 30, 1996
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) The following Exhibits are included herein:
See Exhibit Index on page 11 of this report
(b) Reports on Form 8-K
None
<PAGE> 10
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 8, 1996 THE DEWOLFE COMPANIES, INC.
By: /s/James A. Marcotte
-------------------------------------
James A. Marcotte
Senior Vice President
and Chief Financial Officer
<PAGE> 11
-11-
THE DEWOLFE COMPANIES, INC.
September 30, 1996
EXHIBIT INDEX
10-Q
<TABLE>
<CAPTION>
ITEM DESCRIPTION LOCATION
- ---- ----------- --------
<S> <C> <C>
(10)(i) Letter Agreement dated July 13, 1996 with George W. Page 12 to 22 of this report
Lepke
(11) Statement re: Computation of Per Share Earnings Page 23 of this report
(27) Financial Data Schedule Page 24 of this report
</TABLE>
<PAGE> 1
July 13, 1996
Mr. George W. Lepke
42 Old Cart Way
North Andover, MA 01845
Dear George:
Please refer to the Letter Agreement dated June 20, 1996 regarding your
resignation from the DeWolfe Companies, Inc. effective July 17, 1996. In
addition to the agreements set forth in such letter, this will confirm our
further agreements as follows:
1. The Company will lend you the aggregate exercise price of $99,165.00
under your Non- qualified Stock Option dated August 1, 1991 (the
"NQSO"). Such loan shall be repayable in accordance with the terms of
the Promissory Note attached hereto as Exhibit A and made a part hereof
(the Promissory Note"), and secured by a pledge of the shares of common
stock issuable upon exercise of the NQSO and the shares issuable upon
exercise of your incentive stock options referred to in Section 4
below, in the form of the Pledge Agreement attached hereto as Exhibit B
and made a part hereof.
2. The Company shall remit to the Internal Revenue Service and the
Massachusetts Department of Revenue withholding taxes in the aggregate
amount of $44,531 (assuming a fair market value of $6.125 on the date
of exercise) and in connection therewith the Company shall withhold
7,270 shares (also assuming a fair market value of $6.125 per share)
from the shares issuable to you upon the exercise of the NQSO in
satisfaction of your tax withholding obligations.
The withholding tax amount is calculated as follows:
$6.125 - $2.70 = $3.425 x 36,728 shares = $125,793
x tax rate .28 federal + .0595 state
+ .0145 FICA (Medicare) = .354
--------
$44,531
+ 6.125
--------
7,270
3. In consideration of the foregoing, you agree that you shall not sell in
open market transactions in excess of $10,000 worth of stock of the
Company in any calendar month.
4. You intend to exercise your incentive stock options dated April 28,
1993 and February 11, 1994 by tendering to the Company 3,100 shares of
the Company's Common stock which you previously owned together with
6,836 shares issuable upon exercise of the NQSO (assuming a fair market
value of $6.125 per share).
<PAGE> 2
George W. Lepke
July 13, 1996
Page 2
Please confirm your understanding and agreement with the terms of this
letter by executing below where indicated.
Very truly yours,
THE DEWOLFE COMPANIES, INC.
By: /s/ Paul J. Harrington
-------------------------------------
Paul J. Harrington, Executive
Vice President
Understood and Agreed to
as of the date set forth above
/s/ George W. Lepke
- -----------------------------------
George W. Lepke
<PAGE> 3
EXHIBIT A
PROMISSORY NOTE
$99,165.00 Lexington, Massachusetts
July 13, 1996
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the order
of THE DEWOLFE COMPANIES, INC. (the "Company"), the principal sum of Ninety-nine
Thousand One Hundred Sixty-five Dollars ($99,165.00) in or within Eighteen (18)
months from the date hereof with interest at the rate of six percent (6%) per
annum on the unpaid balance of principal from time to time outstanding, payment
to be made in installments as follows:
Seventeen (17) equal monthly payments of principal and interest in the
amount of Six Thousand Dollars ($6,000.00) each on the 13th day of each
month commencing August 13, 1996 with a final payment on January 13,
1998 of the balance of principal and interest then remaining. Each such
payment shall be applied first to interest then due and then to
principal.
This Note is secured by a pledge of certain shares of Common Stock of
the Company owned by the undersigned more particularly described in the Pledge
Agreement dated as of the date hereof (the "Pledge Agreement") by and between
the undersigned and the Company. The Pledge Agreement is intended to provide
additional security to the Company for the obligations of the undersigned under
this Note and is not intended to limit in any way the obligations of the
undersigned under this Note which is a full recourse obligation of the
undersigned.
The undersigned, and each endorser and guarantor of this Note, hereby
waives demand, presentment for payment, notice of dishonor and protest, and all
other formalities provided by law. The undersigned hereby agrees that no delay
or
<PAGE> 4
omission on the part of the holder hereof in exercising any right or remedy
hereunder shall constitute a waiver of such right or remedy or of any other
right or remedy hereunder.
The occurrence of any of the following events shall constitute an Event
of Default under this Note:
1. Failure of the undersigned to pay when due any payment of
principal or interest herein required, which failure continues
unremedied for thirty (30) days;
2. An Event of Default under the Pledge Agreement;
3. the death, dissolution, liquidation, or termination of
existence of the undersigned or of any endorser or guarantor
hereof; or
4. the making of an assignment for the benefit of creditors by,
the insolvency of, the appointment of a receiver of any part
of the property of, or the filing of a petition in bankruptcy
or the commencement of any proceeding under any bankruptcy or
insolvency law or any law relating to the relief of debtors,
readjustment of indebtedness, reorganization, composition or
extension by or against, the undersigned or any endorser or
guarantor hereof.
Upon the occurrence of an Event of Default under this Note, the
outstanding principal balance hereof, together with any accrued unpaid interest
thereon, and together with all reasonable costs of collection, including
reasonable attorneys' fees, shall become immediately due and payable at the
option of the holder hereof. Failure on the part of the holder hereof to
exercise said option shall not constitute a waiver of the right of the holder
hereof to exercise said option in the event of any subsequent Event of Default.
Payments of principal and interest hereunder shall be made at 80 Hayden
-2-
<PAGE> 5
Avenue, Lexington, Massachusetts 02173, or such other address as the holder
hereof may designate from time to time. The undersigned shall have the right to
prepay all or any part of the principal sum secured hereby at any time or from
time to time without premium or penalty.
This Note shall take effect as an instrument under seal and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
EXECUTED as of the date set forth above.
/s/ George W. Lepke
----------------------------
George W. Lepke
Signed in the presence of:
/s/ Paul J. Harrington
- --------------------------------
-3-
<PAGE> 6
EXHIBIT B
PLEDGE AGREEMENT
PLEDGE AGREEMENT made as of this 13th day of July, 1996, by and between
GEORGE W. LEPKE, of North Andover, Massachusetts (hereinafter referred to as
"Pledgor"), and THE DEWOLFE COMPANIES, INC., a Massachusetts corporation
(hereinafter referred to as "Pledgee").
WHEREAS, in order to permit Pledgor to exercise on the date hereof
certain non-qualified stock options granted to the Pledgor by the Pledgee on
August 1, 1991, Pledgor executed and delivered to Pledgee a Promissory Note
dated the date hereof (the "Note") in the aggregate original principal amount of
Ninety-nine Thousand One Hundred Sixty-five Dollars ($99,165.00); and
WHEREAS, as security for his obligations under; (i) the Note; and (ii)
the letter agreement dated June 20, 1996 between Pledgor and Pledgee and the
letter agreement dated the date hereof between Pledgor and Pledgee (collectively
the "Agreements"), Pledgor has agreed to pledge to Pledgee certain shares of the
capital stock of The DeWolfe Companies, Inc. (the "Company");
NOW THEREFORE, Pledgor and Pledgee hereby agree as follows:
1. Pledgor hereby pledges to Pledgee, and grants to Pledgee a security
interest in, Thirty-eight Thousand Two Hundred Forty-seven (38,247) shares of
the Common Stock $.01 par value, of the Company specified in Exhibit A attached
hereto and made a part hereof (all of said Thirty-eight Thousand Two Hundred
Forty-seven (38,247) shares being hereinafter collectively referred to as the
<PAGE> 7
"Shares"). All of the certificates representing the Shares shall be delivered to
Pledgee with stock powers duly executed in blank by Pledgor attached thereto.
The Shares are security for all of the obligations of Pledgor under the Note and
the Agreements.
2. Pledgor hereby represents, warrants, and agrees as follows:
(a) Pledgor has good and valid title to all of the Shares,
free and clear of any other pledge, lien, conditional sale
agreement, security interest, encumbrance or other charge. The
Shares are free from any restrictions upon the transfer or
pledge thereof.
(b) Pledgor has full power and authority to pledge the Shares
as herein contemplated and this Agreement is the valid and
binding obligation of Pledgor in accordance with its terms.
The execution, delivery, and performance by Pledgor of this
Agreement will not violate the laws of any jurisdiction or any
provision of, or result in default under, any mortgage, lien,
lease, agreement, contract, instrument, order, arbitration
award, judgment or decision to which Pledgor is a party or by
which he is bound.
3. Until the occurrence of an Event of Default as defined herein,
Pledgor shall have the right, subject to the restrictions set forth in Section 2
hereof, to vote the Shares, to receive all dividends and distributions paid
thereon, and to sell such number of shares, subject to compliance with
applicable securities laws, as shall be permitted under the letter agreement
dated the date hereof between Pledgor and Pledgee.
4. Any shares of the capital stock of the Company of any class
hereafter issued to or received by Pledgor by reason of any stock dividend,
stock split, recapitalization or similar event affecting the capital stock of
the Company, shall, to the extent that such dividend, stock split,
recapitalization relates to the Shares, be
-2-
<PAGE> 8
added to the Shares and shall be subject to the terms and conditions of this
Agreement. Pledgor shall deliver to Pledgee the certificates representing any
such shares so issued to or received by Pledgor, with stock powers duly executed
in blank by Pledgor attached thereto, contemporaneously with the issuance or
receipt thereof.
5. Upon the occurrence of an Event of Default as defined herein,
Pledgee, at its option, and without further notice to Pledgor, shall have the
right to do one or more of the following:
(a) transfer the Shares immediately into the name of Pledgee
or its nominee;
(b) vote or direct the voting of the Shares and receive all
dividends and distributions declared thereon;
(c) (Upon giving not less than five (5) days notice) sell or
otherwise dispose of the Shares at private sale and apply
the proceeds thereof in accordance with applicable law;
or
(d) pursue any right or remedy of a secured party under the
Uniform Commercial Code.
Pledgor hereby irrevocably appoints Pledgee its attorney-in-fact for purposes of
executing and delivering any instrument or document necessary or desirable for
the exercise of any of the foregoing rights and remedies. Such rights and
remedies may be exercised with respect to all or any part of the Shares at one
or more times in addition to such other rights and remedies as Pledgee may have
either at law or in equity. No sale of the Shares shall be made in violation of
federal and state securities laws.
-3-
<PAGE> 9
6. The occurrence of any of the following events shall constitute an
Event of Default hereunder:
(a) a Default under the Note; or
(b) a breach by Pledgor of any agreement, covenants or
representations contained herein; or
(c) a breach by Pledgor of any obligation or agreement of
Pledgor under either of the Agreements.
7. Any notice or other communication hereunder to Pledgor or Pledgee
shall be given in writing by (a) personal delivery (confirmed by the courier
delivery service), (b) expedited delivery with proof of delivery, (c) telefax
and confirmed in writing by regular first class mail, or (d) first class
registered or certified mail, postage prepaid, return receipt requested, to the
addresses indicated below:
Pledgor: George W. Lepke
42 Old Cart Way
North Andover, Massachusetts 01845
Pledgee: The DeWolfe Companies, Inc.
80 Hayden Avenue
Lexington, Massachusetts 02173
Copy to: Patrick J. Kinney, Jr., Esquire
Lynch, Brewer, Hoffman & Sands, LLP
101 Federal Street, 22nd Floor
Boston, Massachusetts 02110-1800
Any notice provided for herein shall become effective only upon and at the time
of first receipt by the party to whom it is given, unless such notice is only
mailed by certified mail, return receipt requested, in which case it shall be
deemed to be received three (3) business days after the date that it is mailed.
Any party may, by
-4-
<PAGE> 10
proper written notice hereunder to the other party, change the individual
address to which such notice shall thereafter be sent.
8. Pledgor will pay all of the costs and expenses, including reasonable
attorney fees, of enforcing the pledge contained herein.
9. This Pledge Agreement shall be binding upon and inure to the benefit
of Pledgor, his heirs, successors and assigns and Pledgee, and its successors
and assigns and shall be governed by and in accordance with the laws of the
Commonwealth of Massachusetts. This Pledge Agreement is intended to provide
additional security to Pledgee for the obligations of the Pledgor secured hereby
and is not intended to limit such obligations in any way, such obligations being
full recourse obligations of Pledgor.
EXECUTED under seal as of the day and year first written above.
PLEDGOR: /s/ George W. Lepke
--------------------------------
George W. Lepke
PLEDGEE: THE DEWOLFE COMPANIES, INC.
By: /s/ Paul J. Harrington
-----------------------------
-5-
<PAGE> 11
SCHEDULE A
Certificate Number 2528 in the name of George W. Lepke representing 22,622
shares of the Common Stock, $.01 par value, of the Company.
Certificate Number 2529 in the name of George W. Lepke representing 10,000
shares of the Common Stock, $.01 par value, of the Company.
Certificate Number 2530 in the name of George W. Lepke representing 5,625
shares of the Common Stock, $.01 par value, of the Company.
-6-
<PAGE> 1
-23-
THE DEWOLFE COMPANIES, INC.
Exhibit (11) Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average
Shares Outstanding 3,326,565 3,292,801 3,305,031 3,216,266
Net effect of dilutive stock
options-based on the treasury
stock method using the
period end market price if
higher than average market price 122,039 182,057 101,165 182,057
---------- ---------- ---------- ----------
Total 3,448,604 3,474,858 3,406,196 3,398,323
========== ========== ========== ==========
Net Income $ 338,000 $ 161,000 $2,093,000 $ 719,000
========== ========== ========== ==========
Net Income Per Share $ 0.10 $ 0.05 $ 0.61 $ 0.21
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) AND CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,480
<SECURITIES> 0
<RECEIVABLES> 16,269
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,156
<PP&E> 10,749
<DEPRECIATION> 4,377
<TOTAL-ASSETS> 37,150
<CURRENT-LIABILITIES> 22,388
<BONDS> 5,586
<COMMON> 34
0
0
<OTHER-SE> 10,356
<TOTAL-LIABILITY-AND-EQUITY> 37,150
<SALES> 0
<TOTAL-REVENUES> 75,176
<CGS> 0
<TOTAL-COSTS> 46,096
<OTHER-EXPENSES> 24,804
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 839
<INCOME-PRETAX> 3,876
<INCOME-TAX> 1,783
<INCOME-CONTINUING> 2,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,093
<EPS-PRIMARY> .63
<EPS-DILUTED> .61
</TABLE>
